Document:

Exhibit 10.2

 

TRANSMONTAIGNE
INC.

EQUITY
INCENTIVE PLAN

RESTRICTED
STOCK AGREEMENT

 

THIS RESTRICTED STOCK AGREEMENT (the “Agreement”)
is made and entered into dated as of March 31, 2006 (the “Effective Date”),
is between TRANSMONTAIGNE INC., a Delaware corporation (the “Company”), and «First_Name» «MI»«Last_Name» (the “Grantee”).

 

1.                                      Grant
of Restricted Stock.  Pursuant to the
TransMontaigne Inc. Equity Incentive Plan (the “Plan”), the Company hereby
grants to the Grantee «Restricted» shares
(the “Shares”) of the Company’s common stock (the “Restricted Stock”),
effective as of the Effective Date.

 

2.                                      Restrictions.
 The Grantee shall not sell, assign,
transfer by gift or otherwise, pledge, hypothecate, or otherwise dispose of, by
operation of law or otherwise, any of the Shares for the period commencing on
the Effective Date and ending on the Expiration Date, except as otherwise
provided in Section 3(c) or as otherwise permitted by this Agreement
or the terms of the Plan.

 

3.                                      Vesting;
Lapse of Restrictions.

 

(a)                                  General.
 Except as otherwise provided in this
Agreement, the Restricted Stock shall vest and the restrictions shall lapse
according to the following schedule:

 

	
  Number of Years of Continuous

  	
   

  	
  Vested

  	
   

  	
  Total Vested

  	
   

  
	
  Employment Since the Effective Date

  	
   

  	
  Increment

  	
   

  	
  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  One Year

  	
   

  	
  25

  	
  %

  	
  25

  	
  %

  
	
  Two Years

  	
   

  	
  25

  	
  %

  	
  50

  	
  %

  
	
  Three Years

  	
   

  	
  25

  	
  %

  	
  75

  	
  %

  
	
  Four Years

  	
   

  	
  25

  	
  %

  	
  100

  	
  %

  

 

The Restricted Stock shall be fully vested and this Agreement shall
terminate on March 31, 2010 (the “Expiration Date”). Shares that have
become vested and as to which the restrictions have lapsed shall be referred to
as Vested Shares; Shares that have not become vested and as to which the
restrictions have not lapsed shall be referred to as Unvested Shares.

 

(b)                                  Vesting
on Change in Control.  Prior to the
Expiration Date, the Restricted Stock shall vest, the restrictions contained in
Section 2 shall lapse and this Agreement shall terminate as to all of the
Shares that have not previously become Vested Shares upon a “change in control”
of the Company (as defined in the Plan).

 

 

(c)                                  Transfer
Upon Lapse of Restrictions.  After
the restrictions have lapsed, the Grantee may sell, assign, transfer by
gift or otherwise, hypothecate, or otherwise dispose of, by operation of law or
otherwise, any of the Vested Shares at the Grantee’s discretion, except that
the Grantee agrees that he shall not make any sale or transfer of the Vested
Shares that would conflict with or violate any of the provisions of the
Securities Act of 1933 or any applicable state securities laws.

 

4.                                      Termination
of Services.

 

(a)                                  Death,
Disability, Retirement.  If the
Grantee ceases performing services for the Company on account of death,
disability (determined under the Plan), or retirement according to the Company’s
established retirement policy, a pro rata portion of the Shares shall be Vested
Shares based on the ratio between (1) the number of full months of
employment or service completed from the Effective Date to the termination date
and (2) the total number of full months of employment or service required
for all of the Shares to become Vested Shares. The Grantee or the Grantee’s
personal representative, as the case may be, shall immediately transfer
and assign to the Company, without the requirement of any consideration by the
Company, all Unvested Shares.

 

(b)                                  Other
Terminations.  If the Grantee ceases
performing services for the Company for any reason other than death,
disability, or retirement, the Grantee shall immediately transfer and assign to
the Company, without the requirement of any consideration by the Company, all
Unvested Shares.

 

5.                                      Delivery
of Unvested Shares.  If the Grantee
or the Grantee’s representative is required to transfer certain of the Shares
to the Company pursuant to Section 4 hereof, the Shares shall promptly be
tendered to the Company by the delivery of certificates for such Shares, duly
endorsed in blank by the Grantee or the Grantee’s representative or with stock
powers attached thereto duly endorsed, at the Company’s principal offices, all
in form suitable for the transfer of such Shares to the Company without
the payment of any consideration therefor by the Company. After the time at
which any such Shares are required to be delivered to the Company for transfer
to the Company, the Company shall not pay any dividend to the Grantee on
account of such Shares or permit the Grantee to exercise any of the privileges
or rights of a stockholder with respect to such Shares, but shall, in so far as
permitted by law, treat the Company as the owner of such Shares.

 

6.                                      Effect
of Prohibited Transfer.  If any
transfer of Shares is made or attempted to be made contrary to the terms of
this Agreement, the Company shall have the right to acquire for its own
account, without the payment of any consideration therefor, such Shares from
the owner thereof or his transferee, at any time before or after such
prohibited transfer. In addition to any other legal or equitable remedies it may have,
the Company may enforce its rights to specific performance to the extent permitted
by law and may exercise such other equitable remedies then available to it.
The Company may refuse for any purpose to recognize any transferee who
receives Shares contrary to the provisions of this Agreement as a stockholder
of the Company and may retain and/or recover all dividends on such Shares
that were paid or payable subsequent to the date on which the prohibited
transfer was made or attempted.

 

 

7.                                      Enforcement of Restrictions.

 

(a)                                  Legend.
 All certificates representing Shares
shall have affixed thereto the following legend:

 

“The Shares of stock represented by this
Certificate are subject to all of the terms of a Restricted Stock Agreement
between TransMontaigne Inc. and the registered owner of this Certificate (the “Agreement”)
and to the terms of the TransMontaigne Inc. Equity Incentive Plan. Copies of
the Agreement and the Plan are on file at the office of the Company. The
Agreement, among other things, limits the right of the Owner to transfer the
Shares represented hereby and provide in certain circumstances that all or a
portion of the Shares must be returned to the Company.”

 

(b)                                  Custody
of Certificates.  The Company may, in
its sole discretion, require the Grantee to keep the certificate representing
the Shares, duly endorsed, in the custody of the Company while the Shares are
subject to the restrictions contained in Section 2. The Company may, in
its sole discretion, require that the certificate representing the Shares, duly
endorsed, be held in the custody of a third party while the Shares are subject
to the restrictions contained in Section 2.

 

8.                                      Adjustments
for Stock Splits, Stock Dividends, etc. If the Company shall at any time
increase or decrease the number of its outstanding Stock or change in any way
the rights and privileges of such Stock by means of the payment of a stock
dividend or any other distribution upon such Stock payable in Stock, or through
a stock split, subdivision, consolidation, combination, reclassification or
recapitalization involving the Stock, then in relation to the Stock that is
affected by one or more of the above events, the numbers, rights and privileges
of all Shares subject to the provisions of this Agreement shall be increased,
decreased or changed in like manner as if they had been issued and outstanding,
fully paid and nonassessable at the time of such occurrence. Such additional
Shares shall be subject to the restrictions and other provisions of this
Agreement in the same manner and to the same extent as the Stock. All
certificates representing such additional Shares of capital stock shall have
affixed thereto the restrictive legends contained in Sections 7 and 9
hereof. If the Company shall at any time distribute with respect to the Stock
assets or securities of persons other than the Company (other than
distributions of cash or Stock), if the Company shall at any time grant to the
holders of its Stock rights to subscribe pro rata for
additional Shares thereof or for any other securities of the Company or of any
other corporation, or if there is any other change in the number or kind of
outstanding Stock or any stock or other securities into which the Stock shall
be changed or for which it shall have been exchanged, and if the Company shall
in its discretion determine that the event equitably requires an adjustment in
the number or kind of shares subject to this Agreement or the taking of any
other action by the Company, including without limitation the setting aside of
any property for delivery upon the full vesting of the Shares subject to this Agreement,
then 

 

 

such adjustments shall be made or other action taken by the Company and
shall be effective for all purposes of this Agreement. Notwithstanding the
foregoing provisions of this Section 8, the Grantee shall have the right
to receive all amounts, including cash and property of any kind, distributed
with respect to the Stock after the Grantee becomes the holder of record of the
Shares.

 

9.                                      Investment
Representations.  If requested by the
Company, the Grantee shall provide the Company with a written representation to
the effect that the Shares are being acquired solely for investment and not
with a view to, or for sale in connection with, any distribution of the Shares
in any manner that would violate federal or state securities laws. The Grantee
acknowledges that all certificates representing Shares may have affixed
thereto a restrictive legend to evidence the requirement for compliance with
the Securities Act of 1933 and any applicable state securities laws. If the
Shares granted pursuant to this Agreement are not issued in a registered
transaction, the following additional legend shall be printed on all
certificates representing such Shares:

 

The Shares represented by this Certificate
are “restricted securities” as defined in Rule 144 under the Securities
Act of 1933 and may not be sold or transferred except in transactions
which comply with Rule 144 or, in the opinion of counsel acceptable to the
Issuer, are exempt therefrom.

 

10.                               Effect of
Change in Financial or Tax Accounting Treatment.  Notwithstanding any other provision of this
Agreement, if any changes in the financial or tax accounting rules applicable
to the Shares covered by this Agreement shall occur which, in the sole judgment
of the Company, may have a material adverse effect on the reported
earnings, assets or liabilities of the Company, the Committee may, in its sole
discretion, modify the Agreement with respect to any Shares which have not, at
the time of such determination, become Vested Shares.

 

11.                               Withholding.
 Upon the vesting of any portion of
the Shares, the Grantee must make arrangements satisfactory to the Company to
make payment to the Company of the amount required to be withheld under
applicable federal, state and local income and other tax laws (collectively, “Withholding
Taxes”). The Grantee may elect to pay such Withholding Taxes (a) in
cash, (b) by selling a portion of the Vested Shares, or (c) as
permitted by Section 17.2 of the Plan, by having the Company withhold from
the Vested Shares a number of shares having a value equal to the amount of the
minimum required Withholding Taxes, or such lesser amount as the Grantee may elect.
In such case, the value of the Shares to be withheld shall be based on the Fair
Market Value (as defined in the Plan) of the Shares or the date that the amount
of the Withholding Taxes is determined (the “Tax Date”). Grantee must make an
irrevocable election of the manner of payment of the Withholding Taxes no later
than fourteen (14) calendar days prior to the Tax Date, provided that if the Grantee
is an officer or director of the Company within the meaning of Section 16
of the Securities Exchange Act of 1934, the Grantee shall make the election in
accordance with the requirements of said Section 16 and any applicable rules thereunder.
If the Grantee has not made arrangements satisfactory to the Company to pay the
Withholding Taxes, the Company shall withhold from the Vested Shares, a number
of Shares having a value equal to the amount required to pay the Withholding
Taxes. The value of the Shares to be withheld shall be calculated in the same
manner as noted above.

 

 

12.                               Acceptance
of Grant.  Grantee must accept the grant of the Shares of Restricted Stock
contemplated by this Agreement by signing and returning a fully executed
original of this Agreement to the Company in accordance with Section 13(b) below
no later than forty-five (45) days from the Effective Date (the “Acceptance
Period”). In the event the last day of the Acceptance Period should fall on a
Saturday, Sunday, or Federal holiday, the last day of the Acceptance Period
shall be deemed to be the following business day.

 

In the event
a fully-executed original of this Agreement is not received by the Company
prior to the expiration of the Acceptance Period, Grantee shall be deemed to have
rejected the grant of the Shares of Restricted Stock referenced herein and such
grant shall be deemed cancelled and null and void ab initio.

 

13.                               General.

 

(a)                                  Employment;
Services. Nothing contained in this Agreement shall confer upon the Grantee
any rights with respect to the continuation of his employment or services by
the Company, or interfere with or restrict in any way the right of the Company
(subject to the other terms of this Agreement) at any time to terminate such
employment or services.

 

(b)                                  Notices.
 All notices and other communications hereunder shall be in writing. Any
notice or other communication hereunder shall be deemed duly given three
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set
forth below:

 

(i)                                     If
intended for the Grantee, to the Grantee’s home address as listed in the
records of the Company.

 

(ii)                                  If
intended for the Company, to the address of the principal business office of
the Company, at 1670 Broadway, Suite 3100, Denver, Colorado 80202,
Attention:  Stock Plan Administrator.

 

Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the addresses set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set forth.

 

(c)                                  Entire
Agreement; Amendments.  This document sets forth the entire agreement
between the parties. Except as provided in Section 10, no provision of
this Agreement may be altered, amended, or revoked except by an instrument
signed by the Grantee and the Company. This Agreement shall be governed by the
terms of the Plan. To the extent that there is any inconsistency between the
terms of the Plan and this Agreement, the terms of this Agreement shall
control.

 

 

(d)                                  Binding
Effect.  This Agreement shall extend to and be binding upon and shall
inure to the benefit of the heirs, personal representatives, and successors of
the parties.

 

(e)                                  Counterparts.
 This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute but one and the same instrument.

 

14.                               Governing Law.  This Agreement shall be governed by and
construed in accordance with the domestic laws of the state of Colorado without
giving effect to any choice or conflict of law provision or rule (whether
of such state or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than such state.

 

IN WITNESS WHEREOF, the parties have executed
this Agreement to be effective as set forth above.

 

	
  TRANSMONTAIGNE INC.

  	
   

  	
  GRANTEE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Donald H. Anderson, President

  	
   

  	
  «First_Name» «MI» «Last_Name»Exhibit 10.1

 

ASSET PURCHASE AGREEMENT

 

by

 

and

 

among

 

CYGNE DESIGNS, INC.,

INNOVO AZTECA APPAREL, INC., 

AND INNOVO GROUP, INC.

 

 

Dated March 31, 2006

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
  ARTICLE 1

  	
  Definitions

  	
  1

  
	
  ARTICLE 2.

  	
  Purchase and Sale of Assets

  	
  8

  
	
   

  	
  2.1

  	
  Purchase and Sale of Assets

  	
  8

  
	
   

  	
  2.2

  	
  Assumed Liabilities

  	
  8

  
	
  ARTICLE 3.

  	
  Purchase Price

  	
  8

  
	
   

  	
  3.1

  	
  Purchase Price

  	
  8

  
	
  ARTICLE 4.

  	
  Closing

  	
  9

  
	
   

  	
  4.1

  	
  The Closing

  	
  9

  
	
   

  	
  4.2

  	
  Deliveries at the Closing

  	
  9

  
	
   

  	
  4.3

  	
  Obtaining Further Consents

  	
  10

  
	
  ARTICLE 5.

  	
  Representations and
  Warranties of Buyer

  	
  10

  
	
   

  	
  5.1

  	
  Organization of Buyer

  	
  11

  
	
   

  	
  5.2

  	
  Authority of Buyer; Enforceability

  	
  11

  
	
   

  	
  5.3

  	
  No Violation

  	
  11

  
	
   

  	
  5.4

  	
  No Finder

  	
  11

  
	
   

  	
  5.5

  	
  [Intentionally Omitted]

  	
  11

  
	
   

  	
  5.6

  	
  Litigation

  	
  11

  
	
   

  	
  5.7

  	
  Solvency

  	
  12

  
	
   

  	
  5.8

  	
  Representations Complete

  	
  12

  
	
  ARTICLE 6.

  	
  Representations and
  Warranties Concerning INNOVO, Seller and the business

  	
  12

  
	
   

  	
  6.1

  	
  Entity Status

  	
  12

  
	
   

  	
  6.2

  	
  Power and Authority; Enforceability

  	
  12

  
	
   

  	
  6.3

  	
  No Violation

  	
  13

  
	
   

  	
  6.4

  	
  Brokers’ Fees

  	
  13

  
	
   

  	
  6.5

  	
  Financial Statements

  	
  13

  
	
   

  	
  6.6

  	
  Subsequent Events

  	
  14

  
	
   

  	
  6.7

  	
  Compliance with Law

  	
  14

  
	
   

  	
  6.8

  	
  Legal Compliance

  	
  14

  
	
   

  	
  6.9

  	
  Tax Matters

  	
  14

  

 

 

	
   

  	
  6.10

  	
  Title to Purchased Assets

  	
  15

  
	
   

  	
  6.11

  	
  Intellectual Property

  	
  15

  
	
   

  	
  6.12

  	
  Contracts

  	
  16

  
	
   

  	
  6.13

  	
  Purchase Commitments

  	
  17

  
	
   

  	
  6.14

  	
  Litigation

  	
  17

  
	
   

  	
  6.15

  	
  Product Warranty

  	
  17

  
	
   

  	
  6.16

  	
  Employees

  	
  17

  
	
   

  	
  6.17

  	
  Employee Benefits

  	
  19

  
	
   

  	
  6.18

  	
  Environmental, Health, and Safety Matters

  	
  19

  
	
   

  	
  6.19

  	
  Customers and Suppliers

  	
  19

  
	
   

  	
  6.20

  	
  Permits

  	
  20

  
	
   

  	
  6.21

  	
  Solvency

  	
  20

  
	
   

  	
  6.22

  	
  Accuracy of Information Furnished

  	
  20

  
	
   

  	
  6.23

  	
  Certain Business Practices.

