Document:

Unassociated Document

     JOINT VENTURE
AGREEMENT

     

    THIS
JOINT VENTURE AGREEMENT (the “JV Agreement“) is made and entered into effective
as of October 10, 2008 (the “Effective Date”), by and among Blue Holdings, Inc., a Nevada
corporation (“BH”), Paul
Guez, the founder of BH (“Founder”), and Headgear, Inc. , a Virginia
corporation (“HG”).  BH, Founder and HG shall be referred to
individually as a “Party” and collectively as the “Parties.”

     

    R E C I T A L S

    

    A.           BH
manufactures and sells denim apparel, including jeans under the names
“Taverniti,” “Antik,” and “Yanuk.”

    

    B.           HG
manufactures and sells apparel and footwear.

    

    C.           The
Parties and the Founder signed a letter of intent in July 2008, (the “LOI”)
regarding the establishment of a joint venture “SPV” to market designated
apparel product lines to selected retailers.

    

    D.           HG
advanced $500,000 to BH to finance the purchase of an initial order and BH
issued to HG its Secured Promissory Note dated July 16, 2008 in the principal
amount of $500,000 in respect thereof (the “Secured Note”).

    

    E.           The
Parties now desire to set forth the terms under which they will organize a
limited liability company under the laws of the State of Delaware (the
“Company”) to serve as the SPV through which they will market, distribute and
sell the designated apparel product lines.

     

    NOW,
THEREFORE, in consideration of the above Recitals, which are incorporated herein
by this reference, and the mutual promises, agreements and covenants set forth
in this JV Agreement, the Parties agree as follows:

     

    ARTICLE
1

    DEFINITIONS AND
INTERPRETATION

    

    In this JV Agreement, unless otherwise
clearly indicated by the context, the following terms, whether used in singular
or plural forms, shall have the following meanings:

     

    1.1           “Ancillary
Agreement” means an agreement with respect to securities of BH in the form
attached on Exhibit 1.1 to be executed, if at all, no later than fifteen days
after the Effective Date.

    

    1.2           “Certificate
of Formation” means the Certificate of Formation to be filed with the Delaware
Secretary of State’s office for purposes of legally organizing the Company, in
the form attached hereto as Exhibit 1.2.

     

    1.3           “Effective
Date” has the meaning ascribed thereto above.

     

    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

     

    1.4           “Escrow
Agreement” means an Escrow Agreement among the Founder, HG and the Escrow Agent
named therein with respect to certain securities of BH to be executed and
delivered simultaneously with the formation of the Company.

     

    1.5           “Governmental
Authority” means the United States of America, any state, commonwealth,
territory or possession thereof and any political subdivision or
quasi-governmental authority of any of the same, including but not limited to
courts, tribunals, departments, commissions, boards, bureaus, agencies,
counties, municipalities, and other instrumentalities.

     

    1.6           “Operating
Agreement” means the Limited Liability Company Agreement of the Company by and
among BH, HG and the Company, in the form attached hereto as Exhibit 1.5, to be executed,
if at all, not later than fifteen days after the Effective Date.

     

    1.7           “Related
Agreements” means the Ancillary Agreement, the Operating Agreement and
the Escrow Agreement.

    

    1.8          
“Secured Note” means the secured promissory note dated July 16, 2008 issued by
BH to HG in the principal amount $500,000.

    

    1.9           “Third
Party” means any person or legal entity other than BH, HG, the Founder or the
Company.

     

    1.10         “Member,”
“Membership Interest,” “Board” and “Manager” shall have the meanings set forth
in the Operating Agreement.

    

    1.11         In
this JV Agreement, except to the extent that the context otherwise requires (i)
whenever the words “include,” “includes” or “including” are used they are deemed
to be followed by the words “without limitation,” and (ii) the definitions
contained in this JV Agreement are applicable to the singular as well as the
plural of such terms.

    

    ARTICLE
2

    ORGANIZATIONAL MATTERS OF
COMPANY

    

    2.1           Subject
to the terms and conditions of this JV Agreement, on or before fifteen days
after the Effective Date, the Parties shall organize the Company as
a limited liability company under the laws of the State of Delaware by
filing the Certificate of Formation with the Delaware Secretary of State’s
office.  The date on which such filing is made is referred to as the
Filing Date.  On the Filing Date, subject to Section 7.3 hereof, the
parties shall enter into the Ancillary Agreement, the Operating Agreement and
the Escrow Agreement.

     

    2.2           The
name of the Company shall be Blue Holdings Head Gear JV LLC.

    

    2.3           The
purpose of the Company will be to (i) market, distribute, and sell designated
apparel lines produced by HG or BH to selected retailers, and (ii) engage in all
activities necessary, customary, convenient or incident to the activities
described herein.

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    ARTICLE
3

    ADVANCES TO
BH

     

    3.1          
HG has advanced $500,000 to BH to finance the purchase of an initial order of
merchandise and BH issued the Secured Noted to HG to evidence its receipt
thereof.

