Document:

Exhibit 10.1

 

	
  

  	
  Deed of
  Termination, Settlement and Release

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
  101 Collins Street Melbourne Victoria 3001 Australia

  
	
   

  	
  Telephone 61 3 9288 1234 Facsimile 61 3 9288 1567

  
	
   

  	
  Error! Unknown document property name. DX 240
  Melbourne

  
	
   

  	
   

  
	
   

  	
  SYDNEY MELBOURNE PERTH BRISBANE HANOI HO CHI MINH
  CITY SINGAPORE

  
	
   

  	
  Correspondent Offices
  JAKARTA KUALA LUMPUR

  
	
   

  	
   

  
	
   

  	
  Liability limited by the Solicitors’ Limitation of
  Liability Scheme, approved under the Professional Standards Act 1994 (NSW)

  

 

This deed of termination, settlement and release (Deed)

is made on 4 February 2007 between the following parties:

1                                         Shuffle
Master Inc

of
1106 Palms Airport Drive, Las Vegas, Nevada, United States of America

(Shuffle Master)

2                                         Stargames
Corporation Pty Ltd

ACN 001 660 537

1 Sheridan Close, Milperra, New South Wales,
Australia (SCPL)

3                                         Elixir
Group Limited

of 38/F, the Centrium, 60 Wyndham
Street, Central, Hong Kong (EGL)

4                                         Melco
International Development Limited

of 38/F, the Centrium, 60 Wyndham
Street, Central, Hong Kong (Melco)

Recitals

A.                                   On
11 April 2006, Shuffle Master, Stargames, Elixir and Melco entered into an Asia
Representative Agreement (Agreement),

B.                                     Under
the Agreement, Shuffle Master and Stargames appointed Elixir as their sole and
exclusive distributor and system integrator for promoting, selling and
distributing Products to Casinos in the Exclusive Territory (as those terms are
defined in the Agreement).

C.                                     Since
entering into the Agreement, the Parties have had a number of disputes and made
a number of allegations to each other relative to the Agreement, the conduct of the Parties both before and after the
Agreement was entered into and the respective rights and obligations of
the Parties under or in respect of the Agreement (the Disputes).

D.                                    The
parties have agreed to:

(a)                                  settle
the Disputes on a `no admissions’ basis; and

(b)                                 terminate
the Agreement, in accordance with this Deed. .

E.                                      Except
for each Parties’ obligations set forth in this Deed, the Parties wish to
release all conceivable claims against each other in respect of the Agreement and the Disputes, whether or not all
material facts are known to the Party
giving the release, and wish this Deed to have effect in a manner that
most effectively releases any claims of the Parties against each other in
relation to the Agreement and the Disputes.

This
Deed witnesses

that in consideration of, among other things, the
mutual promises contained in this Deed, the parties agree:

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1          Definitions

In this Deed, unless the context otherwise requires:

All references to “this
Deed” shall include Exhibit A and Schedules 1, 2 and 3 thereto. 

“Elixir” means EGL and its
subsidiary, namely Elixir Group (Macau) Limited.

“Escrow
Agent” means Freehills, 101 Collins Street, Melbourne,
Victoria, Australia.

“Ordered
Products” means Relevant Gaming Machines which have been
ordered under purchase order numbers P020070138, P020070139 and P020070140, on
4 February 2007, by Elixir from Stargames for its nominated customers (all of
whom shall be Designated Clients), as listed in Schedule 3.

“Party” means:

(a)           Elixir
and Melco, and each of them, on the one hand; and

(b)           Shuffle
Master and Stargames, and each of them, on the other.

“Other Party” means
Elixir and Melco and each of them, alternatively Shuffle Master and Stargames
and each of them, as the context requires.

“Related Party” in
relation to a Party means the directors, officers servants, agents and related
bodies corporate (as defined in the Corporations
Act 2001 (Cth)) of that Party.

“Royalty” means
a royalty equivalent to 50% of the Gross Margin (as determined in accordance
with paragraph 3 of Exhibit A) earned or to be earned by Elixir on the sale of
the Ordered Products and/or Shipped Products or any part thereof at any time,
but all amounts due Stargames under paragraphs 2(a) and 2(b) of Exhibit A shall
nonetheless be paid to Stargames even if no sale to a customer occurs.

“Shipped
Products” means Relevant Gaming Machines (and/or other
Products) already supplied by Stargames to Elixir and/or Elixir’s customers as
of 4 February 2007, as listed in Schedules 1 and 2.

“Stargames” means
SCPL and each of its present and former subsidiaries.

In this Deed, unless the
context requires otherwise terms and expressions defined in the Agreement and
not in this Deed shall have the same meanings given to. those terms in the Agreement.

