Document:

ex10_6.htm

    
      
        

      

    

    Exhibit
10.6

     

    INTELLECTUAL PROPERTY SECURITY
AGREEMENT

     

    This
INTELLECTUAL PROPERTY SECURITY AGREEMENT (this “Agreement”), dated as
of March 5, 2008, is made by Blue Holdings, Inc., a Nevada corporation (the
“Company”), and all of the
Subsidiaries of the Company (such Subsidiaries,
the “Guarantors”, and together
with the Company, the “Grantors”), in favor
of the holders of the Company’s 8% Senior Secured Convertible Notes issued or to
be issued in the original aggregate principal amount of up to $3,000,000 (the
“Notes”)
pursuant to the Purchase Agreement (as defined below) (collectively, together
with their endorsees, transferees and assigns, the “Lenders”).

     

    W I T N E
S S E T H:

     

    WHEREAS,
the Company and the Lenders are party to that certain Securities Purchase
Agreement, dated on or about on or about March 5, 2008 (“Purchase Agreement”),
pursuant to which the Company issued or is issuing the Notes, among other
things;

     

    WHEREAS,
pursuant to that certain Subsidiary Guarantee, dated as of the date hereof
(“Guarantee”),
the Guarantors have jointly and severally agreed to
guarantee and act as surety for payment of such Notes;

    

    WHEREAS,
contemporaneously herewith the Grantors are entering into a Security Agreement
(“Security
Agreement”), pursuant to which each Grantor has granted a security
interest in its assets and properties to secure the satisfaction of the
Company’s obligations under the Notes and the Guarantor’s obligations under the
Guarantee, among other things; and

     

    WHEREAS,
the Grantors are obligated under the Security Agreement to take such further
actions as the collateral Agent (as defined therein) requests to further perfect
the Lenders’ security interest granted under the Security Agreement, including
without limitation with respect to intellectual property;

     

    NOW,
THEREFORE, in consideration of the premises and mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantors hereby agree as
follows:

     

    DEFINED
TERMS.

     

    (a)          Certain Defined
Terms.  As used in this Agreement, the following terms shall
have the meanings set forth below:

     

    “Copyright”
means copyrights and copyright registrations, including without limitation the
copyright registrations and recordings listed on Schedule I attached
hereto, if any, in which the Grantors have any right, title and interest, and
(i) all reissues, continuations, extensions or renewals thereof, (ii) all
income, royalties, damages and payments now and hereafter due and/or payable
under and with respect thereto, subject to payment to any co-owner of its, his
or her share thereof, including without limitation payments under all licenses
entered into in connection therewith and damages and payments for past or future
infringements thereof, (iii) the right to sue for past, present and future
infringements thereof, and (iv) all of the Grantors’ rights corresponding
thereto throughout the world.

     

    
      
        
           

        

        
          1

          
            

          

        

        
           

        

      

    

    

    “Intellectual
Property Licenses” means rights under or interest in any patent,
trademark, copyright or other intellectual property, including software license
agreements with any other party, whether the Grantors are a licensee or licensor
under any such license agreement, and the right to use the foregoing in
connection with the enforcement of the Lenders’ rights pursuant to the Security
Agreement.

     

    “Patent”
means patents and patent applications, including without limitation the patents
and patent applications listed on Schedule I hereto and
all continuations, divisionals, provisionals, continuations in part, or reissues
of applications related to patents thereon, and (i) all renewals thereof, (ii)
all income, royalties, damages and payments now and hereafter due and/or payable
under and with respect thereto, subject to payment to any co-owner or inventor
of its, his or her share thereof, including without limitation payments under
all licenses entered into in connection therewith and damages and payments for
past or future infringements or dilutions thereof, (iii) the right to sue for
past, present and future infringements thereof, and (iv) all of the Grantors’
rights corresponding thereto throughout the world.

     

    “Trademark”
means trademarks, trade names, registered trademarks, trademark applications,
service marks, registered service marks and service mark applications, including
without limitation the registered trademarks listed on Schedule I hereto,
and (i) all renewals thereof, (ii) all income, royalties, damages and payments
now and hereafter due and/or payable under and with respect thereto, subject to
payment to any co-owner of its, his or her share thereof, including without
limitation payments under all licenses entered into in connection therewith and
damages and payments for past or future infringements or dilutions thereof,
(iii) the right to sue for past, present and future infringements and dilutions
thereof, (iv) the goodwill of the Grantors’ business symbolized by the foregoing
and connected therewith, and (v) all of the Grantors’ rights corresponding
thereto throughout the world.

     

    (b)           Terms Defined in the
Purchase Agreement.  Capitalized terms used in this Agreement
and not otherwise defined herein have the meanings ascribed to them in the
Purchase Agreement.

