Unassociated Document


     

    
      Blue
Holdings/Headgear

      JV
Modifications Memo

      


      I have
tried to incorporate all the items required, and already agreed to in order to
have this move forward.  I have used the February 3, 2009 memo from
Stan as the base and where possible I have repeated his language.

      


      The major
difference between the new or amended agreement is that the Joint Venture (“JV”)
will now be the operating company.  Both parties to the JV will each
own a 50.0% interest.  At no time will the Blue Holdings (“BH”)
interest be diluted, unless agreed to by the Board of Directors of BH and Paul
Guez.

      


      
        	
                 
      

              	
                1.

              	
                To
      the extent that there is a savings in income taxes, to the JV, due to the
      use of Blue Holdings Net Operating Losses, the dollar amount of the tax
      benefit will be used to repay The Factor’s (“FTC”) then existing
      loans.  Such tax saving will not be considered to be a loan to
      BH.

              


      

      


      
        	
                 
      

              	
                2.

              	
                The
      international royalties that Caitec will pay to Yanuk, LLC or Paul Guez,
      personally, under the existing royalty agreement for Caitec-Japan will be
      paid into an escrow account.  Stanley Katz will open an escrow
      account for the benefit of Yanuk, LLC, Paul Guez and the
      JV.  The JV and or Headgear (HG) will receive an accounting of
      these royalties and recognize them as income.  These royalty
      payments shall immediately be disbursed to Yanuk, LLC or Paul Guez, at his
      option, as an expense of the JV.  Any new royalties payable for
      products, that are not denim jeans, that are developed by the JV shall
      belong to the JV.

              


      

      


      
        	
                 
      

              	
                3.

              	
                The
      JV may use the Marina Del Ray facility rent free for one year from the
      date of the signing of a new or amended Agreement(s).  If the JV
      will not be staying, they have to give Paul 90 days notice and if they
      elect to stay for an additional term, the rentals will be at the then
      prevailing markets.

              


      

      


      
        	
                 
      

              	
                4.

              	
                All
      new inventories will be sourced, acquired and financed exclusively by the
      JV.  Twenty percent of the cost of the newly purchased
      inventories will be loaned by the JV to Blue but paid directly to
      creditors of Blue as selected by the JV.  All loans will bear
      the same interest rate that the JV pays either to its factor, FTC, or its
      other lenders.  The loans will be principally used to reduce the
      loan at FTC.  (The trade creditors and Gemini will need to
      receive some payments).

              


      

      


      
        	
                 
      

              	
                5.

              	
                For
      available-to-sell BH inventories, in process or in the finished goods
      inventories, the JV will act as an agent for Blue.  The JV will
      sell such BH inventory and pay to creditors of Blue the proceeds of those
      sales of inventories, less a 5.0% handling fee and actual sales
      commissions paid.

              


      

      


      
        	
                 
      

              	
                6.

              	
                The
      JV will arrange for financing as soon as the legal documents for the
      modification are approved and signed by all parties including FTC and
      Gemini.

              


      

       

      
        	
                 
      

              	
                7.

              	
                The
      JV will hire any existing BH employees it deems necessary for the
      operations of the JV.

              


      

      


      
        	
                 
      

              	
                8.

              	
                The
      JV will begin when all legal documents are signed and approved as stated
      in (6) above.  The JV will be responsible for all operations
      necessary to design, source and deliver products to all existing credit
      worthy customers of BH, including international sales.  Except
      for item (2) above all royalties and license fees will belong to the JV
      and the JV will have unrestricted ability to license the products and
      brands.

              


      

      


      
        	
                 
      

              	
                9.

              	
                If
      not already done so, the brands including Taverniti, Tanuk and Antik will
      be placed in escrow.  If the “targets” are attained for sales
      and profitability by 12/31/10, the escrowed brands will be transferred to
      the JV for no additional consideration.  All other shares
      required to be placed in escrow under the terms of the original agreement
      shall remain unchanged.  Upon attainment of the “targets” for
      sales and profitability by 12/31/10, the escrowed shares will be
      transferred in accordance with the original agreement.  The
      Taverniti label is owned 60.0% by Paul Guez and 40.0% by Jimmy Taverniti;
      however, Jimmy Taverniti has a 50.0% interest in the income (royalties)
      earned.

              


      

      


      
        	
              	
                10.

              	
                The
      measurement period is amended to 1/1/10-12/31/10.  The JV
      “targets” for sales and profitability will remain the same as in the
      original agreement.  All language related to purchases by the JV
      from Blue are superseded by this
agreement.

              


      

      


      
        	
              	
                11.

              	
                When
      the escrow is dissolved and the “targets” have been met, HG will sign a
      guaranty, if necessary because Paul Guez’s guarantee has not been
      released, in favor of FTC for up to 50.0% of the then existing FTC BH
      loan, if any.

              


      

      


      
        	
              	
                12.

              	
                Regarding
      the two unfunded installments of $250,000 each due in February and March
      2009, those advances shall be deemed met by the initial advance of
      $500,000.  The total existing obligations of $1,250,000 shall
      only be payable out of future profits of the
JV.

              


      

      


      
        	
              	
                13.

              	
                Actual
      development costs will, to the extent actually paid and demonstrated to
      the satisfaction of the JV as being for products that the JV will sell,
      will be an obligation of the JV and remain an obligation of the JV and
      upon documentation of such payments be payable for BH, to creditors of BH,
      including past due payroll to BH staff hired by the
  JV.

              


      

      


      
        	
              	
                14.

              	
                All
      accounts sold by the JV are the JV
accounts.

              


      

      


      The
undersigned hereby execute this Memo to confirm their agreement to modify the
agreements to which they are currently party with respect to the Joint Venture
between them as set forth above.

       

       

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	BLUE
      HOLDINGS, INC.	 	 	HEADGEAR,
      INC.	 
	 	 	 	 	 	 	 
	      
                                        By:
      

                                      	
                                        /s/
      Paul Guez

                                      	 	 	      
                                        By:
      

                                      	
                                        /s/
      Jeff Watson

                                      	 
	 	
                                        Chairman

                                      	 	 	 	
                                        Chief
      Executive Officer

                                      	 


                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

       

       

      
        
          	 	 	 	 	 	 	 
	      
                   

                	
                  /s/
      Paul Guez

                	 	 	      
                   

                	
                  /s/
      Elizabeth Guez

                	 
	 	
                  Paul
      Guez

                	 	 	 	
                  Elizabeth
      Guez