2             Ordered
Products

(a)                                  Elixir
hereby agrees:

(1)                                  that
it has unconditionally and irrevocably ordered the Ordered Products;

(2)                                  not
to cancel or amend the orders for the Ordered Products; and

(3)                                  to
pay the Escrow Agent in respect of the Ordered Products, on or before 31 March
2007 the amounts listed in Exhibit A and Schedule 3, being an aggregate Royalty
of US$578,551, and aggregate Gaming Machine Costs of US$639,888 (collectively “the Escrow Funds”), which payments shall
be non-refundable (subject however to any adjustment due to liquidated damages
payable by Stargames to Elixir in accordance with paragraph 5 of

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Exhibit A) and shall be paid by Elixir irrespective of
whether Elixir has sold the Ordered Products and/or received any payment in
respect of them;

(4)                                  the
amounts listed in Schedule 3 to be paid by Elixir in respect of Ordered
Products, are exclusive of any GST. Elixir will not be liable for any GST,
unless GST becomes due as a consequence of the Ordered Products not being
exported from Australia within 60 days of the invoice date, where the delay in
export is due to any action taken by Elixir or omission on the part of Elixir
intended, or which is reasonably foreseeable to delay the export of such
Ordered Products, in which event Elixir shall pay that GST in addition to the
amounts listed in Schedule 3.

(b)                                 Stargames
hereby agrees to:

(1)                                  accept,
subject to the provisions of Exhibit A, the orders of the Ordered Products;

(2)                                  not
withdraw its acceptance of those orders (provided that all provisions of
Exhibit A are complied with by Elixir); and

(3)                                  supply
the Ordered Products on the terms and conditions specified in Exhibit A and
Schedule 3 of this Deed.

(c)                                  At
the time when Stargames issuing the Notice (as that term is defined in
paragraph 6 of Exhibit A) to Elixir, Stargames shall also provide a copy
thereof to the Escrow Agent. The Escrow Agent shall only irrevocably and
unconditionally release the Escrow Funds (subject however to any adjustment due
to liquidated damages payable by Stargames to Elixir in accordance with
paragraph 5 of Exhibit A) upon the expiration date of the Notice (which shall
be the 5th business day from the date of Notice)(the Notice issuing date
inclusive). Upon such expiration date, the Escrow Agent shall irrevocably and
unconditionally release the Escrow Funds or the balance thereof after the
aforesaid adjustment for liquidated damages, if any, to Stargames..

3             Shipped
Products

(a)                                  Elixir
hereby unconditionally and irrevocably agrees to pay to Stargames the following amounts (by the dates specified
below) in respect of Shipped Products listed in Exhibit A and Schedules
1 and 2:

(1)                                  US$1,505,854
(the “overdue not paid” machine costs specified in Schedule 1) on or before 16
February 2007;

(2)                                  US$371,437
(the “current not paid” machine costs specified in Schedule 1) on or before 16
February 2006;

(3)                                  US$192,294
(the “sales invoices from 1 January” amount specified in Schedule 1) on or
before 15 March 2007;

(4)                                  US$1,564,153
(the “current not paid” royalty amount specified in Schedule 2) on or before 16
February 2007; and

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(5)                                  US$162,653
(the “sales invoices from 1 January” amount specified in Schedule 2) on or
before 15 March 2007.

(b)                                 the
amounts in clause 3(a) above shall be non-refundable and shall be paid by
Elixir irrespective of whether Elixir has sold the Shipped Products and/or
received any payment in respect of them,

(c)                                  the
amounts listed in Schedules 1 and 2 to be paid by Elixir in respect of Shipped
Products, are exclusive of any GST. Elixir will not be liable for any GST,
unless GST becomes due as a consequence of the Shipped Products not being
exported from Australia within 60 days of the invoice date, where the delay in
export is due to any action taken by Elixir or omission on the part of Elixir
intended or which is reasonably foreseeable to delay the export of such Shipped
Products, in which event Elixir shall pay that GST in addition to the amounts
listed in Schedules 1 and 2.

4             Method
of Payment

(a)                                  The
payments detailed in clause 3 hereof shall be made by wire transfer to the
account listed below, as follows:

$US  BANK ACCOUNT
DETAILS

	
  Bank:

  	
   

  
	
  Branch:

  	
   

  
	
  Swift Code:

  	
   

  
	
  Correspondent Code:

  	
   

  
	
  BSB:

  	
   

  
	
  Account No:

  	
   

  
	
  Account Name:

  	
   

  

 

(b)                                 The
payment to the Escrow Agent pursuant to clause 2 above shall be made by wire
transfer to the account listed below:

	
  Bank:

  	
   

  
	
  Account Name:

  	
   

  
	
  Account address:

  	
   

  
	
  BSB number:

  	
   

  
	
  Account number:

  	
   

  
	
  Swift code (if
  required):

  	
   

  
	
  Matter number:

  	
   

  

 

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(c)                                  For
the avoidance of doubt, all payments made pursuant to this Deed shall be in US Dollars.

