Settlement Agreement and Release between Blondie Rockwell, Inc. and Innovo Azteca Apparel, Inc.

Summary

Blondie Rockwell, Inc. and Innovo Azteca Apparel, Inc. have agreed to terminate their trademark license agreement for the "FETISH" brand. Innovo Azteca will pay Blondie a total of $837,171.79 in scheduled payments, with its parent company, Innovo Group, Inc., guaranteeing certain obligations. Innovo Azteca is allowed to sell remaining inventory and the 2004 summer line under specific conditions and time limits, after which all rights to the brand end. The agreement also includes mutual releases and supersedes the prior license agreement.

EX-10.1 2 exhibit10_1.txt SETTLEMENT AGREEMENT AND RELEASE SETTLEMENT AGREEMENT AND RELEASE Blondie Rockwell, Inc. ("Blondie") and Innovo Azteca Apparel, Inc. ("IAA") have reached the following agreement, as of May 25, 2004 (the "Agreement" or "Settlement Agreement"). Capitalized terms not defined herein shall have the meanings assigned to them in the License Agreement (defined below). WHEREAS, Blondie and IAA entered into a Trademark License Agreement, dated as of February 13, 2003, as amended by that certain First Amendment to Trademark License Agreement, dated as of February 13, 2003 (the "First Amendment") and that certain Second Amendment to Trademark License Agreement, dated as of February 18, 2004 (the "Second Amendment") (collectively, the "License Agreement") pursuant to which, among other things, Blondie granted IAA an exclusive license to manufacture and sell women's apparel and certain accessories featuring the "FETISH" trademarks, including but not limited to the Trademarks (the "Brand") in the United States in exchange for the payment of royalties as provided in the License Agreement; WHEREAS, IAA has granted a sublicense for the manufacture, sale and/or distribution of accessories to Innovo, Inc.; WHEREAS, IAA has caused to be filed in the name of Blondie a trademark application in Japan, a copy of which is annexed as Exhibit C (the "Japan IP"); WHEREAS, the parties mutually desire to terminate the License Agreement on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the following covenants and agreements and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties have agreed as follows: 1. IAA shall pay Blondie the following monetary amounts in accordance with the following payment schedule: (a) A total of $337,171.79 upon execution of this Settlement Agreement,$87,171.79 of which represents Royalties due on Net Sales of IAA through April 24, 2004 (the "Owed Royalties"); (b) $250,000.00 on or before June 15, 2004; and (c) $250,000.00 on or before July 15, 2004. Said payments shall be made by wire transfer of immediately available funds on or before the aforesaid due dates to the IOLA account of Pryor Cashman Sherman & Flynn LLP, as attorneys for Blondie, in accordance with the following wire instructions: JPMORGANCHASE BANK - Private Banking 1211 Avenue of the Americas - 39th Floor New York, NY 10036 ABA #xxxxxxxxx Attention: Deanne Frederick IOLA ACCOUNT - PRYOR CASHMAN SHERMAN & FLYNN LLP #xxx-xx-xxxxx-xx Attention: Brad D. Rose, Esq. (d) IAA's parent company, Innovo Group, Inc., a Delaware corporation having an address at 5804 East Slauson Avenue, Commerce, California 90040 ("Guarantor") shall guarantee certain of IAA's obligations under this Settlement Agreement, and, in connection therewith, shall execute and deliver to Blondie a Guaranty Agreement, the form of which is annexed hereto as Exhibit E, simultaneous to the execution of this Settlement Agreement. 2. Subject to Section 8.2 hereof, the License Agreement shall be deemed terminated as of the execution of this Settlement Agreement. It is understood and agreed that this Settlement Agreement supercedes the License Agreement once this Settlement Agreement is executed by the parties hereto and that the only <2> continuing rights and obligations between the parties are those set forth or referenced in this Settlement Agreement, subject to 8.2 hereof. 3. Notwithstanding the foregoing, IAA has the right to market, distribute and sell the summer line for 2004 (the "Summer Line") solely within the Territory and solely to the customers identified in Exhibit A attached hereto. The entire Summer Line consists of the SKUs provided by IAA and identified in Exhibit B attached hereto. 