SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 13, 1997
INNOVO GROUP INC.
(Exact name of registrant as specified in charter)
Delaware 0-18926 11-2928178
(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification
No.)
27 North Main Street, Springfield, Tennessee 37172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 384-0100
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
Contents
Page
Item 5: Other Events 3
Item 7: Financial Statements and Exhibits 6
Signatures 7
<PAGE>
Item 5. Other Events
On August 13, 1997 Innovo Group Inc. ("the Company") issued
6,750,000 shares of its common stock, par value $.01 per share ("common
stock") to a group of investors ("the Smith Group") comprised of L.E.
Smith, Dan Page, J. Eric Hendrickson and Herb Newton. The Smith Group
paid $1,350,000 for such shares of common stock. The purchase by the
Smith Group was made pursuant to a Stock Purchase Agreement dated
August 13, 1997 ("the Stock Purchase Agreement") by and between the
members of the Smith Group, the Company, and Patricia Anderson-Lasko.
The Stock Purchase Agreement is filed herewith as Exhibit 10.1, and the
description of its terms herein is qualified in its entirety by
reference to the Stock Purchase Agreement.
The net proceeds to the Company, after the payment of the costs of
the transaction, were approximately $1,300,000. The Company utilized
$150,000 of the net proceeds to repurchase and cancel its outstanding
Class I common stock purchase warrants. The Class I common stock
purchase warrants had been issued in fiscal 1996 to the placement agent
for certain debt and equity private placements, and was exercisable
through August, 2001 for the purchase of 1,220,588 shares of common
stock at a price of $.17 per share. The remaining net proceeds of
approximately $1,150,000 were used to reduce operating liabilities and
add to the Company's working capital.
Under the terms of the Stock Purchase Agreement each of the
members of the Smith Group were elected to the Company's board of
directors. Concurrently, Scott Parliament, a member of the board of
directors, resigned. As a result, the board of directors is now
comprised of the following eight individuals: L. E. Smith, Dan Page, J.
Eric Hendrickson, Herb Newton, Patricia Anderson-Lasko, Alexander
Miller, Eleanor Schwartz and Marvin Williamson. The Stock Purchase
agreement also provides that the Company will nominate these eight
individuals as the Company's nominees for directors for its next annual
stockholders' meeting.
Concurrently and as a condition to the execution of the Stock
Purchase Agreement, the Company executed employment contracts with each
of L.E. Smith, Dan Page and J. Eric Hendrickson, and also executed new
employment contracts with Patricia Anderson-Lasko and Alexander Miller.
Mr. Smith became the chief executive officer of the Company under a two
year employment contract that provides for an annual salary of $30,000
and the grant to Mr. Smith of 1,600,000 non-qualified stock options.
Mr. Page became the chief operating officer of the Company under a two
year employment contract that provides for an annual salary of $30,000
and the grant to Mr. Page of 1,200,000 non-qualified stock options.
Mr. Hendrickson became the vice-president and treasurer on the Company
under a two year employment contract that provides for an annual salary
of $70,000. The new employment contract for Ms. Anderson-Lasko employs
her for a two year term as the Company's president, and as the
president of the Company's Innovo Inc. and NP International, Inc.
subsidiaries, at an annual salary of $157,500. The new employment
contract for Mr. Miller employs him for a two year term as the
Company's manager of investor relations at an annual salary of $48,000
and grants Mr. Miller 125,000 non-qualified stock options.
Each of the employment contracts of Messrs. Smith, Page,
Hendrickson, Miller and Ms. Anderson-Lasko (i) provide that the
contract shall automatically renew for successive one year terms unless
terminated by either party, and (ii) provide for the payment of a
termination benefit equal to one year's salary, payable in twelve
monthly installments, upon the termination of employment, for any
reason, during the term of the contract. The employment contracts of
Messrs. Smith, Page and Hendrickson, and of Ms. Anderson-Lasko and Mr.
Miller, are filed herewith as exhibits (Exhibits 10.2, 10.3, 10.4, 10.5
and 10.6, respectively), and the descriptions of their terms herein is
qualified in its entirety by reference to the contracts.
The non-qualified stock options granted to Messrs. Smith, Page and
Miller vest and become exercisable rateably over the two year terms of
their employment contracts. Unvested options are forfeited at any
termination of employment. However, the vesting of any unvested and
unforfeited options will accelerate, and vest immediately, upon (i) the
market price of the Company's common stock reaching $1.00, or (ii) a
change in the control of the Company which is not approved by the
Company's board of directors. For the purposes of the employment
contracts, a change in control is defined as the acquisition by any
person or group of shares of common stock representing 25 percent of
the Company's outstanding common stock. Vested options remain
exercisable until August, 2002 at a price of $.3315 per share, which
represents the market price of the Company's common stock at the time
the terms of the employment contracts and options were agreed to in a
letter of intent signed by the Smith Group, the Company, and Ms.
Anderson-Lasko.
As a condition to Stock Purchase Agreement, Ms. Anderson-Lasko
entered into a voting agreement ("the Voting Agreement") and a resale
and right of first refusal agreement ("the Resale and Right of First
Refusal Agreement") with the Smith Group.
Under the Voting Agreement Ms. Anderson-Lasko has agreed to vote,
in the manner directed by the Smith Group, such number of shares of
common stock as to which she has sole voting power as equals one-half
of the excess, if any, of the number of shares of Company common stock
as to which Ms. Anderson-Lasko has sole voting power over the number of
shares of common stock as to which the Smith Group has sole or shared
voting power. However, Ms. Anderson-Lasko is not required to vote any
shares as directed by the Smith Group if the Company's net income, as
determined under generally accepted accounting principles and as
reported in the reports filed by the Company under the Securities
Exchange Act of 1934 ("the 1934 Act"), is for the twelve month period
ending as of the latest fiscal quarter for which a quarterly report or
annual report has been filed by the Company with the Securities and
Exchange Commission under the 1934 Act as of the applicable voting
date, not greater than (or net loss is not less than) the net income or
loss for the comparable twelve month period of the prior year.
Additionally, Ms. Anderson-Lasko is not required to vote as directed by
the Smith Group if such vote would be contrary to a recommendation of
the Company's board of directors. The Voting Agreement has a term of
two years. As of the date of this Current Report on Form 8-K, Ms.
Anderson-Lasko would, under the formula in the Voting Agreement, not be
required to vote any shares as directed by the Smith Group. The Voting
Agreement is filed herewith as Exhibit 10.7, and the description of its
terms herein is qualified in its entirety by reference to the Voting
Agreement.
Under the Resale and Right of First Refusal Agreement Ms.
Anderson-Lasko agreed that until the later of (i) 90 days following the
termination of her employment or other affiliation with the Company
(except for affiliation resulting only from the ownership of common
stock), or (ii) one year from the date of the agreement, she would not
reoffer or resell any of 4,000,000 shares of common stock purchased by
her as the result of her exercise, in August, 1997, of the 1997 Stock
Purchase Right Award ("the Award Shares"), except for (a) offers and
sales of Award Shares up to an aggregate of 500,000 Award Shares during
each six month period commencing with the six month period that begins
on the first anniversary of the agreement, (b) offers and sales
affected through privately negotiated transactions, provided that the
purchaser in any such privately negotiated transaction agrees to be
bound by the terms of the Resale and Right of First Refusal Agreement,
including such portion of the semi-annual 500,000 share sale limit as
may be allocated to it in negotiation between the purchaser and Ms.
Anderson-Lasko, and (c) a sale of any of the Award Shares in response
to an offer made generally to all stockholders of the Company in
connection with a proposed or intended acquisition of a controlling
interest in the Company. Ms. Anderson-Lasko also granted first to the
Smith Group and second to the Company a right of first refusal to
purchase any of the Award Shares that she might propose to offer or
sell, exercisable generally on terms equal to those of the intended
offer or sale. The Resale and Right of First Refusal Agreement is
filed herewith as Exhibit 10.8, and the description of its terms herein
is qualified in its entirety by reference to the Resale and Right of
First Refusal Agreement.
In connection with the above described transactions, the Smith
Group also executed an agreement ("the Williams Agreement") with
William T. Williams, an unaffiliated stockholder of the Company. Under
the Williams Agreement, the Smith group will purchase 500,000 shares of
common stock beneficially owned by Mr. Williams. Additionally, Mr.
Williams agreed, as to 1,500,000 shares of common stock beneficially
owned by him, not to reoffer or resell any of such 1,500,000 shares for
a period of one year (except for sales in response to an offer made
generally to all stockholders of the Company in connection with a
proposed or intended acquisition of a controlling interest in the
Company) and granted, first to the Smith Group and second to the
Company, a right of first refusal to purchase any of such 1,500,000
shares that he might propose to offer or sell, exercisable generally on
terms equal to those of the intended offer or sale. The Williams
Agreement is filed herewith as Exhibit 10.9, and the description of its
terms herein is qualified in its entirety by reference to the Williams
Agreement.
<PAGE>
Item 7: Financial Statements and Exhibits
(c) Exhibits
The following are filed as exhibits herewith:
Exhibit No. Description
10.1 Stock Purchase Agreement by and between
L. E. Smith, Dan Page, J. Eric
Hendrickson and Herb Newton and Innovo
Group Inc. and Patricia Anderson-Lasko
10.2 Employment Agreement of L.E. Smith
10.3 Employment Agreement of Dan Page
10.4 Employment Agreement of J. Eric
Hendrickson
10.5 Employment Agreement of Patricia
Anderson-Lasko
10.6 Employment Agreement of Alexander Miller
10.7 Common Stock Voting Agreement by and
between L.E. Smith, Dan Page, J. Eric
Hendrickson and Herb Newton and Patricia
Anderson-Lasko
10.8 Common Stock Resale and Right of First
Refusal Agreement by and between L.E.
Smith, Dan Page, J. Eric Hendrickson and
Herb Newton and Patricia Anderson-Lasko
10.9 Common Stock Purchase and Right of First
Refusal Agreement by and between L.E.
Smith, Dan Page, J. Eric Hendrickson and
Herb Newton and William T. Williams, Sr.,
Virginia C. Williams, William T.
Williams, Jr. and Allison Williams ITTN
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
INNOVO GROUP INC.
(Registrant)
Date: August 25, 1997 By: /s/ L.E. Smith
_______________
L.E. Smith
Chairman and Chief
Executive Officer
STOCK PURCHASE AGREEMENT
by and between
L.E. Smith, Dan Page, J. Eric Hendrickson and Herb Newton
and
Innovo Group Inc.
and
Patricia Anderson-Lasko
August 13, 1997
<PAGE>
Stock Purchase Agreement
Contents
Section Page
Introduction 1
Recitals 1
1 Closing 1
2 Basic Transaction 1
3 Restricted Securities; Subsequent Registration 2
4 Representations and Warranties of the Purchasers5
5 Representations and Warranties of the Company 7
6 Representations and Warranties of Anderson 9
7 Board of Directors of the Company 10
8 Indemnification of Anderson 10
9 Closing 11
10 Miscellaneous 12
Exhibit Page
2.3A Employment Contract of L.E. Smith A-1
2.3B Employment Contract of Dan Page B-1
2.3C Employment Contract of J. Eric Hendrickson C-1
2.3D Employment Contract of Patricia Anderson-Lasko D-1
<PAGE>
Exhibit Page
2.3E Employment Contract of Alexander Miller E-1
2.4 Extension and Modification of DWL Loan F-1
2.5 Common Stock Resale Agreement between L.E. Smith,
Dan Page, J. Eric Hendrickson and Innovo Group
Inc. and Patricia Anderson-Lasko G-1
2.6 Opinion of Counsel to Anderson and the CompanyH-1
4.5 Risk Factors I-1
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made this
13th day of August, 1997 by and among L.E. Smith ("Smith"), Dan
Page ("Page"), J. Eric Hendrickson ("Hendrickson") and Herb
Newton ("Newton") (collectively, the "Purchasers") and Innovo
Group Inc. (the "Company") and
Patricia Anderson-Lasko ("Anderson").
WHEREAS, the Purchasers wish to purchase certain shares of
the common stock, par value $.01 per share ("common stock") of
the Company (the "Shares") and wish to become members of the
management and Board of Directors of the Company and;
WHEREAS, the Purchasers wish to obtain certain voting rights
with respect to certain shares of common stock owned by Anderson,
certain rights of first refusal for themselves and the Company
with respect to certain shares of common stock owned by Anderson,
and certain limitations on the resale, by Anderson, of certain
shares of common stock owned by her; and
WHEREAS, the Company is agreeable to the purchase of the
Shares by the Purchasers and to having Smith, Page, Hendrickson
and Newton become members of the management and Board of
Directors of the Company on the terms and conditions described
herein; and
WHEREAS, Anderson, in order to induce Smith, Page,
Hendrickson and Newton to purchase the Shares, is willing to
grant to Smith, Page, Hendrickson and Newton certain voting
rights with respect to certain shares of common stock owned by
her, is willing to grant to Smith, Page, Hendrickson and Newton
and the Company certain rights of first refusal with respect to
certain shares of common stock owned by her, and is willing to
grant certain limitations on the resale of certain shares of
common stock owned by her on the terms and conditions described
herein;
NOW, THEREFORE, in consideration of the mutual agreements
set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Smith,
Page, Hendrickson and Newton, the Company and Anderson hereby
agree as follows:
Agreement
1. Closing. The Closing of the transaction contemplated
by this Agreement shall take place upon the execution hereof at
the offices of the Company or at such other time and place as the
parties may agree to in writing (the "Closing Date").
2. Basic Transaction.
2.1 Purchase of Shares. At the Closing, the Company
shall sell, and the Purchasers shall purchase, 6,750,000 shares
of common stock for an aggregate purchase price of $1,350,000.