5          Indemnity

(a)                                  Shuffle
Master shall indemnify, defend and save harmless Elixir from and against all
claims, lawsuits, losses and expenses arising out of or resulting from any
breach by Stargames of any of its obligations under this Deed.

(b)                                 Melco,
shall indemnify, defend and save harmless Stargames from and against all
claims, lawsuits, losses and expenses arising out of or resulting from any
breach by Elixir of any of its obligations under this Deed, including without
limitation, the obligation to pay the amounts listed in Exhibit A and Schedules
1, 2 and 3 for the Shipped Products and Ordered Products.

6          Termination
of Agreement

(a)                                  In
consideration for the mutual covenants and obligations of the Parties set out in this Deed, with effect from execution of
this Deed the Parties hereby mutually terminate the Agreement.

(b)                                 No
right or obligation arising under the Agreement nor any terms of the Agreement
shall survive the termination of the Agreement save for:

(1)                                  the
obligation in clause 17 of the Agreement to maintain the confidential and
secret nature of all Confidential Information;

(2)                                  the
provisions regarding notices under clause 28 of the Agreement;

(3)                                  each
of the provisions in clause 11 (under the heading “Products Warranty”) of the
Agreement;

(4)                                  those
clauses of the Agreement specified elsewhere in this Deed as continuing to apply or to be in full force and
effect notwithstanding the termination of the Agreement;

(5)                                  the
definitions contained in clause 1 of the Agreement insofar as they apply to the clauses of the Agreement
referred to in this Deed.

(e)                                  For
the avoidance of doubt all other clauses of the Agreement (including without
limitation clauses 10.3 and 23 of the Agreement) will have no force and effect
after the termination of the Agreement pursuant to this Deed.

(d)                                 For
the avoidance of doubt, the termination of the Agreement shall not affect or
reduce the obligations of each Party set forth in this Deed,

(e)                                  Provided
that Elixir timely makes all payments set forth in each of the Schedules, when
due,. and notwithstanding the termination of the Agreement, the Representative
shall have six (6) months from the date of this Deed to sell all of its stocks
of Relevant Gaming Machines and Relevant Table Gaming Products, but such sales
shall only be permitted

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within the countries which were within the Exclusive
Territory (as defined in the Agreement).

7             Mutual
Release

(a)                                  With
effect from execution of this Deed:

(1)                                  Elixir
and Melco unconditionally and irrevocably release and discharge Stargames and
Shuffle Master and each of their Related Parties severally; and.

(2)                                  Stargames
and Shuffle Master unconditionally and irrevocably release and discharge Elixir
and Melco and each of their Related Parties severally,

from any claim, action, demand, suit or proceeding for
damages, debt, restitution, equitable compensation, account, injunction,
specific performance or any other remedy that each Party has or may have
against the other Party or any of the Related Parties of the other Party
directly or indirectly, whether known or unknown, now existing or existing in
the future, liquidated or unliquidated, fixed or contingent, in respect of:

(3)                                  the
Agreement (except for the obligations in the Agreement which are referred to in
clause 6(b) of this Deed);

(4)                                  any
conduct and/or representations of the parties made or engaged in prior to entry
into of the Agreement or this Deed;

(5)                                  the
subject matter of any Dispute or any part of any Dispute; and

(6)                                  any
thing related to any Dispute including, without limitation, any damage, loss,
cost or expense suffered as a result of any Dispute,

whether arising at common law, in equity, or under
statute or otherwise (the Released Matters), except
the Released Matters shall not include any obligations in this Deed.

(b)                                 In
support of and without limiting the releases in (a) above each Party:

(1)                                  covenants
with the Other Party and each of the Other Party’s Related Parties severally
not to claim, , sue or take any action against the other Party or any of the
Related Parties of the Other Party in respect of the Released Matters;

(2)                                  acknowledges
that the Agreement is terminated and of no further force or effect, except to
the extent that rights and obligations arising under the Agreement survive by
virtue of clause 6(b) of the this Deed.

(c)                                  For
the avoidance of doubt, and notwithstanding any other provision of this Deed,
nothing in this clause 7 prevents any Party from commencing proceedings to
enforce their rights under this Deed, including the right to enforce the
obligations in Exhibit A and Schedules 1, 2 and 3 hereof, but in no event shall
any Party have the right to rescind or terminate this Deed, nor shall Elixir be
relieved of its payment obligations as set forth in clauses 2 and 3 of this
Deed.