     

    2.           
 GRANT OF
SECURITY INTEREST IN INTELLECTUAL PROPERTY
COLLATERAL.  Grantors hereby grant to Lenders a continuing
second priority security interest (as set forth in the Security Agreement) in
all of Grantors’ right, title and interest in, to and under all of Grantors’
Intellectual Property (as defined in the Security Agreement), including without
limitation the following, whether presently existing or hereafter created or
acquired (collectively, the “Intellectual Property
Collateral”):

     

    (a)           all
of Grantors’ Patents and Grantors’ rights under all Patent Intellectual Property
Licenses to which it is a party, including those patents referred to on Schedule I hereto,
including:

     

    
      	
               
      

            	
              (i)

            	
              all
      registrations and applications in respect of the foregoing, including
      continuations, divisionals, provisionals, continuations in part, or
      reissues of applications and patents issuing thereon;
  and

            

    

     

    
      
        
           

        

        
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              (ii)

            	
              all
      products and proceeds of the foregoing, including without limitation any
      claim by Grantors against third parties for past, present or future
      infringement of any Patent or any Patent licensed under any Intellectual
      Property License;

            

    

     

    (b)           all
of Grantors’ Trademarks and Grantors’ rights under all Trademark Intellectual
Property Licenses to which it is a party, including those trademarks referred to
on Schedule I
hereto, including:

     

    
      	
               
      

            	
              (i)

            	
              all
      registrations, applications, and renewals in respect of the
      foregoing;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              all
      goodwill of the business connected with the use of, and symbolized by,
      each Trademark and each Trademark licensed under an Intellectual Property
      License; and

            

    

     

    
      	
               
      

            	
              (iii)

            	
              all
      products and proceeds of the foregoing, including without limitation any
      claim by Grantor against third parties for past, present or future (i)
      infringement or dilution of any Trademark or any Trademark licensed under
      any Intellectual Property License or (ii) injury to the goodwill
      associated with any Trademark or any Trademark licensed under any
      Intellectual Property License; and

            

    

     

    (c)           all
of Grantors’ Copyrights and Grantors’ rights under all Copyright Intellectual
Property Licenses to which it is a party, including those referred to on Schedule I hereto,
including:

     

    
      	
               
      

            	
              (i)

            	
              all
      registrations, applications, and renewals in respect of the foregoing;
      and

            

    

     

    
      	
               
      

            	
              (ii)

            	
              all
      products and proceeds of the foregoing, including without limitation any
      claim by Grantors against third parties for past, present or future
      infringement of any Copyright or any Copyright licensed under any
      Intellectual Property License.

            

    

     

    3.           
 SECURITY
AGREEMENT.  The security interests granted pursuant to this
Agreement are granted in conjunction with the security interests granted to
Lenders pursuant to the Security Agreement.  Grantors hereby
acknowledge and affirm that the rights and remedies of Lenders with respect to
the security interest in the Intellectual Property Collateral made and granted
hereby are more fully set forth in the Security Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein.  Each Lender acknowledges that the priorities set forth herein
are subject to the terms of the Intercreditor Agreement.

     

    4.        
    AUTHORIZATION TO
SUPPLEMENT.  If Grantors shall obtain rights to any new
Intellectual Property (as defined in the Security Agreement), the provisions of
this Agreement shall automatically apply thereto.  Grantors shall give
Lenders prompt written notice with respect to any such material new Intellectual
Property.  Grantors represent that Schedule I is
substantially accurate and complete but reserve the right from time to time to
correct inaccuracies and/or omissions by giving Lenders written notice
thereof.  Without limiting Grantors’ obligations under this Section 4, Grantors
hereby authorize Lenders unilaterally to modify
this Agreement by amending Schedule I to include
any such corrections and other modifications and any such new Intellectual
Property of Grantors.  Notwithstanding the foregoing, no failure to so
modify this Agreement or amend Schedule I shall in
any way affect, invalidate or detract from Lenders’ continuing security interest
in all Intellectual Property Collateral, whether or not listed on Schedule
I.

    
       

      
        
          
             

          

          
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    5.      
      COUNTERPARTS.  This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but all such separate counterparts shall together
constitute but one and the same instrument.  In proving this Agreement
in any judicial proceedings, it shall not be necessary to produce or account for
more than one such counterpart signed by the party against whom enforcement is
sought.  Any signatures delivered by a party by facsimile transmission
or by e-mail transmission shall be deemed an original signature
hereto.

     

    6.         
   GOVERNING LAW;
JURISDICTION.  This Agreement shall be governed by and
construed under the laws of the State of New York applicable to contracts made
and to be performed entirely within the State of New York.  Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City and County of New York for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address in effect
for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.

     

    7.        
    SUCCESSORS AND
ASSIGNS.  The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties.  Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.  A Lender may assign its rights
hereunder in connection with any private sale or transfer of its Notes, in which
case the term “Lender” shall be deemed to refer to such transferee as though
such transferee were an original signatory hereto.  No Grantor may
assign its rights or obligations under this Agreement.