The Purchasers shall deliver payment to the Company in the form
of immediately available funds through wire transfer or cashier's
check, or in such other form of payment as the Company may agree
to. Simultaneously therewith, the Company shall deliver to
Smith, Page, Hendrickson and Newton certificate(s) for the
Shares, bearing the restrictive legend set forth in Section 3 of
this Agreement, issued in the names of Smith, Page, Hendrickson
and Newton in such share amounts (totaling 1,350,000 shares) as
Smith, Page, Hendrickson and Newton may instruct the Company.
2.2 Board of Directors of the Company. As of the
Closing, the composition of the Company's board of directors
shall be changed as set forth in Section 6 of this Agreement.
The Board of Directors of the Company, as reconstituted pursuant
to Section 6 of this Agreement, hereby agrees to nominate Smith,
Page, Hendrickson and Newton director nominees, together with the
remaining existing directors of the Company, to be elected at
the next scheduled annual meeting of the stockholders of the
Company. The policy of the Company as described in Section 6.4
of this Agreement shall not prohibit Smith, Page, Hendrickson and
Newton from voting to nominate the director nominees of the
Company described in this Section 2.2.
2.3 Employment Contracts. At the Closing, the Company
shall enter into the employment contracts with each of Smith,
Page, Hendrickson and Newton, Anderson and Alexander Miller
("Miller") in the form set forth in Exhibits 2.3 A, B, C, D and
E, respectively, to this Agreement.
2.4 Extension and Modification of DWL Loan. Prior to
the Closing, the Company shall have received from DWL
International the extension and modification of the loan to NP
International, Inc. from DWL (the "DWL loan") set forth as
Exhibit 2.4 to this Agreement.
2.5 Resale Limitation and Rights of First Refusal on
Anderson Shares. At the Closing, Smith, Page, Hendrickson and
Newton and the Company and Anderson will execute the agreement
(the "Common Stock Agreement") set forth as Exhibit 2.5 to this
Agreement.
2.6 At the Closing, counsel for Anderson and the
Company shall deliver an opinion substantially in the form
attached as Exhibit 2.6 to this Agreement.
3. Restricted Securities; Subsequent Registration.
3.1 Restrictions on Transfer. The Shares are being
issued in a transaction that is exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act") and Regulation D promulgated under the Act. As a result,
the Shares will constitute "restricted securities" as that term
is defined under the 1933 Act. From and after their respective
dates of issuance, none of the Shares shall be transferable
except upon the conditions specified in this Section 3, which
conditions are intended to ensure compliance with the provisions
of the 1933 Act in respect of the transfer of any of such Shares
or any interest therein. The Purchasers will require any
proposed transferee of any Shares held by them to agree to take
and hold such Shares subject to the provisions and upon the
conditions specified in this Section 3.
3.2 Restrictive Legends. Each certificate for Shares
issued to Smith, Page, Hendrickson and Newton or to a subsequent
transferee shall include a legend in substantially the following
form:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), IN
RELIANCE UPON THE EXEMPTION FROM REGISTRATION PROVIDED BY SECTION
4(2) OF THE 1933 ACT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES LAWS OF APPLICABLE STATES IN RELIANCE UPON APPLICABLE
EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES LAWS OF SUCH
STATES. THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES
ONLY AND MAY NOT BE OFFERED FOR SALE, HYPOTHECATED, SOLD OR
TRANSFERRED, NOR WILL ANY ASSIGNEE OR TRANSFEREE THEREOF BE
RECOGNIZED BY THE COMPANY AS HAVING ANY INTEREST IN THESE SHARES,
IN THE ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT TO THE SHARES UNDER THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS OR (ii) COMPLIANCE WITH APPLICABLE EXEMPTIONS
FROM REGISTRATION UNDER THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS2. THE COMPANY MAY, IF IT DEEMS APPROPRIATE IN
ITS SOLE DISCRETION, REQUIRE AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT THE OFFER, SALE, HYPOTHECATION OR TRANSFER OF
THESE SHARES IS EXEMPT FROM REGISTRATION UNDER THE 1933 ACT AND
APPLICABLE STATE SECURITIES LAWS.
3.3 Notice of Proposed Transfers. Prior to any
proposed transfer of the Shares other than a transfer (i)
registered under the 1933 Act, (ii) to an affiliate of the
Purchasers which is an "accredited investor" within the meaning
of Rule 501(a) under the 1933 Act, provided that any such
transferee shall agree to be bound by the terms of this
Agreement, and (iii) to be made in reliance on Rule 144 under the
1933 Act, the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer,
setting forth the manner and circumstances of the proposed
transfer, which shall be accompanied by (a) an opinion of counsel
to the Company, confirming that such transfer does not give rise
to a violation of the 1933 Act, satisfactory representation
letters in form and substance reasonably satisfactory to the
Company to ensure compliance with the provisions of the 1933 Act
and letters in form and substance reasonably satisfactory to the
Company from each such transferee stating such transferee's
agreement to be bound by the terms of this Agreement. Such
proposed transfer may be effected only if the Company shall have
received such notice of transfer, opinion of counsel,
representation letters and other letters referred to in the
immediately preceding sentence, whereupon the holder of such
Shares shall be entitled to transfer such Shares in accordance
with the terms of the notice delivered by the holder to the
Company.
3.4 Registration Rights. The Company hereby grants to
the Purchasers the right to have included in any registration
statement filed by the Company under the 1933 Act (except for
registration statements on Form S-4 or on Form S-8, or on such
forms as may at the time be in use to register transactions of
the type currently registered on Form S-4 or Form S-8), the offer
and sale of the Shares by the Purchasers. In connection with the
filing of any such registration statement, the parties agree
that:
(i) the Purchasers understand and acknowledge that the
Company shall be permitted to include the offering
and sale of other shares or units of its
securities in such registration statement, either
for its own account, the account of other selling
stockholders, or both;
(ii) the Company will use its best efforts to maintain
the effectiveness of such registration statement
for at least nine months following the effective
date thereof, and from time to time will amend or
supplement such registration statement during such
nine month period to the extent necessary to
comply with the 1933 Act;
(iii) as and when the Company files a registration
statement with respect to the offer and sale
of any of the shares under the 1933 Act, the
Purchasers and the Company will execute an
agreement to cross-indemnify one another, and
will agree to contribute to the aggregate
losses, claims, damages and liabilities to
which they may become subject, on terms and
conditions standard in the industry and
negotiated by them in good faith, including,
without limitation, standard limitations on
the indemnification of selling stockholders
in a secondary offering;
(iv) whenever the Company is registering the offer and
sale of the Shares, the Purchasers agree to
provide to the Company, promptly upon its request,
such information and materials regarding the
Purchasers as the Company shall reasonably request
in order to effect the registration of the offer
and sale of the Shares;
(v) the Company shall bear all reasonable costs and
expenses to be incurred in connection with such
registration statement, including printing costs,
the fees of the registrant's counsel and
accountants, and SEC and NASD filing fees;
however, the Company shall not be responsible for
the fees and expenses of any counsel engaged by
the Purchasers, or any underwriter engaged by the
Purchasers, and shall not be responsible for the
underwriters', brokers' or dealers' commissions,
fees, expenses, discounts or other compensation
attributable to the offer or sale of any of the
shares of the Purchasers;
(vi) the Company shall not be obligated to register the
offer and sale of Shares if, at the time of the
filing of the registration statement, there has
been any default or breach by Smith, Page,
Hendrickson or Newton in the terms of this
Agreement or exhibits or any related agreements.
3.5 One-Time Registration. Upon demand by the Purchasers,
the Company will use its best efforts to file a registration
statement for the reoffer and resale of the Shares under the 1933
Act as soon as is reasonably practical following such demand, but
in no event later than 45 days after such demand and to have such
registration statement declared effective as soon thereafter as
is possible. The provisions of Sections 3.4(i) through 3.4(vi)
shall apply to such registration statement. In the event that
all of the Shares are not registered or sold under such
registration statement, the Purchasers will be entitled to demand
that the Company use its best efforts to file a second
registration statement for the reoffer and resale of such
remaining Shares under the 1933 Act within 45 days after such
second demand by the Purchasers.
4. Representations and Warranties of the Purchasers.
Each of the Purchasers represents as to himself:
4.1 Authority. Each of the Purchasers has the full
power and authority to enter into this Agreement and has taken
all action or will use his best efforts to take all action,
personal, corporate and otherwise, necessary to authorize the
execution, delivery and performance of this Agreement, the
completion of the transaction contemplated hereby and the
execution and delivery by each of them of any and all instruments
necessary or appropriate in order to effectuate fully the terms
and conditions of this Agreement.
4.2 Consents. No consent or approval of any court,
governmental agency or other public authority, or of any other
person, corporation or entity with any actual or alleged interest
is required as a condition to (i) the validity or enforceability
of this Agreement or any other instruments to be executed by any
of the Purchasers to effectuate this Agreement, or (ii) the
completion or validity of any of the transactions contemplated by
this Agreement. This Agreement has been properly executed and
delivered by the Purchasers and constitutes a valid and legally
binding agreement which is enforceable against each of them in
accordance with its terms.
4.3 Commissions. No fees or commissions are payable
by the Purchasers by virtue of or in connection with the
transaction contemplated by this Agreement.
4.4 Investment Intent. The Purchasers are purchasing
the Shares for their own respective accounts, with the intention
of holding such Shares for investment and not with the intention
of participating, directly or indirectly, in any resale or
distribution of the Shares.
4.5 Company Materials. The Purchasers have received
and carefully reviewed the Company's Annual Report on Form 10-K
for the year ended November 30, 1996, its Quarterly Report on
Form 10-Q for the period ended February 28, 1997, its Quarterly
Report on Form 10-Q for the period ended May 31, 1997, its Form
8-K dated March 14, 1997, proxy statement as filed March 5, 1997,
and the statement of "Risk Factors" (attached hereto as Exhibit
4.5) (the "Company Materials") and such additional Company
records and information regarding historical and proposed
operations as the Purchasers or the Purchasers' advisers have
requested. The Purchasers further understand that the
information provided by the Company to the Purchasers was
compiled by the Company and has not been independently reviewed
or verified in any manner. Smith, Page, Hendrickson and Newton
have each had a reasonable opportunity to ask questions of and
receive answers from the Company concerning the Company and all
such questions, if any, have been answered to the full
satisfaction of Smith, Page, Hendrickson, and Newton. Except as
set forth in the Company Materials and the representations and
warranties set forth in this Agreement, no representations or
warranties have been made to Smith, Page, Hendrickson or Newton
by the Company or any agent, employee or affiliate of the
Company, and Smith, Page, Hendrickson and Newton are relying only
on the Company Materials and the results of their own
investigation in deciding to acquire the Shares and no such
information from such investigation contradicts the Company
Materials in any material respect.
4.6 Accredited Investors. Each of the Purchasers is
an "accredited investor" as that term is defined in Regulation D
under the 1933 Act and each of the Purchasers has (i) such
knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of the
investment in the Shares, (ii) had such risk explained to him and
has determined that such investment is suitable in view of his
financial circumstances and available investment opportunities,
(iii) sufficient net worth and income to bear the economic risk
of losing this entire investment, and (iv) no current need for
liquidity of the investment and no reason to anticipate any
change in his financial circumstances which may cause or require
any sale, transfer or other distribution of the Shares.
4.7 Reliance. The Purchasers understand that the
Shares are being issued to them in reliance on specific
exemptions from the registration requirements of Federal and
State securities laws and that the Company is relying upon the
truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of each of the
Purchasers set forth herein in order to determine the
applicability of such exemptions and the suitability of the
Purchasers to acquire the Shares. The Purchasers further
understand that the issuance of the Shares will not have been
the subject of a registration statement filed under the 1933 Act,
and as a result will be "restricted securities" as that term is
defined under the 1933 Act. Accordingly, the Shares may not be
resold, in whole or in part, unless they are the subject of
registration under the 1933 Act and any applicable state
securities laws, or there is available an exemption from such
registration. A legend, as set forth in Section 3.2 of this
Agreement, will be placed on any certificate or certificates
representing the Shares.
4.8 Reporting Requirements. The Purchasers understand
that as the result of their acquisition for the Shares, they may,
individually or as a group, become subject to the reporting
requirements under Section 13 of the Securities Exchange Act of
1934 ("the 1934 Act") and of Regulation 13(d) promulgated
thereunder. The Purchasers understand that it is their
responsibility, individually or as a group, to determine what
reports, if any, must be filed by them under Section 13 of the
1934 Act, including, but not limited to, Schedule 13D, and to
obtain such legal or other professional advice, at their cost and
expense, as they may desire or require, and to prepare or have
prepared for them, at their cost and expense, such report or
reports as may be required of them under Section 13. The
Purchasers understand that the Company assumes no responsibility
for the reporting by the Purchasers under Section 13; provided,
however, that merely as an accommodation, and without assuming
any responsibility for Section 13 reporting by the Purchasers,
the Company will, with respect to any report which must be filed
through the Securities and Exchange Commission Electronic Data
Gathering and Retrieval ("EDGAR") system, upon the receipt from
the Purchasers of such report prepared in WordPerfect 6.1 or a
computer word processing language convertible into WordPerfect
6.1 together with such identifying codes or passwords as may be
required, convert any such report to the language required for
reports filed through the EDGAR system and transmit such report
to the EDGAR system.
4.9 Residence and Cooperation. Each of Smith, Page
and Hendrickson represents that he is a resident of the State of
Tennessee. Newton represents that he is a resident of the State
of Georgia. Each Purchaser also agrees to cooperate in the
filing of a Form D by the Company and in compliance with the
requirements of Regulation D.