  	
  21

  
	
   

  	
  6.24

  	
  Proxy Statement

  	
  21

  
	
   

  	
  6.25

  	
  Fairness Opinion

  	
  21

  
	
   

  	
  6.26

  	
  Representations Complete

  	
  21

  
	
  ARTICLE 7.

  	
  Pre-Closing Covenants

  	
  22

  
	
   

  	
  7.1

  	
  General

  	
  22

  
	
   

  	
  7.2

  	
  Notices and Consents

  	
  22

  
	
   

  	
  7.3

  	
  Operation of Business

  	
  22

  
	
   

  	
  7.4

  	
  Preservation of Business

  	
  23

  
	
   

  	
  7.5

  	
  Full Access

  	
  23

  
	
   

  	
  7.6

  	
  Notice of Developments

  	
  23

  
	
   

  	
  7.7

  	
  Exclusivity

  	
  23

  
	
   

  	
  7.8

  	
  Confidentiality; Publicity

  	
  23

  
	
   

  	
  7.9

  	
  Charges and Fees

  	
  24

  
	
  ARTICLE 8.

  	
  Additional Covenants

  	
  24

  
	
   

  	
  8.1

  	
  General

  	
  24

  
	
   

  	
  8.2

  	
  Litigation Support

  	
  25

  
	
   

  	
  8.3

  	
  Transition

  	
  25

  
	
   

  	
  8.4

  	
  Confidentiality

  	
  25

  

 

i

 

	
   

  	
  8.5

  	
  Restrictive Covenants

  	
  26

  
	
   

  	
  8.6

  	
  Use of Names

  	
  27

  
	
   

  	
  8.7

  	
  Taxes

  	
  27

  
	
   

  	
  8.8

  	
  Employees and Employee Benefit Plans

  	
  28

  
	
   

  	
  8.9

  	
  Payment of Non-Assumed Liabilities

  	
  30

  
	
   

  	
  8.10

  	
  No Liability

  	
  30

  
	
   

  	
  8.11

  	
  Updated Financial Statements.

  	
  31

  
	
   

  	
  8.12

  	
  Preparation of the Proxy Statement;
  Stockholder’s Meeting.

  	
  31

  
	
  ARTICLE 9.

  	
  Closing Conditions

  	
  32

  
	
   

  	
  9.1

  	
  Conditions Precedent to Obligations of
  Buyer

  	
  32

  
	
   

  	
  9.2

  	
  Conditions Precedent to Obligations of the
  Seller

  	
  33

  
	
  ARTICLE 10.

  	
  Termination

  	
  34

  
	
   

  	
  10.1

  	
  Termination of Agreement

  	
  34

  
	
   

  	
  10.2

  	
  Effect of Termination

  	
  35

  
	
  ARTICLE 11.

  	
  Indemnification

  	
  35

  
	
   

  	
  11.1

  	
  Survival of Representations and Warranties

  	
  35

  
	
   

  	
  11.2

  	
  Indemnification Provisions for Buyer’s
  Benefit

  	
  35

  
	
   

  	
  11.3

  	
  Indemnification Provisions for Seller’s
  Benefit

  	
  36

  
	
   

  	
  11.4

  	
  Indemnification Claim Procedures

  	
  36

  
	
   

  	
  11.5

  	
  Limitations on Indemnification Liability

  	
  38

  
	
   

  	
  11.6

  	
  [Intentionally Omitted]

  	
  38

  
	
   

  	
  11.7

  	
  No Wavier of Rights or Remedies

  	
  38

  
	
   

  	
  11.8

  	
  Other Indemnification Provisions

  	
  39

  
	
  ARTICLE 12.

  	
  Miscellaneous

  	
  39

  
	
   

  	
  12.1

  	
  Schedules

  	
  39

  
	
   

  	
  12.2

  	
  Entire Agreement

  	
  39

  
	
   

  	
  12.3

  	
  Successors

  	
  40

  
	
   

  	
  12.4

  	
  Assignments

  	
  40

  
	
   

  	
  12.5

  	
  Notices

  	
  40

  
	
   

  	
  12.6

  	
  Specific Performance

  	
  41

  
	
   

  	
  12.7

  	
  Submission to Jurisdiction; Process Agent;
  No Jury Trial

  	
  41

  
	
   

  	
  12.8

  	
  Time

  	
  42

  

 

ii

 

	
   

  	
  12.9

  	
  Counterparts

  	
  42

  
	
   

  	
  12.10

  	
  Headings

  	
  42

  
	
   

  	
  12.11

  	
  Governing Law

  	
  42

  
	
   

  	
  12.12

  	
  Amendments and Waivers

  	
  43

  
	
   

  	
  12.13

  	
  Severability

  	
  43

  
	
   

  	
  12.14

  	
  Expenses

  	
  43

  
	
   

  	
  12.15

  	
  Construction

  	
  43

  
	
   

  	
  12.16

  	
  Incorporation of Exhibits and Schedules

  	
  44

  
	
   

  	
  12.17

  	
  Remedies

  	
  44

  

 

EXHIBITS

 

	
  EXHIBIT A

  	
  Form of Bill of Sale and Assignment of Contract Rights

  
	
  EXHIBIT B

  	
  Azteca Note

  
	
  EXHIBIT C

  	
  Assumption and Assignment Agreement

  
	
  EXHIBIT D

  	
  Form of Seller’s Officer’s Certificate

  
	
  EXHIBIT E

  	
  Form of Seller’s Secretary’s Certificate

  
	
  EXHIBIT F

  	
  Form of Buyer’s Officer’s Certificate

  
	
  EXHIBIT G

  	
  Form of
  Buyer’s Secretary’s Certificate

  
	
  EXHIBIT H

  	
  Seller
  Release

  

 

SCHEDULES

 

	
  Schedule 1.1

  	
  Purchased Assets

  
	
  Schedule 2.2

  	
  Assumed Liabilities

  
	
  Schedule 5.3

  	
  Buyer Required Consents

  
	
  Schedule 5.6

  	
  Buyer Litigation

  
	
  Schedule 6.3

  	
  Seller Required Consents

  
	
  Schedule 6.6

  	
  Subsequent Events

  
	
  Schedule 6.12

  	
  Contracts

  
	
  Schedule 6.14

  	
  Seller Litigation

  
	
  Schedule 6.15

  	
  Standard Terms of Sale or Lease

  
	
  Schedule 6.16(a)

  	
  Current Employees and Directors

  
	
  Schedule 6.16(b)

  	
  Terminated Employees

  
	
  Schedule 6.17

  	
  Employee Benefits

  
	
  Schedule 6.18

  	
  Environmental Matters

  
	
  Schedule 6.19

  	
  Suppliers

  
	
  Schedule 6.20

  	
  Permits

  

 

iii

 

Asset
Purchase Agreement

 

This Asset
Purchase Agreement dated March 31, 2006 (the “Execution Date”), is by and among (i)
CYGNE DESIGNS, INC., a Delaware corporation (“Buyer”), (ii) INNOVO AZTECA APPAREL,
INC., a California corporation (“Seller”) and (iii) INNOVO GROUP, INC., a
Delaware Corporation (“Innovo”).

 

RECITALS

 

A.            Seller is engaged in the business of
designing, manufacturing and wholesaling denim and other related apparel and
products.

 

B.            Seller desires to sell to Buyer, and
Buyer desires to purchase from Seller, certain assets and properties used by
Seller in the operation of its private label portion of its business (the “Business”), all on
the terms and subject to the conditions set forth herein.

 

C.            Innovo has joined as a party to this
Agreement as a result of certain assignments, assumptions and releases
contemplated herein to which it is an interested party.

 

AGREEMENT:

 

NOW,
THEREFORE, in consideration of the premises and the
mutual promises herein made, and in consideration of the representations,
warranties, and covenants contained herein, the Parties agree as follows:

 

ARTICLE 1.

DEFINITIONS

 

“Action” means any
action, appeal, petition, plea, charge, complaint, claim, suit, demand,
litigation, arbitration, mediation, hearing, inquiry, investigation or similar
event, occurrence, or proceeding.

 

“Active Employees” is
defined in Section 8.8(a)

 

“AEO” means American
Eagle Outfitters, Inc. and its subsidiaries, divisions and Affiliates.

 

“Affiliate” or “Affiliated” with
respect to any specified Person means a Person that, directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with, such specified Person. 
For this definition, “control” (and its derivatives) means the
possession, directly or indirectly, or as trustee or executor, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting Equity Interests, as trustee or executor,
by Contract or credit arrangements or otherwise.

 

“Affiliated Group”
means an affiliated group under Code Section 1504(a) or any similar group
defined under provisions of applicable Law.

 

 

“Agreement” means this
Asset Purchase Agreement, together with all Exhibits and Schedules hereto, as
the same may be amended, supplemented or otherwise modified from time to time
in accordance with Section 12.12.

 

“APA” means that
certain Asset Purchase Agreement by and among Azteca Production International,
Inc. (“API”),
Seller and Hubert Guez and Paul Guez dated July 17, 2003.

 

“Assumption and Assignment Agreement”
means the Assumption and Assignment Agreement in substantially the form of Exhibit
C.

 

“Assumed Liabilities”
means the liabilities of Seller listed in Schedule 2.2 hereto.  

 

“AZT International”
means AZT International SA DE CV, a Mexico corporation and wholly-owned
subsidiary of API.

 

“Azteca Note” means
the promissory note issued by Seller to API dated July 17, 2003, pursuant to
the APA, a copy of which is attached hereto as Exhibit B.

 

“Basis” means any past
or current fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or
transaction about which the relevant Person has Knowledge that forms or could
form the basis for any specified consequence.

 

“Best Efforts” means
the efforts, time, and costs that a prudent Person desirous of achieving a
result would use, expend, or incur in similar circumstances to ensure that such
result is achieved as expeditiously as possible; provided, however,
that no such use, expenditure, or incurrence will be required if it would have
a Material Adverse Effect on such Person calculated immediately prior to the
Closing Date.

 

“Bill of Sale” means
the Bill of Sale and Assignment of Contract Rights in the form of Exhibit A.

 

“Breach” means (a) any breach, inaccuracy, failure
to perform, failure to comply, conflict with, failure to notify, default, or
violation or (b) any other act, omission, event, occurrence or condition the
existence of which would (i) permit any Person to accelerate any obligation or
terminate, cancel, or modify any right or obligation or (ii) require the
payment of money or other consideration.

 

“Business” is defined
in the Recitals to this Agreement.

 

“Buyer” is defined in
the preamble to this Agreement.

 

“Buyer Note” means the
promissory note of Buyer in substantially the form of Exhibit B.

 

“Cash” means cash and
cash equivalents (including marketable securities and short term investments)
calculated in accordance with GAAP applied on a basis consistent with the
preparation of the Financial Statements.

 

2

 

“Closing” is defined
in Section 4.1.

 

“Closing Date” has the
meaning specified in Section 4.1.

 

“Code” means the
Internal Revenue Code of 1986, as amended.

 

“Commitment” means (a) options, warrants, convertible
securities, exchangeable securities, subscription rights, conversion rights,
exchange rights, or other Contracts that could require a Person to issue any of
its Equity Interests or to sell any Equity Interests it owns in another Person;
(b) any other securities convertible into, exchangeable or exercisable for, or
representing the right to subscribe for any Equity Interest of a Person or
owned by a Person; (c) statutory pre-emptive rights or pre-emptive rights
granted under a Person’s Organizational Documents; and (d) stock appreciation
rights, phantom stock, profit participation, or similar rights with respect to
a Person.

 

“Confidential Information” means
any information concerning the businesses and affairs of either the Buyer, on
the one hand, or the Business and Seller, on the other hand.

 

“Consent” means any
consent, approval, notification, waiver, or other similar action that is
necessary or convenient.

 

“Contract” means any
contract, agreement, arrangement, commitment, letter of intent, memorandum of
understanding, heads of agreement, promise, obligation, right, instrument,
document, purchase order, or other similar understanding, whether written or
oral.

 

“Copyrights” means
copyrights, whether registered or unregistered, in published works and
unpublished works, and pending applications to register the same.

 

“Customer Consents”
means the written consents by AEO and Target to the Transactions in a form
reasonably satisfactory to the Seller and Buyer.

 

“Encumbrance” means
any Order, Security Interest, Contract, easement, covenant, community property
interest, equitable interest, right of first refusal, or restriction of any
kind, including any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.

 

“Enforceable”  
a Contract is “Enforceable” if it is the legal, valid, and binding obligation
of the applicable Person enforceable against such Person in accordance with its
terms, except as such enforceability may be subject to the effects of
bankruptcy, insolvency, reorganization, moratorium, or other Laws relating to
or affecting the rights of creditors, and general principles of equity.

 

“Environmental, Health, and Safety
Requirements” means all Orders, Contracts, Laws, and programs
(including those promulgated or sponsored by industry associations, insurance
companies, and risk management companies) concerning or relating to public
health and safety, worker/occupational health and safety, and pollution or
protection of the environment, including those relating to the presence, use,
manufacturing, refining, production, generation, handling, transportation,
treatment, recycling, transfer, storage, disposal, distribution, importing,
labeling,

 

3

 

testing,
processing, discharge, release, threatened release, control, or other action or
failure to act involving cleanup of any hazardous materials, substances or
wastes, chemical substances or mixtures, pesticides, pollutants, contaminants,
toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise, or radiation, each as amended and as now or hereafter in
effect.

 

“Equity Interest”
means (a) with respect to a corporation, any and all shares of capital stock
and any Commitments with respect thereto, (b) with respect to a partnership,
limited liability company, trust or similar Person, any and all units,
interests, or other partnership/limited liability company interests , and any
Commitments with respect thereto, and (c) any other direct or indirect equity
ownership or participation.

 

“ERISA” means the
Employee Retirement Income Security Act of 1974.

 

“ERISA Affiliate”
means each business or entity which is a member of a “controlled group of
corporations,” under “common control” or an “affiliated service group” with
Seller within the meaning of Sections 414(b), (c), or (m) of the Code, or
required to be aggregated with Seller under Section 414(o) of the Code, or is
under “common control” with Seller within the meaning of Section 4001(a)(14) of
ERISA.

 

“Execution Date” is
defined in the preamble to this Agreement.

 

“Expiration Date”
means June 30, 2006.

 

“GAAP” means United States generally accepted
accounting principles as in effect from time to time.

 

“Governmental Body”
means any legislature, agency, bureau, branch, department, division,
commission, court, tribunal, magistrate, justice, multi-national organization,
quasi-governmental body, or other similar recognized organization or body of
any federal, state, county, municipal, local, or foreign government or other
similar recognized organization or body exercising similar powers or authority.

 

“Hired Active Employees”
is defined in Section 8.8(b)(i).

 

“Indemnification Claim” is
defined in Section 11.4(a).

 

“Indemnified Buyer Parties”
means Buyer and its officers, directors, managers, employees, agents,
representatives, controlling Persons, stockholders, and their Affiliates.

 

“Indemnified Parties” means,
individually and as a group, the Indemnified Buyer Parties and the Indemnified
Seller.

 

“Indemnified Seller” means Seller and its officers, directors,
managers, employees, agents, representatives, controlling Persons, and
stockholders (including Innovo).

 

“Indemnitor” means any
Party having any Liability to any Indemnified Party under this Agreement.

 

4

 

“Innovo” is defined in
the preamble to this Agreement.

 

“Innovo Shareholder Approval”
is defined in Section 9.2(c).