     

    8.          
  MULTIPLE
CLOSINGS.  For clarification, the Grantors acknowledge and
agree that there may be more than one Closing under the Purchase Agreement and
that this Agreement creates a security interest in the Collateral in favor of
all the Lenders regardless of when (1) any Lender executes the Purchase
Agreement or whether such Lender executes this Agreement, it being understood
that the Agent is acting as collateral agent for all Lenders, (2) any Closing
occurs or (3) any Notes are issued, without any need for the Grantors to execute
any further documentation or be notified of any Closing or for any other action
to occur.

     

     

    [Signature Pages
Follow]

     

    
      
        
           

        

        
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    IN
WITNESS WHEREOF, each of the Grantors have caused this Intellectual Property
Security Agreement to be executed and delivered by its duly authorized officer
as of the date first set forth above.

     

    
      	 
      	
              BLUE
      HOLDINGS, INC.

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	
              By: 
      

            	
               /s/ Glenn S. Palmer

            	 
	 
      	 
      	
              Name:
      Glenn S. Palmer

            	 
	 
      	 
      	
              Title:
      Chief Executive Officer

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	
              ANTIK
      DENIM, LLC

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	
              By: 
      

            	
               /s/ Glenn S. Palmer

            	 
	 
      	 
      	
              Name:
      Glenn S. Palmer

            	 
	 
      	 
      	
              Title:
      Chief Executive Officer

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	
              TAVERNITI
      SO JEANS, LLC

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	
              By:  
      

            	
               /s/ Glenn S. Palmer

            	 
	 
      	 
      	
              Name:
      Glenn S. Palmer

            	 
	 
      	 
      	
              Title:
      Chief Executive Officer

            	 

    

     

    
      
        
           

        

        
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              ACCEPTED
      AND ACKNOWLEDGED BY:

            	 
	 
      	 
      	 
	 
      	
              GEMINI
      MASTER FUND, LTD.

            	 
	 
      	
              By:

            	
              GEMINI
      STRATEGIES, LLC, as investment manager

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	
              By: 
      

            	
              /s/Steven Winters

            	 
	 
      	 
      	
              Steven
      Winters

            	 
	 
      	 
      	
              Managing
      Member

            	 
	 
      	 
      	 
      	 
	 
      	
              GEMINI STRATEGIES, LLC,
      as collateral Agent for the Lenders

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	
              By: 
      

            	
              /s/Steven Winters

            	 
	 
      	 
      	
              Steven
      Winters

            	 
	 
      	 
      	
              Managing
      Member

            	 

    

     

     

    6ex10_7.htm

    
      

    

    Exhibit
10.7

     

    SUBSIDIARY GUARANTEE

    

    SUBSIDIARY
GUARANTEE, dated as of March 5, 2008 (this “Guarantee”), made by
each of the signatories hereto (together with any other entity that may become a
party hereto as provided herein, the “Guarantors”, and
together with the Company (as defined below), the “Debtors”), in favor
of the purchasers (including such purchasers’ successors, transferees and
assigns, the “Purchasers”)
signatory to the Purchase Agreement (as defined below).

     

    W
I T N E S S E T H:

    

    WHEREAS,
pursuant to that certain Securities Purchase Agreement (“Purchase Agreement”)
dated as of March 5, 2008 by and between Blue Holdings, Inc., a Nevada
corporation (the “Company”), and the
Purchasers, the Company has agreed to sell and issue to the Purchasers, and the
Purchasers have agreed to purchase from the Company the Company’s 8% Senior
Secured Convertible Notes (the “Notes”), subject to
the terms and conditions set forth therein;

    

    WHEREAS,
each Guarantor is a direct or indirect Subsidiary of the Company, and as a
condition to the Closing of the transactions contemplated by the Purchase
Agreement, and in order to induce the Purchasers to enter into and consummate
the transactions contemplated by the Purchase Agreement (including without
limitation purchasing the Notes and making the loans evidenced thereby), the
Company has agreed that the Guarantors would guaranty the Company’s obligations
under the Notes, Purchase Agreement and other Transaction
Documents  in accordance with the terms set forth in this Guaranty,
the Notes, the Purchase Agreement and other Transaction Documents;
and

    

    WHEREAS,
each Guarantor will directly benefit from the extension of credit to the Company
represented by the issuance of the Notes;

    

    NOW,
THEREFORE, in consideration of the premises and to induce the Purchasers to
enter into the applicable Purchase Agreement and to carry out the transactions
contemplated thereby, each Guarantor hereby agrees with the Purchasers as
follows:

    

    1.       
     Definitions. Unless
otherwise defined herein, initially capitalized terms defined in the Purchase
Agreement and used herein shall have the meanings given to them in the Purchase
Agreement.  The words “hereof,” “herein,” “hereto” and “hereunder” and
words of similar import when used in this Guarantee shall refer to this
Guarantee as a whole and not to any particular provision of this Guarantee, and
Section and Schedule references are to this Guarantee unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.  The
following terms shall have the following meanings:

     

    “Guarantee” means this
Subsidiary Guarantee, as the same may be amended, supplemented or otherwise
modified from time to time.