4. IAA shall also have the right to sell off any remaining inventory on hand not inclusive of the Summer Line ("Other Inventory") between the date hereof and December 31, 2004 (the "Sell Off Period"). IAA shall provide Blondie with a list of all SKUs comprising such Other Inventory presently on hand which shall be attached hereto as Exhibit D. IAA shall have the right to sell off the Other Inventory during the Sell Off Period to the customers identified in Exhibit A-1 hereto. Additionally, IAA shall have the right to sell off the Other Inventory during the Sell Off Period to the following off-price retailers subject to the following restrictions and limitations: (a) Value City, provided that net sales to Value City shall not exceed one million dollars during the Sell Off Period, absent further written approval by Blondie; and (b) Carlin's, provided that net sales to Carlin's shall not exceed one million two hundred fifty thousand dollars during the Sell Off Period, absent further written approval by Blondie. As used in this Section 4, net sales shall mean the gross invoice price charged by IAA to its customers, less returns, without any other deductions. In the event IAA desires to (i) sell off Other Inventory to a customer not listed on Exhibit A-1 or listed in 4(a) and (b) above or (ii) sell Other Inventory to Value City and/or Carlins in excess of the above limits, IAA shall first obtain Blondie's written consent in order to do so, which consent shall not be unreasonably withheld by Blondie. Blondie shall respond within one business day after receipt of any request for approval under this paragraph. If Blondie does not respond within one business day, Blondie shall be deemed to have consented to such additional <3> customers or additional sales. Following the Sell Off Period, IAA shall no longer have the right to sell the Other Inventory unless all references to the Brand are removed from such merchandise, including but not limited to all tags, labels and/or ornamentation bearing reference to the Brand in any form. Following the Sell-Off period, IAA shall deliver to Blondie, dispose of or destroy the remainder of all packaging materials and all other materials bearing reference to the Brand in any form (other than IAA's inventory reports, invoices, and the like). 5.1 IAA shall also have the right to sell off any items remaining unsold or returned comprising the Summer Line on hand or returned on and after August 1, 2004 (the "Excess Summer Inventory") provided all such sales take place prior to December 31, 2004 (the "Summer Line Sell Off Period"). IAA shall have the right to sell off the Excess Summer Inventory during the Summer Line Sell Off Period solely in the Territory and solely to the customers identified in Exhibit A and Exhibit A-1 hereto. Additionally, IAA shall have the right to sell off the Excess Summer Inventory during the Summer Line Sell Off Period to the following off-price retailers subject to the following restrictions and limitations: (a) Value City, provided that net sales to Value City shall not exceed one million dollars during the Summer Line Sell Off Period inclusive of the Other Inventory, absent further written approval by Blondie; and (b) Carlin's provided that net sales to Carlin's shall not exceed one million two hundred fifty thousand dollars during the Summer Line Sell Off Period inclusive of the Other Inventory, absent further written approval by Blondie. As used in this Section 5, net sales shall mean the gross invoice price charged by IAA to its customers, less returns, without any other deductions. In the event IAA desires to (i) sell off Excess Summer Inventory to a customer not listed on Exhibit A, Exhibit A-1 or listed in 5.1(a) and (b) above or (ii) sell Excess Summer Inventory to Value City and/or Carlins in excess of the above limits, IAA shall first obtain Blondie's written consent in order to do so, which consent <4> shall not be unreasonably withheld by Blondie. Blondie shall respond within one business day after receipt of any request for approval under this paragraph. If Blondie does not respond within one business day, Blondie shall be deemed to have consented to such additional sales. Following the Summer Line Sell Off Period, IAA shall no longer have the right to sell the Excess Summer Inventory unless all references to the Brand are removed from such merchandise, including but not limited to all tags, labels and/or ornamentation bearing reference to the Brand in any form. Following the Summer Line Sell-Off Period IAA shall deliver to Blondie, dispose of or destroy the remainder of all packaging materials and all other materials bearing reference to the Brand in any form (other than IAA's inventory reports, invoices, and the like). 