5. Representations and Warranties of the Company.
The Company represents as follow:
5.1 Compliance with Reporting Requirements. The
Company is a reporting company under the 1934 Act. The Company
is in full compliance, to the extent applicable, with all
reporting obligations under either Section 13(a) or 15(d) of the
1934 Act. The Company has registered the Company common stock
pursuant to Section 12 of the Exchange Act and the Company common
stock is traded on the NASDAQ Small Cap Market.
5.2 Authorization of Shares. Upon issuance
hereunder, the Shares will be duly authorized, validly issued,
fully paid and non-assessable.
5.3 Corporate Standing. The Company is a corporation
duly organized, validly existing, and in good standing under the
laws of the State of Delaware, and it has full power and
authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The Company has full power and
authority to carry on its business as it is now being conducted
and to own its assets. The Company is duly qualified to transact
business and in good standing as a foreign corporation in each
jurisdiction where the nature of its business requires it to be
so qualified and where the failure so to qualify would have a
material adverse affect on the business of the Company. The
execution, delivery and performance of this Agreement by the
Company does not, and the consummation of the transactions
contemplated hereby will not (i) violate or result in a breach of
any provisions of the Company's Articles of Incorporation or
Bylaws, (ii) conflict with, or result in a breach or termination
of, or constitute a default under, any material lease, agreement,
commitment or other instrument, or any material order, judgment
or decree, to which the Company is a party or is bound or by
which the Company's assets are affected, or (iii) constitute a
violation of any law, regulation, rule or ordinance applicable to
the Company.
5.4 Authorized and Outstanding Shares. The authorized
capital stock of the Company is 70 million shares of common
stock. As of the date hereof, there are approximately 37,311,422
shares outstanding, and there are warrants outstanding for the
purchase of approximately 2,296,346 shares of common stock.
Except as set forth in this Agreement or as disclosed in the
Company Materials, there is not outstanding, nor is the Company
bound by, any subscriptions, options, preemptive rights,
warrants, calls, commitments, synthetic stock, or agreements or
rights of any character requiring the Company to issue or
entitling any person or entity to acquire any additional shares
of capital stock or any other equity security of the Company,
including any right of conversion or exchange under any
outstanding security or other instrument, and the Company is not
obligated to issue or transfer any shares of its capital stock
for any purpose. There are not outstanding obligations of the
Company to repurchase, redeem or otherwise acquire any
outstanding shares of capital stock of the Company.
5.5 Authority. The Company has full power and
authority to enter into this Agreement and has taken all action,
corporate and otherwise, necessary to authorize the execution,
delivery and performance of this Agreement and all ancillary
agreements to be executed, delivered and performed by the Company
in connection therewith, the completion of the transaction
contemplated hereby and the execution and delivery on behalf of
the Company of any and all instruments necessary or appropriate
in order to effectuate fully the terms and conditions of this
Agreement and all ancillary agreements to be executed, delivered
and performed by the Company in connection therewith. Upon
delivery of the Shares, and the payment therefore, title to the
Shares will pass, free and clear of all restrictions on transfer,
liens, encumbrances, security interests and claims whatsoever, to
the Purchasers, except for the obligations of the Purchasers
under the provisions of this Agreement and all ancillary
agreements to be executed, delivered and performed by the Company
in connection therewith.
5.6 No Governmental Consents. No consent or approval
of any court, governmental agency or other public authority, or
of any other person, corporation or entity with any actual or
alleged interest in the Company is required as a condition to (i)
the validity or enforceability of this Agreement of any other
instruments to be executed by the Company to effectuate this
Agreement, or (ii) the completion or validity of any of the
transactions contemplated by this Agreement. This Agreement and
all ancillary agreements to be executed, delivered and performed
by the Company in connection therewith, have been properly
executed and delivered by the duly authorized officer of the
Company, and constitutes the valid and legally binding agreement
of the Company and are enforceable against the Company in
accordance with its terms.
5.7 No Misrepresentations in Company Materials.
(a) The disclosures in the Company Materials do
not fail to disclose any material fact the disclosure of which
would be necessary to make the required statements contained
therein not misleading in the light of the circumstances under
which they are disclosed. Except as disclosed in the Company
Materials, there has been no material adverse change in, material
loss or destruction of, or material amount of damage to the
financial condition or business of the Company, whether or not
arising from transactions in the ordinary course of business. The
financial statements contained in the Company Materials present
fairly the financial condition of the Company as of the
respective dates and have been prepared in accordance with
generally accepted accounting principles applied on a consistent
basis throughout the periods involved. The Company has no
liabilities or obligations, whether accrued, absolute, contingent
or otherwise, which would materially and adversely affect the
financial condition of the Company, except and to the extent
recorded or disclosed in the Company Materials. No dividends are
due or unpaid by the Company.
(b) Except as set forth in the Company Materials,
there are no actions at law or in equity, proceedings,
governmental proceedings or investigations pending or threatened
against the Company or against or with respect to the business or
assets of the Company, and the Company is not in material default
with respect to any decree, injunction or other order of any
court or government authority. The Company is in substantial
compliance with all (and has not received any notice of any
claimed violation of any) applicable federal, state, county or
municipal laws, ordinances, and regulations. There is no action
at law or in equity, arbitration proceeding, governmental
proceeding or investigation, or motion or request to any court,
pending or threatened, against or with respect to the Company
with respect to this Agreement or the transaction contemplated
hereby and to the knowledge of the Company, no grounds exist for
any such action, proceeding or investigation.
(c) Except as set forth in the Company Materials,
to the best knowledge of the Company, there are no facts,
developments or circumstances, existing or threatened, that is
materially adverse to the assets, business, financial condition
or future prospects of the Company.
5.8 No Commissions. No fees or commissions are
payable by the Company by virtue or in connection with the
transaction contemplated by this Agreement.
6. Representations and Warranties of Anderson.
6.1 Authority. Anderson has the full power and
authority to enter into this Agreement and has taken all action
or will use her best efforts to take all action, personal,
corporate or otherwise, necessary to authorize the execution,
delivery and performance of this Agreement, the completion of the
transaction contemplated hereby and the execution and delivery on
behalf of Anderson of any and all instruments necessary or
appropriate in order to effectuate fully the terms and conditions
of this Agreement.
6.2 Consents. No consent or approval of any court,
governmental agency or other public authority, or for any other
person, corporation or entity with any actual or alleged interest
is required as a condition to (i) the validity or enforceability
of this Agreement or any other instruments to be executed by
Anderson to effectuate this Agreement, or (ii) the completion or
validity of any of the transactions contemplated by this
Agreement. This Agreement has been properly executed and
delivered by Anderson.
6.3 Conflicts. The execution, delivery and
performance of this Agreement by Anderson does not, and the
consummation of the transactions contemplated hereby will not (i)
conflict with, or result in a breach or termination of, or
constitute a default under, any agreement, commitment or other
instrument, or any material order, judgment or decree, to which
Anderson is a party or is bound, or (ii) constitute a violation
of any law, regulation, rule or ordinance applicable to Anderson,
which conflict, breach, termination, default or violation would
prevent fulfillment of her obligations under this Agreement.
7. Board of Directors of the Company.
7.1 Board Resignation. Upon Closing, the Company
shall obtain from one of the current members of the board of
directors his or her resignation, provided as such that after
such resignation (i) the board of directors shall have four
remaining members ("the Remaining Directors"), and (ii) one of
the Remaining Directors shall be an "independent director" as
that term is defined in the regulations of the National
Association of Securities Dealers, Inc.
7.2 Election of Purchasers to the Board. Following
the resignation described in subsection 7.1 above, the Remaining
Directors shall vote to increase the size of the board of
directors to eight, and shall elect to the board of directors
Smith, Page, Hendrickson and Newton. In connection herewith,
each of Smith, Page, Hendrickson and Newton represent that as to
himself, and as to the date hereof, there are no items
disclosable under Item 401(f) of Regulation S-K.
7.3 Board Committees. Following the election of
Smith, Page, Hendrickson and Newton as set forth in subsection
7.2 above, the board of directors shall vote to reconstitute the
Audit Committee to be comprised of the two "independent
directors" and Miller, the Executive Compensation Committee of
Hendrickson, Anderson and the two independent directors, and the
Stock Option Committee of Miller and the two independent
directors.
7.4 Board Policy Regarding Conflicts. The Company's
board of directors shall continue to observe the policy of
requiring that any director who has a direct or indirect
financial interest (other than an interest as and the same as a
stockholder of the Company) in a transaction being discussed or
considered by the board or any committee of the board (i) absent
him or herself from the discussions of such transaction, and (ii)
abstain from any vote taken by the board or a committee of the
board with respect to such transaction.
8. Indemnification of Anderson. Anderson is a personal
guarantor of the obligations of the Company and its subsidiaries
to (i) ICON Cash Flow Partners, L.P., and (the "ICON loan") and
(ii) First National Bank of Galliten and the United States Small
Business Administration (the "SBA loan" and collectively with the
ICON loan the "Guaranteed Debts"). The ICON loan is anticipated
to have a principal balance of $247,814.78, as of the Closing,
and the SBA loan is anticipated to have a principal balance of
$_____, as of the Closing. With respect to the Guaranteed Debts:
(a) The Purchasers agree that they shall use their
best efforts to cause the Company to obtain the release of
Anderson as a guarantor of the ICON Loan and of the SBA Loan; and
(b) The Purchasers agree that if at such time as
either ICON or SBA makes notification to Anderson of an intent to
seek payment or indemnification from Anderson by reason of her
guarantee the Company has not prior thereto obtained Anderson's
release as a guarantor, the Company will indemnify Anderson with
respect to the guarantee to which such notice relates and the
Purchasers will, at the time of such notification, use their best
efforts to cause the Company to place in escrow as security for
such indemnification cash or other readily liquid risk free
assets in an amount equal to the difference between (a) the
principal balance of the outstanding loan as to which such
notification relates and (b) the fair market value of the first
lien collateral, if any, underlying the loan as to which the
notification relates as determined at the date of the
notification by an independent appraisal.
9. Closing.
9.1 Transactions at Closing.
9.1.1 Purchaser's Performances. At the
Closing, the Purchasers shall deliver to the Company the
following:
(a) cash, by cashier's check, check or wire
transfer, in the amount of $1,350,000 (less
prior advances to the Company in the amount
of $___________);
(b) the certificate of each of the Purchasers
described in Section 9.2; and
(c) such other evidence of the performance of all
the covenants and satisfaction of all of the
conditions required of the Purchasers by this
Agreement at or before the Closing as the
Company or its counsel may reasonably
require.
9.1.2 Company's Performance. At the Closing, the
Company shall deliver to the Purchasers the following:
(a) certificates representing the Shares,
reasonably satisfactory in form and substance
to the Purchasers and their counsel;
(b) the certificate of the President of the
Company described in Section 8.2;
(c) a certificate of good standing of the
Company, as of the most recent practicable
date, from the Secretary of State of
Tennessee;
(d) certified copies of resolutions of the Board
of Directors of the Company approving the
transactions set forth in this Agreement;
(e) the fully executed employment contracts
described in Section 2.3;
(f) evidence of the extension and modification of
the DWL Loan described in Section 2.4;
(g) the fully executed Common Stock Agreement
described in Section 2.5;
(h) the legal opinion described in Section 2.6;
(i) evidence of the board resignation and board
appointments described in Section 6; and
(j) certified resolutions of the Board of
Directors of the Company authorizing and
approving the execution, delivery and
performance of this Agreement and all
ancillary agreements to be executed,
delivered and performed by the Company in
connection therewith; and
(k) such other evidence of the performance of all
the covenants and satisfaction of all of the
conditions required of the Company by this
Agreement at or before Closing as the
Purchasers or their counsel any reasonably
require.
10. Miscellaneous.
10.1 Arbitration. Each Party agrees that any
controversy or claim by it against another Party arising directly
or indirectly out of this Agreement including, without
limitation, claims for breach of contract, breach of warranty,
claims arising from the purchase or sale of Shares, or claims for
fraud, whether due to false representations or failure to
disclose, shall be submitted to arbitration pursuant to the
Federal Arbitration Act ("FAA") and in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association ("AAA") before a panel of three arbitrators and
judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction pursuant to the FAA. In
arbitration proceedings hereunder, the Parties shall be entitled
to any and all remedies that would be available in the absence of
this section and the arbitrators, in rendering their decision,
shall follow the substantive laws of the State of Delaware. The
arbitration of any dispute pursuant to this section shall be held
in Atlanta, Georgia. Notwithstanding the foregoing in order to
preserve the status quo pending the resolution by arbitration of
a claim seeking relief of an injunctive or equitable nature, any
party, upon submitting a matter to arbitration as required by
this section, may simultaneously or thereafter seek a temporary
restraining order or preliminary injunction from a court of
competent jurisdiction pending the outcome of the arbitration.
The losing Party in an arbitration under this section shall pay
all costs and expenses reasonably incurred by the prevailing
Party with respect to this arbitration including, but not limited
to, reasonable attorneys' fees.
10.2 Modification; Complete Agreement. This Agreement,
together with its exhibits and schedules, (i) represents the
complete understanding between Smith, Page, Hendrickson and
Newton and the Company and Anderson with respect to the subjects
discussed herein, (ii) may only be modified by a written
instrument executed by Smith, Page, Hendrickson and Newton and
the Company and Anderson, and (iii) shall inure to the benefit
of, and be binding upon Smith, Page, Hendrickson and Newton and
the Company and Anderson their respective heirs, legal
representatives and successors.