    

    “Obligations” means,
in addition to all other costs and expenses of collection incurred by Purchasers
in enforcing any of such Obligations and/or this Guarantee, all of the
liabilities and obligations (primary, secondary, direct, contingent, sole, joint
or several) due or to become due, or that are now or may be hereafter contracted
or acquired,
or owing, of any Debtor to the Purchasers, including without limitation all
obligations under the Purchase Agreement, the Notes, the Warrants, this
Guarantee and any other instruments, agreements or other documents executed
and/or delivered in connection herewith or therewith, in each case, whether now
or hereafter existing, voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from any of the Purchasers as a
preference, fraudulent transfer or otherwise, as such obligations may be
amended, supplemented, converted, extended or modified from time to
time.  Without limiting the generality of the foregoing, the term
“Obligations” shall include without limitation: (i) principal of, and interest
on, the Notes and the loans extended pursuant thereto; (ii) any and all other
fees, indemnities, costs, obligations and liabilities of the Debtors from time
to time under or in connection with the Purchase Agreement, the Notes, the
Warrants, this Guarantee and any other instruments, agreements or other
documents executed and/or delivered in connection herewith or therewith; and
(iii) all amounts (including but not limited to post-petition interest) in
respect of the foregoing that would be payable but for the fact that the
obligations to pay such amounts are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving any
Debtor.

    

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    2.      
      Guarantee.

    

    (a)           Guarantee.

    

    (i)           The
Guarantors hereby, jointly and severally, absolutely, unconditionally and
irrevocably, guarantee to the Purchasers and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Company when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.  The Guarantors’
liability under this Guarantee shall be unlimited, open and continuous for so
long as this Guarantee remains in force.

    

    (ii)           Anything
herein or in any other Transaction Document to the contrary notwithstanding, the
maximum liability of each Guarantor hereunder and under the other Transaction
Documents shall in no event exceed the amount which can be guaranteed by such
Guarantor under applicable federal and state laws, including laws relating to
the insolvency of debtors, fraudulent conveyance or transfer or laws affecting
the rights of creditors generally (after giving effect to the right of
contribution set forth in Section 2(b)).

    

    (iii)           Each
Guarantor agrees that the Obligations may at any time and from time to time
exceed the amount of the liability of such Guarantor hereunder without impairing
the guarantee contained in this Section 2 or affecting the rights and remedies
of the Purchasers hereunder.

    

    (iv)           The
guarantee contained in this Section 2 shall remain in full force and effect
until all the Obligations and the obligations of each Guarantor under the
guarantee contained in this Section 2 shall have been satisfied by payment in
full.

    
      
         

      

      
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    (v)           No
payment made by the Company, any of the Guarantors, any other guarantor or any
other Person or received or collected by the Purchasers from the Company, any of
the Guarantors, any other guarantor or any other Person by virtue of any action
or proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment (other than any payment
made by such Guarantor in respect of the Obligations or any payment received or
collected from such Guarantor in respect of the Obligations), remain liable for
the Obligations up to the maximum liability of such Guarantor hereunder until
the Obligations are paid in full.

    

    (vi)           Notwithstanding
anything to the contrary in this Guarantee, with respect to any defaulted
non-monetary Obligations the specific performance of which by the Guarantors is
not reasonably possible (e.g. the issuance of the Company's Common Stock), the
Guarantors shall only be liable for making the Purchasers whole on a monetary
basis for the Company's failure to perform such Obligations in accordance with
the Transaction Documents.

    

    (b)           Right of
Contribution.  Each Guarantor hereby agrees that to the extent
that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder which has not paid
its proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 2(c).  The
provisions of this Section 2(b) shall in no respect limit the obligations and
liabilities of any Guarantor to the Purchasers, and each Guarantor shall remain
liable to the Purchasers for the full amount guaranteed by such Guarantor
hereunder.

    

    (c)           No
Subrogation.  Notwithstanding any payment made by any Guarantor
hereunder or any set-off or application of funds of any Guarantor by the
Purchasers, no Guarantor shall be entitled to be subrogated to any of the rights
of the Purchasers against the Company or any other Guarantor or any collateral
security or guarantee or right of offset held by the Purchasers for the payment
of the Obligations, nor shall any Guarantor seek or be entitled to seek any
contribution or reimbursement from the Company or any other Guarantor in respect
of payments made by such Guarantor hereunder, until all amounts owing to the
Purchasers by the Company on account of the Obligations are paid in
full.  If any amount shall be paid to any Guarantor on account of such
subrogation rights at any time when all of the Obligations have not been paid in
full, such amount shall be held by such Guarantor in trust for the Purchasers,
segregated from other funds of such Guarantor, and shall, promptly following
receipt by such Guarantor, be turned over to the Purchasers in the exact form
received by such Guarantor (duly indorsed by such Guarantor to the Purchasers,
if required), to be applied against the Obligations, whether matured or
unmatured, in such order as the Purchasers may determine.