    

    3.2           HG
will provide an additional $1,250,000 in operating advances to BH (“BH
Advances”) which will be paid to HG out of BH’s portion of the “net profits” of
the Company in accordance with the terms of the Operating
Agreement.  The BH Advances will be advanced in accordance with
Schedule 3.2.

    

    ARTICLE
4

    OWNERSHIP

    

    4.1           The
Membership Interests of the Company shall be owned fifty percent (50%) by BH and
fifty percent (50%) by HG.  The transfer of Membership Interests and
the issuance of new Membership Interests shall be governed by the terms of the
Operating Agreement.

    

    ARTICLE
5

    GOVERNANCE

    

    5.1           The
Company will have a Board of Managers consisting of three
individuals.  HG shall designate two members of the
Board.  BH shall designate one Member of the Board.

    

    5.2           Either
party may replace the Members of the Board designated by it at any time and
from time to time. The relationship of the Members, the Board of Managers
and the Operations Manager shall be governed by the Operating
Agreement.

     

    ARTICLE
6

    OPERATING
PRINCIPLES

    

    6.1           BH
currently distributes denim products under the names “Taverniti So Jeans”,
“Antik” and “Yanuk”.

    

    6.2           Prior
to the execution of the Operating Agreement the parties will review the accounts
of BH and HG to determine which of their accounts will be serviced by the
Company.  It is the parties understanding that all of BH’s accounts
other than those which are rejected by HG will be serviced by the Company. The
accounts to be serviced by the Company are referred to herein as the “JV
Accounts.”  Each of HG and BH will introduce the Company to those of
its accounts included in the JV Accounts.

    

    6.3           The
Company will be the exclusive distributor to the JV Accounts of all Taverniti,
Antik and Yanuk products produced by HG and BH, and of any other brands
developed by the JV or by HG or BH for which the JV acts as the
distributor.  The Company shall be permitted to enter into licenses
for the sale in the US of products under the brands for which it is acting as
distributor.  In the case of BH brands, the license fees for licenses
initiated by the JV will be split equally between the Company and
BH, provided that any such revenue to BH will reduce the “Sales &
Income Targets” as per the LOI.  BH shall retain its current
international licenses, and shall have the right to enter into new international
licenses for goods that are not to be produced or distributed by the
JV.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    6.4           The
Company is to assume the sales representative and marketing functions currently
carried on by BH and BH will retain responsibility for the design and sourcing
functions for its products and for delivery of it products to the warehouses
designated by the Company.  The Company will hire its own employees to
market its merchandise and service its customers, together with such accounting
and other personal necessary for the operations of the Company.  No
later than two months from the formation of the Company the Company will hire or
engage as consultants such of the current sales and marketing personnel of BH as
it desires.  Until such time as such individuals are engaged by the
Company, BH shall continue to employ such personnel and commencing the date of
formation of the Company, the Company will advance to BH such HG approved and
reasonable costs associated with maintaining such individuals at such times as
are necessary to enable BH to timely meet its obligations to such
individuals.

    

    6.5          
The Company may request that HG or BH perform certain functions on behalf of the
Company and HG or BH, as the case may be, shall be compensated for such services
on such terms and conditions as shall be agreed, provided that the terms on
which HG (or BH) shall render services to the Company must be approved by BH (or
HG).  HG shall have the option to provide warehousing for the Company
at rates equal to the rates currently being paid by BH

    

    6.6           The
Company will be responsible for the payment of royalties and license fees for
that portion of the sale price in excess of the price paid to BH by the Company
with respect to merchandise it sells under existing license agreements listed on
Schedule 5.3.

    

    6.7           BH
and HG will introduce the other to its production and sourcing
resources.

    

    6.8           The
Company shall have the right to license BH branded products to Third Parties for
merchandise other than that produced by BH and HG, subject to the consent of BH
which will not be unreasonably withheld.

    

    6.9           BH
will give the Company access to all BH brands for which the Company is acting as
distributor. BH will develop and source denim products and HG will develop and
source non-denim products.  All denim products sourced by BH will be
sold to the Company at a discount of 22.5% from BH’s lowest wholesale price to
regular price customers as indicated on Schedule 6.9.  All non-denim
products sourced by HG will be sold to the Company at a discount of 22.5% from
HG’s lowest wholesale price.

    

    6.10         BH
will co-develop products with the Company provided that the Company reimburses
BH for all out of pocket expenses and a reasonable portion of all the salaries
and benefits paid to those employees engaged in co-development
activities.  All such products will be sourced by BH and sold to the
Company at a discount of 22.5% from BH’s lowest wholesale price.

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    6.12         HG
will design and develop lines of non-denim apparel items for distribution by the
Company under the Taverniti, Antik and Yanuk brands.

    

    6.13         Each
of the parties will allow their websites to be linked to that of the Company for
co-marketing purposes.

    

    6.14         BH
will continue its program of obtaining celebrity introductions of Taverniti,
Antik and Yanuk brand merchandise.

    

    6.15         HG
will obtain funding at no cost to the Company or BH to enable Blue Holdings and
the Company to produce and source all merchandise to be sold through the
Company.