10.3 Waiver. Any of the terms and conditions of this
Agreement which may be lawfully waived may be waived in writing
at any time by the Party that is entitled to the benefit thereof.
Any waiver of any provision of this Agreement shall be binding
only as set forth in an instrument in writing signed on behalf of
such Party. No failure to enforce any provision of this
Agreement shall be deemed to or shall constitute a waiver of such
provision of this Agreement, and no waiver of a provision shall
be deemed or constitute a waiver of any other provision of this
Agreement, whether or not similar, nor shall such waiver
constitute a continuing waiver.
10.4 Governing Law. This Agreement shall be governed
by the laws of the State of Delaware applicable to contracts made
and to be wholly performed therein.
10.5 Fees and Expenses. The Company shall bear the
expenses of the parties in connection with the negotiation and
consummation of the transactions contemplated by this Agreement.
10.6 Transfers and Assignments. Neither this
Agreement nor any of the rights of hereunder may be transferred
or assigned except as provided herein.
10.7 Gender. Unless the context otherwise requires,
all personal pronouns used in this Agreement, whether in the
masculine, feminine or neuter gender, shall include all other
genders.
10.8 Headings. The headings contained in this
Agreement are for reference only and shall not affect in any way
the meaning of interpretation of this Agreement.
10.9 Severability. Any provision of this Agreement
which is invalid, illegal or unenforceable in any jurisdiction
shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this
Agreement invalid, illegal or unenforceable in any other
jurisdiction.
10.10 Notices. All notices or other communications
hereunder shall be in writing and shall be deemed to have been
duly given (i) on the date delivered personally or by confirmed
facsimile as set forth below; (ii) two (2) days after being sent
by Express Mail or such other similar service (i.e., Federal
Express) and addressed as set forth below; or (iii) four (4) days
after being mailed by certified or registered mail, return
receipt requested, postage prepaid, and addressed as set forth
below, as follows:
If to Innovo Group: Innovo Group Inc.
27 North Main Street
Springfield, Tennessee 37172
Attn: Patricia Anderson-Lasko, President
Facsimile: (615) 384-5008
With a copy to: Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Attn: Jerry L. Sims, Esq.
Facsimile: (770) 481-7210
If to Anderson: Patricia Anderson-Lasko
27 North Main Street
Springfield, Tennessee 37172
Facsimile: (615) 384-5008
With a copy to: Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Attn: Jerry L. Sims, Esq.
Facsimile: (770) 481-7210
If to Smith, Page, Hendrickson, or Newton:
L.E. Smith or Dan Page or J. Eric Hendrickson
or Herb Newton
c/o Innovo Group Inc.
27 North Main Street
Springfield, Tennessee 37172
Facsimile: (615) 384-5008<PAGE>
With a copy to:
Jones, Day, Reavis & Pogue
303 Peachtree Street, N.E.
Suite 3500
Atlanta, Georgia 30308-3242
Attn: Lizanne Thomas
Facsimile: (404) 581-8330
or to such other address as a Party shall have designated to the
other by like notice.
10.11 Public Announcements. Any and all public
announcements concerning the transactions contemplated or
completed under this Agreement shall require the approval of the
Company and the Purchasers.
10.12 Survival. The representations and warranties
of the Purchasers, the Company and Anderson shall be true when
made, and true on the date of Closing, and all such
representations and warranties shall survive the Closing.
IN WITNESS WHEREOF, Smith, Page, Hendrickson and Newton and
the Company and Anderson have executed this Stock Purchase
Agreement on the date first written above.
L.E. Smith /s/ L. E. Smith
_________________________
L.E. Smith
Dan Page /s/ Dan Page
_________________________
Dan Page
J. Eric Hendrickson /s/ J. Eric Hendrickson
_________________________
J. Eric Hendrickson
Herb Newton /s/ Herb Newton
_________________________
Herb Newton
[signatures continued on subsequent page]
[signatures continued from preceding page]
Innovo Group Inc. By:/s/ Patricia Anderson-Lasko
_________________________
Patricia Anderson-Lasko, President
Patricia Anderson-Lasko /s/ Patricia Anderson-Lasko
_________________________
Patricia Anderson-Lasko
<PAGE>
RISK FACTORS
In evaluating Innovo Group, Inc. (the "Company") and its
business, prospective investors should carefully consider the
following factors in addition to those discussed elsewhere in the
Company Materials. Information contained in the Company Materials
may contain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, which can
be identified by the use of forward-looking terminology such as
"may," "will," "would," "could," "expect," "anticipate,"
"estimate" or "continue," or the negative thereof, or other
variations thereon or comparable terminology. The following
matters constitute cautionary statements identifying important
factors with respect to any such forward-looking statements,
including certain risks and uncertainties, that could cause
actual results to differ materially from those reflected in any
such forward-looking statements.
Losses from Operations; Negative Cash Flow; Adverse
Operating History; Possibility of Future Losses and Negative Cash
Flows. The Company had losses from continuing operations of
$3,088,000, $67,000 and $7,905,000 for the years ended November
30, 1996, and October 31, 1995 and October 31, 1994,
respectively, and a loss from continuing operations of $1,096,000
for the six months ended May 31, 1997. Operating cash flows were
a negative $2,743,000 and $406,000 for fiscal 1995 and fiscal
1994. At May 31, 1996, the Company had an accumulated deficit of
$ 21.7 million. There can be no assurance that the Company will
operate profitably in the future.
Shift in Product Focus. In fiscal 1995 and continuing in
fiscal 1996, the Company has shifted its emphasis to developing
new products and marketing programs for its products in the
fashion, utility, and craft lines and for the premium and
advertising specialty markets to increase sales and lessen its
dependence on sports licensed products. In 1997, the Company is
continuing its efforts to lessen its dependence on sports
licensed products through its development of products to be
distributed under its Warner Bros. and Walt Disney licenses.
There can be no assurance that the Company will be successful in
its attempts to increase sales of other products, and the shift
in the Company's emphasis could result in a decrease in sales of
sports licensed products.
Dependence upon Contractual Relationships and Certain
Products. The Company's sales are dependent to some degree upon
the contractual relationships it establishes with licensors to
exploit, on a generally non-exclusive basis, proprietary rights
in well known logos, marks and characters, as well as league and
team logos and marks licensed by Major League Baseball, the
National Football League, the NBA, the National Hockey League,
and major colleges and universities. The sale of products
licensed from professional sports leagues and colleges and
universities represented 39.9% of the Company's net sales from
continuing operations in fiscal 1996. Although the Company
believes it will continue to meet all of its material obligations
under such license agreements, there can be no assurance that
such licensing rights will continue or will be available for
renewal on favorable terms to the Company. The Company's failure
to obtain new licenses or extensions on current licenses or the
Company's inability to sell such products, for any reason, could
have a significant negative impact on the Company's business.
See "Business - Products" and "Business - Licensing Agreements."
Need for Additional Financing. The Company's principal
working capital financing is derived from a factoring agreement
with Riviera Finance. Under the agreement, Riviera Finance
advances 80% of the balance of assigned accounts receivable of
Innovo and Thimble Square, up to a maximum of $1,000,000. The
Company also has certain short-term financing collateralized by
the common stock of its NP International subsidiary. However,
the Company has been, to date, unable to obtain more traditional
asset based financing, including financing for and collateralized
by its inventory.
To pursue its business plans, the Company needs to obtain a
credit facility having appropriate borrowing rates and limits,
either by obtaining a new facility to replace the current
agreement with Riviera Finance, or by negotiating revised terms
with Riviera Finance. Should the Company be unable to obtain
such a credit facility, it might not have the working capital
necessary to finance the inventory and accounts receivable
investments called for by its present or anticipated future
levels of sales. In that case, the Company might have to forgo
sales opportunities, and could lose customers as a result.
Substantially all of the Company's assets are pledged to secure
various borrowings. To the extent the Company's assets continue
to be pledged to secure outstanding indebtedness, such assets are
unavailable to secure additional debt financing, which may
adversely affect the Company's ability to borrow in the future.
Accordingly, there is no assurance that the Company will be able
to secure such financing. The Company's failure to obtain such
additional financing could materially adversely affect the
Company's operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Seasonality. The Company's business is seasonal due to the
nature of many of the Company's products, which are subject to
highest consumer demand in the late summer, early fall and
holiday seasons. The Company will typically ship the majority of
its orders during the second half of its fiscal year. As a
result, the Company's cash flow is not consistent throughout the
fiscal year, and the Company's annual earnings have been and are
expected to continue to be dependent on the results of operations
for the third and fourth quarters of its fiscal year.
Unfavorable economic conditions affecting retailers during the
fall and holiday seasons in any year could have a material
adverse effect on the Company's results of operations for the
year. The Company is likely to experience periods of negative
cash flow throughout each year and a drop-off in business
commencing each December. There can be no assurance that the
effect of such seasonality will diminish in the future. See
"Managements Discussion and Analysis of Financial Condition and
Results of Operations - Seasonality."
Dependence on Key Management. The Company is substantially
dependent upon the continued employment of Patricia Anderson-
Lasko, its Chairman of the Board, President and Chief Executive
Officer. Ms. Anderson-Lasko is currently employed under a four-
year employment contract with the Company, which expires on
October 31, 1997 but which is terminable by either the Company or
Ms. Anderson-Lasko for cause. Although Innovo currently
maintains $3,000,000 in the aggregate of "key-man" life insurance
on the life of Ms. Anderson-Lasko, $950,000 of this key-man
insurance was pledged to collateralize certain loans to the
Company. Pursuant to certain undertakings given to the United
States Small Business Administration ("SBA") in connection with
the SBA's guarantee of a $950,000 loan to Leasall by First
Independent Bank, Gallatin, Tennessee, the Company is prohibited
from purchasing any additional key-man insurance on Ms. Anderson-
Lasko without the written consent of the SBA. The loss of this
key executive could materially adversely affect the Company's
operations.
Competition. The marketplace for the Company's products is
highly competitive, and the Company is not a dominant factor in
any of the markets in which it competes. The Company competes
with other manufacturers, importers and distributors of textile
products and casual apparel. Although the manufacture and sale
of sports logoed products such as the Company's requires a
license, the Company's licenses are non-exclusive and the Company
does not have any control over the granting of additional
licenses by the licensing entities. Other manufacturers,
importers and distributors with greater financial, research,
staff and marketing resources than the Company could decide to
enter the business of manufacturing, importing and distributing
competitive products. There is no assurance that the Company
could compete effectively with such competitors. The Company's
ability to sell its products is dependent upon the price and
quality of its products and its ability to meet its customers'
schedules. See "Business - Competition."
Suppliers. The raw materials for the products produced
domestically by the Company are generally purchased from a small
number of suppliers. During fiscal 1996 the Company purchased
the majority of each type of raw material it uses from one or two
suppliers. The Company has no long-term supply agreement with
any supplier of domestic raw materials. The Company believes
that alternative sources of supplies are available in the United
States for its unfinished items. However, in the event the
Company was unable to obtain alternative sources of supplies on
comparable terms, the Company's financial condition could be
materially adversely affected.
The sport and gym bags and backpacks marketed overseas by NP
International are generally obtained from overseas manufacturers
in order to reduce the cost of obtaining these more labor
intensive products. The independent overseas contractors that
manufacture these products are responsible for obtaining the
necessary supply of raw materials and for manufacturing the
products to the Company's specifications. The Company generally
uses one independent contractor to fulfill all of its
requirements in order to maximize its control over production
quality and scheduling. Although the Company uses this, and
other methods, to reduce the risk that the independent contractor
will fail to meet the Company's requirements, the use of
independent overseas contractors does reduce the Company's
control over production and delivery and exposes the Company to
the other usual risks of sourcing products abroad. The Company
does not have any long-term supply agreements with independent
overseas contractors, but believes that there are a number of
contractors that could fulfill the Company's requirements.
The Company has generally utilized overseas contractors that
utilize production facilities located in China. As a result, the
products manufactured for the Company are subject to export
quotas and other restrictions imposed by the Chinese government.
To date the Company has not been adversely affected by such
restrictions; however, there can be no assurance that future
changes in such restrictions by the Chinese government would not
adversely affect the Company, even if only temporarily while the
Company shifted production to other countries or regions such as
Korea, Taiwan, or Latin America. See "Business - Manufacturing."
Availability of Labor. During fiscal 1996, Innovo
experienced an inability to obtain sufficient production labor
to, at times, meet the demand and customer delivery requirements
for its domestically produced products and, as a result, the
Company was unable to accept certain orders and experienced
production inefficiencies and excess overtime costs. In October
1996, the Company obtained a three-year lease on a sewing
facility in Red Boiling Springs, Tennessee which, in November
1996, began to produce Innovo products. The geographical
location of Red Boiling Springs, relative to Innovo's other
production facility in Springfield, Tennessee, is such that the
Red Boiling Springs facility draws its product labor from a
different labor pool while production at the two facilities can
be overseen by a single group of senior management. Accordingly,
the Company believes that the addition of the Red Boiling Springs
facility will reduce the Company's exposure to labor shortages,
which will favorably impact sales and production costs. However,
there can be no assurance that the Company will not again be
adversely affected by labor shortages in the future. See
"Business - Manufacturing."