    

      
        
           

        

        
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    (d)           Amendments, Etc. With
Respect to the Obligations.  Each Guarantor shall remain
obligated hereunder notwithstanding that, without any reservation of rights
against
any Guarantor and without notice to or further assent by any Guarantor, any
demand for payment of any of the Obligations made by the Purchasers may be
rescinded by the Purchasers and any of the Obligations continued, and the
Obligations, or the liability of any other Person upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
the Purchasers, and the Purchase Agreement, the Notes and the other Transaction
Documents and any other documents executed and delivered in connection therewith
may be amended, modified, supplemented or terminated, in whole or in part, as
the Purchasers may deem advisable from time to time, and any collateral
security, guarantee or right of offset at any time held by the Purchasers for
the payment of the Obligations may be sold, exchanged, waived, surrendered or
released. The Purchasers shall have no obligation to protect, secure, perfect or
insure any Lien at any time held by them as security for the Obligations or for
the guarantee contained in this Section 2 or any property subject
thereto.

    

    (e)           Guarantee Absolute and
Unconditional.  Each Guarantor waives any and all notice of the
creation, renewal, extension or accrual of any of the Obligations and notice of
or proof of reliance by the Purchasers upon the guarantee contained in this
Section 2 or acceptance of the guarantee contained in this Section 2; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon the guarantee contained in this Section 2; and all dealings between the
Company and any of the Guarantors, on the one hand, and the Purchasers, on the
other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in this Section 2. Each
Guarantor waives, to the fullest extent permitted by law, diligence,
presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Company or any of the Guarantors with respect to the Obligations. Each Guarantor
understands and agrees that the guarantee contained in this Section 2 shall be
construed as a continuing, absolute and unconditional guarantee of payment
without regard to (a) the validity or enforceability of the Purchase Agreement,
the Notes or any other Transaction Document, any of the Obligations or any other
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Purchasers, (b) any
defense, set-off or counterclaim (other than a defense of payment and
performance in full of the Obligations) which may at any time be available to or
be asserted by the Company or any other Person against the Purchasers, or (c)
any other circumstance whatsoever (with or without notice to or knowledge of the
Company or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Company for the Obligations,
or of such Guarantor under the guarantee contained in this Section 2, in
bankruptcy or in any other instance. When making any demand hereunder or
otherwise pursuing its rights and remedies hereunder against any Guarantor, the
Purchasers may, but shall be under no obligation to, make a similar demand on or
otherwise pursue such rights and remedies as they may have against the Company,
any other Guarantor or any other Person or against any collateral security or
guarantee for the Obligations or any right of offset with respect thereto, and
any failure by the Purchasers to make any such demand, to pursue such other
rights or remedies or to collect any payments from the Company, any other
Guarantor or any other Person or to realize upon any such collateral security or
guarantee or to exercise any such right of offset, or any release of the
Company, any other Guarantor or any other Person or any such collateral
security, guarantee or right of offset, shall not relieve
any Guarantor of any obligation or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Purchasers against any Guarantor.  For the
purposes hereof, “demand” shall include without limitation the commencement and
continuance of any legal proceedings.

    

      
        
           

        

        
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    (f)           Reinstatement.  The
guarantee contained in this Section 2 shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Company or any Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Company or any Guarantor or any substantial part of its
property, or otherwise, all as though such payments had not been
made.

    

    (g)           Payments.  Each
Guarantor hereby guarantees that payments hereunder will be paid to the
Purchasers without set-off or counterclaim in U.S. dollars at the address set
forth or referred to in the Purchase Agreement.

    

    3.             Representations and
Warranties. Each Guarantor hereby makes the following representations and
warranties to the Purchasers as of the date hereof:

    

    (a)           Organization and
Qualification. The Guarantor is an entity, duly organized, validly
existing and in good standing under the laws of the applicable jurisdiction set
forth on Schedule 1, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Guarantor has no subsidiaries other than those identified as such on the
Disclosure Schedules to the Purchase Agreement.  The Guarantor is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually or
in the aggregate, (x) adversely affect the legality, validity or enforceability
of any of this Guaranty in any material respect, (y) have a material adverse
effect on the results of operations, assets, prospects, or financial condition
of the Guarantor, or (z) adversely impair in any material respect the
Guarantor's ability to perform fully on a timely basis its obligations under
this Guaranty (a “Material Adverse
Effect”).

    

    (b)           Authorization;
Enforcement.  The Guarantor has the requisite power and
authority to enter into and to consummate the transactions contemplated by this
Guaranty, and otherwise to carry out its obligations hereunder.  The
execution and delivery of this Guaranty by the Guarantor and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
requisite action on the part of the Guarantor.  This Guaranty has been
duly executed and delivered by the Guarantor and constitutes the legal, valid
and binding obligation of the Guarantor enforceable against the Guarantor in
accordance with its terms.