    

    ARTICLE
7

    OBLIGATIONS OF THE
PARTIES

    

    7.1           The
primary responsibilities of HG will be to obtain financing for all of BH’s
production for products purchased by the Company; to assume the marketing and
sales functions of BH, thereby relieving it of the related expenses; to generate
sales of the Company’s products in an amount equal to 150% of
BH’s  full price sales in 2008 (sales figures shall be audited by a
CPA firm of HG’s choosing), while generating a net profit of $1.5 million or
more, for the period July 1, 2009 through June 30, 2010 and to obtain the
release of the Founder from the guarantees referenced in LOI, which for the
purposes of this Agreement shall include HG (or another guarantor acceptable to
HG) becoming a co-guarantor on such obligation.  In addition to the
other obligations set forth in this JV Agreement, subject to the terms and
conditions of this Agreement, HG agrees that:

    

    
      	
               
      

            	
              (a)  

            	
              it
      shall use commercially reasonable efforts to cooperate in implementing the
      objectives set forth in this JV Agreement;
and

            

    

    

    
      	
               
      

            	
              (b)  

            	
              it
      shall take any further actions as may be necessary to complete and
      implement the transactions contemplated by this JV
    Agreement.

            

    

    

    7.2           The
primary responsibilities of BH will be to design, source production and deliver
to the warehouses designated by the Company the denim products to be sold by the
Company under its brands.  In addition to the other obligations set
forth in this JV Agreement, subject to the terms and conditions of this
Agreement, BH agrees that it shall:

    

    
      	
               
      

            	
              (a)

            	
              use
      commercially reasonable efforts to cooperate in implementing the
      objectives set forth in this JV
Agreement

            

    

    

    
      	
               
      

            	
              (b)

            	
              use
      commercially reasonable efforts to design and develop new non-denim
      products for distribution by the
Company;

            

    

    

    
      	
               
      

            	
              (c)

            	
              take
      any further actions as may be necessary to complete and implement
      the transactions contemplated by this JV Agreement;
    and

            

    

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (d)

            	
              the
      sales figures referenced in the foregoing Section 7.1 are based on BH’s
      representation to HG that 2008 sales would reach
      $20,000,000.00  Accordingly, the Parties agree that if the
      above-referenced audited sales figure is less than $20,000,000.00, all
      Sales & Income Targets shall be reduced on a pro rata
      basis.

            

    

    

     

    7.3          
As a condition to the effectiveness of the Ancillary Agreement, the Escrow
Agreement and the Operating Agreement, BH shall deliver to HG evidence of the
ownership of Yanuk by Mr. Guez and his affiliates, a copy of the Operating
Agreement and any other Agreement  related to his ownership in
Taverniti, LLC. Such agreements shall not contain any clauses which in the
reasonable judgement of HG materially impair the value of Mr. Guez’s interest in
Taverniti.  As a further condition BH shall deliver an Escrow
Agreement and Loan and Security Agreement in form and substance satisfactory to
HG.

    

    ARTICLE
8

    REPRESENTATIONS AND
WARRANTIES

    

    8.1           
Each Party represents and warrants to the other that it has the legal right,
power and authority to enter into this JV Agreement and the Related Agreements,
and to fully perform its obligations hereunder and thereunder, and that the
performance of such obligations shall not conflict with its charter or
organizational documents or any agreements, contracts or other arrangements to
which it is a party.

    

    8.2           
EXCEPT AS EXPRESSLY SET FORTH IN THIS JV AGREEMENT OR THE RELATED AGREEMENTS,
NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND, EITHER EXPRESS
OR IMPLIED, INCLUDING WARRANTIES AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR NON-INFRINGEMENT.

    

    8.3           
IN NO EVENT SHALL EITHER PARTY, ITS DIRECTORS, OFFICERS, MEMBERS, EMPLOYEES, OR
AGENTS BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL,
EXEMPLARY OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION,
LOSS OF PROFITS OR LOSS OF BUSINESS OPPORTUNITIES, WHETHER BASED UPON A CLAIM OR
ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR
OTHERWISE, ARISING OUT OF THIS AGREEMENT.

    

    ARTICLE
9

    NON-EXCLUSIVE
RELATIONSHIP

    

    9.1           
The Parties acknowledge that the Company is not intended to be the exclusive
vehicle for either Party to participate in the apparel industry. To the extent
the parties can pursue or exploit other business opportunities relating to the
manufacture, distribution and sale of apparel and footwear products without a
breach of their respective obligations to each other and to the Company under
this JV Agreement and the Operating Agreement they shall be free to do
so.

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    ARTICLE
10

    TERM AND
TERMINATION

    

    10.1         
This JV Agreement shall commence on the date hereof and shall continue in effect
unless terminated by mutual written agreement of the Parties, upon notice by one
of the Parties pursuant to Section 7.3 that as a result of its diligence
investigation is does not want to proceed or pursuant to the terms of this
Section 10.

