SETTLEMENT AGREEMENT AND MUTUAL RELEASE
SETTLEMENT
AGREEMENT
AND MUTUAL RELEASE
THIS
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
(this
“Agreement”)
is
made and entered into as of this 23rd
day of
September, 2008 (the “Execution
Date”),
by
and among Xxxx Xxxx and Xxxxxxxxx Xxxx (collectively the “Guezes”),
The
Xxxx and Xxxx Xxxx Living Trust (the “Trust”),
Blue
Concept, LLC, a California limited liability company (“Blue
Concept”),
Taverniti Holdings, LLC, a California limited liability company (“Taverniti
Holdings”),
Yanuk
Jeans, LLC, a California limited liability company (“Yanuk
Jeans”
and
together with the Guezes, the Trust, Blue Concept and Taverniti Holdings,
the
“Guez
Parties”),
and
Blue Holdings, Inc., a Nevada corporation (together with any and all of its
subsidiaries as appropriate, the “Company”).
RECITALS
A. Xxxx
Xxxx
serves as the Chairman of the Company’s Board of Directors (the “Board”).
B. From
time
to time Xxxx Xxxx and Xxxxxxxxx Xxxx made advances to the Company to support
its
working capital needs. These advances were non-interest bearing and unsecured,
with no formal terms of repayment. On July 1, 2006, the Company converted
these
advances to a line of credit in an agreement with Xxxx Xxxx which allows
the
Company to borrow from him up to a maximum of $3,000,000 at an interest rate
of
6% per annum (the “Revolving
Line”).
The
Company may repay the advances in full or in part at any time until the
Revolving Line expires and repayment is required on December 31,
2008.
C. Pursuant
to that certain Common Stock Purchase Agreement dated March 5, 2008, between
the
Company and Xxxx Xxxx (the “Purchase
Agreement”),
Xxxx
Xxxx cancelled $1,400,000 of indebtedness under the Revolving Line in
consideration of the Company’s issuance of 1,750,000 shares (the “Conversion
Shares”)
of the
Company’s common stock, par value $0.001 per share (“Common
Stock”),
to
Xxxx Xxxx and Xxxxxxxxx Xxxx.
D. Xxxx
Xxxx
has
informed the Company of his claims for sums he believes are due and owing
to him
pursuant to advances made to and payments made on behalf of the Company separate
from the Revolving Line.
The
Company’s books and records reflect additional sums owed by Xxxx Xxxx to the
Company. The Board has performed an investigation of these claims.
E. Based
on
the foregoing, the parties
desire to enter into a final and binding settlement with respect to all claims
pursuant to which (i) the Company and Xxxx Xxxx will rescind the transactions
under the Purchase Agreement, (ii) Xxxx Xxxx will cancel all amounts owed
under
the Revolving Line and the Company will issue a new note for certain amounts
thereunder and (iii) Xxxx Xxxx and Xxxxxxxxx Xxxx will indemnify the Company
for
claims arising in connection with units of product shipped to the Company
by
Seven Licensing Co. LLC.
F. As
a
material inducement to the Company’s execution of this Agreement, the parties
further desire (with certain exceptions) to mutually
release each other from claims existing as of the date of this Agreement
on the
terms set forth herein.
AGREEMENT
NOW,
THEREFORE,
in
consideration of the premises, the parties hereto agree as follows:
1. Definitions.
1.1 “Affiliate”
means,
with respect to any specified Person, any other Person who or which, directly
or
indirectly, controls, is controlled by, or is under common control with such
specified Person where control (including with correlative meaning, controlled
by and under common control with) as used with respect to any Person, means
the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, or by written contract, including, without limitation,
any
general partner, officer, director or manager of such Person.
1.2 “Person”
means
any individual, firm, corporation, company, partnership, trust, incorporated
or
unincorporated association, limited liability company, joint venture, joint
stock company, government (or an agency or political subdivision thereof)
or
other entity of any kind, and shall include any successor (by merger or
otherwise) of any such entity.