5.2 IAA and Innovo, Inc. shall also have the right to finish production of, market, distribute and sell the accessories identified in Exhibit F hereto (the "Accessory Inventory") between the date hereof and March 31, 2005 (the "Accessory Sell- Off Period") solely in the Territory and solely to the customers identified in Exhibits A and A-1 hereto, it being understood that no sales of Accessory Inventory to Value City, Carlin's or any other `jobbers' are permitted hereunder. IAA shall pay or cause to be paid to Blondie a Royalty of eight percent (8%) of all Net Sales (as defined in the License Agreement) of Accessory Inventory, which shall be payable to Blondie on a monthly basis, together with a royalty report (setting forth all applicable information as required by the License Agreement) beginning on July 1, 2004 and continuing until all Net Sales of Accessory Inventory have been accounted for. In the event IAA or Innovo Inc. desires to sell Accessory Inventory to any other customer (but not Value City, Carlin's or any other jobber), IAA or Innovo Inc. shall first obtain Blondie's written consent in order to do so, which consent shall not be unreasonably withheld by Blondie. Blondie shall respond within one business day after receipt of any request for approval under this paragraph. If Blondie does <5> not respond within one business day, Blondie shall be deemed to have consented to such additional customers (but not Value City, Carlin's or any other jobber). Following the Accessory Sell Off Period, IAA and Innovo Inc. shall no longer have the right to sell the Accessory Inventory unless all references to the Brand are removed from such merchandise, including but not limited to all tags, labels and/or ornamentation bearing reference to the Brand in any form. Following the Accessory Sell-Off Period, IAA shall deliver to Blondie, dispose of or destroy the remainder of all packaging materials and all other materials bearing reference to the Brand in any form (other than IAA's inventory reports, invoices, and the like). 6. All such rights granted to IAA hereunder with respect to the sale of merchandise utilizing the Brand are non-exclusive, and, subject to Section 24 herein nothing herein or in any other agreement between Blondie and IAA existing on the date hereof shall preclude Blondie or any parent, subsidiary, affiliate or related entity or person from immediately entering into an agreement, partnership, license, joint venture or other business arrangement providing for the immediate licensing, sale, manufacture, distribution and/ or use of any and all categories of consumer goods or services bearing the FETISH trademarks or any other uses of the Brand. 7. (i) Ownership of all intellectual property rights, whether recognized currently or in the future, including, without limitation, copyright, patent and trademark rights, in the Licensed Products and in all artwork, packaging, copy, literary text, advertising material and promotion material of any sort utilizing the Property, including all such material developed by IAA (the "Work"), shall vest in Blondie, and title thereof shall be in the name of Blondie. All such items and all Licensed Products sold hereunder shall bear the copyright and trademark notices as are reasonable and customary and any other legal notices, which Blondie has prescribed. Any and all additions to, and new renderings, modifications or embellishments of the <6> artwork (the "Rights" and together with the Work, the "Work Product") shall, notwithstanding their invention, creation and use by IAA and/or its representatives, affiliates and/or sub- licensees, if applicable, be and remain the property of Blondie, and Blondie may use, and license others to use the same, without any obligation to IAA. IAA represents and warrants that it has sufficient authority and rights to grant all right, title and interest in and to the Work Product to Blondie. IAA represents and warrants that neither IAA nor its representatives, affiliates and/or sub-licensees, if applicable has permitted any of its employees or independent contractors to obtain or reserve, by written or oral agreement or otherwise, any rights as "authors" or "inventors" of any such artwork or designs (as such terms are used in present or future United States copyright and/or patent statutes or judicial decisions). IAA shall furnish to Blondie at Blondie's request, full information concerning the invention and creation of such artwork and designs, together with the originals of assignments of all rights therein obtained from all such third parties. IAA hereby assigns all of its rights in and to the Work Product to Blondie. (ii) At Blondie's request and expense, IAA shall execute any documents, including registered users agreements, reasonably required by Blondie to confirm its ownership of all rights in and to the Property in the Territory. IAA shall cooperate with Blondie at Blondie's expense, in connection with the filing and prosecution by Blondie of applications in Blondie's name relating to the use of the Property for Licensed Products in the Territory. (iii) IAA shall not use