    

    10.2         
This JV Agreement may be terminated and the transactions contemplated hereby
abandoned by a Party sending written notice to other Party upon the occurrence
of one or more of the following events:

    

    
      	
               
      

            	
              (a)  

            	
              if
      the other Party shall commit a material breach of any of its obligations
      under this JV Agreement, which, if remediable, is not remedied within
      fifteen (15) business days from the giving of written notice requiring
      said breach to be remedied; and

            

    

    

    
      	
               
      

            	
              (b)  

            	
              if
      the other Party, its creditor(s), or any Third Party shall file for the
      other Party’s liquidation, bankruptcy, reorganization, or dissolution, or
      if the other Party is unable to pay any debts as they become due, or if
      the creditor(s) of the other Party have taken over its
      management.

            

    

    

    10.3           Termination
of this JV Agreement shall be without prejudice to the accrued rights and
liabilities of the Parties at the date of termination, unless waived in writing
by mutual agreement of the Parties.

    

    10.4           Upon
termination of this JV Agreement, each Party shall discontinue use, cancel and
return to the other Party, all confidential and/or proprietary information of
the other Party that has been furnished or obtained in contemplation of the
transactions contemplated hereunder or in connection with this JV
Agreement  and the Related Agreements, together with all reproductions
and copies thereof and other written documents related thereto retaining no
reproductions or copies or other written documents relating to such confidential
and/or proprietary information.

    

    10.5           If
this JV Agreement is terminated and the transactions contemplated hereby are
abandoned, this JV Agreement shall become null and void, except for the
provisions of this
Article 10 and the other
provisions of this JV Agreement which, by their nature, are intended to
survive.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    ARTICLE
11

    FORCE
MAJEURE

    

    11.1           The
failure or delay of either Party to perform any obligation under this JV
Agreement solely by reason of acts of God, acts of government (except as
otherwise enumerated herein), riots, wars, embargoes, strikes, lockouts,
accidents or other causes beyond its control (each a “Force Majeure Event”)
shall not be deemed a breach of this JV Agreement; provided, however, that the
Party so prevented from complying herewith shall not have procured such Force
Majeure Event, shall have used all reasonable diligence to avoid such Force
Majeure Event and ameliorate its effects, and shall continue to take all actions
within its power to comply as fully as reasonably possible with the terms of
this JV Agreement.

    

    11.2           Except
where the nature of the Force Majeure Event shall prevent it from doing so, the
Party suffering such Force Majeure Event shall notify the other Party in writing
within three (3) days after the occurrence of such Force Majeure Event and shall
in every instance, to the extent possible and lawful under the circumstances,
use its commercially best efforts to remove or remedy such Force Majeure Event
with all reasonable dispatch.

    

    ARTICLE
12

    GOVERNING LAW AND WAIVER OF
JURY TRIAL

    

    12.1           The
validity, performance, construction and effect of this JV Agreement shall be
governed by the laws of the State of New York, without regard to conflict of law
principles.

    

    12.2           In
the event that any dispute shall arise between the parties hereto as to any
matter or thing covered hereby or as to the meaning of this Agreement or to any
state of facts which may arise, same shall be settled by the agreement of the
parties, or if they are unable to agree, same shall be settled by arbitration in
New York, New York, in accordance with the rules of the American Arbitration
Association, and judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.

    

    12.3          
Refusal of one party to arbitrate shall entitle the remaining party to
specifically enforce this Agreement in a court of competent jurisdiction, and,
as a result of said refusal to arbitrate, the remaining party shall be entitled
to receive costs, reasonable attorneys' fees and his share of the arbitration
fee.  Arbitration by the parties shall take place at a time and place
as may be agreed upon, but if no agreement shall be reached, then at a location
designated by the Arbitrator.

    

    12.4           If
the party against which a judgment is rendered in any arbitration (the
“Defaulting Party”) does not pay to the other party the arbitration award within
ten (10) days of written demand therefor, and the other party shall institute
suit in a court of competent jurisdiction to enforce said decision, the
Defaulting Party shall pay the other party the reasonable attorney's fees and
court costs incurred in such action.

    

    12.5          While
any Arbitration proceeding is pending, no party is excused from the payment of
monies due hereunder, but if it is determined by the Arbitrator that monies paid
during the Arbitration period were not due, the payee shall remit the amount of
monies so paid, together with interest at the Default Rate (as hereinafter
defined) from the date of receipt to the proper party, within ten (10) days of
the issuance of the Arbitration Award.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

     

    ARTICLE
13

    NON-WAIVER AND OTHER
REMEDIES

    

    13.1          
Failure of any Party to insist upon the strict and punctual performance of any
provision hereof shall not constitute waiver of nor estoppel against asserting
the right to require such performance, nor shall a waiver or estoppel in one
instance constitute a waiver or estoppel with respect to a later breach whether
of similar nature or otherwise.

    

    13.2            Subject
to Section 10.5
above, nothing in this JV Agreement shall prevent a Party from enforcing its
rights by such remedies as may be available in lieu of or in addition to
termination.

    

    ARTICLE
14

    NOTICE

    

    14.1            All
notices, requests, demands and other communications under this Agreement or in
connection herewith shall be given by letter (delivered by hand or by air
courier) or by facsimile transmission confirmed by such letter, and shall be
addressed to the Parties as follows:

     

    
      

      
        	
                If to
      BH:

              	
                Blue
      Holdings, Inc.