 

“Intellectual Property”
means any rights, licenses, liens, security interests, charges, encumbrances,
equities, and other claims that any Person may have to claim ownership,
authorship or invention, to use, to object to or prevent the modification of,
to withdraw from circulation, or control the publication or distribution of any
Marks, Patents, Copyrights, or Trade Secrets.

 

“IRS” means the
Internal Revenue Service.

 

“Knowledge” means the
knowledge of a Person’s officers and directors as of the Execution Date and the
Closing Date after due investigation. 
With respect to particular areas of interest, “Knowledge” will include
the knowledge of such Person’s employees charged with responsibility for a
particular area of such Person’s operations.

 

“Law” means any law
(statutory, common, or otherwise), constitution, treaty, convention, ordinance,
equitable principle, code, rule, regulation, executive order, or other similar
authority enacted, adopted, promulgated, or applied by any Governmental Body,
each as amended and now and hereinafter in effect.

 

“Liability” or “Liable” means
any liability or obligation, whether known or unknown, asserted or unasserted,
absolute or contingent, matured or unmatured, conditional or unconditional,
latent or patent, accrued or unaccrued, liquidated or unliquidated, or due or
to become due.

 

“Marks” means all
fictitious business names, trading names, corporate names, registered and
unregistered trademarks, service marks, and applications.

 

“Material Adverse Change (or Effect)”
means a change (or effect) in the condition (financial or otherwise),
properties, assets, Liabilities, rights, obligations, operations, business, or
prospects of a Person which change (or effect), individually or in the
aggregate, could reasonably be expected to be materially adverse to such Person’s
condition, properties, assets, Liabilities, rights, obligations, operations,
business, or prospects.

 

“Material Consents” is defined in Section 9.1(e).

 

“Material Contracts”
is defined in Section 6.12.

 

“Order” means any
order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept,
command, directive, consent, approval, award, judgment, injunction, or other
similar determination or finding by, before, or under the supervision of any
Governmental Body, arbitrator, or mediator.

 

“Ordinary Course of Business”
means the ordinary course of business consistent with past custom and practice
(including with respect to quantity, quality and frequency) of the

 

5

 

relevant
Person and its Subsidiaries in the industry in which the relevant Person and
its Subsidiaries does business.

 

“Organizational Documents”
means the articles of incorporation, certificate of incorporation, charter,
bylaws, articles of formation, regulations, operating agreement, certificate of
limited partnership, partnership agreement, and all other similar documents,
instruments or certificates executed, adopted, or filed in connection with the
creation, formation, or organization of a Person, including any amendments
thereto.

 

“Parties” is defined
in the preamble to this Agreement.

 

“Patents” means all
(a) patents and patent applications, and (b) business methods, inventions, and
discoveries that may be patentable.

 

“PBGC” means the
Pension Benefit Guaranty Corporation.

 

“Permit” means any
permit, license, certificate, approval, consent, notice, waiver, franchise,
registration, filing, accreditation, or other similar authorization required by
any Law, Governmental Body, or Contract.

 

“Person” means any
individual, partnership, limited liability company, corporation, association,
joint stock company, trust, entity, joint venture, labor organization,
unincorporated organization, or Governmental Body.

 

“Purchase Price” is
defined in Section 3.1.

 

“Purchased Assets”
means all right, title and interest that Seller possesses and has the right to
transfer in and to all of the assets listed on Schedule 1.1 hereto.

 

“Qualifying Offer”
means an offer of employment by Buyer to an Active Employee that would provide
such Active Employee (i) an annual base salary or wage that is at least one
hundred percent (100%) of the applicable Active Employee’s current base salary
or wage level, (ii) eligibility to participate in employee benefit plans
(within the meaning of Section 3(3) of ERISA) that are substantially similar to
those provided to similarly situated employees of Buyer who are not covered by
a collective bargaining agreement, and (iii) substantially similar duties and
responsibilities as such Active Employee had prior to Closing.

 

“Schedules” mean the
Schedules to this Agreement.

 

“Security Interest”
means any security interest, deed of trust, mortgage, pledge, lien, charge,
claim, or other similar interest or right, except for (i) liens for Taxes,
assessments, governmental charges, or claims that are being contested in good
faith by appropriate Actions promptly instituted and diligently conducted and
only to the extent that a reserve or other appropriate provision, if any, has
been made on the face of the Financial Statements in an amount equal to the
Liability for which the lien is asserted, (ii) statutory liens of landlords and
warehousemen’s, carriers’, mechanics’, suppliers’, materialmen’s, repairmen’s,
or other like liens (including Contractual landlords’ liens) arising in the
Ordinary Course of Business and with respect to amounts not yet delinquent and
being contested in good faith by appropriate

 

6

 

proceedings,
only to the extent that a reserve or other appropriate provision, if any, has
been made on the face of the Financial Statements in an amount equal to the
Liability for which the lien is asserted; and (iii) liens incurred or deposits
made in the Ordinary Course of Business in connection
with workers’ compensation, unemployment insurance and other similar types of
social security.

 

“Seller” is defined in
the preamble to this Agreement.

 

“Seller Release” means
the Release in the form of Exhibit H.

 

“Software” means
computer software or middleware.

 

“Subsidiary” means,
with respect to any Person: (a) any corporation of which more than 50% of the
total voting power of all classes of the Equity Interests entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors is owned by such Person directly or through one or more other
Subsidiaries of such Person and (b) any Person other than a corporation of
which at least a majority of the Equity Interest (however designated) entitled
(without regard to the occurrence of any contingency) to vote in the election
of the governing body, partners, managers or others that will control the
management of such entity is owned by such Person directly or through one or
more other Subsidiaries of such Person.

 

“Target” means Target
Corporation and its subsidiaries, divisions and Affiliates.

 

“Tax” and “Taxes” includes (1) any federal, state,
local or foreign income, gross receipts, capital, franchise, import, goods and
services, value added, sales and use, estimated, alternative minimum, add-on
minimum, sales, use, transfer, registration, excise, natural resources,
severance, stamp, occupation, premium, windfall profit, environmental, customs,
duties, real property, personal property, capital stock, social security,
unemployment, disability, payroll, license, employee withholding, unclaimed
property, escheat or other tax of any kind whatsoever, including any interest,
penalties or additions to tax or additional amounts in respect of the
foregoing, (2) any liability for the payment of any amounts of the type
described in (1) as a result of being a member of a consolidated, combined,
unitary or aggregate group for any Taxable period, and (3) any liability for
the payment of any amounts of the type described in (1) or (2) as a result of
being a transferee or successor to any Person or as a result of any express or
implied obligation to indemnify any other Person.

 

“Tax Return” means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes required to be filed with any Governmental Body,
including any schedule or attachment thereto, and including any amendment
thereof.

 

“Termination Date”
means the earlier to occur of (a) the Expiration Date and (b) the date on which
this Agreement is terminated pursuant to Section 10.1 (other than Section
10.1(b)).

 

“Threatened” means a
demand or statement has been made (orally or in writing) or a notice has been
given (orally or in writing), or any other event has occurred or any other
circumstances exist that would lead a prudent Person to conclude that a cause
of Action or other matter is likely to be asserted, commenced, taken, or
otherwise initiated.

 

7

 

“Trade Secrets” means
all know-how, trade secrets, confidential information, customer lists, Software
(source code and object code), technical information, data, process technology,
plans, drawings, and blue prints.

 

“Transaction Documents”
means this Agreement, Assumption and Assignment Agreement, the Azteca Note and
the Bill of Sale.

 

“Transactions” means:
(a) the sale of the Purchased Assets by Seller to Buyer and Buyer’s delivery of
the Purchase Price therefor; (b) the execution, delivery, and performance of
all of the documents, instruments, and agreements to be executed, delivered,
and performed in connection herewith including each Transaction Document; and
(c) the performance by Buyer and the Seller of their respective covenants and
obligations (pre- and post-Closing) under this Agreement.

 

“Treas. Reg.” means
the proposed, temporary and final regulations promulgated under the Code.

 

“WARN Act” is defined
in Section 6.16(c).

 

ARTICLE 2.

PURCHASE AND SALE OF ASSETS

 

2.1          Purchase and Sale of Assets.

 

On and subject
to the terms and conditions of this Agreement, Buyer agrees to purchase from
Seller, and Seller agrees to sell, transfer, convey, and deliver to Buyer, all
of the Purchased Assets, free and clear of any Encumbrances (other than the
Assumed Liabilities) for the consideration specified in ARTICLE 3 below.

 

2.2          Assumed Liabilities.

 

Buyer agrees
to assume and be responsible for the Assumed Liabilities listed on Schedule
2.2 hereof at the Closing and will enter into the Assumption and Assignment
Agreement with Seller and Innovo.  Buyer
will not assume or have any responsibility, however, with respect to any other
liability or obligation of Seller not listed on such Schedule (any such
liability or obligation of Seller not listed on such Schedule being hereinafter
referred to as an “Excluded Liability”).

 

ARTICLE 3.

PURCHASE PRICE

 

3.1          Purchase Price.

 

(a)                           The aggregate
purchase price for the Purchased Assets shall be $10,436,654.71 (the “Purchase Price”),
subject to adjustment under Section 3.1(b) below, consisting of Buyer’s
assumption of the Assumed Liabilities at Closing as set forth in Section 2.2
above, including (i) the Buyer Note to be executed by Buyer at Closing in favor
of API, the principal amount of which shall be the outstanding amounts owed by
Seller under the Azteca

 

8

 

Note as of the Closing Date,
with the Azteca Note to be cancelled and satisfied by API at Closing and all
obligations of Seller thereunder assumed by Buyer under the Buyer Note and (ii)
the Related Party Balance; and

 

(b)                           The Purchase Price is
based on the estimation that the liabilities assumed at the Closing (excluding
the Azteca Note) consist of $2,500,000 of Innovo’s obligations to API (the “Related Party Balance”).  If the Related Party Balance as of the
Closing Date exceeds $2,600,000 (the “Related
Party Balance Threshold”), then the Purchase Price shall be increased,
dollar for dollar, by the amount of the difference between the Related Party Balance
and the Related Party Balance Threshold. 
To the extent that the aggregate value of the Related Party Balance does
not exceed or is below the Related Party Balance Threshold then no adjustment
shall be made to the Purchase Price.

 

(c)                           Schedule 3.1 sets
forth an allocation of the Purchase Price (and all other capitalized costs)
among the Purchased Assets of the Seller in accordance with Section 1060 of the
Code and the Treasury regulations thereunder (and any similar provision of
state, local or foreign law, as appropriate), subject to any adjustment to the
Purchase Price pursuant to Section 8.7(d) and Article 11.  Buyer and Seller and their respective
Affiliates shall report, act and file Tax Returns (including, but not limited
to IRS Forms 8594) in all respects and for all purposes consistent with
Schedule 3.1.  Neither Buyer nor Seller
shall take any position (whether in audits, Tax Returns or otherwise) which is
inconsistent with such allocation unless required to do so by applicable law.

 

ARTICLE 4.

CLOSING

 

4.1          The Closing.

 

The closing of
the purchase and sale of the Purchased Assets (the “Closing”) will take
place at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York
10103, or any other mutually agreed upon location or time, on the third
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the purchase and sale of the Purchased
Assets (other than conditions with respect to actions the respective Parties
will take at the Closing itself) or such other date as Buyer and Seller may
mutually determine (the “Closing
Date”).

 

4.2          Deliveries at the Closing.

 

At the
Closing:

 

(a)           Seller
will deliver to Buyer:

 

(i)            The Bill of Sale, duly executed by Seller.

 

(ii)           The Assumption and Assignment Agreement, duly executed by
Seller, Innovo and Buyer.

 

(iii)          The Customer Consents duly executed by AEO and Target.

 

9

 

(iv)          Such other bills of sale, assignments, and other
instruments of transfer or conveyance as Buyer may reasonably request or as may
be otherwise necessary to evidence and effect the sale, assignment, transfer,
conveyance, and delivery of the Purchased Assets to Buyer.

 

(v)           An Officers’ Certificate, substantially in the form of Exhibit
D, duly executed on Seller’s behalf, as to whether each condition specified
in Sections 9.1(a) through 9.1(d) has been satisfied in all
respects.

 

(vi)          A duly executed certificate in the form specified by
Treasury Regulation Section 1.1445-2(b)(2).

 

(vii)         A Secretary’s certificate for Seller, substantially in the
form of Exhibit E, duly executed on behalf of Seller.

 

(b)           Buyer will deliver the following to
Seller:

 

(i)            The Assumption and Assignment Agreement, duly executed by
Buyer.

 

(ii)           An Officers’ Certificate, substantially in the form of Exhibit
F, duly executed on Buyer’s behalf, as to whether each condition specified
in Sections 9.2(a) through 9.2(d)(i) has been satisfied in all
respects.

 

(iii)          A Secretary’s certificate, substantially in the form of Exhibit
G, duly executed on Buyer’s behalf.

 

4.3          Obtaining Further Consents.

 

Anything in
this Agreement to the contrary notwithstanding, this Agreement shall not
constitute an agreement to assign any of the Purchased Assets or any claim or
right or any benefit arising thereunder or resulting therefrom if an attempted
assign thereof, without the consent of a third Person, would constitute a
breach or other contravention thereof or in any way adversely affect the rights
of Buyer thereunder.  The Seller will use
its Best Efforts to obtain the consent of any such Person for the assignment to
Buyer of any such Purchased Asset.  If
such consent is not obtained prior to Closing, or if an attempted assignment
thereof would be ineffective or would adversely affect the rights of Seller
thereunder so that Buyer would not in fact receive all such rights, then Buyer,
its sole discretion, may elect to waive the closing condition and in such event
the Seller and Buyer agree to cooperate in devising and implementing a mutually
satisfactory arrangement under which Buyer would obtain substantially all of
the benefits from and after the Closing Date in accordance with this Agreement.

 

ARTICLE 5.

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer
represents and warrants to Seller that the statements contained in this ARTICLE
5 are correct and complete as of the Execution Date and will be correct and
complete as of the Closing Date (as though made then and except as expressly
provided in a representation or

 

10

 

warranty, as
though the Closing Date were substituted for the Execution Date throughout this
ARTICLE 5), except as set forth in the Schedules that Buyer has
delivered to Seller on the Execution Date.

 

5.1          Organization of Buyer.

 

Buyer is a
corporation duly organized, validly existing, and in good standing under the
Laws of the State of Delaware.  Buyer has
the requisite corporate power and authority necessary to own or lease its
properties and to carry on its businesses as currently conducted.  There is no pending or Threatened Action (or
Basis therefor) for the dissolution, liquidation, insolvency, or rehabilitation
of Buyer.

 

5.2          Authority of Buyer; Enforceability.

 

Buyer has the
relevant corporate power and authority necessary to execute and deliver each
Transaction Document to which it is a party and to perform and consummate the
Transactions contemplated by this Agreement. 
Buyer has taken all corporate action necessary to authorize the
execution and delivery of each Transaction Document to which Buyer is a party,
the performance of its obligations thereunder, and the consummation of the
Transactions.  Each Transaction Document
to which Buyer is a party has been duly authorized, executed, and delivered by,
and is Enforceable against, Buyer.

 

5.3          No Violation.

 

Except as
listed on Schedule 5.3, the execution and the delivery of the
Transaction Documents to which Buyer is a party by Buyer and the performance of
the Transactions by Buyer will not (a) Breach any Law or Order to which Buyer
is subject or any provision of Buyer’s Organizational Documents; (b) Breach any
Contract, Order, or Permit to which Buyer is a party or by which it is bound or
to which any of the Purchased Assets are subject; or (c) require any Consent.

 

5.4          No Finder.

 

Buyer has no
Liability to pay any compensation to any broker, finder, or agent with respect
to the Transactions for which any Seller could become Liable.

 

5.5          [Intentionally Omitted].

 

5.6          Litigation.

 

Schedule 5.6 sets forth each instance in which
Buyer (a) is subject to any outstanding Order or (b) is a party, the subject
of, or, to the Buyer’s Knowledge, is Threatened to be made a party to or the
subject of any Action.  No Action
required to be set forth in Schedule 5.6 questions the Enforceability of
this Agreement or the Transactions, or could result in any Material Adverse
Change with respect to Buyer.