any other tradenames, trademarks or other designations including, without limitation, IAA's own corporate name or tradename in connection with the Property in any consumer advertising and publicity, labeling, packaging or printed matter utilized by IAA in connection with the Licensed Products. IAA may, however, use its own corporate name or tradename in connection with the Property in transactions between and among the parties hereto, and with Manufacturers, merchants, <7> wholesale customers and others relating to: the manufacture of Licensed Products and the wholesale sale of the Licensed Products. IAA shall not use the Property in combination with any other names or marks to form a new mark and shall not use the Property as a tradename or in any other manner other than in connection with this Agreement. IAA will at all times make reference on the Licensed Products and on all packaging and promotional materials used in connection therewith that the Property is under license from Blondie. (iv) IAA shall prominently display on all Licensed Products, all Packaging materials, and in all advertising and promotional materials using the Trademarks, such trademark and/or copyright notices as are reasonable and customary. (v) All of the Property and all files, including but not limited to all applications or registrations with respect to Property and the Japan IP, shall within 10 business days of the execution of this Settlement Agreement by all parties be delivered by IAA to counsel to Blondie. (vi) IAA represents and warrants that all the Licensed Products have, and covenants that all Licensed Products shall be manufactured, sold, marketed and advertised in compliance with all applicable laws, rules and regulations (collectively, "Laws"). Manufacture of Licensed Products may only be undertaken directly by IAA. No sublicensing is permitted under any circumstances without the prior written approval of Blondie. Notwithstanding the immediately preceding sentence, IAA shall have the right to sublicense the accessory category of Licensed Products to Innovo, Inc., its Affiliate subsidiary, provided that: (1) Innovo, Inc. shall be subject to all of the terms and conditions of this Agreement and execute all documents reasonably required by Blondie in connection therewith, (2) IAA covenants on behalf of Innovo, Inc. that all manufacture of Licensed Products shall be in accordance with all applicable Laws, and (3) no amounts due and payable to Blondie by IAA shall be reduced in any way due to such sublicense. IAA shall pretest all proposed and <8> approved Licensed Products and shall cause truthful labeling regarding the care, maintenance, and use to be affixed to the Licensed Products as required by the Laws. IAA shall immediately inform Blondie in writing of any complaint by any consumer, governmental or other regulatory or self regulatory body relevant to the Licensed Products, and the status and resolution thereof. IAA shall act expeditiously to resolve any such complaint. Without limiting the provisions of this Section 7(vi), IAA covenants on behalf of itself and on behalf of all of IAA's Manufacturers, as follows: (A) IAA and Manufacturers shall not use child labor in the manufacturing, packaging or distribution of Licensed Products or Packaging or advertising or promotional materials hereunder. The term "child" refers to a person younger than the age for completing compulsory education, but in no case shall any person younger than fourteen (14) years of age be employed in the manufacturing, packaging or distribution of Licensed Products or Packaging or advertising or promotional materials hereunder. (B) IAA and Manufacturers shall provide employees with a safe and healthy workplace in compliance with all applicable Laws. IAA and Manufacturers agree to provide Blondie with all information Blondie may reasonably request about manufacturing, packaging and distribution facilities for the Licensed Products. (C) IAA and Manufacturers shall only employ persons whose presence is voluntary. IAA and Manufacturers shall not use prison labor, or use corporal punishment or other forms of mental or physical coercion as a form of discipline of employees. <9> (D) IAA and Manufacturers shall comply with all applicable wage and hour Laws, including minimum wage, overtime, and maximum hours. IAA and Manufacturers agree to utilize fair employment practices as defined by applicable Laws. (E) IAA and Manufacturers shall comply with all applicable environmental and other Laws. (ix) During the period ending March 31, 2005, IAA agrees that Blondie may make on-site inspections of manufacturing, packaging and distribution facilities, upon 24 hours prior written notice to IAA, in order to monitor compliance