              
	 
      	
                4901
      Zambrano Street

              
	 
      	
                Commerce,
      California

              
	 
      	
                Attention:
      Glenn Palmer

              
	 
      	
                Fax:
      323 726-6857

              
	 
      	 
      
	
                With a copy:
      to:

              	
                Vincent
      J. McGill, Esq.

              
	 
      	
                Eaton
      & Van Winkle, LLP

              
	 
      	
                3
      Park Avenue

              
	 
      	
                New
      York, New York 10016

              
	 
      	
                Fax:
      212 779 9928

              
	 
      	 
      
	
                If to
      HG:

              	
                Headgear,
      Inc.

              
	 
      	
                3409
      Chandler Creek Road

              
	 
      	
                Virginia
      Beach, VA 23453-2885

              
	 
      	
                Attn:___________.

              
	 
      	
                Fax:
      ___-_________

              
	 
      	 
      
	
                With a copy
      to:

              	
                Marc
      X. LoPresti, Esq.

              
	 
      	
                Tagliaferro
      & LoPresti, LLP

              
	 
      	
                45
      Broadway, Suite 2200

              
	 
      	
                New
      York, New York 10005

              
	 
      	 
      
	
                If to
      Founder:

              	
                Paul
      Guez

              
	 
      	
                Apt.
      35A

              
	 
      	
                425
      E58th Street

              
	 
      	
                New
      York, New York 10022

              
	 
      	 
      
	
                With a copy:
      to:

              	
                Vincent
      J. McGill, Esq.

              
	 
      	
                Eaton
      & Van Winkle, LLP

              
	 
      	
                3
      Park Avenue 

                New
      York, New York 10016

                Fax:
      212 779 9928

              

      

       

      
        
          
          

        

        
          -9-

          
            

          

        

        
          
          

        

         

      

    

    14.2                      Any
notice, request, demand or other communication shall be effective (i) if given
by facsimile, at the time such facsimile is transmitted and the appropriate
confirmation is received (or, if such time is not during a normal business day,
at the beginning of the following business day), or (ii) if given by air
courier, when delivered at the applicable address specified above. Either Party
may change its address at any time by written notice to the other Party given
pursuant to this Article 14.

    

    

    ARTICLE
15

    MISCELLANEOUS

    

    15.1                      In
the event that any provision of this JV Agreement becomes or is declared by a
court or other tribunal of competent jurisdiction to be illegal, invalid,
unenforceable or void, such provision(s) shall be limited or eliminated to the
extent necessary so that this JV Agreement shall otherwise remain in full force
and effect without said provision.

    

    15.2                      Each
Party shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this JV
Agreement.

    

    15.3                      Neither
this JV Agreement nor any rights hereunder shall be assignable, directly or
indirectly, by any Party hereto without the prior written consent of the other
Party, which consent shall not be unreasonably withheld or delayed.

    

    15.4                      This
JV Agreement supersedes all previous and contemporaneous representations,
understandings or agreements, oral or written, between the Parties with respect
to the subject matter hereof, and the agreements and documents contemplated
hereby contain the entire understanding of the Parties as to the terms and
conditions of their relationship. No changes, alterations or modifications
hereto shall be effective unless they are in writing and are signed by an
authorized representative of each Party.

    

    15.5                     The
headings in this JV Agreement are included for convenience of reference only and
do not substantively affect the terms or interpretation of this JV
Agreement.

    

    1656                     This
JV Agreement may be executed in one or more counterparts, each of which, when
executed, shall be deemed to be an original and all of which together will be
deemed to be one and the same instrument. Delivery of an executed counterpart of
a signature page to this JV Agreement by facsimile transmission shall be
effective as delivery of a manually executed counterpart of this JV
Agreement.

     

    [Signature
Page to Follow]

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, the Parties have executed this JV Agreement as of the date
first set forth above.

     

    
      
        	 	
                /s/
      Paul
      Guez 

              	 
	 	
                Paul
      Guez 

              	 
	 	 	 
	 	BLUE HOLDINGS,
      INC.	 
	 	 	 	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ Glen
      Palmer	 
	 	 	Glen
      Palmer	 
	 	Title:	Chief
      Executive Officer 	 
	 	 	 	 

      

    

     

    
      
        	 	HEADGEAR, INC.	 
	 	 	 	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ Jeff
      Watson	 
	 	 	Jeff
      Watson 	 
	 	Title:
      	Chief
      Executive Officer	 
	 	 	 	 

      

    

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    

    EXHIBIT
1.2 – Certificate of Formation

    
 

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    

    EXHIHBIT
1.5 – Operating Agreement

    

    

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

     

    SCHEDULE
3.2 – Schedule of Advances

    

    On the
date
hereof                      
- $250,000

    30 days
from the date hereof      - $250,000

    60 days
from the date hereof      - $250,000

    90 days
from the date hereof      - $250,000

    120 days
from the date hereof    - $250,000

    

    

    
      -14-Unassociated Document

    ANCILLARY
AGREEMENT

    

    Agreement
dated as of October 10, 2008 by and among Blue Holdings, Inc., a Nevada
corporation (“BH”), Paul
Guez, the founder of BH (“Founder”), and Headgear, Inc., a Virginia
corporation (“HG”).  BH, Founder and HG shall be referred
to individually as a “Party” and collectively as the
“Parties.”