2. Rescission
of Purchase Agreement; Rescission of Rent Waiver.
2.1 Effective
as of March 5, 2008:
2.1.1 The
Parties hereby rescind and unwind the transactions consummated under the
Purchase Agreement such that Xxxx Xxxx and Xxxxxxxxx Xxxx hereby transfer
and
assign to the Company all right, title and interest in and to the Conversion
Shares, and relinquish all claims to ownership of the Conversion Shares and
any
and all rights therein, and the Company hereby transfers and assigns to Xxxx
Xxxx all right, title and interest in and to the consideration paid by Xxxx
Xxxx
for the Conversion Shares consisting of indebtedness under the Revolving
Line in
the amount of $1,400,000, and such indebtedness is hereby reinstated under
the
Revolving Line; and
2.1.2 The
Purchase Agreement and the transactions consummated thereunder shall be deemed
null and void and of no further force and effect.
2.2 The
foregoing rescission shall be effective so as to allow the Federal income
tax
doctrine of rescission to be applied thereto, and, each party acknowledges
and
agrees that it has been returned to its situation existing immediately prior
to
the consummation of the transactions contemplated by the Purchase
Agreement.
3. Settlement
of Outstanding Indebtedness.
3.1 The
parties hereby agree and acknowledge that as of the Execution Date the Company’s
total indebtedness to the Guez Parties and their Affiliates, other than the
2008
Amounts (defined below), consists of $1,618,093.15. For purposes hereof,
the
“2008
Amounts”
means
$72,000 due to Xxxx and Xxxxxxxxx Xxxx for fiscal 2008 rental expense in
connection with commercial space located at 0000 Xxxxxxxxx Xxxxx, Xxxxxx
Xxx
Xxx, XX 00000, and $197,005 due to Taverniti Holdings for fiscal 2008 royalties
under the Taverniti So Jeans License Agreement executed May 1, 2004, between
Taverniti Holdings and Taverniti So Jeans, LLC, a wholly-owned subsidiary
of the
Company.
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3.2 The
parties hereby further agree and acknowledge that as of the Execution Date
Xxxx
Xxxx, Xxxxxxxxx Xxxx and each of their Affiliates are not indebted to the
Company.
3.3 Effective
as of the Execution Date, the $1,400,000 balance under the Revolving Line
shall
be terminated and cancelled (with the same effect as if the Company had repaid
such balance), and the parties agree and acknowledge that the outstanding
balance on the Revolving Line shall be $0.
3.4 On
the
Execution Date, the Company shall issue to Xxxx Xxxx, in full satisfaction
of
all amounts owed to Xxxx Xxxx, Xxxxxxxxx Xxxx and their Affiliates as of
the
Execution Date, a new 8% Senior Convertible Note substantially in the form
attached hereto as Exhibit A (the “Note”),
in
the principal amount of $1,618,093.15 bearing interest at the rate of 8%
per
annum. The Note shall be unsecured and shall be subordinated in payment to
indebtedness held by FTC Commercial Corp. and Gemini Master Fund,
Ltd.
4. Indemnification.
The
Guezes hereby agree to indemnify and hold the Company and/or its Affiliates
harmless from and against any and all liabilities, losses, damages, costs
and
expenses (including reasonable attorneys’ fees) based upon or in connection with
any action or claim by Seven Licensing Co. LLC arising out of or in connection
with units of product shipped from Seven Licensing Co. LLC to the Company
and/or
the Company’s Affiliates as of the Execution Date. The Company shall solely
conduct the defense of any such claim or action and all negotiations for
its
settlement or compromise; provided, however, that no settlement or compromise
affecting the financial obligations of the Guezes shall be entered into or
agreed to without their prior approval (such approval not to be unreasonably
withheld).
5. Non-Admission
of Wrongdoing.
This
Agreement shall not in any way be construed as an admission by any party
hereto
that it acted wrongfully with respect to any other party hereto, or any other
person or entity.