 

11

 

5.7          Solvency.

 

Buyer is not
now insolvent, nor will Buyer be rendered insolvent by any of the
Transactions.  As used herein, “insolvent”
means that the sum of the Liabilities of Buyer exceeds the fair present value
of Buyer’s assets.

 

5.8          Representations Complete.

 

Except as and
to the extent set forth in this Agreement, Buyer makes no representations or
warranties whatsoever (INCLUDING ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS) to Seller and hereby disclaims all Liability and
responsibility for any representation, warranty, statement, or information not
included herein that was made, communicated, or furnished (orally or in
writing) to Seller or its representatives (including any opinion, information,
projection, or advice that may have been or may be provided to Seller by any
director, officer, employee, agent, consultant, or representative of Buyer or
Affiliate thereof).

 

ARTICLE 6.

REPRESENTATIONS AND WARRANTIES CONCERNING INNOVO, SELLER AND THE BUSINESS

 

Seller
represents and warrants to Buyer that the statements contained in this ARTICLE
6 are correct and complete as of the Execution Date and will be correct and
complete as of the Closing Date (as though made then and, except as expressly
provided in a representation or warranty, as though the Closing Date were
substituted for the Execution Date throughout this ARTICLE 6), except as
set forth in the Schedules Seller has delivered to Buyer on the Execution Date.

 

6.1          Entity Status.

 

Seller is a
corporation duly organized, validly existing, and in good standing under the
Laws of the State of California.  Seller
is duly authorized to conduct the Business and is in good standing under the
laws of each jurisdiction where the nature or operation of the Business makes
such qualification necessary, all of which jurisdictions are set forth on Schedule
6.1.  Seller has the requisite
corporate power and authority necessary to own, lease and operate the Business
as currently conducted and as proposed to be conducted.  Seller has delivered to Buyer correct and
complete copies of Seller’s Organizational Documents, as amended to date.  Seller is not in Breach of any provision of
its Organizational Documents.  There is
no pending or Threatened Action (or Basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of Seller.

 

6.2          Power and Authority; Enforceability.

 

Each of Seller
and Innovo has the relevant corporate power and authority necessary to execute
and deliver each Transaction Document to which it is a party and to perform and
consummate the Transactions.  Each of
Seller and Innovo has taken all action necessary to authorize the execution and
delivery of each Transaction Document to which it is a party, the performance
of its respective obligations thereunder, and the consummation of the
Transactions.

 

12

 

Each
Transaction Document to which Seller and/or Innovo is a party has been duly
authorized, executed, and delivered by, and is Enforceable against Seller
and/or Innovo, as applicable.

 

6.3          No Violation.

 

Except as
listed on Schedule 6.3, the execution and the delivery of the applicable
Transaction Documents by Seller and Innovo and the performance of its
respective obligations hereunder and thereunder, and consummation of the
Transactions by Seller or Innovo will not (a) Breach any Law or Order to which
Seller or Innovo is subject or any provision of the Organizational Documents of
Seller or Innovo; (b) Breach any Contract, Order, or Permit to which Seller or
Innovo is a party or by which it is bound or to which any of the Purchased
Assets are subject (or result in the imposition of any Encumbrance upon the
Purchased Assets); (c) require any Consent; (d) Breach any other note,
instrument, agreement, mortgage, base, license, franchise, permit or other
authorization, rights, restriction or obligation to which Seller, Innovo or API
is a party or any of the Purchased Assets is subject or by which Seller or
Innovo is bound

 

6.4          Brokers’ Fees.

 

Neither Seller
nor Innovo has any Liability to pay any compensation to any broker, finder, or
agent with respect to the Transactions for which Buyer could become directly or
indirectly Liable.

 

6.5          Financial
Statements.

 

Set forth on Schedule 6.5 are the
following financial statements for the Business (collectively  the “Financial
Statements”):

 

(a)           Unaudited statements of revenues, direct expenses and
identified corporate expenses before interest and taxes as of and for each of
the fiscal years ended November 29, 2003, November 27, 2004 and November 26,
2005 for the Business and the three months ended February 25, 2006 and February
26, 2005.  The fiscal year ended November
26, 2005 is referred to herein as the “Most
Recent Fiscal Year”.

 

(b)           Unaudited balance sheets as of November 26, 2005 and
February 25, 2006 (the “Most Recent Balance
Sheet Date”) for the Business.

 

(c)           The Financial Statements, which have been extracted from
the books and records of Seller (which books and records are the basis for
Seller’s audited consolidated financial statements), have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of the Business as of
such dates and the results of operations of the Business for such periods, are
correct and complete, and are consistent with the books and records of
Seller.  Since the Most Recent Balance
Sheet Date, Seller has not effected any change in any method of accounting or
accounting practice, except for any such change required because of a
concurrent change in GAAP.

 

Seller has no Knowledge that the Financial
Statements cannot be audited in accordance with Generally Accepted Auditing
Standards within 75 days after the date hereof.

 

13

 

The Liabilities constituting the Related
Party Balance were incurred in the Ordinary Course of Business.

 

6.6          Subsequent Events.

 

Except as set forth in Schedule 6.6,
since January 31, 2006, Seller has operated the Business in the Ordinary Course
of Business and there have been no events, series of events or the lack of
occurrence thereof which, singularly or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on the Business.

 

6.7          Compliance with Law.

 

The Seller has complied in all material
respects with, is not in violation in any material respect of and has not
received any notices of violation with respect to, any applicable Law with
respect to the ownership or operation of the Business.  No investigation or review by any
Governmental Body (including without limitation any audit or similar review by
any federal, state or local taxing authority) with respect to the Business is
pending or, to the Seller’s Knowledge, Threatened, nor has any Governmental
Body indicated in writing to the Seller an intention to conduct the same.

 

6.8          Legal Compliance.

 

Seller and its respective predecessors and
Affiliates have conducted the Business in compliance with all applicable Laws,
and no Action is pending or Threatened (and there is no Basis therefor) against
them alleging any failure to so comply. 
No expenditures in excess of $25,000 are, or based on applicable Law,
will be required of Seller or Buyer for the Business to remain in compliance
with applicable Law.

 

6.9          Tax Matters.

 

There are no
Liabilities for Taxes relating to the Business, including Taxes relating to
prior periods, other than those for which Seller has adequately reserved funds
for payment.  Seller has duly filed when
due all Tax Returns required to be filed by or with respect to Seller,
including in connection with and in respect of the Business and the assets and
employees related thereto. All such Tax Returns have been properly prepared and
timely filed and are true, correct and complete in all material respects and
have been completed in accordance with applicable Law.  All Taxes due and owing by Seller (whether or
not shown or required to be shown on any Tax Return) have been timely paid and
discharged. Seller has withheld and paid all Taxes required to be withheld and
paid in connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party, and has otherwise
complied in all material respects with applicable Law relating to the payment
and withholding of Taxes.  Seller has
made available to Buyer accurate and complete copies of all of its Tax reports
and Tax Returns relating to the Business for all periods, except those periods
for which returns are not yet due.  No
Tax Return concerning or relating to Seller or its operations has been audited
or examined by a government or taxing authority for any period after December
31, 2000, nor is any audit or examination in process or pending, and Seller has
not been notified of any request for such an audit or other examination.  To its Knowledge, Seller is not a party to
any Action for assessment or collection of Taxes.  No claim has been made by a taxing authority
in a

 

14

 

jurisdiction where Tax Returns concerning or relating to the Business
or the Purchased Assets have not been filed such that it is or may be subject
to taxation by that jurisdiction.  Seller
has not received any notice of any Tax deficiency outstanding, proposed or
assessed against or allocable to it in respect of the Business, its assets or
employees, and has not executed any waiver of any statute of limitations on the
assessment or collection of any Tax or executed or filed with any Governmental
Body any Contract now in effect extending the period for assessment or
collection of any Taxes against it in respect of the Business, its assets or
employees.  There are no Encumbrances for
Taxes upon, or pending or Threatened against, any Purchased Asset.  Seller is not subject to any Tax allocation
or sharing Contract relating to the Business. 
Seller (i) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common parent of
which was Seller) or (ii) has no Liability for the Taxes of any Person under
Treas. Reg. Section 1.1502-6 or similar Law, as a transferee or successor, by
Contract, or otherwise.

 

6.10        Title to Purchased Assets.

 

Seller has
good, marketable, and indefeasible title to all of the Purchased Assets, in
each case free and clear of all Encumbrances. 
Upon and following the Closing, Buyer will have good, marketable, and
indefeasible title to all of the Purchased Assets, in each case free and clear
of all Encumbrances.  The Purchased Assets
constitute all the assets used in the operation of the business since January
31, 2005 (other than inventory sold and accounts receivable in the Ordinary
Course of Business).

 

6.11        Intellectual Property.

 

(a)           With respect to each Trade Secret constituting Purchased
Assets, the documentation provided to Buyer relating to such Trade Secret is
current, accurate, and sufficient in detail and content to identify and explain
it and to allow its full and proper use by Buyer without reliance on any
individual’s knowledge or memory.  Seller
has taken all reasonable precautions to protect such Trade Secret’s secrecy,
confidentiality, and value.  No such
Trade Secret is part of the public knowledge or literature or, to Seller’s
Knowledge, has been used, divulged, or appropriated either for the benefit of
any third person or the detriment of the Business.  No such Trade Secret required is subject to
any adverse claim nor has any adverse claim been Threatened with respect to any
such Trade Secret and there is no Basis therefor.

 

(b)           Seller owns or has the right to use pursuant to an
Enforceable Contract all Intellectual Property necessary or desirable to
operate the Business.  Each item of
Intellectual Property used by Seller in the operation of the Business immediately
prior to the Closing will be owned or available for use by Buyer on identical
terms and conditions immediately subsequent to the Closing.  Seller has taken all necessary and desirable
action to maintain and protect the ownership, confidentiality and value of each
item of Intellectual Property that it owns or uses.

 

(c)           Seller has delivered to Buyer correct and complete copies
of all written documentation evidencing ownership and prosecution (if
applicable) of each item of

 

15

 

Intellectual
Property used by Seller in the operation of the Business.  With respect to each such item of
Intellectual Property:

 

(i)            Seller possesses all right, title, and interest in and to
the item, free and clear of any Encumbrance;

 

(ii)           the item is not subject to any outstanding Order;

 

(iii)          no Action is pending or Threatened (and there is no Basis
therefor) which challenges the Enforceability, use, or ownership of the item;
and

 

(iv)          Seller has never agreed to indemnify any person for or
against any interference, infringement, misappropriation, or other conflict
with respect to the item.

 

(d)           In respect of the Business, Seller has not interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
other person’s Intellectual Property, and Seller has never received any notice
alleging any such interference, infringement, misappropriation, violation or
conflict (including any claim that Seller must license or refrain from using
any other person’s Intellectual Property). 
No third Person has any Intellectual Property that interferes or would
be likely to interfere with Buyer’s use of any of its Intellectual
Property.  Buyer’s use of such
Intellectual Property in the same manner as used by Seller will not interfere
with, infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of any other Person as a result of the continued
operation of the Business as currently conducted and as currently proposed to
be conducted.  To Seller’s Knowledge, no
other Person has interfered with, infringed upon, misappropriated, or otherwise
come into conflict with the Intellectual Property used in the operation of the
Business.

 

(e)           No former and current employees engaged in the Business
have executed written Contracts with Seller that assign to Seller all rights to
any inventions, improvements, discoveries, or information relating to the
Business.  No employee engaged in the
Business has entered into any Contract that restricts or limits in any way the
scope or type of work in which the employee may be engaged or requires the
employee to transfer, assign, or disclose information concerning his work or
her work to any person other than Seller.

 

6.12        Contracts.

 

Each material
Contract (as amended to date) related to the Business, including the Contracts
with AEO and Target, is listed in Schedule 6.12 (the “Material Contracts”).  Seller has delivered to Buyer a correct and
complete copy of each such contract. 
With respect to each such Material Contract:

 

(i)            the Contract is Enforceable;

 

(ii)           the Contract will continue to be Enforceable on identical
terms following the consummation of the Transactions;

 

16

 

(iii)          Seller is, and to Seller’s Knowledge the other parties to
such Contracts are, not in Breach of such Contract, and no event has occurred
that, with notice or lapse of time, would constitute a Breach under the
Contract; and

 

(iv)          no party to the Contract has repudiated any provision of
the Contract.

 

6.13        Purchase
Commitments.

 

As of March
21, 2006, the aggregate of all accepted and unfulfilled orders for the sale of
merchandise relating to the Business entered into by Seller is at least $17,991,242.13,
all of which orders and commitments were made in the Ordinary Course of
Business and are listed on Schedule 6.13 and, to Seller’s Knowledge, all of
such orders will be fulfilled within the time specified by such order.  There are no claims against Seller to return
merchandise relating to the Business by reason of alleged overshipments,
defective merchandise or otherwise, or of merchandise in the hands of customers
under an understanding that such merchandise would be returnable.  No ordinary purchase or outstanding lease
commitment of Seller relating to the Business presently is in excess of the
normal, ordinary and usual requirements of the Business or was made at any
price in excess of the now current market price or contains terms and
conditions more onerous than those usual and customary in the Business.

 

6.14        Litigation.

 

Schedule 6.14
sets forth each instance in which Seller (a) is subject to any outstanding
Order or (b) is a party, the subject of, or, to Seller’s Knowledge, is
Threatened to be made a party to or the subject of any Action.  No Action required to be set forth in Schedule
6.14 questions the Enforceability of this Agreement or the Transactions, or
could result in any Material Adverse Change with respect to Seller.

 

6.15        Product Warranty.

 

Each product
manufactured, sold, leased, or delivered by Seller for the Business has been in
conformity with all applicable Law, Contracts, and all express and implied
warranties, and neither Seller nor the Business has any Liability (and there is
no Basis for any present or future Action against Seller or the Business giving
rise to any Liability) for replacement or repair thereof or other damages in
connection therewith.  No product
designed, manufactured, sold, leased, or delivered by Seller for the Business
is subject to any guaranty, warranty, or other indemnity or similar Liability
beyond the applicable standard terms and conditions of sale or lease.  Schedule 6.15 includes copies of the
standard terms and conditions of sale or lease for products and services
offered by the Business.

 

6.16        Employees.

 

(a)   Schedule 6.16(a) contains a complete and accurate list of
the following information for each employee, director, independent contractor,
consultant and agent of Seller primarily engaged in the Business, including
each employee on leave of absence or layoff status: employer; name; job title;
date of hiring or engagement; date of commencement of employment or engagement;
current compensation paid or payable

 

17

 

and any change in compensation since January
1, 2005; sick and vacation leave that is accrued but unused; and service
credited for purposes of vesting and eligibility to participate under any
Employee Benefit Plan, or any other employee or director benefit plan.

 

(b)   Schedule 6.16(b) states the number of employees engaged in
the Business terminated by Seller since September 1, 2005, and contains a
complete and accurate list of the following information for each employee
engaged in the Business who has been terminated or laid off, or whose hours of
work have been reduced by more than fifty percent (50%) in the six (6) months
prior to the Execution Date: (i) the date of such termination, layoff or
reduction in hours; (ii) the reason for such termination, layoff or reduction
in hours; and (iii) the location to which the employee was assigned.

 

(c)   Seller has not violated, and the consummation of the transactions
contemplated hereby will not violate, the Worker Adjustment and Retraining
Notification Act (the “WARN
Act”) or any similar state or local Law.

 

(d)   To Seller’s Knowledge, no employee, consultant, or contractor
engaged in the Business is bound by any Contract that purports to limit the
ability of such employee, consultant, or contractor (i) to engage in or
continue or perform any conduct, activity, duties or practice relating to the
Business or (ii) to assign to Seller or to any other Person any rights to any
invention, improvement, or discovery.  No
former or current employee of the Business is a party to, or is otherwise bound
by, any Contract that in any way adversely affected, affects, or will affect
the ability of Buyer to conduct the Business as heretofore carried on by
Seller.

 

(e)   Seller is not a party to or bound by any collective bargaining
Contract relating to the Business, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes relating to the Business. 
Seller has not committed any unfair labor practice (as determined under
any Law) relating to the Business.  Seller
has no Knowledge of any organizational effort currently being made or
Threatened by or on behalf of any labor union with respect to any persons
employed for the Business.