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8             Benefit
of Release

Without prejudice to the ability of each Party and each Related Party
to enforce this Deed for its own benefit:

(a)                                  each
Party holds the benefit of each release, discharge and covenant not to sue
contained in this Deed to the extent that it is expressed to apply in favour of
its Related Parties on trust for each of its Related Parties; and

(b)                                 any
variation agreed in writing by a Party to the terms of any release, discharge
or covenant not to sue contained in this Deed in favour of that Party will be
binding on all of the Related Parties of that Party and in agreeing to that
variation that Party will:

(i)                                     warrant
to the Other Party that it has obtained the consent of each of its Related
Parties before agreeing to that variation; and

(ii)                                  acknowledge
and agree that the Other Party is relying on this representation in agreeing to
the variation.

9             Confidentiality

(a)                                  No
Party may disclose any information in respect of this Deed or any matter
relating to any Dispute, other than for the purpose of:

(1)                                  enforcing
this Deed;

(2)                                  receiving
legal or tax advice in relation to this Deed;

(3)                                  to
the minimum extent necessary, enabling a Party to comply with its obligations
at law or under any regulation; or

(4)                                  complying
with any requirement of or by any gaining regulator.

(b)                                 Subject
to clause 9(a), no Party may make any adverse comments to any person or in any
public announcement about any other Party or in relation to the Agreement, the
termination of the Agreement, any Dispute and/or the subject matter of this
Deed.

(c)                                  Subject
to clause 9(a), no Party may make any public announcement that contains any
reference to the Disputes or the settlement of the Disputes.

(d)                                 Each
Party shall ensure that its Related Parties will comply with this clause 9.

10           Plea
in bar

Each Party acknowledges that the Other Party and
the Related Parties of the Other Party are entitled to enforce this Deed
directly and in the. case of the Related Parties of the Other Party
to the same extent as if the Related Parties were parties to this Deed and may
plead this Deed in bar to any claim or proceeding by the Other Party or the
Related Parties of the Other Party in respect of the Released Matters.

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11           Logos

Each Party undertakes and agrees that it will not use (or authorise any
other person to use), register, exploit or otherwise deal with any joint logos
developed by the Parties pursuant to clause 18.5 of the Agreement.

12           Costs
and expenses

Each Party must pay its own costs and expenses in respect of the
negotiation, preparation, execution, delivery, stamping and registration of
this Deed.

13           General

13.1        Paramountcy
of Deed

If this Deed conflicts with any other document, agreement or
arrangement, this Deed prevails to the extent of the inconsistency.

13.2        No
merger

The provisions of this Deed will not merge on completion of any
transaction contemplated in this Deed and, to the extent any provision has not
been fulfilled, will remain in force.

13.3        Attorneys
/ Other signatories

Each person who executes this Deed on behalf of a Party under a power
of attorney warrants that he or she has no notice of the revocation of that
power or of any fact or circumstance that might affect his or her authority to
execute this Deed under that power. Further, each Party represents to the Other
Party that any person who executes this Deed on behalf of the Party, is duly
authorised to do so.

13.4        Amendment

This Deed may not be amended or varied unless the amendment or
variation is in writing signed by all Parties.

13.5        Entire
agreement

This Deed (including Exhibit A and the Schedules thereto) constitutes
the entire agreement between the Parties in relation to the subject matter of
this Deed. All discussions, undertakings, agreements, representations,
warranties and indemnities giving rise to the Dispute, made in connection with
the Dispute or relating to the settlement of it are replaced by this Deed and
have no further effect.

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13.6        Assignment

No Party may assign, transfer or otherwise deal with this Deed or any
material right or material obligation under this Deed without the prior written
consent of each other Party, which must not be unreasonably withheld.

13.7        Severability

Part or all of any provision of this Deed that is illegal or
unenforceable will be severed from this document and will not affect the
continued operation of the remaining provisions of this document.

13.8        Waiver

Waiver of any power or right under this Deed:

(a)                                  must
be in writing signed by the Party entitled to the benefit of that power or
right; and

(b)                                 is
effective only to the extent set out in that written waiver.

13.9        Further
assurances

Each Party must do or cause to be done all things necessary or
reasonably desirable to give full effect to this Deed and the transactions
contemplated by it (including, but not limited to, the execution of documents,
including the execution of an escrow agreement with the Escrow Agent, in terms
consistent with the terms of this Deed).

13.10      Legal
advice

The Parties agree that they:

(a)                                  have
had a full and proper opportunity to consider the terms of this Deed;

(b)                                 have
had a full and proper opportunity to obtain independent legal advice in respect
of the terms of this Deed; and

(c)                                  have
freely entered into this Deed.