6. Mutual
Release.
6.1 Release
by the Guez Parties.
As a
material inducement for the Company to enter into this Agreement, and as
partial
consideration for the Company’s obligations hereunder, each of the Guez Parties,
individually and for and on behalf of each of their Affiliates (collectively
the
“Guez
Releasing Parties”),
knowingly and voluntarily waive and release all rights and claims, known
and
unknown, which the Guez Releasing Parties may have against the Company, and/or
any of the Company’s related or affiliated entities or successors, or any of
their current or former parents,
subsidiaries, partners, affiliates, shareholders, directors, officers,
employees, agents, representatives, predecessors, successors or
assigns
(the
“Company
Releasees”),
including without limitation, any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, contracts, controversies,
damages, actions, causes of action, suits, rights, demands, costs, losses,
debts
and expenses of any kind arising out of, resulting from or in any manner
relating to the Guez Releasing Parties’ relationship with the Company up to the
date of this Agreement or the parties’ entry into this Agreement. The Guezes
general
release under this Agreement includes, but is not limited to, claims for
employment discrimination, harassment, wrongful termination, constructive
termination, violation of public policy, breach of any express or implied
contract, breach of any implied covenant, fraud, intentional or negligent
misrepresentation, emotional distress, defamation, libel, or any other claims
relating to the Guez
Releasing Parties’
relationship with the Company. The
Guez
Releasing Parties are not releasing any claims (a) based on acts or events
occurring after the signing of this Agreement, (b) to indemnification as
a
director or officer under or pursuant to the Company’s Articles of Incorporation
or Bylaws, (c) to any rights to Directors’ and Officers’ insurance coverage, and
(d) related to the 2008 Amounts. The
matters that are the subject of the releases referred to in this Section
6.1
are
referred to herein as the “Guez
Released Matters.”
3
6.2 Release
by the Company.
As a
material inducement for the Guezes to enter into this Agreement, and as partial
consideration for the Guezes’ obligations hereunder, the Company, for and on
behalf of itself and each of its Affiliates (collectively the “Company
Releasing Parties”
and
together with the Guez Releasing Parties, the “Releasing
Parties”),
knowingly and voluntarily waives and release all rights and claims, known
and
unknown, which the Company Releasing Parties may have against the Guez Releasing
Parties, and/or any of their predecessors,
successors or assigns
(the
“Guez
Releasees”
and
together with the Company Releasees, the “Releasees”),
including without limitation, any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, contracts, controversies,
damages, actions, causes of action, suits, rights, demands, costs, losses,
debts
and expenses of any kind arising out of, resulting from or in any manner
relating to the Guez Releasing Parties’ relationship with the Company up to the
date of this Agreement or the parties’ entry into this Agreement. The Company
Releasing Parties’ release
under this Agreement includes, but is not limited to, claims for violation
of
public policy, breach of any express or implied contract, breach of any implied
covenant, fraud, intentional or negligent misrepresentation, defamation,
libel,
or any other claims relating to the Guez
Releasing Parties’
relationship with the Company. The
Company Releasing Parties are not releasing any claims based on acts or events
occurring after the signing of this Agreement. The
matters that are the subject of the releases referred to in this Section
6.2
are
referred to herein as the “Company
Released Matters.”
The
Guez Released Matters and the Company Released Matters are hereinafter
collectively referred to as the “Released
Matters.”
6.3 Unknown
Claims.
The
parties acknowledge that there is a risk that subsequent to the execution
of
this Agreement, the Releasing Parties will incur or suffer damage, loss or
injury to persons or property that is unknown or unanticipated at the time
of
the execution of this Agreement. The Releasing Parties hereby specifically
assume such risk and agree that this Agreement and the releases contained
herein
shall and do apply to all unknown or unanticipated claims, as well as those
currently known or anticipated. Accordingly, the Releasing Parties acknowledge
that they have read the provisions of California Civil Code Section 1542,
which
provides as follows:
“A
general release does not extend to claims which the creditor does not know
or
suspect to exist in his or her favor at the time of executing the release,
which
if known by him or her must have materially affected his settlement with
the
debtor.”