 

(f)    The Business is in compliance in all material respects with all
currently applicable Law respecting terms and conditions of employment
including, without limitation, applicant and employee background checking,
immigration laws, discrimination laws, verification of employment eligibility,
employee leave laws, classification of workers as employees and independent
contractors, wage and hour laws, and occupational safety and health laws.  There are no Actions pending or, to the
Seller’s Knowledge, reasonably expected or Threatened, between the Business, on
the one hand, and any or all of its current or former employees, on the other
hand, including, but not limited to, any claims for actual or alleged
harassment or discrimination based on race, national origin, age, sex, sexual
orientation, religion, disability, or similar tortious conduct, breach of
Contract, wrongful termination, defamation, intentional or negligent infliction
of emotional distress, interference with Contract or interference with actual
or prospective economic advantage.  There
are no claims pending, or, to the Seller’s

 

18

 

Knowledge, reasonably expected or Threatened,
against the Business under any workers’ compensation or long term disability
plan or policy.

 

6.17        Employee Benefits.

 

Schedule 6.17 lists each “employee benefit
plan” within the meaning of Section 3(3) of ERISA, “multiemployer plan” within
the meaning of Section 3(37) of ERISA, non-qualified deferred compensation
plan, qualified defined contribution retirement plan, qualified defined benefit
retirement plan, severance or retiree welfare plan or program or other material
fringe benefit plan or program that Seller or any ERISA Affiliate sponsors or
maintains for the Business or to which Seller or any ERISA Affiliate
contributes (or has an obligation to contribute) in respect of the Business
(the “Employee Benefit Plans”).  With respect to any employee benefit plan,
within the meaning of Section 3(3) of ERISA, which is sponsored, maintained or
contributed to, or has been sponsored, maintained or contributed to, within six
years prior to the Closing Date, by Seller or any ERISA Affiliate, (a) no
withdrawal liability, within the meaning of Section 4201 of ERISA, has been
incurred, (b) no Liability to the PBGC has been incurred by Seller or any ERISA
Affiliate, (c) no accumulated funding deficiency, whether or not waived, within
the meaning of Section 302 of ERISA or Section 412 of the Code has been
incurred, and (d) all contributions (including installments) to such plan
required by Section 302 of ERISA and Section 412 of the Code and all
contributions required to be made to any “multiemployer plan” within the
meaning of Section 3(37) of ERISA have been timely made.  With respect to any kind of employee benefit
plan for the Business, such plan has been funded and maintained in compliance
with all Laws applicable thereto and the requirements of such plan’s governing
documents.  None of the Purchased Assets
are subject to a lien or security interest imposed by Section 401(a)(29) or
412(n) of the Code or by ERISA and no event has occurred and no circumstance
exists under which could result in the imposition of such a lien or security
interest on any of the Purchased Assets.

 

6.18        Environmental, Health, and Safety
Matters.

 

Except as set
forth in Schedule 6.18, (a) Seller has complied and is in compliance
with all Environmental, Health, and Safety Requirements in connection with
owning, using, maintaining, or operating the Business or any assets related
thereto, (b) each location at which Seller operates or has operated the
Business is in compliance with all Environmental, Health, and Safety
Requirements, and (c) there are no pending, or any Threatened, allegations by
any Person that any of the assets or properties the Business are not, or have
not been, conducted in compliance with all Environmental, Health, and Safety
Requirements.

 

6.19        Customers and Suppliers.

 

Schedule 6.19
lists the Business’s two (2) largest customers during the 12 month period
ending on the date hereof.  Except as set
forth in Schedule 6.19, Seller has not received notice of termination or
an intention to terminate the relationship with the Business from AEO, Target
or any other customer.

 

19

 

6.20        Permits.

 

Seller
possesses all Permits required to be obtained for operation of the
Business.  Schedule 6.20 sets
forth a list of all such Permits.  Except
as set forth in Schedule 6.20, with respect to each such Permit:

 

(a)           it is valid, subsisting and in full force and effect and
is transferable to Buyer without consent of any Person;

 

(b)   there are no violations of such Permit that could reasonably be
expected to result in a termination of such Permit;

 

(c)   Seller has not received notice that such Permit will not be
renewed; and

 

(d)   the Transactions will not adversely affect the validity of such
Permit or cause a cancellation of or otherwise adversely affect such Permit.

 

6.21        Solvency.

 

(a)           Seller is not now
insolvent, nor will Seller be rendered insolvent by any of the
Transactions.  As used herein, “insolvent”
means that the sum of the Liabilities of Seller exceeds the fair present value
of its assets.

 

(b)           Immediately after giving effect to the consummation of the
Transactions:

 

(i)            Seller
will be able to pay its Liabilities as they become due in the Ordinary Course
of Business of Seller;

 

(ii)           Seller
will not have unreasonably small capital with which to conduct its present or
proposed business;

 

(iii)          Seller
will have assets (calculated at fair market value) that exceed its Liabilities;
and

 

(iv)          Taking
into account all pending and Threatened Actions, final judgments against Seller
in Actions for money damages are not reasonably anticipated to be rendered at a
time when, or in amounts such that, Seller will be unable to satisfy any such
judgments promptly in accordance with their terms (taking into account the
maximum probable amount of such judgments in any such Actions and the earliest
reasonable time at which such judgments might be rendered) as well as all other
obligations of Seller.

 

6.22        Accuracy of Information Furnished.

 

No
representation, statement, or information contained in this Agreement
(including the Schedules) or any Contract or document executed in connection
herewith or delivered pursuant hereto or thereto or made available or furnished
to Buyer or its representatives by Seller contains or will contain any untrue
statement of a material fact or omits or will omit any material fact

 

20

 

necessary to
make the information contained therein not misleading.  Seller has provided Buyer with correct and
complete copies of all documents listed or described in the Schedules.  Notwithstanding the foregoing, (a) except as
otherwise provided in Section 7.6, Buyer may only rely on the most
recent version of any information Seller furnishes to Buyer that supersedes
previous information provided to Buyer, provided that Seller indicates in
writing that such information supersedes previous information provided
(specifying which information is superseded) and (b) subject to the next
sentence, Seller will not be Liable with respect to financial projections or
estimates of the Business’s future performance. 
All projections and estimates that have been provided to Buyer at the
time of creation were reasonably made in good faith based on reasonable
assumptions, given the circumstances at the time such assumptions were made.

 

6.23        Certain
Business Practices.

 

Neither Seller
nor Innovo, nor, to the Knowledge of Seller, any director, officer, agent or
employee of Seller or Innovo has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity,
(ii) made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or
(iii) made any other unlawful payment.

 

6.24        Proxy
Statement.

 

None of the
information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the proxy statement prepared by Seller in
connection with obtaining stockholder approval of the transactions contemplated
hereby (the “Proxy Statement”)
will, at the date it is first mailed to the Seller’s stockholders and at the
time of the Seller stockholder meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by the Seller with respect to statements made or
incorporated by reference therein based on information supplied in writing by
Buyer specifically for inclusion or incorporation by reference therein.  The Proxy Statement will comply as to form in
all material respects with the requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder.

 

6.25        Fairness
Opinion.

 

Seller has
received an acceptable fairness opinion respecting the adequacy of
consideration received by Seller from the Transactions.

 

6.26        Representations
Complete.

 

Except as and to the extent set forth in this
Agreement, Seller makes no representations or warranties whatsoever (including
any implied or express warranty of merchantability, fitness for a particular
purpose, or conformity to models or samples of materials) to Buyer and Seller
hereby disclaims all Liability and responsibility for any representation,
warranty, statement, or

 

21

 

information not included herein that was
made, communicated, or furnished (orally or in writing) to Buyer or its
representatives (including any opinion, information, projection, or advice that
may have been or may be provided to Buyer by any director, officer, employee,
agent, consultant, or representative of Seller).

 

ARTICLE 7.

PRE-CLOSING COVENANTS

 

The Parties
agree as follows with respect to the period between the Execution Date and the
earlier of the Closing and the Termination Date:

 

7.1          General.

 

Each Party
will use its Best Efforts to take all actions and do all things necessary,
proper, or advisable to consummate, make effective, and comply with all of the
terms of this Agreement and the Transactions applicable to it (including
satisfaction, but not waiver, of the Closing conditions for which it is
responsible or otherwise in control, as set forth in ARTICLE 9).

 

7.2          Notices and Consents.

 

(a)           Seller will give any notices to third parties, and will
use its respective Best Efforts to obtain any third party Consents listed on Schedule
6.3, or that Buyer reasonably may otherwise request in connection with the
matters referred to in Section 6.3. 
Seller will give any notices to, make any filings with, and use its Best
Efforts to obtain any Consents of Governmental Bodies, if any, required or
reasonably deemed advisable by Buyer pursuant to any applicable Law in
connection with the Transactions including in connection with the matters
referred to in Section 6.3.

 

(a)           Buyer will give any notices to third parties, and will use
its Best Efforts to obtain any third party Consents listed on Schedule 5.3,
that Seller reasonably may otherwise request in connection with the matters
referred to in Section 5.3.  Buyer
will give any notices to, make any filings with, and use its Best Efforts to
obtain any Consents of Governmental Bodies, if any, required or reasonably
deemed advisable by Seller pursuant to any applicable Law in connection with
the Transactions including in connection with the matters referred to in Section
5.3.

 

(b)           Nothing in this Section 7.2 will require that (i)
Buyer or its Affiliates divest, sell, or hold separately any of its assets or
properties, or (ii) Buyer, its Affiliates, or Seller (the determination with
respect to which Buyer will make) take any actions that could affect the normal
and regular operations of Buyer, its Affiliates, or the operation of the
Business after the Closing.

 

7.3          Operation of Business.

 

Seller shall
not engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business of the Business or engage in any
practice, take any

 

22

 

action, or
enter into any transaction of the sort described in Section 6.6.  Subject to compliance with applicable Law,
Seller will confer on a regular and frequent basis with one or more
representatives of Buyer to report on operational matters and the general
status of the Business and its operations and finances and will promptly
provide to Buyer or its representatives copies of all filings made with any
Governmental Body during such period on behalf of the Business.

 

7.4          Preservation of Business.

 

Seller will
use its Best Efforts to keep the Business and its properties, including without
limitation the Trade Secrets and Intellectual Property included in the
Purchased Assets, substantially intact, including its present operations,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.

 

7.5          Full Access.

 

Seller will
permit representatives of Buyer (including financing providers) to have full
access at all reasonable times, and in a manner so as not to interfere with the
normal business operations of the Business, to all premises, properties,
personnel, books, records, Contracts, and documents pertaining to the Business
and will furnish copies of all such books, records, Contracts and documents and
all financial, operating and other data, and other information as Buyer may
reasonably request; provided, however, that no investigation
pursuant to this Section 7.5 will affect any representations or
warranties made herein or the conditions to the Parties’ obligations to
consummate the Transactions.

 

7.6          Notice of Developments.

 

Seller will
give prompt written notice to Buyer of any development occurring after the
Execution Date which causes or reasonably could be expected to cause a Breach
of any of the representations and warranties in ARTICLE 6.  Buyer will give prompt written notice to
Seller of any development occurring after the Execution Date which causes or
reasonably could be expected to cause a Breach of any of the representations
and warranties in ARTICLE 5.  No
disclosure by any Party pursuant to this Section 7.6 or otherwise will
be deemed to amend or supplement the Schedules or to prevent or cure any
misrepresentation or Breach of any representation, warranty, or covenant.

 

7.7          Exclusivity.

 

Neither Seller
nor Innovo nor any of their respective Affiliates, officers, directors,
employees, agents or representatives, will (a) solicit, initiate, or encourage
the submission of any proposal or offer from any Person relating to the
acquisition of any Equity Interests of Seller or Innovo or any portion of the
assets used in the Business (including any acquisition structured as a merger,
consolidation, or share exchange) or (b) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. 
Seller will notify Buyer immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing and the terms
of any such proposal, offer, inquiry, or contact.

 

23

 

7.8          Confidentiality; Publicity.

 

Except as may
be required by Law, stock exchange or as otherwise expressly contemplated
herein, no Party or their respective Affiliates, employees, agents, and
representatives will disclose to any third party the existence of this
Agreement, the subject matter or terms hereof or any Confidential Information
concerning the business or affairs of any other Party (including, in respect of
Seller, the Business) that it may have acquired from such Party in the course
of pursuing the Transactions without the prior written consent of Seller or
Buyer, as the case may be; provided, however, any Party may disclose any
such Confidential Information as follows: (a) to such Party’s Affiliates and
its or its Affiliates’ employees, lenders, counsel, or accountants, the actions
for which the applicable Party will be responsible; (b) to comply with any
applicable Law or Order, provided that prior to making any such disclosure the
Party making the disclosure notifies the other Party of any Action of which it
is aware which may result in disclosure and uses its Best Efforts to limit or
prevent such disclosure; (c) to the extent that the Confidential Information is
or becomes generally available to the public through no fault of the Party or
its Affiliates making such disclosure; (d) to the extent that the same
information is in the possession (on a non-confidential basis) of the Party
making such disclosure prior to receipt of such Confidential Information; (e) to
the extent that the Party that received the Confidential Information
independently develops the same information without in any way relying on any
Confidential Information; or (f) to the extent that the same information
becomes available to the Party making such disclosure on a nonconfidential
basis from a source other than a Party or its Affiliates, which source, to the
disclosing Party’s Knowledge, is not prohibited from disclosing such
information by a legal, Contractual, or fiduciary obligation to the other
Party.  If the Transactions are not
consummated, each Party will return or destroy as much of the Confidential
Information concerning the other Party as the Parties that have provided such
information may reasonably request. 
Whether or not the Closing takes place, Seller waives any cause of
Action arising out of the access of Buyer or its representatives to any
Confidential Information of Seller or the Business.  Notwithstanding the foregoing, Buyer may make
such public disclosure of the existence of this Agreement, the principal
economic terms thereof, and the status with respect to achieving the Closing as
it desires; provided, that Buyer will consult with Seller prior to
releasing any such public disclosure so that the Seller may notify its employees
of the Transactions.  Seller will not nor
will it permit any of its Affiliates to, issue any press release or other
public announcement related to this Agreement or the Transactions without Buyer’s
prior written approval.  Following the
Closing, Buyer may disclose any Confidential Information regarding the Business
as it deems appropriate.

 

7.9          Charges and Fees.

 

Seller will,
prior to the Closing, take such steps as are necessary to ensure that no sums
are owed or payable by Buyer to any Person in the nature of a transfer charge
or processing fee with respect to any of the Purchased Assets.

 

ARTICLE 8.

ADDITIONAL COVENANTS

 

The Parties
agree as follows:

 

24

 

8.1          General.

 

In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each Party will take such further action (including executing and
delivering such further instruments and documents) as any other Party
reasonably may request, all at the requesting Party’s sole cost and expense
(unless the requesting Party is entitled to indemnification therefor under ARTICLE
11).  After the Closing, Buyer will
be entitled to possession of all documents, books, records, agreements, and
financial data of any sort relating to the Business.  Seller will, and will cause its officers,
directors, employees, agents and Affiliates to cooperate with Buyer in the
preparation of audited financial statements for the Business, and shall be
responsible for the direct costs associated with such audit.

 

8.2          Litigation Support.

 

So long as any
Party actively is contesting or defending against any Action in connection with
(a) the Transactions or (b) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction on or prior to the Closing Date involving the
Business, each other Party will cooperate with such Party and such Party’s
counsel in the contest or defense, make available their personnel, and provide
such testimony and access to their books and records as will be necessary in
connection with the contest or defense, at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party or one
of its Affiliates is entitled to indemnification therefor under ARTICLE 11).

 

8.3          Transition.

 

Neither Seller
nor Innovo, nor any of their respective Affiliates, directors, officers,
employees, agents or representatives, will take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Business from maintaining at least
as favorable business relationships with Buyer after the Closing as it
maintained with Seller prior to the Closing. 
Seller will, and will cause its Affiliates to, refer all customer,
supplier, and other inquiries relating to the Business to Buyer or an Affiliate
thereof.