with applicable Laws. IAA shall obtain an agreement with each third party Manufacturer and supplier to comply with the provisions of Section 7(viii). (x) IAA represents and warrants that: (A) All Licensed Products manufactured, sold and distributed hereunder will be merchantable and fit for the purpose for which they are intended. (B) The Licensed Products will conform at all times to all applicable federal, state and local laws, rules, regulations, ordinances and other enactments provided in the Territory or otherwise applicable, and all applicable industry standards, including but not limited to, those relating to product safety. (C) All Licensed Products, including all Packaging and all other ancillary materials, will conform in all respects to the samples approved by Licensor and that Licensee will not distribute or sell any Licensed Products which are of a quality or standard inferior to or different from the approved quality. Notwithstanding the foregoing, the parties hereto hereby acknowledge and agree that all of the Licensed Products specifically identified by SKU's and <10> listed in Exhibits B, D and F hereof have been and hereby are approved for sale. 8.1 Subject to IAA's full and complete compliance with all of its payment obligations set forth in Section 1 hereunder, upon execution of this Settlement Agreement Blondie and its representatives, agents, consultants, shareholders, officers, directors, employees, heirs, devisees, legatees, affiliates, successors and assigns ("Blondie Releasors") hereby fully and forever release and discharge IAA and all of its representatives, agents, shareholders, officers, directors, employees, heirs, devisees, legatees, parents, affiliates, successors and assigns ("IAA Releasees") from any and all claims, demands, losses, costs, damages, rights and causes of action, debts, liabilities and obligations whatsoever, at law or in equity, which Blondie ever had, now has or hereafter can, shall or may have for, upon, or by reason of any matter, cause or thing, whether or not previously asserted or assertable, known or unknown, other than claims to enforce this Settlement Agreement. 8.2 In the event of a default in the payment obligations set forth in Section 1 hereof, which is not cured in accordance with Section 11 hereof, Blondie may either (a) invoke its acceleration rights provided by Section 12 hereof and sue to enforce such rights, whether under this Agreement, the Guaranty or otherwise, or (b) declare the releases provided by this Agreement to be rescinded, thereby restoring all rights, remedies and claims of the parties as existed prior to entering this Agreement, whether under the License Agreement or otherwise, provided that any payments theretofore made under this Agreement shall count towards any amounts ultimately found to be due and owing to Blondie. 9. Subject to Blondie's complete and prompt performance of all material obligations hereunder, upon execution of this Settlement Agreement, IAA and its representatives, agents, <11> consultants, shareholder, officers, directors, employees, heirs, devisees, legatees, affiliates, successors and assigns ("IAA Releasors") hereby fully and forever release and discharge Blondie and all of its representatives, agents, shareholders, consultants, officers, directors, employees, heirs, devisees, legatees, parents, affiliates, successors and assigns ("Blondie Releasees") from any and all claims, demands, losses, costs, damages, rights and causes of action, debts, liabilities and obligations whatsoever, at law or in equity, which IAA ever had, now has or hereafter can, shall or may have for, upon, or by reason of any matter, cause or thing, whether or not previously asserted or assertable, known or unknown, other than claims to enforce this Settlement Agreement. 10. Through March 31, 2006, Blondie, and its employees, agents and representatives, shall have the right, at its own expense, on reasonable notice to Innovo (but in no event need such notice be more than ten (10) business days) and during regular business hours, to examine, photocopy, and make extracts from such books of account and other records, documents and materials (including, but not limited to, invoices, purchase orders, sales records, and reorders) to the extent needed to confirm Innovo's compliance with Section 4(a) of the License Agreement and this Settlement Agreement, which shall be maintained and kept by License during the period specified herein. 11. In the event of a claimed breach of any of the provisions, representation, warranties or covenants contained in this Agreement, the party claiming breach shall notify the alleged breaching party (or parties) in writing (in accordance with the notice provisions hereof) of the claimed breach and the alleged breaching party (or parties) shall have five business days to cure said breach, if curable. 