4
Notwithstanding
the provisions of Section 1542, and for the purpose of implementing a full
and
complete release and discharge of the Releasees, the Releasing Parties expressly
acknowledge that this Agreement is intended to include and does include in
its
effect, without limitation, all claims which the Releasing Parties do not
know
or suspect to exist in their favor against the Releasees with respect to
the
Released Matters, and
that
this Agreement contemplates the extinguishment of any such claim or
claims.
6.4 Assumption
of Risk; Investigation of Facts.
The
Releasing Parties hereby expressly assume the risk of any mistake of fact
or
that the true facts might be other than or different from the facts now known
or
believed to exist, and it is the Releasing Parties’ express intention to forever
settle, adjust and compromise any and all disputes between and among the
Releasing
Parties
and the
Releasees with respect to the Released Matters, finally and forever, and
without
regard to who may or may not have been correct in their respective
understandings of the facts or the law relating thereto. In making and executing
this Agreement, each Releasing Party jointly and severally represents and
warrants, individually and on behalf of its Affiliates, that such parties
have
made such investigation of the facts and the law pertaining to the matters
described in this Agreement as they deem necessary, and have not relied upon
any
statement or representation, oral or written, made by the Releasees with
respect
to any of the facts involved in any dispute or possible dispute between the
parties hereto, or with respect to any of their rights or asserted rights,
or
with respect to the advisability of making and executing this
Agreement.
6.5 Ownership
of Claims.
Each
Releasing Party jointly and severally represents and warrants, individually
and
on behalf of its Affiliates, that such
parties have not assigned or transferred, or attempted to assign or transfer,
to
any person or entity, any of the Released Matters, as applicable.
6.6 No
Representations.
Each
party represents and agrees that no promises, statements or inducements have
been made to such party that caused such party to sign this Agreement other
than
those expressly stated in this Agreement.
7. Covenant
Not to Xxx.
7.1 Each
party agrees, individually and on behalf of its Affiliates, that they will
not
file or cause to be filed a lawsuit, administrative complaint or charge of
any
kind with any court, governmental or administrative agency or arbitrator
against
the other parties hereto, or any of their Affiliates,
predecessors, successors or assigns,
asserting any claims that are released in this Agreement.
7.2 Each
party hereto jointly and severally represents and warrants, individually
and on
behalf of its Affiliates, that before signing this Agreement they have not
filed
or pursued, or caused to be filed or pursued, any complaints, charges or
lawsuits of any kind with any court, governmental or administrative agency
or
arbitrator against the other parties hereto or any of their
Affiliates,
predecessors, successors or assigns,
asserting any claims that are released in this Agreement.
5
8. Goodwill
and Reputation of the Company and the Guezes.
Each of
the parties hereto further agrees not to take actions or make statements,
written or oral, that disparage or defame the goodwill or reputation of any
other party hereto, or any of their respective parents, subsidiaries, partners,
affiliates, shareholders, directors, officers, employees, agents,
representatives, predecessors, successors, assigns, heirs, executors or
administrators.
9. Attorney’s Fees.
The
losing party shall be liable to the prevailing party for its reasonable costs
and attorney’s fees, including the costs of the arbitrator in any arbitration,
incurred in any action to enforce this Agreement.
10. Independent
Counsel; Interpretation.