Litigation. In August 1994, the trial court granted the
Company's motion for partial summary judgement and directed
verdicts with respect to certain of Tedesco's claims, including
those concerning his ownership of an interest in the "E.A.R.T.H."
trademark, or the existence of a partnership with the Company to
jointly own the trademark, and the state court jury returned
findings in favor of the Company on the remainder of the
plaintiff's claims concerning the trademark as well as his claims
for wrongful termination, fraud and conspiracy. However, the
jury awarded Tedesco approximately $700,000, of which $50,000 was
assessed against Innovo Group and $650,000 was assessed against
Innovo, including pre-judgement interest and attorney's fees, on
the theory that he was entitled to have received certain
employment benefits, including employee stock awards, during, and
after, the term of his employment. The Company appealed the
jury's award, and in August 1996 (as revised in an amended
October 1996 opinion), the appeals court reversed approximately
$350,000 of the initial judgement as not supported by the
evidence or improper as a matter of law. As a result, the
judgement, including post-judgement interest through August 1996,
has been reduced to $420,000. In addition, the appeals court
ruled that the trial court erred in not submitting to the jury
the questions of the Company's counterclaim of breach of
fiduciary duty by Tedesco, ruling that the trial record indicated
that there was evidence of such breach and damages therefrom.
The appeals court remanded the case to the trial court for trial
of the Company's claims of breach of fiduciary duty by Tedesco.
The Company is filing motions with the trial court for the
scheduling of the ordered trial on its claims against the Tedesco
award. The Company has also appealed to the Texas Supreme Court
the issue of the appeal courts' decision to uphold $200,000 of
the original judgement (which accounts for $340,000 of the August
1996 $420,000 amount). In connection with its appeal the Company
has pledged as an appeal bond 200,000 shares of its unissued
common stock.
The Company believes that its appeal arguments, and its
fiduciary duty claims against Tedesco, are meritorious. However,
there can be no assurance that the Company's appeal, or its
claims against Tedesco, will be successful, or that alternatively
the litigation can be settled on terms manageable to the Company.
The need to immediately satisfy the plaintiff's award in the
event the Company's appeal and claims are unsuccessful would have
a material adverse impact on the Company.
In May 1996, a foreign manufacturer that had previously
supplied imported products to NASCO Products filed suit against
NASCO Products asserting that it is owed approximately $300,000
in excess of the amount presently recorded by NASCO Products
(Pannoy Enterprises Corporation v. NASCO Products, Inc., Case No.
12948, in the Chancery Court for Robertson County, Tennessee).
NASCO Products and the supplier had previously reached an
agreement on the balance owed (which is the balance recorded) ,
as well as an arrangement under which the schedule for NASCO
Products' payments reducing the balance would be based on future
purchases from that supplier of products distributed
internationally by NP International. The Company has denied the
supplier's claims, and has asserted affirmative defenses,
including the supplier's late shipment of the original products,
and the supplier's refusal to accept and fill NP International
orders on terms contained in the agreement. NASCO Products sold
its operations in July 1995, and that company currently has no
operations or unencumbered assets. Nonetheless, there can be no
assurance that an adverse outcome of the litigation would not
have a material adverse effect on the Company. See "Legal
Proceedings."
Voting Control by Existing Stockholders; Anti-takeover
Provisions. The Company's executive officers, directors and its
affiliates beneficially own or have voting control of
approximately 15.5% of the issued and outstanding common stock.
Because of their stock ownership and/or positions with the
Company, these persons have been and will continue to be in a
position to greatly influence the election of directors and thus
control of the affairs of the Company. Additionally, the
Company's by-laws limit the ability of stockholders to call a
meeting of the stockholders. The Company's employment contract
with its chief executive officer contains provisions that could
require the payment of significant compensation in the event
employment terminates after a change in control that is not
approved by the board of directors, and the price at which the
Company could be required to repurchase certain shares of its
common stock would significantly increase in the event of such a
change in control. Further, the Certificate of Incorporation
authorizes the board of directors to issue additional shares of
common stock, up to the authorized capitalization of 70 million
shares, without further stockholder approval. The issuance of
common stock may have the effect of delaying, deferring or
preventing a change in control of the Company and may adversely
affect the voting and other rights of the holders of common
stock. These contractual obligations and by-law provisions, and
any issuance of common stock, could have the effect of
discouraging a takeover of the Company, and therefore may
adversely affect the market price and liquidity of the Company's
securities. The Company is also subject to a Delaware statute
regulating business combinations that may hinder or delay a
change in control of the Company. The anti-takeover provisions
of the Delaware statute may adversely affect the market price and
liquidity of the Company's securities.
Lack of Protection of Intellectual Property. The Company
possesses certain proprietary information with respect to which
it currently has no patent, copyright or trademark protection.
With the exception of Ms. Anderson-Lasko, none of the Company's
executive officers, directors or employees has executed any
confidentiality or noncompete agreement with the Company. There
can be no assurance that the Company will be successful in
maintaining the confidentiality of its proprietary information or
barring others from exploitation of intellectual property rights
claimed by the Company. If such proprietary information were to
be disclosed, it could have a materially adverse effect on the
Company's business.
Dividends. The Company has not paid any dividends nor does
it anticipate paying any dividends on its Common Stock in the
foreseeable future. It is the Company's present policy to retain
earnings, if any, for use in the development and expansion of the
Company's business.
Shares Eligible for Future Sale. Of the 37,311,442 shares
of common stock of the Company outstanding as of the date of the
Agreement, 2,758,832 shares are restricted securities, as that
term is defined in Rule 144 promulgated under the Securities Act,
and an additional 284,007 shares are owned by affiliates of the
Company. Absent registration under the Securities Act, the sale
of such 3,042,839 shares is subject to Rule 144, as promulgated
under the Securities Act. In general, under Rule 144, subject to
the satisfaction of certain other conditions, a person, including
an affiliate of the Company, who has beneficially owned
restricted shares of common stock for at least one year is
entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the total number
of outstanding shares of the same class, or, if the common stock
is quoted on NASDAQ, the average weekly trading volume during the
four calendar weeks preceding the sale. A person who has not
been an affiliate of the Company for at least three months
immediately preceding the sale and who has beneficially owned the
shares of common stock for at least two years is entitled to sell
such shares under Rule 144 without regard to any of the volume
limitations described above. Additionally, (i) the holders of
1,220,588 warrants for the purchase of shares of common stock
hold registration rights which entitle them to certain demand and
"piggy-back" registration of the shares issuable upon the
exercise of such warrants, (ii) the holders of 2,600,000
restricted shares are entitled to have the Company use its best
efforts to file, before September 6, 1997, a registration
statement with respect to the reoffer and resale of those shares,
and (iii) the Company has secured its appeal bond in the Tedesco
litigation with 200,000 shares of its common stock which are
freely tradeable and which the court or the plaintiff would have
the right to sell if the Company losses its appeal and is thus
unable to satisfy the judgement through other means, or otherwise
defaults on the bond. No assurance can be made as to the effect,
if any, that sales of shares of common stock or the availability
of such shares for sale will have on market prices prevailing
from time to time. Nevertheless, the possibility that
substantial amounts of common stock may be sold in the public
market may adversely affect prevailing market prices for the
Company's securities and could impair the Company's ability to
raise capital in the future through the sale of equity
securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Reorganization of
Spirco," "Legal Proceedings," and "Shares Eligible for Future
Sale."
Possible Delisting of Securities from NASDAQ; Risks of Low-
Priced Stocks. The Company's common stock is currently listed on
NASDAQ SmallCap Market. Under the rules of the NASDAQ, a company
must, among other things, maintain total assets of $2 million,
stockholders' equity of $1 million, a minimum bid price of $1 (or
alternatively stockholders' equity of $2 million), and must
remain current in the filing of reports under the Exchange Act in
order to continue trading on the NASDAQ SmallCap Market.
Between March 1995 and July 1995, the Company's common stock
traded on the NASDAQ SmallCap Market pursuant to a temporary
exemption from the stockholders' equity, bid price and current
Exchange Act reporting criteria. In November 1995, the Company's
common stock traded on the NASDAQ SmallCap Market pursuant to
temporary exemptions granted while the Company took steps to
comply with the stockholders' equity requirement, which was met
when the Company's stockholders' equity increased to above $1
million during the first quarter of fiscal 1996. Additionally,
although the Company's common stock generally traded at prices
below $1.00 between November 1995 and May 1996, and has generally
traded at prices below $1.00 since July 1996, the Company has
been able to maintain its NASDAQ SmallCap listing by complying
with the alternative $2 million stockholders' equity requirement.
However, in November 1996, the NASDAQ proposed changes to its
listing standards that would, among other things, eliminate the
$2 million stockholders' equity alternative.
If the Company's stockholders' equity were to fall below $2
million due to operating losses or for other reasons, or if the
NASDAQ adopts final rules which eliminate the $2 million
stockholders' equity alternative, and the Company's common stock
was not trading at prices above $1.00, the Company could face
delisting unless it took action to increase the minimum bid price
of its common stock to $1.00, or, if the alternative standard is
still available, to increase its stockholders' equity to above $2
million. Although the Company will continually use its best
efforts to maintain its NASDAQ SmallCap listing, there can be no
assurance that it will be able to do so. If, in the future, the
Company is unable to satisfy the NASDAQ criteria for maintaining
listing, its securities would be subject to being delisted, and
trading, if any, in the Company's securities would thereafter be
conducted in the over-the-counter market in the so-called "pink
sheets" or on the National Association of Securities Dealers,
Inc. ("NASD") "Electronic Bulletin Board". As a consequence of
any such delisting, a stockholder would likely find it more
difficult to dispose of, or to obtain accurate quotations as to
the prices, of the Company's common stock.
Penny Stock Regulation. The Securities and Exchange
Commission (the "Commission") has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny
stocks". Penny stocks generally are equity securities with a
price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ,
provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or
system, or securities of issuers that meet certain net asset or
average revenue tests). The penny stock rules require a broker-
dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure
document prepared by the Commission that provides information
about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer must also provide the customer
with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market
value of each penny stock held in the customer's account. The
bid and offer quotations and broker-dealer and salesperson
compensation information must be given to the customer orally or
in writing prior to effecting the transaction and must be given
in writing before or with the customer's confirmation. In
addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from such
rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock rules.
If the Company's securities become subject to the penny stock
rules, the holders of its securities may find it more difficult
to sell such securities.
The Company believes that its common stock is outside the
definitional scope of a penny stock because it is listed on the
NASDAQ, and because the Company's net revenues over the last
three years have exceeded the definitional threshold. However,
in the event the common stock were subsequently to become
characterized as a penny stock, the market liquidity for the
Company's securities could be severely and adversely affected.
In such event, the regulations on penny stocks could limit the
ability of broker-dealers to sell the Company's securities, and,
thus, the ability of holders to sell their securities in the
secondary market.
Board of Directors Ability to Authorize a Reverse Stock
Split. Pursuant to a resolution approved by the Company's
stockholders on July 25, 1994, the board of directors has the
authority to effect, at its discretion, one or more reverse
splits of the number of shares of common stock authorized, issued
and outstanding. Pursuant to that resolution on June 8, 1995 the
board of directors elected to effect a one-for-ten reverse stock
split, which was effective June 19, 1995. A reverse stock split
effected pursuant to the resolution could have the effect of
reducing the numbers of record and beneficial owners of the
Company's common stock, since any stockholder that, based on the
reverse split ratio selected by the board of directors, was
entitled to receive less than one share would instead receive a
cash payment for the fractional share, and would cease to be a
stockholder of the Company. Under the rules of the Commission, a
Company may suspend its obligation to file periodic and other
reports under the Exchange Act if the number of holders of record
of its common stock falls below 300. Although the June 19, 1995
reverse stock split did not, and the Company currently believes
that it is unlikely that any future reverse stock split effected
pursuant to the proposal would, reduce the number of record
holders to below 300, and although the board of directors
presently would not plan to discontinue filing reports under the
Exchange Act even if the number of record holders did fall below
300 for so long as there continued to be a public market for the
common stock, if a reverse stock split effected pursuant to the
resolution did have such an effect, the board of directors could,
at its discretion and without further stockholder action, elect
to suspend filing reports under the Exchange Act. A suspension
of the Company's reporting under the Exchange Act would decrease
the amount of information about the Company available to current
investors, and would exempt the Company from the Commission's
requirements concerning the form of proxy solicitation materials.
Additionally, it would result in the delisting of the Company's
common stock from the NASDAQ, since the listing requirements of
the National Association of Securities Dealers, Inc. ("NASD")
require, among other things, the filing of reports under the
Exchange Act. The NASD also requires, among other things, that
there be at least 300 beneficial owners, and 100,000 publicly
held shares, of any class of common stock traded on the NASDAQ.
If the Company's common stock was delisted from the NASDAQ, it
could continue to trade in the over-the-counter market; however,
such market is generally less liquid than the NASDAQ, and the
value and liquidity of a stockholder's investment could be
adversely affected. However, as previously indicated, the board
of directors would not currently plan to discontinue filing
reports under the Exchange Act. Additionally, the Company
currently believes that it is unlikely that a reverse stock split
effected pursuant to this resolution would cause the Company to
no longer meet the other NASDAQ listing requirements described
above.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") has been entered
into as of the 13th day of August, 1997 (the "Effective Date"), by
and between INNOVO GROUP INC., a Delaware corporation with
principal offices in Springfield, Tennessee ("Employer"), and L.E.
SMITH, an individual and resident of the State of Tennessee
("Employee").
Recitals
WHEREAS, Employer has entered into a Letter of Intent dated
July 29, 1997 ("Letter of Intent"), and a Stock Purchase Agreement
dated August 13, 1997 (the "Stock Purchase Agreement"), whereby it
has agreed to sell certain securities of Employer to Employee and
certain other individuals;
WHEREAS, as a condition of the Stock Purchase Agreement, the
Employer agreed to enter into employment agreements with certain
persons, including Employee;
WHEREAS, Employer desires to obtain the services of Employee,
and Employee desires to secure employment from the Employer upon
the following terms and conditions;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the parties agree as follows:
1. Employment. Employer hereby employs Employee as Chief
Executive Officer of Employer, and Employee hereby accepts and
agrees to such employment, pursuant and subject to the orders,
advice and direction of the Board of Directors of Employer.