13.11      Counterparts

This Deed may be executed in any number of counterparts and all
counterparts taken together will constitute one document.

13.12      Governing
law and jurisdiction

This Deed is governed by and construed in accordance with the laws in
force in the State of State Victoria and each Party submits to the exclusive
jurisdiction of the courts of that State.

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Executed as a Deed:

	
  Signed sealed and delivered by

  	
   

  	
   

  
	
  Shuffle Master Inc.

  	
   

  	
   

  
	
  by:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Jerry Smith

  	
   

  	
  /s/ John C. Rouse

  
	
  an authorized signatory

  	
   

  	
  an authorized signatory

  
	
   

  	
   

  	
   

  
	
  Jerry Smith

  	
   

  	
  John C. Rouse

  
	
  Name (please print)

  	
   

  	
  Name (please print)

  
	
   

  	
   

  	
   

  
	
  Signed sealed and delivered by

  	
   

  	
   

  
	
  Stargames Corporation Pty Ltd

  	
   

  	
   

  
	
  by:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ John C. Rouse

  	
   

  	
  /s/ John C. Rouse

  
	
  Director

  	
   

  	
  Director

  
	
   

  	
   

  	
   

  
	
  John C. Rouse

  	
   

  	
  For Paul C. Meyer per Power of Attorney

  
	
  Name (please print)

  	
   

  	
  Name (please print)

  
	
   

  	
   

  	
   

  
	
  Signed sealed and delivered by

  	
   

  	
   

  
	
  Elixir Group Limited

  	
   

  	
   

  
	
  by:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Yuen Tien Yau, Gordon

  	
   

  	
   

  
	
  Secretary/Director

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Yuen Tien Yau, Gordon

  	
   

  	
   

  
	
  Name (please print)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signed sealed and delivered by

  	
   

  	
   

  
	
  Melco International Development Limited

  	
   

  	
   

  
	
  by:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Tsang Yuen Woo, Samuel

  	
   

  	
  /s/ Chung Yuk Man, Clarence

  
	
  Director

  	
   

  	
  Director

  
	
   

  	
   

  	
   

  
	
  Tsang Yuen Woo, Samuel

  	
   

  	
  Chung Yuk Man, Clarence

  
	
  Name (please print)

  	
   

  	
  Name (please print)

  

 

 10Exhibit 10.22

COLLATERAL
PROTECTION AGREEMENT

This Collateral Protection Agreement (“Agreement”) is entered into as
of October 13, 2006, by and between JD Design, LLC, a California limited
liability company (“JD Design”), and Innovo Group, Inc., a Delaware corporation
(collectively, with its subsidiary Joe’s Jeans, Inc., “Innovo”).

W
I T N E S S E T H:

WHEREAS, Innovo and the CIT Group/Commercial Services, Inc. (“CIT”) are
parties to certain factoring and/or financing arrangements, all as further set
forth in the Factoring Agreement and Inventory Security Documents dated June 1,
2001, and August 20, 2002, respectively, by and between CIT and Innovo, as the
same may be amended from time to time (the “Innovo/CIT Loan Documents”);

WHEREAS, Innovo has requested that CIT advance additional amounts under
the Innovo/CIT Loan Documents;

WHEREAS, CIT has agreed to advance additional amounts under the Innovo/CIT
Loan Documents provided it receives both a guarantee of payment from JD Design for
Innovo’s obligations to CIT (the “Guaranty”) and the pledge of certain intellectual
property collateral (the “Intellectual Property Collateral”) by JD Design to
CIT pursuant to that certain grant of security interest in patents, trademarks
and licenses (the “Trademark Security Agreement”);

WHEREAS, JD Design has agreed to provide the Guaranty and to pledge the
Intellectual Property Collateral pursuant to the Trademark Security Agreement
as an accommodation to Innovo and in contemplation of future transactions; and

WHEREAS, Innovo and JD Design desire to enter into this agreement to
provide protection to JD Design in the event the Guaranty is called upon or CIT
enforces its security 

 1
 

interest in the Intellectual Property Collateral pursuant
to the terms of the Trademark Security Agreement.

NOW THEREFORE, FOR AND IN CONSIDERATION of the mutual promises,
covenants and conditions set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:

ARTICLE 1

TERMS

1.1                               The
Loan.  Subject to the terms and
conditions set forth in the Innovo/CIT Loan Documents, CIT has agreed to loan to
Innovo, and Innovo has agreed to borrow from CIT, an additional amount up to two
million dollars ($2,000,000) (the “Additional Advance”).