 

8.4          Confidentiality.

 

Seller will,
and will cause its Affiliates, employees, agents and representatives to, treat
and hold as such all of the Confidential Information, refrain from using any of
the Confidential Information except in connection with this Agreement, and
deliver promptly to Buyer or destroy, at the request and option of Buyer, all
tangible embodiments (and all copies) of the Confidential Information which are
in Seller’s possession in each case, forever. 
If Seller is ever requested or required (by oral question or request for
information or documents in any Action) to disclose any Confidential
Information, Seller will notify Buyer promptly of the request or requirement so
that Buyer may seek an appropriate protective Order or waive compliance with
this Section 8.4.  If, in the
absence of a protective Order or the receipt of a waiver hereunder, Seller, on
the written advice of counsel, is compelled to disclose any Confidential
Information to any Governmental Body, arbitrator, or mediator or else stand
Liable for contempt, then Seller may disclose the

 

25

 

Confidential
Information to the Governmental Body, arbitrator, or mediator; provided,
however; that Seller will use its Best Efforts to obtain, at the request of
Buyer, an Order or other assurance that confidential treatment will be accorded
to such portion of the Confidential Information required to be disclosed as
Buyer may designate.

 

8.5          Restrictive Covenants.

 

To assure that
Buyer will realize the benefits of the Transactions, Seller hereby agrees with
Buyer that Seller shall not, and shall cause its Affiliates to not:

 

(a)           From the Closing Date until four (4) years after the
Closing Date, directly or indirectly, alone or as a partner, joint venturer,
officer, director, member, employee, consultant, agent, independent contractor
or Equity Interest holder of, or lender to, any Person or business, engage in,
induce, canvass, solicit or accept any business or commercial arrangements with
AEO, Target or any of their respective Affiliates.

 

(b)           From the Closing Date until two (2) years after the
Closing Date, directly or indirectly employ or knowingly permit any Affiliate
of Seller to employ or solicit for employment or other similar relationship
with Seller, any employee or independent contractor of Buyer or any of its
Affiliates if such Person had been employed by Seller in connection with the
Business (including employed as an independent contractor) on the Effective
Date, except for any employees or independent contractors of the Business as of
such date that were not hired by Buyer at any time during such two (2) year
period.

 

The foregoing agreements in
clauses (a) and (b) are hereinafter referred to as the “Restrictive Covenants”.  Notwithstanding the foregoing, the beneficial
ownership of less than 3% of the Equity Interests of any Person having a class
of Equity Interest actively traded on a national securities exchange or
over-the-counter market will not be deemed, in and of itself, to Breach the
prohibitions of this Section 8.5. 
Seller agrees and acknowledges that the restrictions in this Section
8.5 are reasonable in scope and duration and are necessary to protect Buyer
after the Closing. Seller acknowledges that if it or any of its Affiliates were
to compete with the Business following the Closing, great harm would come to
the Buyers and the Business, thereby destroying any value associated with the
purchase of the Purchased Assets and the goodwill of the Business.  The Restrictive Covenants set forth herein
have been separately bargained for to protect the Business, including goodwill,
being acquired by the Buyer hereunder and to ensure that the Buyers shall have
the full benefit of the value thereof. 
Seller recognizes and acknowledges that the business and markets of the
Business are international in scope, and that the Buyer is investing
substantial sums in purchasing the Purchased Assets and in consideration for
the Restrictive Covenants contained in this Agreement, that such covenants are
necessary in order to protect and maintain the legitimate business and investment
interests of the Buyer and are reasonable in all respects, and that the Buyer
would not consummate the transactions contemplated hereby but for such
agreements.  Seller hereby waives any and
all right to contest the validity of the Restrictive Covenants on the ground of
the breadth of their geographic or product coverage or the length of their
term.  Seller acknowledges and agrees
that an adequate portion of the Purchase Price has been allocated to
Restrictive Covenants and Seller hereby waives any right to assert inadequacy
of consideration as a defense to enforcement of the Restrictive Covenants
should such enforcement ever become necessary. 
If Seller or any Affiliate

 

26

 

thereof is found to have Breached
this Section 8.5, then, in addition to all other remedies that may be
available to the applicable Person, an amount of time equal to the period
Seller or such Affiliate was found to be in Breach of this Section 8.5
will be added to the time periods contemplated by this Section 8.5.  If any provision of this Section 8.5,
as applied to any Party or to any circumstance, is adjudged by a Governmental
Body, arbitrator, or mediator not to be enforceable in accordance with its
terms, the same will in no way affect any other circumstance or the
enforceability of the remainder of this Agreement.  If any such provision, or any part thereof,
is held not to be enforceable in accordance with its terms because of the
duration of such provision, the area covered thereby, or the scope of the
activities covered, the Parties agree that the Governmental Body, arbitrator,
or mediator making such determination will have the power to reduce the
duration, area, and/or scope of activities of such provision, and/or to delete
specific words or phrases, and in its reduced form, such provision will then be
enforceable in accordance with its terms and will be enforced.  The Parties agree and acknowledge that the
Breach of this Section 8.5 will cause irreparable damage to Buyer and
the Business, and upon Breach of any provision of this Section 8.5,
Buyer will be entitled to injunctive relief, specific performance, or other
equitable relief without bond or other security; provided, however,
that the foregoing remedies will in no way limit any other remedies which Buyer
may have.

 

8.6          Use of Names.

 

From and after
the Closing Date Buyer and its Affiliates will have the royalty-free right to
refer to the Business as formerly “the Blue Concepts Division of Azteca
Production International” “and to use such reference in advertising or in the
description or name of any service or product from time to time purchased,
processed, manufactured, or sold by Buyer and its Affiliates in continuation of
the Business.

 

8.7          Taxes.

 

(a)           Seller will be Liable for and will pay all Taxes (whether
assessed or unassessed) applicable to the Business and the Purchased Assets, in
each case attributable to periods (or portions thereof) ending on or prior to
the Closing Date, including, without limitation, any Taxes arising out of the
consummation of the transactions contemplated hereby.  Buyer will be Liable for and will pay all
Taxes (whether assessed or unassessed) applicable to the Business and the
Purchased Assets, in each case attributable to periods (or portions thereof)
beginning after the Closing Date.  For
purposes of this Section 8.7(a), any period beginning before and ending
after the Closing Date will be treated as two partial periods, one ending on
the Closing Date and the other beginning after the Closing Date, except that
Taxes (such as property Taxes) imposed on a periodic basis will be allocated on
a daily basis.

 

(b)           For purposes of Section 8.7(a), all real property
Taxes, personal property Taxes and similar ad valorem obligations levied with
respect to the Purchased Assets for a Tax period that includes (but does not
end on) the Closing Date shall be apportioned between the Seller and the Buyer
based upon the number of days of such period included in the Tax period before
(and including) the Closing Date and the number of days of such Tax period
after the Closing Date). Seller, on the one hand, and Buyer, on the other hand,
will provide reimbursement for any Tax paid by one Party all or a portion of
which is the

 

27

 

responsibility of the other Party in
accordance with the terms of this Section 8.7(b).  Within a reasonable time prior to the payment
of any said Tax, the Party paying such Tax will give notice to the other Party
of the Tax payable and the portion which is the Liability of each Party,
although failure to do so will not relieve the other Party from its Liability
hereunder.

 

(c)           Notwithstanding anything herein to the contrary, any sales
Tax, use Tax, real property transfer or gains Tax, documentary stamp Tax, or
similar Tax attributable to the sale or transfer of the Purchased Assets will
be paid by Seller.  Buyer agrees to
timely sign and deliver such certificates or forms as may be necessary or
appropriate to establish an exemption from (or otherwise reduce), or make a
report with respect to, such Taxes.

 

(d)           Any payments made pursuant to this Section 8.7 or ARTICLE
11 will be treated by Buyer and Seller as an adjustment to the Purchase
Price.

 

(e)           Seller will promptly after the Closing prepare and file
all Tax Returns and other reports required by Law, relating to the operation of
the Business through and including the Closing Date.

 

8.8          Employees and Employee Benefit Plans.

 

(a)           Information on Active
Employees.  For the purpose of
this Agreement, the term “Active
Employees” will mean all employees actively employed in good
standing on the Closing Date by Seller primarily for the operation of the
Business and listed as “employees” on Schedule 6.16(a).

 

(b)           Employment
of Active Employees by Buyer.

 

(i)            Buyer shall make Qualifying Offers to all Active
Employees.  Buyer will provide Seller
with a list of Active Employees to whom Buyer has made an offer of employment
that has been accepted to be effective as of the Closing Date (the “Hired Active Employees”).  Seller will provide Buyer with reasonable
access to the Seller’s facilities and personnel records (including performance
appraisals, disciplinary actions, grievances, and medical records) for the
purpose of preparing Qualifying Offers to the Active Employees; provided,
however, that Seller shall provide such access only to those human
resource designees of the Buyer who Buyer agrees will only reveal such
personnel information to individuals with Buyer having actual hiring authority
or who participate directly in actual hiring decisions.  Effective immediately before the Closing,
Seller will terminate the employment of all of its Active Employees.  Seller, with respect to the Active Employees,
shall timely give all notices required to be given under the WARN ACT or
similar statutes or regulation of any jurisdiction relating to any plant
closing or mass lay-off or as otherwise required by law.  Notwithstanding any other provision contained
herein, Seller agrees to fully indemnify Buyer for any and all liability
incurred by Buyer under the WARN Act with respect to Active Employees as a
result of the transaction contemplated by this Agreement.

 

28

 

(ii)           For a period of ninety (90) days following the Closing Date,
Buyer may not terminate the employment of any Hired Active Employee, except in
the case of any such termination for cause. 
Following such ninety (90) day period, each Hired Active Employee shall
be employed at will by Buyer as employees of Buyer (subject to any applicable
probation period not prohibited by law) to occupy positions designated by Buyer
and pursuant to the terms and conditions determined by Buyer in its sole
discretion.

 

(c)           Salaries
and Benefits.

 

(i)            Seller will be responsible for (A) the payment of all
wages and other remuneration liabilities and obligations due to Active
Employees with respect to their services as employees of Seller, including pro
rata bonus payments and all vacation pay earned prior to the Closing Date, (B)
the payment of any termination or severance payments and the provision of
health plan continuation coverage in accordance with the requirements of
Sections 601 through 608 of ERISA, and (C) any and all payments to employees
required under the WARN Act.

 

(ii)           Seller will be liable for any claims made or incurred by
Active Employees and their beneficiaries through the Closing Date under the
Employee Benefit Plans.  For purposes of
the immediately preceding sentence, a charge will be deemed incurred, in the
case of hospital, medical or dental benefits when the services that are the
subject of the charge are performed and, in the case of other benefits (such as
disability or life insurance), when an event has occurred or when a condition
has been diagnosed that entitles the employee to the benefit.

 

(iii)          Buyer assumes no obligation to continue or assume any
Employee Benefit Plans, compensation arrangements or liabilities of Seller
(including, but not without being limited to, any salary, bonuses, vacation,
sick leave, fringe benefits, insurance plans, or pension or retirement benefits
under any compensation or retirement plan or policy maintained by Seller).

 

(d)           Employee Benefit Plans.  All
Hired Active Employees who are participants in Seller’s Employee Benefit Plans
will retain their accrued benefits under such plans as of the Closing Date, and
Seller will retain sole liability for the payment of such benefits as and when
such Hired Active Employees become eligible therefor under such plans.  All Hired Active Employees will become fully
vested in their accrued benefits under Seller’s Employee Benefit Plans as of
the Closing Date, and Seller will so amend such plans if necessary to achieve
this result.  Neither Seller nor any
ERISA Affiliate of Seller will make any transfer of any Employee Benefit Plan
assets to Buyer.  Seller also agrees to
retain responsibility for medical and disability payments to employees engaged
primarily in the Business but on medical or disability leave at the Closing
Date until such time as such employee is, if ever, offered employment by Buyer,
in its sole discretion, or as otherwise required under applicable law or
regulation.  Any Active Employee or
qualified beneficiary thereof and who is covered, or who is eligible to elect
to continue his or her coverage, as of or following the Closing Date, under any

 

29

 

Employee Benefit Plan that constitutes a “group
health plan,” pursuant to the provision of Part 6 of Title I, Substitute B or
ERISA or Section 4980B of the Code, shall be eligible to continue such coverage
under the Seller’s plan for the remainder of the applicable continuation
coverage period and Seller shall not terminate any such plan prior to the end
of the applicable coverage period.  Seller
agrees to indemnify Buyer for all losses incurred by Buyer or Buyer’s group
health plan resulting from any claim for COBRA continuation coverage made by or
on behalf of any current or former employee of Seller or its ERISA Affiliates
or a qualified beneficiary of such an employee under any plan maintained by
Buyer or its Affiliates except to the extent that such employee is a Hired
Active Employee and has become an active participant in Buyer’s “group health
plan.”

 

(e)           General
Employee Provisions.

 

(i)            Seller will provide Buyer with completed I-9 forms and
attachments with respect to all Active Employees, except for such employees as
Seller certifies in writing to Buyer are exempt from such requirement.  The Parties intend that the Buyer qualify as
a “successor employer” for purposes of receiving credit for the payment of
taxes under the Federal Insurance Contribution Act and Federal Unemployment Tax
Act by Seller with respect to the Hired Active Employees within the meaning of
Section 3121 and 3306 of the Code. 
Accordingly, the Parties shall cooperate with each other to effectuate
the foregoing.

 

(ii)           Buyer will not have any Liability or obligation, whether
to Active Employees, former employees, their beneficiaries or any other Person,
with respect to any Employee Benefit Plans, practices, programs or arrangements
(including the establishment, operation or termination thereof and the
notification and provision of COBRA coverage extension) maintained, sponsored
or contributed to by Seller or any ERISA Affiliate.

 

8.9          Payment of Non-Assumed Liabilities.

 

In addition to
payment of Taxes pursuant to Section 8.7, Seller will timely pay, or
make adequate provision for the timely payment, in full of all Excluded
Liabilities.  If any such Excluded
Liabilities are not so paid or provided for, or if Buyer reasonably determines
that failure to make any payments will impair Buyer’s use or enjoyment of the
Purchased Assets or conduct of the Business, Buyer may, at any time after the
Closing, elect to pay any or all of such Excluded Liabilities directly (but
will have no obligation to do so) and treat such payment as damages under this
Agreement so that Buyer will be entitled to exercise the remedies available to
it under ARTICLE 11 of this Agreement (without regard to the limitations
in Section 11.5).

 

8.10        No Liability.

 

Seller shall
protect and indemnify Buyer from and Buyer shall not assume, acquiesce, accede
to or otherwise become Liable for or with respect to, any Liabilities or
obligations of any kind or nature of Seller or of the Business which exist as
of the Closing Date or arise from, accrue by reason of, or relate in any
material way to, any Contract, account, event or occurrence

 

30

 

before the
Closing Date.  Without limiting the
generality of the foregoing, Buyer shall have no Liability of any kind with
respect to returns, warranty claims, charge-backs product liability claims or
other adjustments, charges or claims with respect to goods or services sold or
delivered by Seller or the Business before the Closing Date.

 

8.11        Updated Financial Statements.

 

As soon as available and in any event within
thirty (30) days after the end of each month prior to the Closing Date,
commencing with March 2006, the Seller shall deliver to the Buyer a balance
sheet and related statements of operations and cash flows of the Business as
of, and for the period then ended.  All
such financial statements shall be covered by and conform to the representations
and warranties set forth in Section 6.5 hereof and shall be included in the
term “Financial Statements” for purposes of this Agreement.

 

8.12        Preparation of the
Proxy Statement; Stockholder’s Meeting.

 

(a)           As
soon as practicable following the date of this Agreement, Innovo shall prepare
and file with the Securities and Exchange Commission (the “SEC”) the Proxy Statement.  Innovo shall use its Best Efforts to cause
the Proxy Statement to be mailed to its stockholders as promptly as practicable
after the filing of the Proxy Statement with the SEC.  The Proxy Statement shall comply as to form
in all material respects with the applicable provisions of the Securities
Exchange Act of 1934 and the rules and regulations thereunder.  Innovo shall, as promptly as practicable
after receipt thereof, provide Buyer copies of any written comments and advise
Buyer of any oral comments, with respect to the Proxy Statement received from
the SEC.  Innovo will provide Buyer with
a reasonable opportunity to review and comment on any amendment or supplement to
the Proxy Statement prior to filing such with the SEC, and will provide Buyer
with a copy of all such filings made with the SEC.  No filing of, or amendment or supplement to,
the Proxy Statement will be made by Innovo without providing Buyer the opportunity
to review and comment thereon.  If at any
time prior to the Closing any information relating to the Business, Seller or
Innovo or any of their respective Affiliates, officers or directors, should be
discovered by Innovo or Buyer which should be set forth in an amendment or
supplement to the Proxy Statement, so that such document would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, the party which discovers such information shall
promptly notify the other parties hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC
and, to the extent required by law, disseminated to the stockholders of Innovo.