    

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

    (c)           No Conflicts. The
execution, delivery and performance of this Guaranty by the Guarantor and the
consummation by the Guarantor of the transactions contemplated thereby do not
and will not (i) conflict with or violate any provision of its Articles of
Organization or Operating Agreement or (ii) conflict with, constitute a default
(or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Guarantor
is a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Guarantor is subject (including federal and state
securities laws and regulations), or by which any material property or asset of
the Guarantor is bound or affected, except in the case of each of clauses (ii)
and (iii) such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as could not, individually or in the aggregate,
have or result in a Material Adverse Effect.  The business of the
Guarantor is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for violations which,
individually or in the aggregate, do not have a Material Adverse
Effect.

    

    (d)           Consents and
Approvals.  The Guarantor is not required to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local, foreign or other governmental
authority or other person in connection with the execution, delivery and
performance by the Guarantor of this Guaranty.

    

    (e)           Purchase
Agreement.  The representations and warranties of the Company
set forth in the Purchase Agreement as they relate to such Guarantor, each of
which is hereby incorporated herein by reference, are true and correct as of
each time such representations are deemed to be made pursuant to the Purchase
Agreement, and the Purchasers shall be entitled to rely on each of them as if
they were fully set forth herein, provided that each reference in each such
representation and warranty to the Company's knowledge shall, for the purposes
of this Section 3, be deemed to be a reference to such Guarantor's
knowledge.

    

    (f)           Company’s
Request.  This Guarantee is executed at the Company’s request
and not at the request of the Purchasers.

    

    (g)           Obtaining Company
Information.  The Guarantor has established adequate means of
obtaining from the Company on a continuing basis information regarding the
Company’s financial condition.

    

    (h)           Solvency.  As
of the date hereof and after giving effect to the transactions contemplated
hereby (a) the property of the Guarantor, at a fair valuation, will exceed its
debt; (b) the capital of the Guarantor will not be unreasonably small to conduct
its business; (c) the Guarantor will not have incurred debts, or have intended
to incur debts, beyond its ability to pay such debts as they mature; and (d) the
present fair salable value of the assets of the Guarantor will be greater than
the amount that will be required to pay its probable liabilities (including
debts) as they become absolute and matured.  For purposes of this
subsection (i), “debt” means any liability on a claim, and “claim” means (i) the
right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, undisputed, legal,
equitable, secured or unsecured, or (ii) the right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, undisputed, secured or
unsecured.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    
      

      4.         
    Covenants.

      

      (a)           Actions.  Each
Guarantor covenants and agrees with the Purchasers that, from and after the date
of this Guarantee until the Obligations shall have been paid in full, such
Guarantor shall take, and/or shall refrain from taking, as the case may be, each
commercially reasonable action that is necessary to be taken or not taken, as
the case may be, so that no Event of Default is caused by the failure to take
such action or to refrain from taking such action by such
Guarantor.

      

      (b)           Insurance.  So
long as any Notes remain outstanding, the Guarantors shall have in full force
and effect (a) insurance reasonably believed by the Guarantors to be adequate on
all assets and activities, covering property damage and loss of income by fire
or other casualty, and (b) insurance reasonably believed to be adequate
protection against all liabilities, claims and risks against which it is
customary for companies similarly situated as the Guarantors to
insure.

      

      (c)           Compliance with
Laws.  So long as any Notes remain outstanding, Guarantors will
use reasonable efforts to comply with all applicable laws, rules, regulations,
orders and decrees of all governmental authorities, except to the extent
non-compliance (in one instance or in the aggregate) would not have a Material
Adverse Effect.

      

      (d)           Corporate Existence; Merger
and Consolidation.  So long as any Notes remain outstanding,
the Guarantors shall maintain their corporate existence.  The
Guarantors shall not consolidate with or merge with or into, or convey, transfer
or lease all or substantially all its assets to, any Person, except to the same
extent that the Company is so permitted, and in accordance with the same
provisions applicable to the Company, in the Purchase Agreement or the Notes
(with the assumption of obligations applying to the assumption of the
obligations under this Guarantee).

      

      (e)           Taxes.  The
Guarantors shall pay, and shall cause each of its subsidiaries to pay, prior to
delinquency, all material taxes, assessments, and governmental levies except
such as are contested in good faith and by appropriate proceedings or where the
failure to effect such payment is not adverse in any material respect to the
Guarantors or the Purchasers.

      

      (f)           Stay, Extension and Usury
Laws.  The Guarantors covenant (to the extent that they may
lawfully do so) that they shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Guarantee; and the Guarantors
(to the extent that they may lawfully do so) hereby expressly waive all benefit
or advantage of any such law, and covenant that they shall not, by resort to any
such law, hinder, delay or impede the execution of any right herein granted to
the Purchasers, but shall suffer and permit the execution of every such right as
though no such law has been enacted.