Employee shall perform such other duties as are customarily
performed by one holding such position in other, same or similar
businesses or enterprises as that engaged in by Employer. Employee
also shall render such other and unrelated services and duties as
may be assigned to him from time to time by the Board of Directors
of Employer. Employee shall report directly to the Board of
Directors of Employer.
2. Best Efforts of Employee. Employee agrees that he will
at all times faithfully, industriously, and to the best of his
ability, experience and talents, perform all of the duties that may
be required of and from him pursuant to the express and implicit
terms hereof, to the reasonable satisfaction of Employer, and that
he will devote such portion of his professional time as he deems
appropriate to his duties. Such duties shall be rendered at the
principal offices of Employer as is hereinabove set forth, and at
such other place or places as Employer shall in good faith require
or as the interest, needs, business or opportunity of Employer
shall require.
3. Term of Employment. The initial term of employment (the
"Initial Term") of Employee by Employer shall be for a period of
two (2) years, commencing August 14, 1997 (the "Commencement Date")
and terminating August 14, 1999 (the "Expiration Date"), and
thereafter renewing for successive one (1) year terms, each such
term to commence on the successive anniversaries of the Expiration
Date, unless either party shall give written notice of intention to
terminate at least ninety (90) days prior to the Expiration Date or
prior to expiration of any such successive term, and subject to
earlier termination as provided in Section 5 of this Agreement.
4. Compensation of Employee. Employer shall pay Employee,
and Employee shall accept from Employer in return for his services
and the covenants contained herein, the following:
A. Base Compensation. During the term of employment of
Employee, Employer shall pay Employee, and Employee shall
accept from Employer, in payment of Employee's services
hereunder, base compensation of Thirty Thousand and 0/100
Dollars ($30,000.00) per year (less applicable payroll taxes),
payable monthly in accordance with the standard practices of
the Employer ("Base Compensation").
B. Bonus. In addition, Employee may also be paid, on
an annual or other basis, such bonus or other compensation as
the Board of Directors in its sole discretion may determine to
be reasonable compensation for Employee, considering the
performance of Employee, the business and financial condition
of the Employer and the operating results achieved.
C. Non-Qualified Stock Options. Immediately upon the
closing of the Stock Purchase Agreement, Employee is hereby
granted options (the "Options") to purchase One Million Six
Hundred Thousand (1,600,000) shares of common stock (the
"Stock") of Employer at $0.33125 per share (the "Exercise
Price"). The Options shall vest and become exercisable in
twenty-four (24) equal monthly installments over the Initial
Term, unless the employment of Employee is terminated before
the Expiration Date, whether pursuant to Section 5 of this
Agreement, by resignation or voluntary termination, or
otherwise, in which event Employee (or his personal
representative) is only entitled to exercise such Options that
have vested each month on the first day of each such month
commencing with the month of the Effective Date of this
Agreement, on or before the date of termination of his
employment and the remaining, unvested Options shall be deemed
forfeited. Employee (or his personal representative) must
exercise the Options by delivery of a written instrument to
Employer, together with payment in cash of the Exercise Price
for such number of Options as are being exercised, by August
31, 2002. Notwithstanding the foregoing, any then unvested
and unforfeited Options shall vest and become fully
exercisable if either of the following events occur before the
Expiration Date and before any termination of employment of
Employee: (i) in the event the publicly traded price of the
Stock equals or exceeds One and 0/100 Dollars ($1.00) per
share at any time prior to the exercise of any such Options;
or (ii) in the event of a Change in Control of Employer that
is not approved by the then acting Board of Directors of
Employer.
1. Change in Control. For purposes of this
Section 4(C), "Change in Control" shall mean an event not
approved by the then acting Board of Directors of
Employer which:
(a) the Employer effects any sale, lease,
assignment, transfer, or other conveyance of all or
substantially all of the assets of the Employer; or
(b) the Employer effects any consolidation or
merger involving the Employer; provided, however,
that in the event of a merger of any entity into
the Employer or the acquisition by the Employer of
such entity, no Change in Control shall occur so
long as (a) the Employer is the surviving entity,
and (b) the holders of voting stock of the Employer
immediately prior to such merger or acquisition are
the holders of not less than a majority of the
voting stock of the Employer immediately following
such merger or acquisition; or
(c) any person or group of persons acquires
not less than twenty percent (20%) of the
Employer's voting securities without prior approval
of the Employer's Board of Directors; or
(d) the Board of Directors of the Employer as
of the closing of the Stock Purchase Agreement
(including any new members elected or reelected in
the ordinary course of business at an annual or
special shareholders meeting) cease to comprise a
majority of the Board of Directors of the Employer.
2. Anti-Dilution Adjustment. For purposes of
Section 4(C), in the event the Stock shall be split or
divided into a greater number of shares of Stock, the
Options in effect immediately prior to each such split or
division, simultaneously with the effectiveness of such
split or division, shall be proportionately increased,
and the Exercise Price shall be proportionally decreased.
In the event of a reverse split or combination of the
Stock into a smaller number of shares of Stock, the
Options in effect immediately prior to each such reverse
split or combination, simultaneously with the
effectiveness of such reverse split or combination, shall
be proportionately decreased, and the Exercise Price
shall be proportionally increased. This Section and the
provisions contained herein will require the prior
approval of the Board of Directors of Employer.
D. Employee Benefits. Employee shall be entitled to
receive the normal health care benefits and such other
employment benefits as are generally available to senior
officers of Employer.
5. Termination. Employer may terminate the employment of
Employee at any time with "Cause." For the purposes hereof, the
term "Cause" shall mean, without limitation: the conviction of
Employee of a felony, or a crime of moral turpitude designated as
such under the laws of the State of Tennessee or the applicable
jurisdiction; a material omission or misstatement in the
information provided to the Employer during negotiations between
the parties prior to the execution of the Letter of Intent and
prior to the closing of the transactions contemplated by the Letter
of Intent; the failure of the Employee to carry out the reasonable
written instructions of the Board of Directors of Employer after
the Employee has received written notice of such instructions and
a reasonable opportunity to cure any such failure; the inability of
Employee, through sickness or other incapacity, to perform his
duties under this Agreement for a period in excess of ninety (90)
substantially consecutive days; or the determination by a court or
arbitrator of competent jurisdiction that a material term of this
Agreement has been violated. The Employee's employment by Employer
may also be terminated without Cause by either party upon sixty
(60) days' prior written notice to the other. In the event
Employee's employment is so terminated with or without Cause,
Employer shall have no obligation to make any further payments to
Employee, and Employee shall forfeit and lose his right to receive
any other form of compensation or benefits; provided, however,
Employee shall be entitled to: (i) all Base Compensation earned
through the date of termination; (ii) all Options that have vested
on or before the date of termination of employment and that by
their terms are exercisable thereafter; and (iii) a termination
payment of Thirty Thousand Dollars ($30,000.00), payable in equal
monthly installments commencing one month from the date of
termination and ending one year from the date of termination.
6. Restrictive Covenants. Employee covenants and agrees
that, during the term of his employment with Employer and for a
period of two (2) years thereafter, he shall be subject to the
following restrictions (the "Restrictive Covenants"):
A. Competition. Employee will not own or participate
in the ownership of any business that manufactures products
that compete in whole or in part with the products of the
Employer or its affiliates, anywhere within the continental
United States of America; provided, however, that Employee may
purchase or otherwise acquire up to (but not more than) one
percent (1%) of any class of securities of any enterprise (but
without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934.
B. Employee Solicitation. Employee will not in any
way, directly or indirectly, for himself or on behalf of or in
conjunction with any person or business entity other than the
Employer, solicit or attempt to solicit any officers,
directors, employees or agents of the Employer to leave,
resign or terminate their employment with the Employer.
C. Confidential Information.
(1) Definition. For purposes of this Agreement,
the term "Confidential Information" shall mean
information that the Employer owns or possesses, that it
uses or is potentially useful in its business, that it
treats as proprietary, private, or confidential, and that
is not generally known to the public, including, but not
limited to, information relating to Employer's existing
and contemplated businesses, sales, company financial
information, products, technology, manufacturing
techniques, engineering processes, chemical formulae,
marketing, sales methods, technical service expertise,
employees, lists of actual or potential customers, actual
and potential customer usage and requirements, new and
existing programs or services, prices and terms, pricing
strategy, sources of supplies and materials, operating
and other cost data, trade secrets, inventions, patent
applications, and other proprietary information as may
exist or be developed from time to time by the Employer,
or its affiliates.
(2) Information Access and Disclosure. Employee
acknowledges that he shall occupy a position of trust and
confidence with the Employer and will have access to and
may develop Confidential Information of actual or
potential value to or otherwise useful to Employer.
Employee shall hold in strictest confidence and not
disclose, without express written authorization from the
Board of Directors of Employer, to any person or entity,
other than the Employer and its affiliates and their
officers and agents, or use in whole or in part any
Confidential Information that Employee may acquire while
employed by Employer.
(3) Employer Property Return. At the termination
of Employee's employment with Employer, or at any other
time that Employer may request, Employee shall promptly
deliver to Employer all memoranda, notes, records,
reports, documents, sketches, plans, models,
compositions, formulations, computer data, and other
tangible items made or compiled by Employee or in
Employee's possession concerning or relating to the
Employer or its affiliates and their businesses,
operations or affairs and any Confidential Information
that the Employee may possess or have under his control
("Company Property").
7. Remedies. Employee acknowledges that any violation of
any of the Restrictive Covenants contained in Section 6 of this
Agreement will cause continuing and irreparable harm to the
Employer for which monetary damages would not be adequate
compensation. Employee, therefore, agrees that, if he violates or
threatens to violate any of these restrictive covenants, the
Employer shall be entitled, in addition to any other legal or
equitable remedies available to it, to (a) entry of an injunction,
temporary and permanent, enjoining such breach and securing
specific performance of this Agreement, including requiring
Employee to return all Company Property; (b) monetary damages,
insofar as they can be determined; (c) forfeiture of all
compensation paid by Employer or otherwise owing to Employee under
this Agreement; and (d) recovery of Employer's reasonable
attorney's fees and costs of prosecuting any such action. The
parties waive the right to a jury trial with respect to any
controversy or claim between or among the parties hereto, including
but not limited to those arising out of or relating to this
Agreement, as well as any claim based on or arising from an alleged
tort.
8. Severability. Whenever possible, each provision and term
of this Agreement will be interpreted in a manner to be effective
and valid; however, if any provision or term of this Agreement is
held to be prohibited or invalid, then such provision or term will
be ineffective only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining
provisions or terms of this Agreement. More specifically, Employee
acknowledges that the restrictive covenants contained in Section 6
of this Agreement are reasonable in scope, time and geographic
area; however, if any of these covenants are held to be
unreasonable, arbitrary, or against public policy, such covenants
will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic
area, will be effective, binding and enforceable against the
Employee.
9. Successors and Assigns. This Agreement will be binding
upon the Employer and the Employee and will inure to the benefit of
the Employer and its affiliates, successors and assigns, as well as
to the Employee and his heirs. This Agreement is not assignable by
the Employee, except upon the written agreement of both parties.
10. Waiver. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement
will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege
will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing, signed by the
other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given;
and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice
or demand as provided in this Agreement.
11. Governing Law. This Agreement and all performance
hereunder shall be construed and governed by the laws of the State
of Tennessee, without regard to conflicts of laws principles.
12. Construction. The headings of Sections in this Agreement
are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or
"Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms. All
references herein to the word "and" shall mean "and/or," and all
references herein to the word "or" shall mean "and/or." The
parties, in acknowledgement that all of them have been represented
by counsel and that this Agreement has been carefully negotiated,
agree that the construction and interpretation of this Agreement
and other documents entered into in connection herewith shall not
be affected by the identity of the party or parties under whose
direction or at whose expense this Agreement and such documents
were prepared or drafted.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of
this Agreement and supersedes all prior written and oral agreements
and understandings between Employer and Employee with respect to
the subject matter of this Agreement. This Agreement may not be
amended except by a written agreement executed by the party to be
charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
INNOVO GROUP INC.
By: /s/Patricia Anderson-Lasko
_________________________
Patricia Anderson-Lasko
Title: President
/s/L. E. Smith
_________________________
L. E. SMITH
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") has been entered
into as of the 13th day of August, 1997 (the "Effective Date"), by
and between INNOVO GROUP INC., a Delaware corporation with
principal offices in Springfield, Tennessee ("Employer"), and DAN
PAGE, an individual and resident of the State of Tennessee
("Employee").
Recitals
WHEREAS, Employer has entered into a Letter of Intent dated
July 29, 1997 ("Letter of Intent"), and a Stock Purchase Agreement
dated August 13th, 1997 (the "Stock Purchase Agreement"), whereby
it has agreed to sell certain securities of Employer to Employee
and certain other individuals;
WHEREAS, as a condition of the Stock Purchase Agreement, the
Employer agreed to enter into employment agreements with certain
persons, including Employee;
WHEREAS, Employer desires to obtain the services of Employee,
and Employee desires to secure employment from the Employer upon
the following terms and conditions;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the parties agree as follows:
1. Employment. Employer hereby employs Employee as Vice
President and Chief Operating Officer, and Employee hereby accepts
and agrees to such employment, pursuant and subject to the orders,
advice and direction of the President, Chief Executive Officer and
Board of Directors of Employer. Employee shall perform such other
duties as are customarily performed by one holding such position in
other, same or similar businesses or enterprises as that engaged in
by Employer. Employee also shall render such other and unrelated
services and duties as may be assigned to him from time to time by
the President, Chief Executive Officer or Board of Directors of
Employer. Employee shall report directly to the Chief Executive
Officer of Employer.