 

(b)           Innovo
will, as soon as reasonably practicable, establish a record date for, duly
call, give notice of, convene and hold a meeting of its stockholders (the “Stockholders’ Meeting”) for the purpose of
obtaining the Innovo stockholder approval and shall take all lawful action to
solicit adoption of this Agreement by its stockholders.  Innovo will, through its Board of Directors,
recommend to its stockholders adoption of this Agreement (the “Company Recommendation”), and shall not
withdraw, amend or modify in a manner adverse to Buyer its recommendation.  Innovo shall ensure that the Stockholders’
Meeting is called, noticed, convened, held and conducted, and that all proxies
solicited in connection with the Stockholders’ Meeting are solicited, in
compliance with applicable Law.

 

31

 

ARTICLE 9.

CLOSING CONDITIONS

 

9.1          Conditions Precedent to Obligations of
Buyer.

 

Buyer’s
obligation to consummate the purchase of the Purchased Assets and the other
transactions contemplated to occur in connection with the Closing is subject to
the satisfaction of each condition precedent listed below.  Unless expressly waived pursuant to this
Agreement, no representation, warranty, covenant, right, or remedy available to
Buyer in connection with the Transactions contemplated hereby will be deemed
waived by any of the following actions or inactions by or on behalf of Buyer
(regardless of whether Seller is given notice of any such matter): (i)
consummation by Buyer of the Transactions, (ii) any inspection or
investigation, if any, of the Purchased Assets, (iii) the awareness of any fact
or matter acquired (or capable or reasonably capable of being acquired) with
respect to the Purchased Assets or the Business, or (iv) any other action, in
each case at any time, whether before, on, or after the Closing Date.

 

(a)           Accuracy of
Representations and Warranties. 
Each representation and warranty set forth in ARTICLE 6 must have
been accurate and complete in all material respects (except with respect to any
provisions including the word “material” or words of similar import, with
respect to which such representations and warranties must have been accurate
and complete) as of the Execution Date, and must be accurate and complete in
all material respects (except with respect to any provisions including the word
“material” or words of similar import, with respect to which such
representations and warranties must have been accurate and complete) as of the
Closing Date, as if made on the Closing Date, without giving effect to any
supplements to the Schedules.

 

(b)           Compliance with
Obligations.           Seller
must have performed and complied with all of its covenants to be performed or
complied with at or prior to Closing (singularly and in the aggregate).

 

(c)           No Material Adverse
Change or Destruction of Property.  Since
January 31, 2006, there must have been no event, series of events or the lack
of occurrence thereof which, singularly or in the aggregate, could reasonably
be expected to have a Material Adverse Effect on the Purchased Assets or the
Business (including as proposed to be conducted).  Without limiting the foregoing, (i) there
must have been no Material Adverse Change to the Purchased Assets or the
Business (including as proposed to be conducted), (ii) there must not have been
any action or inaction by a Governmental Body, arbitrator, or mediator which
could reasonably be expected to cause a Material Adverse Change to the
Purchased Assets or the Business (including as proposed to be conducted), and
(iii) there must not have been any fire, flood, casualty, act of God or the
public enemy or other cause (regardless of insurance coverage for such damage)
which event could reasonably be expected to have a Material Adverse Effect on
the Purchased Assets or the Business (including as proposed to be conducted).

 

(d)           No Adverse
Litigation.  There must not be
pending or Threatened any Action by or before any Governmental Body,
arbitrator, or mediator which seeks to

 

32

 

restrain, prohibit, invalidate, or collect
damages arising out of the Transactions, or which, in the judgment of Buyer,
makes it inadvisable to proceed with the Transactions.

 

(e)           Consents.  Seller and Buyer must have
received Consents to the Transactions and waivers of rights to terminate or
modify any rights or obligations of Seller from any Person (i) from whom such
Consent is required, including under any Contract listed or required to be
listed in Schedules  6.11,  6.12, and 6.17 or any
Law, or (ii) who, as a result of the Transactions, would have such rights to
terminate or modify such Contracts, either by their terms or as a matter of Law
(the “Material Consents”).  Seller and Buyer must have also received the
Customer Consents from Seller’s two (2) largest customers identified on Schedule
6.19.  Buyer must have received the
consent of Milberg Factors.

 

(f)            Release of
Encumbrances.  There must have
been received by Seller and Buyer releases of all Encumbrances on the Purchased
Assets.

 

(g)           Buyer Approvals.  Buyer must have received all necessary
corporate and shareholder approvals for Buyer’s entering into the Transactions.

 

(h)           Innovo Shareholder
Approval.  The shareholders of
Innovo shall have approved this Agreement and the transactions contemplated
hereby in accordance with applicable Law.

 

(i)            API Release.  Buyer shall have received a release from API,
Hubert Guez and Paul Guez releasing Buyer from any liability for the Retained
Liabilities.

 

9.2          Conditions Precedent to Obligations of
the Seller.

 

Seller’s
obligation to consummate the sale of the Purchased Assets and the other
transactions contemplated to occur in connection with the Closing is subject to
the satisfaction of each condition precedent listed below.  Unless expressly waived pursuant to this
Agreement, no representation, warranty, covenant, right, or remedy available to
Seller in connection with the Transactions will be deemed waived by any of the
following actions or inactions by or on behalf of Seller (regardless of whether
Buyer is given notice of any such matter): 
(i) consummation by Seller of the Transactions, (ii) any inspection or
investigation, if any, of Buyer, (iii) the awareness of any fact or matter
acquired (or capable or reasonably capable of being acquired) with respect to
Buyer, or (iv) any other action, in each case at any time, whether before, on,
or after the Closing Date.

 

(a)           Accuracy of
Representations and Warranties. 
Each representation and warranty set forth in ARTICLE 5 must
have been accurate and complete in all material respects (except with respect
to any provisions including the word “material” or words of similar import,
with respect to which such representations and warranties must have been
accurate and complete) as of the Execution Date, and must be accurate and
complete in all material respects (except with respect to any provisions
including the word “material” or words of similar import, with respect to which
such representations and warranties must have been accurate and complete) as of
the Closing Date, as if made on the Closing Date.

 

33

 

(b)           Compliance with
Obligations.  Buyer must have
performed and complied with all its covenants and obligations required by this
Agreement to be performed or complied with at or prior to Closing (singularly
and in the aggregate).

 

(c)           Seller Approvals. Seller must have received all necessary
corporate and shareholder approvals for Seller’s entering into the Transactions,
including approval from Innovo’s shareholders (“Innovo Shareholder Approval”), if
required.  Seller and Innovo shall use
their Best Efforts to obtain said approval, if required, by May 9, 2006.

 

(d)           Release of Seller and
Innovo.            Seller and
Innovo must have received from API as applicable:

 

(i)            the Seller Release fully releasing and discharging Seller
and Innovo of and from all obligations under the APA and related documents,
including but not limited to the Azteca Note.

 

(ii)           the Azteca Note marked “CANCELLED and SATISFIED”.

 

(e)           No Order or Injunction.  There must not be issued and in effect any
Order restraining or prohibiting the Transactions.

 

ARTICLE 10.

TERMINATION

 

10.1        Termination of Agreement.

 

The Parties may terminate this Agreement as
provided below:

 

(a)           Buyer and Seller may terminate this Agreement as to all
Parties by mutual written consent at any time prior to the Closing.

 

(b)           Buyer or Seller may terminate this Agreement upon delivery
of notice if the Closing has not occurred prior to the Expiration Date,
provided that the Party delivering such notice will not have caused such
failure to close (and, if the Party delivering such notice is Seller, Innovo
will not have caused such failure to close).

 

(c)           Buyer may terminate this Agreement by giving written
notice to Seller at any time prior to the Closing if Seller has Breached any
representation, warranty, or covenant contained in this Agreement in any
material respect (except with respect to materiality for any provisions
including the word “material” or words of similar import, in which case such
termination rights will arise upon any Breach).

 

(d)           Seller may terminate this Agreement by giving notice to
Buyer at any time prior to the Closing if Buyer has Breached any
representation, warranty, or covenant contained in this Agreement in any
material respect (except with respect to materiality for any provisions
including the word “material” or words of similar import, in which case such
termination rights will arise upon any Breach).

 

34

 

(e)           Buyer may terminate this Agreement by giving notice to
Seller on or before the Expiration Date if Buyer is not satisfied in its sole
discretion with the results of, and its due diligence investigations with respect
to, the operations, affairs, prospects, properties, assets, existing and
potential Liabilities, obligations, profits or condition (financial or
otherwise) of the Business and the Purchased Assets.

 

10.2        Effect of Termination.

 

(a)           Except for the obligations under Section 7.8, this ARTICLE
10 and ARTICLE 12, if this Agreement is terminated under Section
10.1, then, except as provided in this Section 10.2, all further
obligations of the Parties under this Agreement will terminate.

 

(b)           If Buyer or Seller terminate this Agreement pursuant to Section
10.1(c) or 10.1(d), as the case may be, then the rights of the
non-breaching Party to pursue all legal remedies for damages such Party suffer
will survive such termination unimpaired and no election of remedies will have
been deemed to have been made.

 

ARTICLE 11.

INDEMNIFICATION

 

11.1        Survival of Representations and
Warranties.

 

(a)           Each representation and warranty of Seller contained in ARTICLE
6 and any certificate related to such representations and warranties will
survive the Closing and continue in full force and effect for three (3) years
thereafter, except (i) the representations and warranties set forth in Sections
6.4, 6.9,  6.17, and 6.18, which will survive the
Closing and continue in full force and effect until the applicable statute of
limitations expires (or for three (3) years if there is no applicable statute
of limitations) and (ii) the representations and warranties set forth in Sections
6.1 and 6.2, which will survive the Closing and will continue in
full force and effect forever.

 

(b)           Each representation and warranty of Buyer contained in ARTICLE
5 and any certificate related to such representations and warranties will
survive the Closing and continue in full force and effect for three (3) years
thereafter, except the representations and warranties set forth in Sections 5.1
and 5.2, which will survive the Closing and will continue in full force
and effect forever.

 

(c)           Each other provision in this Agreement or any certificate
or document delivered pursuant hereto will survive for the relevant statute of
limitations period, unless a different period is expressly contemplated herein
or thereby.

 

11.2        Indemnification Provisions for Buyer’s
Benefit.

 

Seller will indemnify and hold Indemnified
Buyer Parties harmless from and pay any and all damages, directly or
indirectly, resulting from, relating to, arising out of, or attributable to any
one of the following:

 

35

 

(a)           Any Breach of any representation or warranty Seller has
made in this Agreement as if such representation or warranty were made on and
as of the Closing Date without giving effect to any supplement to the Schedules
and without giving regard to any materiality qualifier contained in such representation
or warranty.

 

(b)           Any Breach by Seller of any covenant or obligation of
Seller or Innovo in this Agreement.

 

(c)           Any event arising from the operation or ownership of, or
conditions occurring with respect to, the Business or any of the Purchased Assets
prior to 11:59 p.m.  on the Closing Date.

 

(d)           Any Excluded Liability.

 

(e)           Except as provided in Section 8.7(b), any liability
or obligation for Taxes, whether or not accrued, assessed or currently due and
payable, (i) of the Seller, whether or not they relate to the Business, (ii)
arising from the operation of the Business or the ownership of the Purchased
Assets for any Tax period (or portion thereof) ending on or prior to the
Closing Date or (iii) arising out of the consummation of the transactions
contemplated hereby.

 

11.3        Indemnification Provisions for Seller’s
Benefit.

 

Buyer will
indemnify and hold Seller harmless from and pay any and all damages, directly
or indirectly, resulting from, relating to, arising out of, or attributable to
any of the following:

 

(a)           Any Breach of any representation or warranty Buyer has
made in this Agreement as if such representation or warranty were made on and
as of the Closing Date without giving effect to any supplement to the Schedules
and without giving regard to any materiality qualifier contained in such
representation or warranty.

 

(b)           Any Breach by Buyer of any covenant or obligation of Buyer
in this Agreement.

 

(c)           Any event arising from the operation and ownership of, or
conditions first occurring with respect to, the Business or any of the
Purchased Assets after 11:59 p.m. on the Closing Date.

 

(d)           Any Assumed Liability.

 

11.4        Indemnification Claim Procedures.

 

(a)           If any Action is commenced in which any Indemnified Party
is a party that may give rise to a claim for indemnification against any
Indemnitor (an “Indemnification
Claim”) then such Indemnified Party will promptly give notice to
the Indemnitor.  Failure to notify the
Indemnitor will not relieve the Indemnitor of any Liability that it may have

 

36

 

to the Indemnified Party, except to the
extent the defense of such Action is materially and irrevocably prejudiced by
the Indemnified Party’s failure to give such notice.

 

(b)           An Indemnitor will have the right to defend against an
Indemnification Claim, other than a Indemnification Claim related to Taxes,
with counsel of its choice reasonably satisfactory to the Indemnified Party if
(i) within 15 days following the receipt of notice of the Indemnification Claim
the Indemnitor notifies the Indemnified Party in writing that the Indemnitor
will indemnify the Indemnified Party from and against the entirety of any
damages the Indemnified Party may suffer resulting from, relating to, arising
out of, or attributable to the Indemnification Claim, (ii) the Indemnitor
provides the Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnitor will have the financial resources to
defend against the Indemnification Claim and pay, in cash, all damages the
Indemnified Party may suffer resulting from, relating to, arising out of, or
attributable to the Indemnification Claim, (iii) the Indemnification Claim
involves only money damages and does not seek an injunction or other equitable
relief, (iv) settlement of, or an adverse judgment with respect to, the
Indemnification Claim is not in the good faith judgment of the Indemnified
Party likely to establish a precedential custom or practice materially adverse
to the continuing business interests of the Indemnified Party, and (v) the
Indemnitor continuously conducts the defense of the Indemnification Claim
actively and diligently.

 

(c)           So long as the Indemnitor is conducting the defense of the
Indemnification Claim in accordance with Section 11.4(b), (i) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Indemnification Claim, (ii) the
Indemnified Party will not consent to the entry of any Order with respect to
the Indemnification Claim without the prior written Consent of the Indemnitor
(not to be withheld unreasonably), and (iii) the Indemnitor will not consent to
the entry of any Order with respect to the Indemnification Claim without the
prior written Consent of the Indemnified Party (not to be withheld
unreasonably, provided that it will not be deemed to be unreasonable for an
Indemnified Party to withhold its Consent (A) with respect to any finding of or
admission (1) of any Breach of any Law, Order or Permit, (2) of any violation
of the rights of any Person, or (3) which Indemnified Party believes could have
a Material Adverse Effect on any other Actions to which the Indemnified Party
or its Affiliates are party or to which Indemnified Party has a good faith
belief it may become party, or (B) if any portion of such Order would not
remain sealed).

 

(d)           In connection with any Indemnification Claim for Taxes, or
if any condition in Section 11.4(b) is or becomes unsatisfied, (i) the
Indemnified Party may defend against, and consent to the entry of any Order
with respect to an Indemnification Claim in any manner it may deem appropriate
(and the Indemnified Party need not consult with, or obtain any Consent from,
any Indemnitor in connection therewith), (ii) each Indemnitor will jointly and
severally be obligated to reimburse the Indemnified Party promptly and
periodically for the damages relating to defending against the Indemnification
Claim, and (iii) each Indemnitor will remain jointly and severally Liable for
any damages the Indemnified Party may suffer relating to the Indemnification
Claim to the fullest extent provided in this ARTICLE 11.

 

37

 

(e)           Each Party hereby consents to the non-exclusive
jurisdiction of any Governmental Body, arbitrator, or mediator in which an
Action is brought against any Indemnified Party for purposes of any
Indemnification Claim that an Indemnified Party may have under this Agreement
with respect to such Action or the matters alleged therein, and agrees that
process may be served on such Party with respect to such claim anywhere in the
world.

 

11.5        Limitations on Indemnification
Liability.

 

(a)           With Respect to Claims
by the Indemnified Buyer Parties.  Seller’s
aggregate Liability for money damages under this Agreement related to Breaches
of the representations and warranties herein will not exceed an amount equal to
the lesser of: (i)  $2,000,000 or (ii)
twenty percent (20%) of the Purchase Price after any applicable adjustments
pursuant to Section 3.1(b) hereinabove; provided, however, that the limitation
contemplated hereby will not be applicable with respect to Breaches of Sections
6.1 and 6.2 or instances of fraud by a Seller.