      

      (g)           Negative
Covenants.  So long as any of the Obligations are outstanding,
unless Purchasers holding at least a majority-in-interest of the aggregate
principal amount of the then outstanding Notes shall otherwise consent in
writing, each Guarantor will not directly or indirectly on or after the date of
this Guarantee:

       

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    i.           enter into, create, incur, assume or suffer to exist any indebtedness for borrowed
money of any kind, including but not limited to, a guarantee, on or with respect
to any of its property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom;

    

    ii.           enter into, create, incur, assume or suffer to exist any
liens of any kind, on or with respect to any of its property or assets now owned
or hereafter acquired or any interest therein or any income or profits therefrom;

    

    iii.           amend its certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Purchasers
hereunder;

    

    iv.           repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de
minimis number of shares of its securities or debt obligations;

    

    v.           pay
cash dividends on any equity securities of the Company;

    

    vi.          enter
into any transaction with any Affiliate of the Guarantor which would be required
to be disclosed in any public filing of the Company with the Commission, unless
such transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or

    

    vii.         enter
into any agreement with respect to any of the foregoing;

    

    provided, however,
that the Guarantor shall not be prohibited from undertaking any of the actions
described above that the Company is permitted to undertake pursuant to the terms
of the Purchase Agreement, Notes and any and all other agreements or other documents
entered into in connection with the
financings contemplated by the Purchase
Agreement.

    

    5.           
  Miscellaneous.

    

    (a)           Amendments in
Writing.   None of the terms or provisions of this
Guarantee may be waived, amended, supplemented or otherwise modified except in
writing by Purchasers holding a majority-in-interest of the principal amount of
Notes then outstanding.

    

    (b)           Notices.  All
notices, requests and demands to or upon the Purchasers or any Guarantor
hereunder shall be effected in the manner provided for in the Purchase
Agreement, provided that any such notice, request or demand to or upon any
Guarantor shall be addressed to such Guarantor at its notice address set forth
on Schedule
1.

    

    (c)           No Waiver by Course of
Conduct; Cumulative Remedies. The Purchasers shall not by any act (except
by a written instrument pursuant to Section 5(a)), delay, indulgence, omission
or otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any default under the Transaction Documents or Event of
Default.  No failure to exercise, nor any delay in exercising, on the
part of the Purchasers any right, power or privilege hereunder shall operate as
a waiver thereof.  No single
or partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege.  A waiver by the Purchasers of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Purchasers would otherwise have on any future
occasion.  The rights and remedies provided herein are cumulative, may
be exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.

    

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

    (d)           Enforcement Expenses;
Indemnification.

    

    (i)           Each
Guarantor agrees to pay, or reimburse the Purchasers for, all costs and expenses
incurred in collecting against such Guarantor under the guarantee contained in
Section 2 or otherwise enforcing or preserving any rights under this Guarantee
and the other Transaction Documents to which such Guarantor is a party,
including without limitation the reasonable fees and disbursements of counsel to
the Purchasers.

    

    (ii)           Each
Guarantor agrees to pay, and to save the Purchasers harmless from, any and all
liabilities with respect to, or resulting from any delay in paying, any and all
stamp, excise, sales or other taxes which may be payable or determined to be
payable in connection with any of the transactions contemplated by this
Guarantee.

    

    (iii)           Each
Guarantor agrees to pay, and to save the Purchasers harmless from, any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Guarantee to the extent the Company would be required to do so pursuant to the
Purchase Agreement.

    

    (iv)           The
agreements in this Section shall survive repayment of the Obligations and all
other amounts payable under the Purchase Agreement, the Notes and the other
Transaction Documents.

    

    (e)           Successor and
Assigns. This Guarantee shall be binding upon the successors and assigns
of each Guarantor and shall inure to the benefit of the Purchasers and their
respective successors and assigns; provided that no Guarantor may assign,
transfer or delegate any of its rights or obligations under this Guarantee
without the prior written consent of the Purchasers.

    

    (f)           Set-Off.  Each
Guarantor hereby irrevocably authorizes the Purchasers at any time and from time
to time while an Event of Default under any of the Transaction Documents shall
have occurred and be continuing, without notice to such Guarantor or any other
Guarantor, any such notice being expressly waived by each Guarantor, to set-off
and appropriate and apply any and all deposits, credits, indebtedness or claims,
in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by the Purchasers to
or for the credit or the account of such Guarantor, or any part thereof in such
amounts as the Purchasers may elect, against
and on account of the obligations and liabilities of such Guarantor to the
Purchasers hereunder and claims of every nature and description of the
Purchasers against such Guarantor, in any currency, whether arising hereunder,
under the Purchase Agreement, any other Transaction Document or otherwise, as
the Purchasers may elect, whether or not the Purchasers have made any demand for
payment and although such obligations, liabilities and claims may be contingent
or unmatured.  The Purchasers shall notify such Guarantor promptly of
any such set-off and the application made by the Purchasers of the proceeds
thereof, provided that the failure to give such notice shall not affect the
validity of such set-off and application.  The rights of the
Purchasers under this Section are in addition to other rights and remedies
(including without limitation other rights of set-off) which the Purchasers may
have.