12. In the event of a default in the payment obligations set forth in paragraph 1, which is not cured in accordance with paragraph 11 above, the unpaid balance shall be accelerated and <12> shall become due and payable immediately together with interest on the unpaid balance at the rate of 10% per annum (simple). In the event that an action is required to be brought to enforce the Agreement or for any breach, the prevailing party in any such action shall be entitled to recover reasonable attorneys fees and costs. 13. Each party shall defend, indemnify, save and hold harmless the other, its shareholders, affiliates, and their officers, directors, agents and employees from any and all third- party claims, demands, liabilities, costs or expenses, including reasonable attorneys' fees, resulting from the breach of each party's duty, covenant, representations, or warranty contained in this Agreement. 14. All notices, waivers and other communications hereunder shall be in writing and shall be give by hand delivery to the other party, by reputable overnight courier, or by certified mail, return receipt requested. All notices, waivers, or other communications shall be deemed delivered when actually received if delivered by hand, one day after mailing if sent by overnight courier and three days after mailing if sent by certified mail and shall be addressed as follows: If to Blondie: Blondie Rockwell, Inc. c/o Erving Wonder/Sanctuary 9255 Sunset Blvd., Suite 200 Los Angeles, CA 90069 Attention: Ms. Eve Jeffers Mr. Troy Carter With a copy to: Brad D. Rose, Esq. Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York 10022 Telephone: (212) 421-4100 Facsimile: (212) 326-0806 <13> If to IAA: Innovo Azteca Apparel, Inc. 5804 East Slauson Avenue Commerce, California 90040 Attention: Mr. Jay Furrow With a copy to: Steven Pesner, Esq. Akin Gump Strauss Hauer & Feld LLP 590 Madison Avenue New York, New York 10022 Telephone: (212) 872-1000 Facsimile: (212) 872-1002 If to Innovo Group Inc. Innovo Group Inc. 5804 East Slauson Avenue Commerce, California 90040 Attention: Mr. Jay Furrow With a copy to: Steven Pesner, Esq. Akin Gump Strauss Hauer & Feld LLP 590 Madison Avenue New York, New York 10022 Telephone: (212) 872-1000 Facsimile: (212) 872-1002 15. This Agreement may be signed in counterparts and when executed by all parties and the Guarantor shall constitute one integrated agreement. A party's signature delivered by facsimile transmission shall be deemed an original and is binding on such party. 16. Each of the signatories hereto represents and warrants to be duly authorized to fully and completely resolve the disputes described in this Agreement, make the release contained in this Agreement, and to bind the party on whose behalf the signatory has agreed to act to the terms and conditions contained in this Agreement. <14> 17. IAA further warrants and represents to Blondie as follows: (a) the Owed Royalties accurately represents the total amount of Royalties due and owing to Licensor based on actual "Net Sales" as of April 24, 2004 ; (b) Exhibit B accurately represents the SKUs constituting entire Summer Line; (c) Exhibit D accurately represents the SKUs constituting the entire Other Inventory; (d) IAA has not initiated nor permitted any third party to initiate any trademark applications or other filings, whether in the name of Blondie, IAA or otherwise, with respect to the Brand, other than the Japan IP; (e) IAA has not granted any sublicense agreements other than that referenced in the second Whereas clause hereof, and (f) Exhibit F accurately represents the SKUs constituting the entire Accessory Inventory. 18. The parties hereto represent and warrant that they have not assigned, transferred, conveyed or released and discharged, voluntarily or involuntarily, or by operation of law, to any other entity an interest in the disputes which are the subject of this Agreement. 19. This Agreement represents the entire agreement concerning the matters herein, supersedes any and all prior agreements concerning same, may not be amended except in a writing referring specifically to this Agreement, and shall be binding on the parties' successors and assigns. IAA shall not assign this Agreement in any manner without the prior written consent of Blondie. 20. The parties each acknowledge that they have not executed this Agreement in reliance on any representation, inducement, promise, agreement or warranty which is not contained or referenced in this Agreement and that they have received independent legal advice from their respective attorneys with respect to their rights as well as the consequences of signing this Agreement. 