1.2                               JD
Design Collateral.  JD Design has
agreed to provide the Guaranty (non-recourse) and to pledge the Intellectual
Property Collateral, which is more particularly described in paragraph 2 of the
Trademark Security Agreement, pursuant to the terms of the Trademark Security
Agreement (the Guaranty and Trademark Security Agreement may be collectively
referred to hereinafter as  the “CIT
Collateral Documents”).

1.3                               Collateral
Protection by Innovo to JD Design. 
In exchange for JD Design providing the Guaranty and pledging the
Intellectual Property Collateral, Innovo shall reserve an appropriate number of
shares of its common stock, which shall be calculated pursuant to the formula
prescribed in Paragraph 1.4 below, which Innovo shall issue to JD Design in the
event of the following:

A.                                   A
default by Innovo to CIT under the Innovo/CIT Loan Documents, which default
remains uncured after thirty (30) days from notice by CIT to Innovo;

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B.                                     Demand
is made to JD Design by CIT under the Guaranty and such demand is not withdrawn
within ten (10) days of the date of receipt of such demand by JD Design;

C.                                     The
commencement of any action by CIT to enforce its security interest in the
Intellectual Property Collateral under the Trademark Security Agreement;

D.                                    Any
representation or warranty made by Innovo (or any of its officers or partners)
under or in connection with this Agreement shall prove to have been false,
misleading, erroneous or incorrect in any material respect when made;

E.                                      Innovo
shall fail to perform or observe any term, covenant or undertaking contained in
this Agreement.

1.4                               Formula
for Calculating Number of Shares Reserved; Conditional Issuance.  Innovo shall reserve a number of shares of
its common stock, a portion (or all, as the case may be) of which it shall cause
to be issued in the event one of the events described in Section 1.3
occur.  The maximum number of reserved
shares shall be 6,834,347, which represents 19.9% of Innovo’s total shares
outstanding on the date of execution of this Agreement (the “Default Reserve”).  

In the event default occurs pursuant to Section 1.3, Innovo shall issue
a portion (or all) of the Default Reserve to JD Design, as consideration for JD
Design satisfying its obligations under the Guaranty and, correspondingly, in
satisfaction of Innovo’s obligation of contribution (if applicable) to JD
Design.  The number of shares of Innovo
common stock, which it shall cause to be issued, shall be determined by the
application of a fraction, the numerator of which shall be 

 3
 

the amount owed by Innovo to CIT under the Innovo/CIT
Loan Documents (not to exceed two million (2,000,000)) and the denominator of
which shall be the greater of (i) $0.01 or (ii) closing stock price of Innovo
as reported by the NASDAQ Stock Market, Inc., on the date upon which JD Design
fulfills its obligations under the Guaranty to CIT (the “Default Shares”).  In no event shall the Default Shares issued exceed
the Default Reserve.

In the event the market value of the Default Shares does not satisfy
any common law contribution obligation Innovo owes to JD Design, the issuance
of such shares shall in no way affect or result in the waiver of JD Design’s
ability to seek contribution from Innovo for the entire amount.

1.5                               Additional
Distributions to JD Design.  

A.                                   If,
on that date which is six (6) months after the date of the execution of the CIT
Collateral Documents, Innovo has not obtained the agreement of CIT to terminate
the CIT Collateral Documents and release JD Design from its obligations thereunder
(and release the Intellectual Property Collateral), Innovo shall cause to be
issued to JD Design two hundred thousand (200,000) shares of its common stock
as additional consideration to JD Design for its continued provision of the
Guaranty and pledge of the Intellectual Property Collateral.  In the event that the additional two hundred
thousand (200,000) shares of common stock are issued to JD Design, JD Design
shall still be entitled to the Default Shares to the extent that there is a
default under Section 1.3 hereof and the CIT Collateral Documents remain
effective. The Default Reserve shall then be reduced 

 4
 

by 200,000 in the event of the issuance of the shares under this
Section 1.5(A).

B.                                     If,
on that date which is eighteen (18) months after the date of the execution of
the CIT Collateral Documents, Innovo still has not obtained the agreement of
CIT to terminate the CIT Collateral Documents and release JD Design from its
obligations thereunder (and release the Intellectual Property Collateral), then
Innovo shall pay to JD Design on that date, and on the last day of each
subsequent calendar quarter, a cash payment of twenty-five thousand dollars
($25,000) for each quarterly period that the CIT Collateral Documents remain in
effect.  In the event that this
twenty-five thousand dollar ($25,000) payment is paid to JD Design, JD Design
shall still be entitled to the Default Shares to the extent that there is a
default under Section 1.3 hereof and the CIT Collateral Documents remain
effective.  