2. Best Efforts of Employee. Employee agrees that he will
at all times faithfully, industriously, and to the best of his
ability, experience and talents, perform all of the duties that may
be required of and from him pursuant to the express and implicit
terms hereof, to the reasonable satisfaction of Employer, and that
he will devote such portion of his professional time as he deems
appropriate to his duties. Such duties shall be rendered at the
principal offices of Employer as is hereinabove set forth, and at
such other place or places as Employer shall in good faith require
or as the interest, needs, business or opportunity of Employer
shall require.
3. Term of Employment. The initial term of employment (the
"Initial Term") of Employee by Employer shall be for a period of
two (2) years, commencing August 14, 1997 (the "Commencement Date")
and terminating August 14, 1999 (the "Expiration Date"), and
thereafter renewing for successive one (1) year terms, each such
term to commence on the successive anniversaries of the Expiration
Date, unless either party shall give written notice of intention to
terminate at least ninety (90) days prior to the Expiration Date or
prior to expiration of any such successive term, and subject to
earlier termination as provided in Section 5 of this Agreement.
4. Compensation of Employee. Employer shall pay Employee,
and Employee shall accept from Employer in return for his services
and the covenants contained herein, the following:
A. Base Compensation. During the term of employment of
Employee, Employer shall pay Employee, and Employee shall
accept from Employer, in payment of Employee's services
hereunder, base compensation of Thirty Thousand and 0/100
Dollars ($30,000.00) per year (less applicable payroll taxes),
payable monthly in accordance with the standard practices of
the Employer ("Base Compensation").
B. Bonus. In addition, Employee may also be paid, on
an annual or other basis, such bonus or other compensation as
the Board of Directors in its sole discretion may determine to
be reasonable compensation for Employee, considering the
performance of Employee, the business and financial condition
of the Employer and the operating results achieved.
C. Non-Qualified Stock Options. Immediately upon the
closing of the Stock Purchase Agreement, Employee is hereby
granted options (the "Options") to purchase One Million Two
Hundred Thousand (1,200,000) shares of common stock (the
"Stock") of Employer at $0.33125 per share (the "Exercise
Price"). The Options shall vest and become exercisable in
twenty-four (24) equal monthly installments over the Initial
Term, unless the employment of Employee is terminated before
the Expiration Date, whether pursuant to Section 5 of this
Agreement, by resignation or voluntary termination, or
otherwise, in which event Employee (or his personal
representative) is only entitled to exercise such Options that
have vested each month on the first day of each such month
commencing with the month of the Effective Date of this
Agreement, on or before the date of termination of his
employment and the remaining, unvested Options shall be deemed
forfeited. Employee (or his personal representative) must
exercise the Options by delivery of a written instrument to
Employer, together with payment in cash of the Exercise Price
for such number of Options as are being exercised, by August
31, 2002. Notwithstanding the foregoing, any then unvested
and unforfeited Options shall vest and become fully
exercisable if either of the following events occur before the
Expiration Date and before any termination of employment of
Employee: (i) in the event the publicly traded price of the
Stock equals or exceeds One and 0/100 Dollars ($1.00) per
share at any time prior to the exercise of any such Options;
or (ii) in the event of a Change in Control of Employer that
is not approved by the then acting Board of Directors of
Employer.
1. Change in Control. For purposes of this
Section 4(C), "Change in Control" shall mean an event not
approved by the then acting Board of Directors of
Employer which:
(a) the Employer effects any sale, lease,
assignment, transfer, or other conveyance of all or
substantially all of the assets of the Employer; or
(b) the Employer effects any consolidation or
merger involving the Employer; provided, however,
that in the event of a merger of any entity into
the Employer or the acquisition by the Employer of
such entity, no Change in Control shall occur so
long as (a) the Employer is the surviving entity,
and (b) the holders of voting stock of the Employer
immediately prior to such merger or acquisition are
the holders of not less than a majority of the
voting stock of the Employer immediately following
such merger or acquisition; or
(c) any person or group of persons acquires
not less than twenty percent (20%) of the
Employer's voting securities without prior approval
of the Employer's Board of Directors; or
(d) the Board of Directors of the Employer as
of the closing of the Stock Purchase Agreement
(including any new members elected or reelected in
the ordinary course of business at an annual or
special shareholders meeting) cease to comprise a
majority of the Board of Directors of the Employer.
2. Anti-Dilution Adjustment. For purposes of
Section 4(C), in the event the Stock shall be split or
divided into a greater number of shares of Stock, the
Options in effect immediately prior to each such split or
division, simultaneously with the effectiveness of such
split or division, shall be proportionately increased,
and the Exercise Price shall be proportionally decreased.
In the event of a reverse split or combination of the
Stock into a smaller number of shares of Stock, the
Options in effect immediately prior to each such reverse
split or combination, simultaneously with the
effectiveness of such reverse split or combination, shall
be proportionately decreased, and the Exercise Price
shall be proportionally increased. This Section and the
provisions contained herein will require the prior
approval of the Board of Directors of Employer.
D. Employee Benefits. Employee shall be entitled to
receive the normal health care benefits and such other
employment benefits as are generally available to senior
officers of Employer.
5. Termination. Employer may terminate the employment of
Employee at any time with "Cause." For the purposes hereof, the
term "Cause" shall mean, without limitation: the conviction of
Employee of a felony, or a crime of moral turpitude designated as
such under the laws of the State of Tennessee or the applicable
jurisdiction; a material omission or misstatement in the
information provided to the Employer during negotiations between
the parties prior to the execution of the Letter of Intent and
prior to the closing of the transactions contemplated by the Letter
of Intent; the failure of the Employee to carry out the reasonable
written instructions of the Board of Directors of Employer after
the Employee has received written notice of such instructions and
a reasonable opportunity to cure any such failure; the inability of
Employee, through sickness or other incapacity, to perform his
duties under this Agreement for a period in excess of ninety (90)
substantially consecutive days; or the determination by a court or
arbitrator of competent jurisdiction that a material term of this
Agreement has been violated. The Employee's employment by Employer
may also be terminated without Cause by either party upon sixty
(60) days' prior written notice to the other. In the event
Employee's employment is so terminated with or without Cause,
Employer shall have no obligation to make any further payments to
Employee, and Employee shall forfeit and lose his right to receive
any other form of compensation or benefits; provided, however,
Employee shall be entitled to: (i) all Base Compensation earned
through the date of termination; (ii) all Options that have vested
on or before the date of termination of employment and that by
their terms are exercisable thereafter; and (iii) a termination
payment of Thirty Thousand Dollars ($30,000.00), payable in equal
monthly installments commencing one month from the date of
termination and ending one year from the date of termination.
6. Restrictive Covenants. Employee covenants and agrees
that, during the term of his employment with Employer and for a
period of two (2) years thereafter, he shall be subject to the
following restrictions (the "Restrictive Covenants"):
A. Competition. Employee will not own or participate
in the ownership of any business that manufactures products
that compete in whole or in part with the products of the
Employer or its affiliates, anywhere within the continental
United States of America; provided, however, that Employee may
purchase or otherwise acquire up to (but not more than) one
percent (1%) of any class of securities of any enterprise (but
without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934.
B. Employee Solicitation. Employee will not in any
way, directly or indirectly, for himself or on behalf of or in
conjunction with any person or business entity other than the
Employer, solicit or attempt to solicit any officers,
directors, employees or agents of the Employer to leave,
resign or terminate their employment with the Employer.
C. Confidential Information.
(1) Definition. For purposes of this Agreement,
the term "Confidential Information" shall mean
information that the Employer owns or possesses, that it
uses or is potentially useful in its business, that it
treats as proprietary, private, or confidential, and that
is not generally known to the public, including, but not
limited to, information relating to Employer's existing
and contemplated businesses, sales, company financial
information, products, technology, manufacturing
techniques, engineering processes, chemical formulae,
marketing, sales methods, technical service expertise,
employees, lists of actual or potential customers, actual
and potential customer usage and requirements, new and
existing programs or services, prices and terms, pricing
strategy, sources of supplies and materials, operating
and other cost data, trade secrets, inventions, patent
applications, and other proprietary information as may
exist or be developed from time to time by the Employer,
or its affiliates.
(2) Information Access and Disclosure. Employee
acknowledges that he shall occupy a position of trust and
confidence with the Employer and will have access to and
may develop Confidential Information of actual or
potential value to or otherwise useful to Employer.
Employee shall hold in strictest confidence and not
disclose, without express written authorization from the
President, Chief Executive Officer or Board of Directors
of Employer, to any person or entity, other than the
Employer and its affiliates and their officers and
agents, or use in whole or in part any Confidential
Information that Employee may acquire while employed by
Employer.
(3) Employer Property Return. At the termination
of Employee's employment with Employer, or at any other
time that Employer may request, Employee shall promptly
deliver to Employer all memoranda, notes, records,
reports, documents, sketches, plans, models,
compositions, formulations, computer data, and other
tangible items made or compiled by Employee or in
Employee's possession concerning or relating to the
Employer or its affiliates and their businesses,
operations or affairs and any Confidential Information
that the Employee may possess or have under his control
("Company Property").
7. Remedies. Employee acknowledges that any violation of
any of the Restrictive Covenants contained in Section 6 of this
Agreement will cause continuing and irreparable harm to the
Employer for which monetary damages would not be adequate
compensation. Employee, therefore, agrees that, if he violates or
threatens to violate any of these restrictive covenants, the
Employer shall be entitled, in addition to any other legal or
equitable remedies available to it, to (a) entry of an injunction,
temporary and permanent, enjoining such breach and securing
specific performance of this Agreement, including requiring
Employee to return all Company Property; (b) monetary damages,
insofar as they can be determined; (c) forfeiture of all
compensation paid by Employer or otherwise owing to Employee under
this Agreement; and (d) recovery of Employer's reasonable
attorney's fees and costs of prosecuting any such action. The
parties waive the right to a jury trial with respect to any
controversy or claim between or among the parties hereto, including
but not limited to those arising out of or relating to this
Agreement, as well as any claim based on or arising from an alleged
tort.
8. Severability. Whenever possible, each provision and term
of this Agreement will be interpreted in a manner to be effective
and valid; however, if any provision or term of this Agreement is
held to be prohibited or invalid, then such provision or term will
be ineffective only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining
provisions or terms of this Agreement. More specifically, Employee
acknowledges that the restrictive covenants contained in Section 6
of this Agreement are reasonable in scope, time and geographic
area; however, if any of these covenants are held to be
unreasonable, arbitrary, or against public policy, such covenants
will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic
area, will be effective, binding and enforceable against the
Employee.
9. Successors and Assigns. This Agreement will be binding
upon the Employer and the Employee and will inure to the benefit of
the Employer and its affiliates, successors and assigns, as well as
to the Employee and his heirs. This Agreement is not assignable by
the Employee, except upon the written agreement of both parties.
10. Waiver. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement
will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege
will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing, signed by the
other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given;
and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice
or demand as provided in this Agreement.
11. Governing Law. This Agreement and all performance
hereunder shall be construed and governed by the laws of the State
of Tennessee, without regard to conflicts of laws principles.
12. Construction. The headings of Sections in this Agreement
are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or
"Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms. All
references herein to the word "and" shall mean "and/or," and all
references herein to the word "or" shall mean "and/or." The
parties, in acknowledgement that all of them have been represented
by counsel and that this Agreement has been carefully negotiated,
agree that the construction and interpretation of this Agreement
and other documents entered into in connection herewith shall not
be affected by the identity of the party or parties under whose
direction or at whose expense this Agreement and such documents
were prepared or drafted.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of
this Agreement and supersedes all prior written and oral agreements
and understandings between Employer and Employee with respect to
the subject matter of this Agreement. This Agreement may not be
amended except by a written agreement executed by the party to be
charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
INNOVO GROUP INC.
By:/s/L. E. Smith
_________________________
L. E. SMITH
Title:CEO
/s/Dan Page
_________________________
DAN PAGE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") has been entered
into as of the 13th day of August, 1997 (the "Effective Date"), by
and between INNOVO GROUP INC., a Delaware corporation with
principal offices in Springfield, Tennessee ("Employer"), and J.
ERIC HENDRICKSON, an individual and resident of the State of
Tennessee ("Employee").
Recitals
WHEREAS, Employer has entered into a Letter of Intent dated
July 29, 1997 ("Letter of Intent"), and a Stock Purchase Agreement
dated August 13, 1997 (the "Stock Purchase Agreement"), whereby it
has agreed to sell certain securities of Employer to Employee and
certain other individuals;
WHEREAS, as a condition of the Stock Purchase Agreement, the
Employer agreed to enter into employment agreements with certain
persons, including Employee;
WHEREAS, Employer desires to obtain the services of Employee,
and Employee desires to secure employment from the Employer upon
the following terms and conditions;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the parties agree as follows:
1. Employment. Employer hereby employs Employee as Vice
President and Treasurer, and Employee hereby accepts and agrees to
such employment, pursuant and subject to the orders, advice and
direction of the President, Chief Executive Officer and Board of
Directors of Employer. Employee shall perform such other duties as
are customarily performed by one holding such position in other,
same or similar businesses or enterprises as that engaged in by
Employer. Employee also shall render such other and unrelated
services and duties as may be assigned to him from time to time by
the President, Chief Executive Officer or Board of Directors of
Employer. Employee shall report directly to the Chief Executive
Officer of Employer.