 

(b)           With Respect to Claims
by the Indemnified Seller.  Buyer’s
aggregate Liability for money damages under this Agreement related to Breaches
of the representations and warranties herein will not exceed an amount equal to
the lesser of: (i)  $2,000,000 or (ii)
twenty percent (20%) of the Purchase Price after any applicable adjustments
pursuant to Section 3.1(b) hereinabove; provided, however, that the limitation
contemplated hereby will not be applicable with respect to Breaches of Sections
5.1 and 5.2 or instances of fraud by Buyer.

 

(c)           With Respect to Claims
by any Indemnified Party.  Any
claims any Indemnified Party makes under this ARTICLE 11 will be limited
as follows:

 

(i)            Exclusion of Certain Types of Damages.  All indemnification obligations will be
limited to actual damages and will exclude incidental, consequential, lost profits,
indirect, punitive, or exemplary damages, except to the extent the Indemnified
Party is required to pay such types of damages to third parties.

 

(ii)           Knowledge Qualifiers.  In determining whether a representation,
warranty, or covenant in this Agreement has been breached where such covenant
is modified by the concept of “Knowledge,” such concept will be disregarded in
determining whether there has been a Breach of such representation, warranty,
or covenant.

 

11.6         Intentionally Omitted.

 

11.7        No Waiver of Rights or Remedies.

 

Each
Indemnified Party’s rights and remedies set forth in this Agreement will
survive the Closing and will not be deemed waived by such Indemnified Party’s
consummation of the Transactions and will be effective regardless of any
inspection or investigation conducted, or the awareness of any matters acquired
(or capable or reasonably capable of being acquired), by or on

 

38

 

behalf of such
Indemnified Party or by its directors, officers, employees, or representatives
or at any time (regardless of whether notice of such knowledge has been given
to Indemnitor), whether before or after the Execution Date or the Closing Date
with respect to any circumstances constituting a condition under this
Agreement, unless any waiver specifically so states.

 

11.8        Other Indemnification Provisions.

 

(a)           The foregoing indemnification provisions are in addition
to, and not in derogation of, any remedy at law or in equity that any Party may
have with respect to the Transactions.

 

(b)           A claim for any matter not involving a third party may be
asserted by notice to the Party from whom indemnification is sought.

 

ARTICLE 12.

MISCELLANEOUS

 

12.1        Schedules.

 

(a)           The disclosures in any Schedule, and those in any supplement
thereto, relate only to the representations and warranties in the Section or
paragraph of the Agreement to which such Schedule expressly relates and not to
any other representation or warranty in this Agreement.

 

(b)           If there is any inconsistency between the statements in
the body of this Agreement and those in the Schedules (other than an exception
expressly set forth as in the Schedules with respect to a specifically
identified representation or warranty), the statements in the body of this Agreement
will control.

 

(c)           Nothing in the Schedules will be deemed adequate to
disclose an exception to a representation or warranty made herein, unless the
Schedules identify the exception with particularity and describes the relevant
facts in reasonable detail.

 

(d)           The mere listing (or inclusion of a copy) of a document or
other item in a Schedule will not be deemed adequate to disclose an exception
to a representation or warranty made in this Agreement (unless the
representation or warranty pertains to the existence of the document or other
item itself).

 

12.2        Entire Agreement.

 

This
Agreement, together with the Exhibits and Schedules hereto and the
certificates, documents, instruments and writings that are delivered pursuant
hereto, constitutes the entire agreement and understanding of the Parties in
respect of its subject matters and supersedes all prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they relate in any way to the subject matter hereof or the Transactions,
including the letter of intent, dated March 3, 2006, between Seller and
Buyer.  Except as expressly contemplated
by ARTICLE 11, there are no third party beneficiaries having rights
under or with respect to this Agreement.

 

39

 

12.3        Successors.

 

All of the
terms, agreements, covenants, representations, warranties, and conditions of
this Agreement are binding upon, and inure to the benefit of and are
enforceable by, the Parties and their respective successors and, to the extent
of any assignment permitted under Section 12.4, the assigns of
Buyer.

 

12.4        Assignments.

 

No Party may
assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of Buyer and Seller; provided,
however, that Buyer may (a) assign any or all of its rights and
interests hereunder to one or more of its Affiliates and (b) designate one or
more of its Affiliates to perform its obligations hereunder (in any or all of
which cases Buyer nonetheless will remain responsible for the performance of
all of its obligations hereunder), (c) make a collateral assignment of its
rights hereunder to its lender(s) and (d) in connection with any sale or
transfer by Buyer of all or substantially all of its assets to another Person,
(i) Buyer may, by written notice to Seller, assign any or all of its rights and
interests under this Agreement to such other Person; and (ii) to the extent
such other Person expressly assumes by a written instrument any or all of the
obligations of Buyer under this Agreement, Buyer shall be discharged and
released from such obligations so assumed. 
In the event of an assignment or designation pursuant to clauses (a) or
(b) or (d) of the prior sentence prior to the Closing Date, any documents to be
delivered by Seller or Buyer pursuant hereto the forms of which are attached
hereto shall be appropriately modified to give effect to such assignment or
designation.

 

12.5        Notices.

 

All notices,
requests, demands, claims, and other communications hereunder will be in
writing.  Any notice, request, demand,
claim, or other communication hereunder will be deemed duly given if (and then
three business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:

 

	
  If to Buyer:

  	
   

  
	
   

  	
   

  
	
  Cygne
  Designs, Inc.

  	
   

  
	
  11 West 42nd
  Street

  	
   

  
	
  New York,
  New York 10036

  	
   

  
	
  Attn: Chief
  Executive Officer

  	
   

  
	
   

  	
   

  
	
  Copy to
  (which will not constitute notice):

  	
   

  
	
   

  	
   

  
	
  Fulbright
  & Jaworski L.L.P.

  	
   

  
	
  666 Fifth
  Avenue

  	
   

  
	
  New York,
  New York 10103

  	
   

  
	
  Attn: Paul
  Jacobs, Esq.

  	
   

  

 

40

 

	
  If to Seller:

  	
   

  
	
   

  	
   

  
	
  Marc Crossman

  	
   

  
	
  c/o Innovo Group, Inc.

  	
   

  
	
  5900 S. Eastern Ave., Suite 104

  	
   

  
	
  Commerce, CA 90040

  	
   

  
	
  Tel:

  	
  (323) 725-5516

  	
   

  
	
  Fax:

  	
  (865) 546-9277

  	
   

  
	
   

  	
   

  
	
  Copy to (which will not constitute notice):

  	
   

  
	
   

  	
   

  
	
  Christopher R. Maddux

  	
   

  
	
  Phelps Dunbar LLP

  	
   

  
	
  111 E. Capitol Street, Suite 600

  	
   

  
	
  Jackson, MS 39201-2122

  	
   

  
	
  Tel:

  	
  (601) 352-2300

  	
   

  
	
  Fax:

  	
  (601) 360-9777

  	
   

  
				

 

Any Party may
send any notice, request, demand, claim, or other communication hereunder to
the intended recipient at the address set forth above using any other means
(including personal delivery, expedited courier, messenger service, telecopy,
telex, ordinary mail, or electronic mail), but no such notice, request, demand,
claim, or other communication will be deemed to have been duly given unless and
until it actually is received by the intended recipient.  Any Party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to
be delivered by giving the other Parties notice in the manner herein set forth.

 

12.6        Specific Performance.

 

Each Party
acknowledges and agrees that the other Parties would be damaged irreparably if
any provision of this Agreement is not performed in accordance with its
specific terms or is otherwise Breached. 
Accordingly, each Party agrees that the other Parties will be entitled
to an injunction or injunctions to prevent Breaches of the provisions of this
Agreement and to enforce specifically this Agreement and its terms and
provisions in any Action instituted in any court of the United States or any
state thereof having jurisdiction over the Parties and the matter, subject to Sections
12.7 and 12.11, in addition to any other remedy to which they may be
entitled, at law or in equity.

 

12.7        Submission to Jurisdiction; Process
Agent; No Jury Trial.

 

(a)           Submission to
Jurisdiction.  Each Party
submits to the jurisdiction of any state or federal court sitting in Los
Angeles, California, in any action arising out of or relating to this Agreement
and agrees that all claims in respect of the action may be heard and determined
in any such court.  Nothing in this Section
12.7(a) will affect the right of any Party to bring any action arising out
of or relating to this Agreement in any other court.  Each Party agrees that a final judgment in
any action so brought will be conclusive and may be enforced by action on the
judgment or in any other manner provided at law or

 

41

 

in equity. 
Each Party waives any defense of inconvenient forum to the maintenance
of any action so brought and waives any bond, surety, or other security that
might be required of any other Party with respect thereto.

 

(b)           Waiver of Jury
Trial.  The parties each
hereby agree to waive their respective rights to jury trial of any dispute
based upon or arising out of this agreement or any other agreements relating
hereto or any dealings among them relating to the Transactions.  The scope of this waiver is intended to be
all encompassing of any and all actions that may be filed in any court and that
relate to the subject matter of the transactions, including, contract claims,
tort claims, breach of duty claims, and all other common law and statutory
claims.  The Parties each acknowledge
that this waiver is a material inducement to enter into a business relationship
and that they will continue to rely on the waiver in their related future
dealings.  Each Party further represents
and warrants that it has reviewed this waiver with its legal counsel, and that
each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. 
Notwithstanding anything to the contrary herein, this waiver is
irrevocable, meaning that it may not be modified orally or in writing, and the
waiver will apply to any amendments, renewals, supplements or modifications to
this agreement or to any other documents or agreements relating hereto.  In the event of an action, this Agreement may
be filed as a written consent to trial by a court.

 

(c)           Service of Process.  The Parties agree that any Party
may make service on any other Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 12.5. 
Nothing in this Section 12.7(c) will affect any Party’s right to
bring any action arising out of or relating to this Agreement in any other
court or to serve legal process in any other manner permitted at law or in
equity.

 

12.8        Time.

 

Time is of the
essence in the performance of this Agreement.

 

12.9        Counterparts.

 

This Agreement
may be executed in two or more counterparts, each of which will be deemed an
original but all of which together will constitute one and the same instrument.

 

12.10      Headings.

 

The article
and section headings contained in this Agreement are inserted for convenience
only and will not affect in any way the meaning or interpretation of this
Agreement.

 

12.11      Governing Law.

 

This Agreement
and the performance of the Transactions and obligations of the Parties
hereunder will be governed by and construed in accordance with the laws of the
State of Delaware, without giving effect to any choice of Law principles that
may require application of any other Laws.

 

42

 

12.12      Amendments and Waivers.

 

No amendment,
modification, waiver, replacement, termination or cancellation of any provision
of this Agreement will be valid, unless the same will be in writing and signed
by Buyer and Seller.  No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, may be deemed to extend to any prior or
subsequent default, misrepresentation, or Breach of warranty or covenant
hereunder or affect in any way any rights arising because of any prior or
subsequent such occurrence.

 

12.13      Severability.

 

The provisions
of this Agreement will be deemed severable and the invalidity or
unenforceability of any provision will not affect the validity or
enforceability of the other provisions hereof; provided that if any provision
of this Agreement, as applied to any Party or to any circumstance, is adjudged
by a Governmental Body, arbitrator, or mediator not to be enforceable in
accordance with its terms, the Parties agree that the Governmental Body,
arbitrator, or mediator making such determination will have the power to modify
the provision in a manner consistent with its objectives such that it is
enforceable, and/or to delete specific words or phrases, and in its reduced
form, such provision will then be enforceable and will be enforced.  The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.

 

12.14      Expenses.

 

Except as
otherwise expressly provided in this Agreement, Seller, on the one hand, and
the Buyer, on the other hand, will each bear its own costs and expenses
incurred in connection with the preparation, execution and performance of this
Agreement and the Transactions including all fees and expenses of agents,
representatives, financial advisors, legal counsel and accountants.

 

12.15      Construction.

 

The Parties
have participated jointly in the negotiation and drafting of this
Agreement.  If an ambiguity or question
of intent or interpretation arises, this Agreement will be construed as if
drafted jointly by the Parties and no presumption or burden of proof will arise
favoring or disfavoring any Party because of the authorship of any provision of
this Agreement.  Any reference to any
federal, state, local, or foreign Law will be deemed also to refer to Law as
amended and all rules and regulations promulgated thereunder, unless the
context requires otherwise.  The words “include,”
“includes,” and “including” will be deemed to be followed by “without limitation.”
Pronouns in masculine, feminine, and neuter genders will be construed to
include any other gender, and words in the singular form will be construed to
include the plural and vice versa, unless the context otherwise requires.  The words “this Agreement,” “herein,” “hereof,”
“hereby,” “hereunder,” and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.  The Parties intend that each representation,
warranty, covenant, and condition contained herein will have independent
significance.  If any Party has breached
any representation, warranty, or covenant contained

 

43

 

herein in any
respect, the fact that there exists another representation, warranty or
covenant relating to the same or similar subject matter (regardless of the
relative levels of specificity) which the Party has not breached will not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant. 
If any condition to Closing contained herein has not been satisfied in
any respect, the fact that there exists another condition relating to the same
or similar subject matter (regardless of the relative levels of specificity)
which has been satisfied shall not detract from or mitigate the fact that the
first condition has not been satisfied.

 

12.16      Incorporation of Exhibits and Schedules.

 

The Exhibits,
Schedules, and other attachments identified in this Agreement are incorporated
herein by reference and made a part hereof.

 

12.17      Remedies.

 

Except as
expressly provided herein, the rights, obligations and remedies created by this
Agreement are cumulative and in addition to any other rights, obligations, or
remedies otherwise available at law or in equity.  Except as expressly provided herein, nothing
herein will be considered an election of remedies.

 

[Signature Page Follows]

 

44

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first above written.

 

	
   

  	
  SELLER

  
	
   

  	
   

  
	
   

  	
  INNOVO AZTECA APPAREL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Marc
  Crossman

  	
   

  
	
   

  	
  Name: Marc
  Crossman

  
	
   

  	
  Title:
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BUYER

  
	
   

  	
   

  
	
   

  	
  CYGNE DESIGNS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Bernard
  Manuel

  	
   

  
	
   

  	
  Name:
  Bernard Manuel

  
	
   

  	
  Title: Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INNOVO

  
	
   

  	
   

  
	
   

  	
  INNOVO GROUP INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Marc
  Crossman

  	
   

  
	
   

  	
  Name: Marc
  Crossman

  
	
   

  	
  Title:
  Interim CEO, President and CFO

  

 

45

 

SCHEDULE 1.1

 

Purchased Assets

 

	
  (1)

  	
  Customer
  List

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •

  	
  American
  Eagle Outfitters, Inc.

  
	
   

  	
   

  	
  •

  	
  Target
  Corporation

  
	
   

  	
   

  	
   

  
	
  (2)

  	
  Employees —
  See Schedule 6.16 (a)

  
	
   

  	
   

  	
   

  
	
  (3)

  	
  Purchase
  Orders — See Schedule 2.2(e)

  
	
   

  	
   

  
	
  (4)

  	
  Inventory —
  See Schedule 2.2 (f)

  
	
   

  	
   

  
	
  (5)

  	
  Non-Compete
  — See Exhibit C - Assumption and
  Assignment Agreement

  
					

 

46

 

SCHEDULE 2.2

 

Assumed Liabilities

(a)           IAA’s
outstanding obligations under that certain Promissory Note dated July 17, 2003
given by IAA in favor of API in the aggregate principal amount of $7,936,654.71
true and correct copy of which is attached hereto as Exhibit B, with said Azteca Note having
been cancelled and replaced by a new promissory note by Cygne to API of even
date herewith in the aggregate principal amount of $7,936,654.71;

 

(b)           All obligations of IAA under the Buyer Earn Out provision
contained in Section 8.11 of the 2003 APA and Sections 8.11(a), 8.11(b) and
8.11(c) thereto.

 

(c)           All liabilities of Seller to API (other than the Azteca
Note) in excess of $1,500,000.

 

(e)           All outstanding Purchase Orders listed on Schedule
2.2(e).

 

(f)            All Inventory listed on Schedule 2.2(f).

 

47

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