1.6                               Registration
Rights.  Innovo agrees any shares
issued pursuant to this Agreement shall be “Registrable Securities” under a
Registration Rights Agreement (the “Registration Rights Agreement”) to be
entered into between Innovo and JD Design in the event of issuance, a form of
which is attached hereto and incorporated herein by reference as Exhibit
A.  Innovo shall pay all expenses
associated with such registration.  Further,
Innovo agrees that it will use its best efforts file a resale registration statement
with the Securities and Exchange Commission on an applicable form
simultaneously with the issuance of the shares.

 5
 

ARTICLE 2

CONDITION PRECEDENT

2.1                               Condition
Precedent to the Reservation of Shares of Common Stock of Innovo.  The obligation of Innovo to reserve the shares
of common stock pursuant to Paragraph 1.4 hereof is subject to the conditions
precedent that (a) JD Design enter into the CIT Collateral Documents, and (b)
CIT makes the Additional Advance.  

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

3.1                               Representations
and Warranties of Innovo.  Innovo
represents and warrants as follows:

A.                                   Due
Incorporation.  Innovo is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and is duly qualified as a foreign corporation
and in good standing under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
qualification.

B.                                     Authorities;
No Default.  The execution, delivery
and performance by Innovo under this Agreement is within Innovo’s corporate
powers, have been duly authorized by all necessary corporate action, do not
contravene (i) Innovo’s Charter or By-Laws, or other governing documents, or
(ii) any law or any contractual restriction binding on or affecting
Innovo.  Innovo is not in default under
any of the Innovo/CIT Loan Documents.  

C.                                     Governmental
Approvals.  No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execution, delivery or
performance by Innovo of this Agreement. 

 6
 

D.                                    Enforceability.  This Agreement is, and each of the Innovo/CIT
Loan Documents, constitutes a legal, valid and binding obligation of Innovo,
enforceable against Innovo in accordance with their respective terms.  

E.                                      Litigation.  There is no pending or threatened action or
proceeding affecting Innovo before any Court, governmental agency or
arbitrator, which may materially adversely affect the financial condition, results
of operations, properties, business or prospects of Innovo.  

3.2                               Representations
and Warranties of JD Design.  JD
Design represents and warrants as follows:

A.                                   Due
Incorporation.  JD Design is a California
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware, and is duly qualified as a foreign limited
liability company and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification.

B.                                     Authorities.  The execution, delivery and performance by JD
Design under this Agreement is within JD Design’s organization powers, have
been duly authorized by all necessary organizational action, do not contravene
(i) JD Design’s Certificate of Formation or Operating Agreement, or other
governing documents, or (ii) any law or any contractual restriction binding on
or affecting JD Design.  

C.                                     Governmental
Approvals.  No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or 

 

 7
 

regulatory
body is required for the due execution, delivery or performance by JD Design of
this Agreement.  

D.                                    Enforceability.  This Agreement is, and each of the CIT Loan
Documents, constitutes a legal, valid and binding obligation of JD Design,
enforceable against JD Design in accordance with their respective terms.

E.                                      Litigation.  There is no pending or threatened action or
proceeding affecting JD Design or the Intellectual Property Collateral before
any Court, governmental agency or arbitrator, which may materially adversely
affect the financial condition, results of operations, properties, business or
prospects of JD Design.

F.                                      Collateral.  JD Design lawfully possesses and owns the Intellectual
Property Collateral and that except for the security interest granted in the
Trademark Security Agreement, the Intellectual Property collateral will be kept
free from all liens, security interests, claims and encumbrances whatsoever; that
JD Design has not made or given any prior assignment, transfer or security
interest in the Intellectual Property Collateral or any of the proceeds
thereof; that the Intellectual Property Collateral is and will continue to be,
in all respects, in full force and effect; and that there are no known
infringements of the Intellectual Property Collateral.

ARTICLE 4

COVENANTS OF THE PARTIES

4.1                               Affirmative
Covenants of JD Design.  JD
Design covenants and agrees that, so long as any amount is owed under the Innovo/CIT
Loan Documents, JD Design will, unless Innovo shall otherwise consent in
writing:

 8
 

A.                                   Compliance
with laws, etc. Comply in all
material respects with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, the obligations contained in the CIT
Collateral Documents and governmental rules and regulations related to the Intellectual
Property Collateral, except to the extent contested in good faith and by
appropriate proceedings.

B.                                     Preservation
of Corporate Existence, Etc. 
Preserve and maintain its corporate existence and rights (charter and
statutory).  

C.                                     Further
Assurances.  Execute and deliver,
promptly and at its expense, all further instruments and documents, and take
all further action as may be necessary or desirable, or that CIT may reasonably
request, in order to perfect and protect any security interest or lien granted
or purported to be granted under the CIT Collateral Document.  