    

    R E C I T A L S

    

    A.           BH
manufactures and sells denim apparel, including jeans under the names
“Taverniti,” Antik,” and “Yanuk.”

    

    B.           HG
manufactures and sells apparel and footwear.

    

    C.           The
parties signed a letter of intent in July 2008, (the “LOI”) regarding the
establishment of a joint venture company to co-market designated apparel product
lines to selected retailers. Thereafter, to more fully define their rights and
obligations the parties entered into a Joint Venture Agreement dated October 10,
2008 (the “JV Agreement”).

    

    D.           As
contemplated by the JV Agreement, contemporaneously herewith BH and HG are
entering into an Operating Agreement with respect to the governance of Blue Holdings Head Gear JV
LLC, a newly
formed Delaware limited liability company (the “Company”), in which each of them
will have a 50% equity interest.

    

    NOW,
THEREFORE, in consideration of the above Recitals and the mutual promises,
agreements and covenants set forth in this Agreement, the parties hereto agree
as follows:

    

    1. Conversion of BH Preferred
Stock.  Upon execution of this Agreement, the Founder will, and
will cause certain related parties, to convert the shares of preferred stock of
BH indicated on Schedule 1 into the number of shares of BH Common Stock
indicated on Schedule 1.  Schedule 1 shall reference both the shares
of preferred stock and the identity of the related parties.

    

    2. Escrow of
Securities.  (a)  Upon execution of this Agreement,
the Founder and if necessary, certain Related Parties will deposit 10,415,975
share of BH common stock, 707,916 Warrants (exercisable at 40 cents per share)
(the “Escrow Securities”) into an escrow account with ________ (the “Escrow
Agent”).  For so long as the Escrow Securities are in escrow, the
current owners shall retain all voting rights and the right to receive any
distributions or other rights that may accrue with respect thereto except for
the proceeds of any sale of the Escrow Securities or the sale of any of the
assets of BH.

    

    
      	
               
      

            	
              (b)

            	
              If:

            

    

     

    
      (i) the Founder is
released from all personal guarantees to FTC (BH’s factor), which for the
purposes of this Agreement shall include HG (or another guarantor acceptable to
FTC) becoming a co-guarantor on such obligation. Each party shall have a right
of contribution from the other party of up to 50% of any payment required under
the FTC guarantee,

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (ii) Neither HG nor the Company
defaults in any of its material obligations in favor of BH under the JV
Agreement or the Operating Agreement,

    

    (iii) the JV has not been terminated or
dissolved, and

    

    (iv) For the period
July 1, 2009 to June 30, 2010, the Company’s sales revenues is equal to or
greater than 150% of the full
price sales revenue of BH in 2008 for the BH brands to be distributed by
the Company, based upon the audited figures of BH’s 2008 actual retail sales to
customers paying “full price” and during 2008 and during such period the Company
generates a net profit of $1.5 million or more.  BH’s sales figures
shall be audited by a CPA firm of HG’s choosing.  Likewise, BH shall
be entitled to receive weekly sales figures from the Company and monthly
earnings reports, and all sales and earnings reports shall be subject to review
by a CPA firm of BH’s choosing.

    

    The sales
figures referenced in the foregoing Section 2(b)(iv) are based BH’s
representation to HG that 2008 sales would reach
$20,000,000.00  Accordingly, the Parties agree that if the
above-referenced audited sales figure is less than $20,000,000.00, all Sales
& Income Targets shall be reduced on a pro rata basis.

    

    Then the
Escrow Securities shall be released to HG.  Further, if the Escrowed
Securities are released to HG and if the Founder shall convert any portion of
the Convertible Promissory Note into shares, HG shall have the right to buy 1⁄2 of
the shares issued as a result of such conversion from Founder at the conversion
price.

    

    
        
(c) If on
or before, December 31, 2010, HG is not eligible to receive any Escrow
Securities pursuant to the foregoing clauses all Escrow Securities shall be
returned to the original owner thereof.

    

    

       (d)
The Founder hereby represents and warrants that as of the date hereof, he and
his wife owned, directly or through various entities, 20,829,950 shares of the
Common Stock of BH, a warrant to purchase 1,415,832 shares of BH at 40 cents per
share and a Convertible Promissory Note convertible into 4,045,233 shares at 40
cents per share  and that none of their children or any entity
controlled by any of  them owns in the aggregate more than 200,00
shares of the Company.  If the children or any entity directly or
indirectly controlled by the Founder, his spouse or children owned in the
aggregate more than 200,000 shares of BH as of July 16, 2008, the Founder shall
increase the escrow by 1⁄2 of such amount  Founder represents that there
..