EACH
OF
THE GUEZ PARTIES HEREBY EXPRESSLY REPRESENTS, ACKNOWLEDGES AND CONFIRMS,
JOINTLY
AND SEVERALLY, THAT XXXXXX XXXXXXXX & MARKILES, LLP IS NOT REPRESENTING THE
GUEZ PARTIES OR ANY OF THEIR AFFILIATES (OTHER THAN THE COMPANY), THAT HE/SHE/IT
HAS BEEN ADVISED TO SEEK AND OBTAIN LEGAL ADVICE FROM INDEPENDENT COUNSEL
REPRESENTING HIS/HER/ITS INTERESTS WITH RESPECT TO THIS AGREEMENT, THAT
HE/SHE/IT HAS HAD THE FULL RIGHT AND OPPORTUNITY TO CONSULT WITH SUCH COUNSEL,
THAT HE/SHE/IT HAS AVAILED HIMSELF/HERSELF/ITSELF OF THIS RIGHT AND OPPORTUNITY,
THAT HE/SHE/IT HAS CAREFULLY READ AND FULLY UNDERSTANDS THIS AGREEMENT IN
ITS
ENTIRETY, THAT HE/SHE/IT IS FULLY AWARE OF THE CONTENTS HEREOF AND THE MEANING,
INTENT AND LEGAL EFFECT OF THIS AGREEMENT, AND THAT HE/SHE/IT HAS EXECUTED
THIS
AGREEMENT FREE FROM COERCION, DURESS OR UNDUE INFLUENCE. SPECIFICALLY, BY
SIGNING THIS AGREEMENT, EACH GUEZ PARTY UNDERSTAND, AND HEREBY JOINTLY AND
SEVERALLY ACKNOWLEDGES AND CONFIRMS, THAT HE/SHE/IT MAY BE GIVING UP SIGNIFICANT
LEGAL RIGHTS. SHOULD ANY PROVISION OF THIS AGREEMENT REQUIRE JUDICIAL
INTERPRETATION, IT IS AGREED THAT A COURT INTERPRETING OR CONSTRUING THE
SAME
SHALL NOT APPLY A PRESUMPTION THAT THE TERMS HEREOF SHALL BE MORE STRICTLY
CONSTRUED AGAINST ANY PARTY BY REASON OF THE RULE OF CONSTRUCTION THAT A
DOCUMENT IS TO BE CONSTRUED MORE STRICTLY AGAINST THE PARTY WHO ITSELF OR
THROUGH ITS AGENT PREPARED THE SAME, IT BEING AGREED THAT ALL PARTIES HERETO
HAVE PARTICIPATED IN THE PREPARATION OF THIS AGREEMENT.
11. Notices.
Any
notice required to be given or delivered by one party to the other hereunder
shall be in writing and addressed as specified below or at such other addresses
as shall be specified by the parties by like notice. All notices shall be
deemed
effectively given (a) upon personal delivery, (b) five (5) days after deposit
in
the United States mail by certified or registered mail (return receipt
requested), (c) two (2) business day after its deposit with any return receipt
express courier (prepaid), or (d) one (1) business day after transmission
by
facsimile or electronic mail.
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| If to the Company: | If to the Guez Parties: | |
|
Xxxx
and Xxxxxxxxx Xxxx
|
||
|
0000
Xxxxxxxx Xxxxxx
|
000
Xxxxxxxxx Xxxxx Xxxx
|
|
|
Xxxxxxxx,
XX 00000
|
Xxxxx
Xxxxxx, XX 00000
|
|
|
Fax:
000-000-0000
|
Fax:
000-000-0000
|
|
|
e-mail:
xxxxx.xxxxxx@xxxxxxxxxxxx.xxx
|
e-mail:
xxxxxxxx@xxxxxxxxxxxx.xxx
|
With
a
copy to:
(which
shall not constitute notice)
Xxxxxx
Xxxxxxxx & Markiles, LLP
00000
Xxxxxxx Xxxxxxxxx, 00xx
Xxxxx
Xxxxxxx
Xxxx, XX 00000
Attn:
Xxxxxxx Xxxxxxxx, Esq.
Fax:
000-000-0000
e-mail:
xxxxxxxxx@xxxxxxxxxx.xxx
12. Further
Actions.
Whether
or not specifically required under the terms of this Agreement, each party
hereto shall execute and deliver such documents and take such further actions
as
shall be necessary in order for such party to perform all of its obligations
specified herein or reasonably implied from the terms hereof.