4.2                               Negative
Covenants of JD Design.  JD
Design covenants and agrees that, so long as any amount is owed under the
Innovo/CIT Loan Documents, JD Design will not, without the prior written
consent of Innovo:

A.                                   Liens.,
etc.  Create or suffer to exist any
lien, security interest or other charge or encumbrance, or any other type of
preferential arrangement, upon or with respect to the Intellectual Property
Collateral, except for liens or security interests created under or permitted
by the terms of the CIT Collateral Documents.

 9
 

B.                                     Membership
Interests.  Make or cause or permit
the change, sale, transfer, assignment or other disposition of the majority of
the membership interest of JD Design.

C.                                     Executive
Management.  Make or cause or permit
the change of the executive management of JD Design.

4.3                               Affirmative
Covenants of Innovo.  Innovo
covenants and agrees that, so long as any amount is owed under the Innovo/CIT
Loan Documents, Innovo will, unless it obtains JD Design’s consent in writing:

A.                                   Compliance
with Laws, Etc.  Comply in all
material respects with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, the Innovo/CIT Loan Documents,
except to the extent contested in good faith and by appropriate proceedings.  

B.                                     Records,
Etc.  Keep proper books of record and
account, and permit JD Design and its agents or representatives, during normal
business hours, from time to time, to inspect and review such records and to
make extracts therefrom or copies thereof, including any contracts entered into
with suppliers.  Further, Innovo will
inform JD Design of any conversations, whether formal or informal, that Innovo
may have with CIT concerning its financial position and the potential for a
default under the Innovo/CIT Loan Documents. 
Innovo will promptly send copies of any written amendments made to the
Innovo/CIT Loan Documents to JD Design.

C.                                     Preservation
of Corporate Existence, Etc. 
Preserve and maintain its corporate existence and rights (charter and
statutory).  

 10
 

4.4                               Negative
Covenants of Innovo.  Innovo
covenants and agrees that, so long as any amount is owed under the Innovo/CIT
Loan Documents, Innovo will not, without the prior written consent of JD
Design:

A.                                   Liens,
Etc.  Create or suffer to exist any
lien, security interest or other charge or encumbrance, or any other type of
preferential arrangement, upon or with respect to any collateral that is
covered by the Innovo/CIT Loan Documents, except for liens or security
interests created under or permitted by the terms of the Innovo/CIT Loan
Documents.

B.                                     Stock
Ownership.  Make or cause or permit
the change, sale, transfer, or other disposition of a portion of the common
stock of Innovo, such that it will be unable to issue the Default Shares in the
event of a default pursuant to Paragraph 1.3.

ARTICLE 5

MISCELLANEOUS

5.1                               Amendments,
Etc.  No amendment or waiver of
any provision of this Agreement shall in any event be effective unless the same
shall be in writing and signed by Innovo and JD Design and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.

5.2                               No
Waiver; Remedies.  No failure on
the part of JD Design to exercise, and no delay in exercising, any right
hereunder or under any other agreement with Innovo shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder or
under any other agreement with Innovo preclude any other or further exercise
thereof or the exercise of any other right. 
The remedies herein provided hereunder are cumulative and not exclusive
of any remedies provided by law.

 11
 

5.3                               Costs,
Expenses.

A.                                   Each
party shall bear its own costs and expenses incurred in connection with the
preparation, execution and delivery of this Agreement; and

B.                                     Innovo
agrees to pay on demand to JD Design all costs and expenses, if any (including,
without limitation, reasonable counsel fees and expenses), in connection with
the enforcement (whether through negotiations, legal proceedings or otherwise)
of this Agreement or the CIT Collateral Documents, including, without limitation,
costs and expenses sustained as a result of a default by Innovo in the
performance of its obligations contained in this Agreement or the CIT
Collateral Documents, including, without limitation, collection fees or other
fees that JD Design may be required to pay to CIT under the CIT Collateral
Documents.

5.4                               Binding
Effects; Governing Law.  This
Agreement shall be binding upon and inure to the benefit of Innovo and JD
Design and their respective successors and assigns, except that Innovo shall
not have the right to assign its rights hereunder or any interests herein
without the prior written consent of JD Design. 
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California, without giving effect to its conflicts of
laws or rules.

5.5                               Execution
and Counterparts.  This Agreement
may be executed in any number of counterparts, each of which when so executed
shall be deemed to be an original and all of which when taken together shall
constitute but one and the same Agreement.

 12
 

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the date first set forth above.

	
  

  	
   

  	
  INNOVO GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marc
  Crossman

  
	
   

  	
  Its:

  	
  President and CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  JD DESIGN, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joe Dahan

  
	
   

  	
  Its:

  	
  Member Manager

  

 

 

 13

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