    

    3. Option to Purchase Shares BH
Common Stock.

    

    Upon the
execution of this Agreement, BH will grant HG an option in the form of Exhibit 5
to purchase 10,000,000 shares of BH Common Stock at a per share exercise price
of $0.25, which option may be exercised in whole or in part for a period of
three years after the Escrow Securities are released to HG as a result of the
satisfaction of the conditions set forth in Section 2(b).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

     BH
will grant to Paul Guez an option in the form of exhibit 5 to purchase 3,000,000
shares of BH common stock at a per share exercise price of $0.25 which option
may be exercised in whole part for a period of three years after the Escrow
Securities are released to HG.

    

    4.  Board
Seat.  HG shall be entitled to one seat on the Board of
directors of BH.  The individual must be one as to which BH has no
reasonable objection.

    

    5. Taverniti and Yanuk
Brands.  Immediately upon formation of the Company, Founder
shall assign to BH all of his revenues and distributions derived from his
holdings in Taverniti Holdings LLC, the entity that owns all trademarks for the
“Taverniti so jeans” brand.  Promptly after the date hereof Founder
shall execute such documents as are necessary to transfer his interests in
Taverniti Holdings, LLC to BH and deposit the same with the Escrow
Agent.  No later than August 30, 2010, Founder shall obtain all
necessary consents to transfer to BH his ownership interest in Taverniti
Holdings LLC, and if HG is entitled to receive the Escrowed Securities,
Founder’s interest in Taverniti Holdings shall be transferred to BH no later
than August 31, 2010.   Until such transfer is completed, the
Founder will not otherwise transfer his interest in Taverniti Holdings LLC. As
consideration for his interest in Taverniti Holdings, upon deposit of the
Assignment of his interest in Taverniti Holdings into Escrow, BH shall deposit 5
million shares of its common stock into escrow which shall be released upon
released of the Assignment.

    

    Immediately
upon formation of the Company, Founder shall assign to BH all of his revenues
and distributions derived from the Yanuk brand, except that Founder shall retain
his right to all revenues and distributions derived from international licenses
of the brand.  Promptly after the date hereof Founder shall execute
such documents as are necessary to transfer his interests in Yanuk to BH and
deposit the same with the Escrow Agent.  No later than August 30,
2010,  if HG is entitled to receive the Escrowed Securities, Founder’s
interest in Yanuk  shall be transferred to BH no later than August 31,
2010.   Until such transfer is completed, the Founder will not
otherwise transfer his interest in Yanuk.   Notwithstanding his
transfer of his interest in Yanuk, Founder shall be entitled to retain the
rights to all international licensing revenues derived from the Yanuk
brand.  As consideration for his interest in Yanuk, upon deposit of
the Assignment of his interest in Yanuk into Escrow, BH shall deposit 2 million
shares of its common stock into escrow which shall be released upon released of
the Assignment.

    

    There
shall be delivered to HG copies of all international licenses pertaining to
Yanuk or Taverniti, which shall be held in confidence.

    

    5.1 Merger.  If
the conditions are satisfied and the Escrow Securities are released from Escrow
as provided in Section 2(b), and there has been no material changes in the
holdings of BH (with the exception of changes resulting from the rights granted
to HG in 5.2 below) then promptly thereafter and in all events no later than
January 2, 2011, without any additional consideration to HG, the Company or its
operations shall be merged or consolidated into BH, the form of such transaction
to be as determined to be in the mutual interests of the parties.

    

    5.2 Rights of First Refusal and
Consent.  Promptly after the date hereof HG and BH shall enter
into an agreement whereby BH shall grant to HG (i) a right of first refusal
whereby if BH shall intend to sell any of its equity securities for cash, HG
shall have the right to purchase such amounts as is necessary to preserve its
relative ownership in BH and (ii) a right of consent whereby BH shall not issue
any of its securities (other than those underlying options issued to its
employees other than Paul Guez, in the ordinary course of business) for
consideration other than cash without the prior consent of HG.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    6. Term and Termination.
(a) This Agreement shall become effective upon the execution hereof by BH and
HG, and it shall continue in effect until the dissolution of the
Company.

    

    7. Governing Law. The
validity, performance, construction and effect of this Agreement shall be
governed by the laws of the State of New York, without regard to conflict of law
principles.

    

    8. Waiver of Jury Trial.
Each Party hereby waives any right to a trial by jury in any action, lawsuit or
proceeding to enforce or defend any right under this JV Agreement, or any
amendment thereto, and agrees that any action, lawsuit or proceeding will be
tried before a court and not before a jury.

    

    9. Non-Waiver of Other
Remedies. Failure of any Party to insist upon the strict and punctual
performance of any provision hereof shall not constitute waiver of nor estoppel
against asserting the right to require such performance, nor shall a waiver or
estoppel in one instance constitute a waiver or estoppel with respect to a later
breach whether of similar nature or otherwise.  Subject to the
foregoing, nothing in this Agreement shall prevent a Party from enforcing its
rights by such remedies as may be available in lieu of or in addition to
termination

    

    10. Notices. All notices,
requests, demands and other communications under this Agreement or in connection
herewith shall be given by letter (delivered by hand or by air courier) or by
facsimile transmission confirmed by such letter, and shall be addressed to the
Parties as follows:

     

    
      
        
          	
                  If to
      BH:

                	
                  Blue
      Holdings, Inc.