21. This Agreement shall be construed and interpreted in accordance with the laws of the State of New York without regard to any conflicts of law. The Courts in the County and <15> State of New York shall have exclusive jurisdiction over any action relating to the disputes or with respect to any claims that might arise under or relating to this Agreement. 22. (a) The Blondie Releasors agree not to disparage, criticize or make any negative comments about the IAA Releasees that a Blondie Releasor knows or should reasonably have known would be published in media outlets; provided, however, that this undertaking shall not be applicable to any statement made in any legal proceeding or government investigation, or to any statements made which are consistent with the Press Release (defined below). The IAA Releasors agree not to disparage, criticize, or make any negative comments about the Blondie Releasees that an IAA Releasor knows or should reasonably have known would be published in media outlets; provided, however, that this undertaking shall not be applicable to any statement made in any legal proceeding or government investigation, or to any statements made which are consistent with the Press Release (defined below). (b) The parties hereto agree to release a jointly approved press release (the "Press Release") related to the transactions contemplated hereunder, which shall be attached hereto as Exhibit G. 23. (a) Except as provided in Section 23(b), IAA shall indemnify and hold Blondie , and its subsidiaries and affiliates, and their officers, directors, shareholders, employees, representatives and agents, harmless against any and all settlements, claims, demands, causes of action, judgments, damages, losses, costs and expenses (including but not limited to attorney's fees and litigation costs) of any kind whatsoever actually or allegedly suffered by any person, persons, product, customer or property arising in any way out of or incidental to, any Licensed Products manufactured, sold or distributed by IAA or suffered or incurred by Blondie in connection with any allegedly unauthorized use of any trademark, patent, process, idea, method, or device in connection with the Licensed Products except as authorized by this Agreement or the License Agreement, and also <16> from any claims, suits losses and damages arising out of alleged defects in any Licensed Products manufactured, sold or distributed by IAA or resulting from any failure of IAA, or any person, firm, or entity acting under or through IAA, to comply with the provisions of this Agreement or the License Agreement or to comply with any applicable Laws including, without limitation of the foregoing, accidental death, or injury to, persons or damage to property, and claims of infringement of intellectual property rights, including copyrights, trademark, trade dress and/or patent claims. IAA shall maintain, through March 31, 2005, at its own expense, product liability insurance from a recognized insurance company qualified to do business in the State of New York, providing adequate protection with a limit of liability (in addition to costs of defense) of not less than Three Million ($3,000,000.00) Dollars per occurrence, insuring, without limitation, against any claims, suits, losses or damages arising out of any alleged defects in the Licensed Products, including actions for negligence and strict liability in tort. Said product liability insurance shall be issued by a company reasonably satisfactory to Blondie, and a certificate evidencing the paid policy naming the Licensor as an insured party will be submitted to Blondie by IAA upon written request of Blondie. Said policy will provide that the insurer may not terminate it or materially modify it without thirty (30) day's prior written notice to Blondie. Payment for any indemnification due hereunder will be made on demand. Excluded from this indemnity shall be all obligations for indemnity arising out of claims that IAA's use of the Brand, strictly in accordance with the terms of this Agreement and/or the License Agreement, constitutes an infringement or like violation of intellectual property rights of others. (b) Blondie shall indemnify, defend and hold IAA and its subsidiaries and affiliates, and their officers, directors, shareholders, employees, representatives and agents, harmless against any and all claims, settlements, judgments, damages, losses, costs and expenses (including but not limited to <17> reasonable attorney fees and litigation costs) incurred by IAA solely as a result of any claim by any person, firm or entity that IAA's use of the Brand strictly in accordance with this Agreement and/or the License Agreement