    

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

    (g)           Counterparts.  This
Guarantee may be executed by one or more of the parties to this Guarantee on any
number of separate counterparts (including by fax or PDF), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.

    

    (h)           Severability.  Any
provision of this Guarantee which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

    

    (i)           Section
Headings.  The Section headings used in this Guarantee are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.

    

    (j)           Integration.  This
Guarantee and the other Transaction Documents represent the agreement of the
Guarantors and the Purchasers with respect to the subject matter hereof and
thereof, and there are no promises, undertakings, representations or warranties
by the Purchasers relative to subject matter hereof and thereof not expressly
set forth or referred to herein or in the other Transaction
Documents.

    

    (k)           Governing
Law.  This guarantee shall be governed by, and construed and
interpreted in accordance with, the law of the state of New York without regard
to any principles of conflicts of laws.

    

    (l)           Submission to
Jurisdictional; Waiver. Each Guarantor hereby

    irrevocably
and unconditionally:

    

    (i)           submits
for itself and its property in any legal action or proceeding relating to this
Guarantee and the other Transaction Documents to which it is a party, or for
recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New York,
located in New York County, New York, the courts of the United States of America
for the Southern District of New York, and appellate courts from any
thereof;

    

    (ii)           consents
that any such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    (iii)           agrees
that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to such Guarantor at its address
referred to in Schedule 1 below or at such other address of which the Purchasers
shall have been notified pursuant thereto;

    

    (iv)           agrees
that nothing herein shall affect the right to effect service of process in any
other manner permitted by law or shall limit the right to sue in any other
jurisdiction; and

    

    (v)           waives,
to the maximum extent not prohibited by law, any right it may have to claim or
recover in any legal action or proceeding referred to in this Section any
special, exemplary, punitive or consequential damages.

    

    (m)           Acknowledgements.  Each
Guarantor hereby acknowledges that:

    

    (i)           it
has been advised by counsel in the negotiation, execution and delivery of this
Guarantee and the other Transaction Documents to which it is a
party;

    

    (ii)           the
Purchasers have no fiduciary relationship with or duty to any Guarantor arising
out of or in connection with this Guarantee or any of the other Transaction
Documents, and the relationship between the Guarantors, on the one hand, and the
Purchasers, on the other hand, in connection herewith or therewith is solely
that of debtor and creditor; and

    

    (iii)           no
joint venture is created hereby or by the other Transaction Documents or
otherwise exists by virtue of the transactions contemplated hereby among the
Guarantors and the Purchasers.

    

    (n)           Release of
Guarantors. Subject to Section 2, each Guarantor will be released from
all liability hereunder concurrently with the repayment in full of all amounts
owed under the Purchase Agreement, the Notes and the other Transaction
Documents.

    

    (o)           Waiver of Jury
Trial.  EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS
HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY
COUNTERCLAIM THEREIN.

    

    (p)           Security.  The
Obligations and Guarantors’ obligations hereunder and under the other
Transaction Documents are secured by the assets of the Guarantors pursuant to
the terms of the Security Documents.

    (q)           Multiple
Closings.  For clarification, the Guarantors acknowledge and
agree that there may be more than one Closing under the Purchase Agreement and
that this Guarantee guarantees all Obligations regardless of when (1) any
Purchaser executes the Purchase Agreement, (2) any Closing occurs or (3) any
Notes are issued, without any need for the Guarantors to execute any further
documentation or be notified of any Closing or for any other action to
occur.

    

    *****************

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly
executed and delivered as of the date first above written.

     

    
      	 
      	
              ANTIK
      DENIM, LLC

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	
              By:

            	
              /s/ Glenn S. Palmer

            	 
	 
      	
              Name: 

            	
              Glenn
      S. Palmer

            	 
	 
      	
              Title:

            	
              Chief
      Executive Officer

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	
              TAVERNITI
      SO JEANS, LLC

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	
              By:

            	
              /s/ Glenn S. Palmer

            	 
	 
      	
              Name:  
      

            	
              Glenn
      S. Palmer

            	 
	 
      	
              Title:

            	
              Chief
      Executive Officer

            	 

    

    

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

    

     

    SCHEDULE
1

    

    GUARANTORS

    

    The
following are the names, notice addresses, jurisdiction of organization and
percentage ownership of each Guarantor.

    

    

    
      	
              NAME

            	
              ADDRESS
      FOR NOTICE

            	
              JURISDICTION
      OF 

              INCORPORATION

            	
              PERCENTAGE

               OWNED
      BY 

              COMPANY

            
	 	 	 	 
	
              ANTIK
      DENIM, LLC

            	
              5804
      East Slauson Avenue

              Commerce,
      California 90040

            	
              California

            	
              100%

            
	 	 	 	 
	
              TAVERNITI
      SO JEANS, LLC

            	
              5804
      East Slauson Avenue

              Commerce,
      California 90040

            	
              California

            	
              100%

            

    

     

     

    13

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