                
	 
      	
                  4901
      Zambrano Street

                
	 
      	
                  Commerce,
      California

                
	 
      	
                  Attention:
      Glenn Palmer

                
	 
      	
                  Fax:
      323 726-6857

                
	 
      	 
      
	
                  With a copy:
      to:

                	
                  Vincent
      J. McGill, Esq.

                
	 
      	
                  Eaton
      & Van Winkle, LLP

                
	 
      	
                  3
      Park Avenue

                
	 
      	
                  New
      York, New York 10016

                
	 
      	
                  Fax:
      212 779 9928

                
	 
      	 
      
	
                  If to
      HG

                	
                  Headgear,
      Inc.

                
	 
      	
                  3409
      Chandler Creek Road

                
	 
      	
                  Virginia
      Beach, VA 23453-2885

                
	 
      	
                  Attn:
      Jeff
      Watson, Chief Executive Officer

                
	 
      	
                  Fax:
      ___-_________

                

        

         

        
          
             

          

          
             

            
              

            

          

          
             

          

        

         

        
          	 
      	 
      
	
                  With a copy
      to:

                	
                  Marc
      X. LoPresti, Esq.

                
	 
      	
                  Tagliaferro
      & LoPresti, LLP

                
	 
      	
                  45
      Broadway, Suite 2200

                
	 
      	
                  New
      York, New York 10005

                
	 
      	      
                  Fax: 212-232-2398 
      

                
	 	 
	
                  If to
      Founder:

                	
                  Paul
      Guez

                
	 
      	
                  Apt.
      35A

                
	 
      	
                  425
      E58th Street

                
	 
      	
                  New
      York, New York 10022

                
	 
      	 
      
	
                  With a copy:
      to:

                	
                  Vincent
      J. McGill, Esq.

                
	 
      	
                  Eaton
      & Van Winkle, LLP

                
	 
      	
                  3
      Park Avenue 

                  New
      York, New York 10016

                

        

         

      

    

    Any notice, request, demand or other
communication shall be effective (i) if given by facsimile, at the time such
facsimile is transmitted and the appropriate confirmation is received (or, if
such time is not during a normal business day, at the beginning of the following
business day), or (ii) if given by air courier, when delivered at the applicable
address specified above. Either Party may change its address at any time by
written notice to the other Party given pursuant to this Section
11.

    

    11. Entire Agreement.
This Agreement supersedes all previous and contemporaneous representations,
understandings or agreements, oral or written, between the Parties with respect
to the subject matter hereof, and the agreements and documents contemplated
hereby contain the entire understanding of the Parties as to the terms and
conditions of their relationship. No changes, alterations or modifications
hereto shall be effective unless they are in writing and are signed by an
authorized representative of each Party.  In the event of any conflict
between this Agreement and the Joint Venture Agreement among the parties, the
terms of this agreement shall govern.

    

    12. Expenses. Each Party
shall pay all costs and expenses that it incurs with respect to the negotiation,
execution, delivery and performance of this Agreement.

    

    13. Severability. In the
event that any provision of this Agreement becomes or is declared by a court or
other tribunal of competent jurisdiction to be illegal, invalid, unenforceable
or void, such provision(s) shall be limited or eliminated to the extent
necessary so that this Agreement shall otherwise remain in full force and effect
without said provision

    

    14. Assignment. Neither
this Agreement nor any rights hereunder shall be assignable, directly or
indirectly, by any Party hereto without the prior written consent of the other
Parties, which consent shall not be unreasonably withheld or
delayed.

    

    15. Headings. The
headings in this Agreement are included for convenience of reference only and do
not substantively affect the terms or interpretation of this
Agreement

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    16. Counterparts. This
Agreement may be executed in one or more counterparts, each of which, when
executed, shall be deemed to be an original and all of which together will be
deemed to be one and the same instrument. Delivery of an executed counterpart of
a signature page to this Agreement by facsimile transmission shall be effective
as delivery of a manually executed counterpart of this Agreement.

    

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

     

    
      
        
          	 	BLUE
      HOLDINGS, INC.	 
	 	 	 	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ Glen
      Palmer	 
	 	 	Glen
      Palmer	 
	 	Title:	Chief
      Executive Officer 	 
	 	 	 	 

        

      

       

      
        
          	 	HEADGEAR,
      INC.	 
	 	 	 	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ Jeff
      Watson	 
	 	 	Jeff
      Watson 	 
	 	Title:
      	Chief
      Executive Officer	 
	 	 	 	 

        

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Schedule
1

     

    
      
        
          	
                  Preferred Stock
      Conversion

                
	 
      	 
      	 
      
	 	 	 
	
                  Name of Holder
      

                	
                  Number of Shares of
      Preferred

                	
                  Converts into Number of Common
      Shares

                
	
                    Paul
      Guez

                	
                  1,000,000

                	
                  4,623,589

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