infringes upon any rights granted to such person, firm or entity by Blondie, to the extent such claim arises in a jurisdiction that is covered by Blondie's representations and warranties as specifically set forth in Section 9(c)(ii) of the License Agreement, and solely in connection with advertising and promotional materials that are developed or purchased by Blondie. IAA shall not, however, be entitled to any recovery for lost profits. Additionally, if by reason of any claims referred to in this subsection IAA is precluded from selling any stock of Licensed Products or utilizing any materials in its possession or which come into its possession by reason of any required recall, Blondie shall be obligated to purchase such licensed Products and materials from Licensee at their out-of-pocket cost to IAA, excluding overheard, but Blondie shall have no other responsibility or liability with respect to such Licensed Product or materials. (c) Any party claiming a right to indemnification under this Section 23 ("Indemnitee") shall give prompt written notice to the other party ("indemnitor") of any claims or legal proceeding which may give rise to such right to indemnification (a "Claim"). Without limiting the foregoing, IAA agrees to give Blondie written notice of any product liability Claim made against IAA with respect to any Licensed Product within fifteen (15) days of IAA's receipt of the Claim. Without limiting the foregoing, IAA agrees to give Blondie written notice of any product liability Claim made or suit filed with respect to any Licensed Product, any investigations or directives regarding the Licensed products issued by the Consumer Product Safely Commission ("CPSC") or other federal, state or local consumer safety agency, and any notices sent by IAA to, or received by Blondie from, the CPSC or other consumer safety agency regarding the Licensed Products within ten (10) days of IAA's receipt or promulgation of the Claim, suit, investigation, directive, or <18> notice. Without limiting the foregoing, IAA agrees not to communicate with the press regarding any product liability Claim, and not to confirm or deny any information relating to such Claim without Blondie's prior written consent. The indemnitor shall have the right to defend any Claim or action at its sole cost and expense with counsel of the indemnitor's choice reasonably satisfactory to the indemnitee. The indemnitee will at all times cooperate in all reasonable respects with the indemnitor and counsel in the conduct of the defense of any Claim or action giving rise to indemnification hereunder. Notwithstanding anything to the contrary herein, IAA will in no event have the right, in any Claim or action or proceeding hereunder, to settle any claims or issues relating to any Trademarks or the rights to ownership or utilization thereof. (d) For purposes of this Agreement the term "Licensed Products" shall include all Licensed Products as defined by the License Agreement, as well as the Summer Line, Other Inventory, Accessory Inventory and Excess Summer Inventory. 24. IAA and Blondie agree to continue negotiating in good faith a potential new license covering the Brand but limited to accessories (the "Accessory License"), provided, however, that nothing herein shall prevent Blondie from granting the Accessory License or any other license or right with respect to the Brand to any other party at any time; further provided, that Blondie shall not grant the Accessory License to any party other than IAA prior to thirty (30) days following execution hereof. Notwithstanding the foregoing, Blondie shall not be in breach of this Section 24 in the event that Blondie or an affiliate thereof enters into a joint venture for the sale of products utilizing the Brand, so long as the joint venture does not grant a third party the right to sell accessories utilizing the Brand. [remainder of page intentionally left blank, signature page to follow] <19> IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the date first above written. INNOVO AZTECA APPAREL, INC. By: /s/ Samuel J. Furrow, Jr. ------------------------- Name: Samuel J. Furrow, Jr. Title: CEO BLONDIE ROCKWELL, INC. By: /s/ Troy Carter ---------------- Name: Troy Carter Title: Authorized Signatory INNOVO GROUP, INC., as to Section 1(d)only By: /s/ Samuel J. Furrow, Jr. ------------------------- Name: Samuel J. Furrow, Jr. Title: CEO <20> EXHIBIT A CUSTOMER LIST <21> EXHIBIT A-1 CUSTOMER LIST <22> EXHIBIT B SKU'S RESENTING THE ENTIRE SUMMER LINE <23> EXHIBIT C TRADEMARK APPLICATIONS <24> EXHIBIT D SKU'S REPRESENTING THE OTHER INVENTORY <25> EXHIBIT E GUARANTY AGREEMENT <26> EXHIBIT F SKU'S REPRESENTING THE ENTIRE ACCESSORY INVENTORY <27> Exhibit G Joint Press Release <28>