13. Successors,
Third Party Beneficiaries.
13.1 This
Agreement is personal to the Guezes and, without the prior written consent
of
the Company, is not assignable by the Guezes. This Agreement will inure to
the
benefit of and be enforceable by the Guezes’ legal representatives (including
any duly appointed guardian) acting in their capacities as such pursuant
to
applicable law.
13.2 This
Agreement will inure to the benefit of and be binding on the Company and
its
successors and assigns. The Company will be entitled to assign all of its
obligations hereunder to any successor (direct or indirect and whether by
purchase, merger, consolidation, share exchange or otherwise) to the business,
properties and assets of the Company; provided,
however,
that
the Company will remain liable for the full, timely performance of all the
obligations so assigned as if such assignment had not been made.
13.3 Except
as
otherwise expressly provided in this Agreement, this Agreement is not intended,
and shall not be construed, deemed or interpreted, to confer on any person
or entity not a party hereto any rights or remedies hereunder.
14. Execution
In Counterparts.
This
Agreement may be executed in two (2) or more counterparts (including via
facsimile or portable document format signatures), all of which taken together
shall constitute one agreement.
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15. Severability
and Governing Law.
15.1 Should
any of the provisions in this Agreement be declared or be determined to be
illegal or invalid, all remaining parts, terms or provisions, or any sections,
subsections, paragraph or subparagraphs, shall be valid, and the illegal
or
invalid part, term or provision, or section, subsection, paragraph or
subparagraph, shall be deemed not to be a part of this Agreement.
15.2 This
Agreement is made and entered into in the State of California and shall in
all
respects be interpreted, enforced and governed under the laws of California,
without
regard to conflict of law principles thereof.
16. Proper
Construction.
16.1 The
language of all parts of this Agreement shall in all cases be construed as
a
whole according to its fair meaning, and not strictly for or against any
of the
parties.
16.2 As
used
in this Agreement, singular or plural number shall be deemed to include the
other, the term “it” shall be deemed to include the terms “he” and “she” and the
term “or” shall be deemed to include the term “and/or” whenever the context so
indicates or requires.
16.3 The
paragraph headings used in this Agreement are intended solely for convenience
of
reference and shall not in any manner amplify, limit, modify or otherwise
be
used in the interpretation of any of the provisions hereof.
17. Entire
Agreement. This
Agreement is the entire agreement between the Guezes and the Company, and
fully
supersedes any and all prior agreements or understandings between the parties
pertaining to its subject matter.
[Signatures
appear on next page]
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IN
WITNESS WHEREOF, the parties have
executed
this Settlement Agreement and Mutual Release as of the date first above
written.
| BLUE HOLDINGS, INC. | |||
|
By:
|
/s/
Xxxxx X. Xxxxxx
|
/s/
Xxxx Xxxx
|
|
|
Xxxxx
X. Xxxxxx
|
Xxxx
Xxxx
|
||
|
Chief
Executive Officer
|
|||
|
/s/
Xxxxxxxxx Xxxx
|
|||
|
Xxxxxxxxx
Xxxx
|
|||
| THE XXXX AND XXXX XXXX | |
| LIVING TRUST | |
|
By:
|
/s/
Xxxx Xxxx
|
|
Xxxx
Xxxx, Trustee
|
|
|
By:
|
/s/
Xxxxxxxxx Xxxx
|
|
Xxxxxxxxx
Xxxx, Trustee
|
|
| BLUE CONCEPT, LLC | |
|
By:
|
/s/
Xxxx Xxxx
|
|
Xxxx
Xxxx, Manager
|
|
| TAVERNITI HOLDINGS, LLC | |
|
By:
|
/s/
Xxxx Xxxx
|
|
Xxxx
Xxxx, Manager
|
|
| YANUK JEANS, LLC | |
|
By:
|
/s/
Xxxx Xxxx
|
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EXHIBIT
A
8%
SENIOR CONVERTIBLE NOTE