2. Best Efforts of Employee. Employee agrees that he will
at all times faithfully, industriously, and to the best of his
ability, experience and talents, perform all of the duties that may
be required of and from him pursuant to the express and implicit
terms hereof, to the reasonable satisfaction of Employer, and that
he will devote such portion of his professional time as he deems
appropriate to his duties. Such duties shall be rendered at the
principal offices of Employer as is hereinabove set forth, and at
such other place or places as Employer shall in good faith require
or as the interest, needs, business or opportunity of Employer
shall require.
3. Term of Employment. The initial term of employment (the
"Initial Term") of Employee by Employer shall be for a period of
two (2) years, commencing August 14, 1997 (the "Commencement Date")
and terminating August 14, 1999 (the "Expiration Date"), and
thereafter renewing for successive one (1) year terms, each such
term to commence on the successive anniversaries of the Expiration
Date, unless either party shall give written notice of intention to
terminate at least ninety (90) days prior to the Expiration Date or
prior to expiration of any such successive term, and subject to
earlier termination as provided in Section 5 of this Agreement.
4. Compensation of Employee. Employer shall pay Employee,
and Employee shall accept from Employer in return for his services
and the covenants contained herein, the following:
A. Base Compensation. During the term of employment of
Employee, Employer shall pay Employee, and Employee shall
accept from Employer, in payment of Employee's services
hereunder, base compensation of Seventy Thousand and 0/100
Dollars ($70,000.00) per year (less applicable payroll taxes),
payable monthly in accordance with the standard practices of
the Employer ("Base Compensation").
B. Bonus. In addition, Employee may also be paid, on
an annual or other basis, such bonus or other compensation as
the Board of Directors in its sole discretion may determine to
be reasonable compensation for Employee, considering the
performance of Employee, the business and financial condition
of the Employer and the operating results achieved.
C. Employee Benefits. Employee shall be entitled to
receive the normal health care benefits and such other
employment benefits as are generally available to senior
officers of Employer.
5. Termination. Employer may terminate the employment of
Employee at any time with "Cause." For the purposes hereof, the
term "Cause" shall mean, without limitation: the conviction of
Employee of a felony, or a crime of moral turpitude designated as
such under the laws of the State of Tennessee or the applicable
jurisdiction; a material omission or misstatement in the
information provided to the Employer during negotiations between
the parties prior to the execution of the Letter of Intent and
prior to the closing of the transactions contemplated by the Letter
of Intent; the failure of the Employee to carry out the reasonable
written instructions of the Board of Directors of Employer after
the Employee has received written notice of such instructions and
a reasonable opportunity to cure any such failure; the inability of
Employee, through sickness or other incapacity, to perform his
duties under this Agreement for a period in excess of ninety (90)
substantially consecutive days; or the determination by a court or
arbitrator of competent jurisdiction that a material term of this
Agreement has been violated. The Employee's employment by Employer
may also be terminated without Cause by either party upon sixty
(60) days' prior written notice to the other. In the event
Employee's employment is so terminated with or without Cause,
Employer shall have no obligation to make any further payments to
Employee, and Employee shall forfeit and lose his right to receive
any other form of compensation or benefits; provided, however,
Employee shall be entitled to: (i) all Base Compensation earned
through the date of termination; and (ii) a termination payment of
Seventy Thousand Dollars ($70,000.00), payable in equal monthly
installments commencing one month from the date of termination and
ending one year from the date of termination.
6. Restrictive Covenants. Employee covenants and agrees
that, during the term of his employment with Employer and for a
period of two (2) years thereafter, he shall be subject to the
following restrictions (the "Restrictive Covenants"):
A. Competition. Employee will not own or participate
in the ownership of any business that manufactures products
that compete in whole or in part with the products of the
Employer or its affiliates, anywhere within the continental
United States of America; provided, however, that Employee may
purchase or otherwise acquire up to (but not more than) one
percent (1%) of any class of securities of any enterprise (but
without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934.
B. Employee Solicitation. Employee will not in any
way, directly or indirectly, for himself or on behalf of or in
conjunction with any person or business entity other than the
Employer, solicit or attempt to solicit any officers,
directors, employees or agents of the Employer to leave,
resign or terminate their employment with the Employer.
C. Confidential Information.
(1) Definition. For purposes of this Agreement,
the term "Confidential Information" shall mean
information that the Employer owns or possesses, that it
uses or is potentially useful in its business, that it
treats as proprietary, private, or confidential, and that
is not generally known to the public, including, but not
limited to, information relating to Employer's existing
and contemplated businesses, sales, company financial
information, products, technology, manufacturing
techniques, engineering processes, chemical formulae,
marketing, sales methods, technical service expertise,
employees, lists of actual or potential customers, actual
and potential customer usage and requirements, new and
existing programs or services, prices and terms, pricing
strategy, sources of supplies and materials, operating
and other cost data, trade secrets, inventions, patent
applications, and other proprietary information as may
exist or be developed from time to time by the Employer,
or its affiliates.
(2) Information Access and Disclosure. Employee
acknowledges that he shall occupy a position of trust and
confidence with the Employer and will have access to and
may develop Confidential Information of actual or
potential value to or otherwise useful to Employer.
Employee shall hold in strictest confidence and not
disclose, without express written authorization from the
President, Chief Executive Officer or Board of Directors
of Employer, to any person or entity, other than the
Employer and its affiliates and their officers and
agents, or use in whole or in part any Confidential
Information that Employee may acquire while employed by
Employer.
(3) Employer Property Return. At the termination
of Employee's employment with Employer, or at any other
time that Employer may request, Employee shall promptly
deliver to Employer all memoranda, notes, records,
reports, documents, sketches, plans, models,
compositions, formulations, computer data, and other
tangible items made or compiled by Employee or in
Employee's possession concerning or relating to the
Employer or its affiliates and their businesses,
operations or affairs and any Confidential Information
that the Employee may possess or have under his control
("Company Property").
7. Remedies. Employee acknowledges that any violation of
any of the Restrictive Covenants contained in Section 6 of this
Agreement will cause continuing and irreparable harm to the
Employer for which monetary damages would not be adequate
compensation. Employee, therefore, agrees that, if he violates or
threatens to violate any of these restrictive covenants, the
Employer shall be entitled, in addition to any other legal or
equitable remedies available to it, to (a) entry of an injunction,
temporary and permanent, enjoining such breach and securing
specific performance of this Agreement, including requiring
Employee to return all Company Property; (b) monetary damages,
insofar as they can be determined; (c) forfeiture of all
compensation paid by Employer or otherwise owing to Employee under
this Agreement; and (d) recovery of Employer's reasonable
attorney's fees and costs of prosecuting any such action. The
parties waive the right to a jury trial with respect to any
controversy or claim between or among the parties hereto, including
but not limited to those arising out of or relating to this
Agreement, as well as any claim based on or arising from an alleged
tort.
8. Severability. Whenever possible, each provision and term
of this Agreement will be interpreted in a manner to be effective
and valid; however, if any provision or term of this Agreement is
held to be prohibited or invalid, then such provision or term will
be ineffective only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining
provisions or terms of this Agreement. More specifically, Employee
acknowledges that the restrictive covenants contained in Section 6
of this Agreement are reasonable in scope, time and geographic
area; however, if any of these covenants are held to be
unreasonable, arbitrary, or against public policy, such covenants
will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic
area, will be effective, binding and enforceable against the
Employee.
9. Successors and Assigns. This Agreement will be binding
upon the Employer and the Employee and will inure to the benefit of
the Employer and its affiliates, successors and assigns, as well as
to the Employee and his heirs. This Agreement is not assignable by
the Employee, except upon the written agreement of both parties.
10. Waiver. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement
will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege
will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing, signed by the
other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given;
and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice
or demand as provided in this Agreement.
11. Governing Law. This Agreement and all performance
hereunder shall be construed and governed by the laws of the State
of Tennessee, without regard to conflicts of laws principles.
12. Construction. The headings of Sections in this Agreement
are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or
"Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms. All
references herein to the word "and" shall mean "and/or," and all
references herein to the word "or" shall mean "and/or." The
parties, in acknowledgement that all of them have been represented
by counsel and that this Agreement has been carefully negotiated,
agree that the construction and interpretation of this Agreement
and other documents entered into in connection herewith shall not
be affected by the identity of the party or parties under whose
direction or at whose expense this Agreement and such documents
were prepared or drafted.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of
this Agreement and supersedes all prior written and oral agreements
and understandings between Employer and Employee with respect to
the subject matter of this Agreement. This Agreement may not be
amended except by a written agreement executed by the party to be
charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
INNOVO GROUP INC.
By: /s/L. E. Smith
_________________________
L. E. SMITH
Title: CEO
/s/ J. Eric Hendrickson
__________________________
J. ERIC HENDRICKSON
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), has been entered
into as of the 13th day of August 1997, by and between INNOVO GROUP
INC., a Delaware corporation with principal offices in Springfield,
Tennessee ("Innovo Group"), INNOVO, INC., a Texas corporation with
principal offices in Springfield, Tennessee ("Innovo"), NP
International, Inc., a Tennessee corporation with principal offices
in Springfield, Tennessee ("NP"), and PATRICIA ANDERSON-LASKO, an
individual and resident of the State of Tennessee ("Employee").
Recitals
WHEREAS, Innovo Group has entered into a Letter of Intent
dated July 29, 1997 (the "Letter of Intent") with potential
investors and a potential management group ("Potential Investors"),
and a Stock Purchase Agreement dated August 13, 1997 (the "Stock
Purchase Agreement"), whereby it has agreed to sell certain
securities of Employer to certain individuals;
WHEREAS, as a condition of the Stock Purchase Agreement,
Innovo Group, Innovo and NP (collectively, the "Employer") agreed
to enter into an employment agreement with Employee;
WHEREAS, the Employer desires to obtain the services of
Employee as the President of each of their respective companies,
and Employee desires to secure such employment upon the following
terms and conditions;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the parties agree as follows:
1. Employment. Employer hereby employs Employee as
President, and Employee hereby accepts and agrees to such
employment, pursuant and subject to the orders, advice and
direction of the Chief Executive Officer and Board of Directors of
Employer. Employee shall perform such other duties as are
customarily performed by one holding such position in other, same
or similar businesses or enterprises as that engaged in by
Employer. Employee shall report directly to the Chief Executive
Officer of Employer.
2. Best Efforts of Employee. Employee agrees that she will
at all times faithfully, industriously, and to the best of her
ability, experience and talents, perform all of the duties that may
be required of and from her pursuant to the express and implicit
terms hereof, to the reasonable satisfaction of Employer, and that
she will devote such portion of her professional time as she deems
appropriate to her duties. Such duties shall be rendered at the
principal offices of Employer as is hereinabove set forth, and at
such other place or places as Employer shall in good faith require
or as the interest, needs, business or opportunity of Employer
shall require.
3. Term of Employment. The initial term of employment (the
"Initial Term") of Employee by Employer shall be for a period of
two (2) years, commencing August 14, 1997 (the "Commencement Date")
and terminating August 14, 1999 (the "Expiration Date"), and
thereafter renewing for successive one (1) year terms, each such
term to commence on the successive anniversaries of the Expiration
Date, unless either party shall give written notice of intention to
terminate at least ninety (90) days prior to the Expiration Date or
prior to expiration of any such successive term, and subject to
earlier termination as provided in Section 5 of this Agreement.
4. Compensation of Employee. Employer shall pay Employee,
and Employee shall accept from Employer in return for her services
and the covenants contained herein, the following:
A. Base Compensation. During the term of employment of
Employee, Employer shall pay Employee, and Employee shall
accept from Employer, in payment of Employee's services
hereunder, total base compensation of One Hundred Fifty Seven
Thousand Five Hundred and 0/100 Dollars ($157,500.00) per year
(less applicable payroll taxes), payable monthly in accordance
with the standard practices of the Employer ("Base
Compensation").
B. Bonus. In addition, Employee may also be paid, on
an annual or other basis, such bonus or other compensation as
the Board of Directors in its sole discretion may determine to
be reasonable compensation for Employee, considering the
performance of Employee, the business and financial condition
of the Employer and the operating results achieved.
C. Employee Benefits. Employee shall be entitled to
receive the normal health care benefits and such other
employment benefits as are generally available to senior
officers of Employer.
5. Termination. Employer may terminate the employment of
Employee at any time with "Cause." For the purposes hereof, the
term "Cause" shall mean, without limitation: the conviction of
Employee of a felony, or a crime of moral turpitude designated as
such under the laws of the State of Tennessee or the applicable
jurisdiction; a material omission or misstatement in the
information provided to the Potential Investors during their due
diligence investigation of Employer prior to the execution of the
Letter of Intent and prior to the closing of the transactions
contemplated by the Letter of Intent; the failure of the Employee
to carry out the reasonable written instructions of the Board of
Directors of the Employer after the Employee has received written
notice of such instructions and a reasonable opportunity to cure
any such failure; the inability of Employee, through sickness or
other incapacity, to perform her duties under this Agreement for a
period in excess of ninety (90) substantially consecutive days; or
the determination by a court or arbitrator of competent
jurisdiction that a material term of this Agreement has been
violated. The Employee's employment by Employer may also be
terminated without Cause by either party upon sixty (60) days'
prior written notice to the other. In the event Employee's
employment is so terminated with or without Cause, Employer shall
have no obligation to make any further payments to Employee, and
Employee shall forfeit and lose her right to receive any other form
of compensation or benefits; provided, however, Employee shall be
entitled to (i) all Base Compensation earned through the date of
termination; (ii) all rights under the 1997 Stock Purchase Right
Award as provided and governed by the terms and conditions thereof;
and (iii) a termination payment of One Hundred Fifty Seven Thousand
Five Hundred and 0/100 Dollars ($157,500.00), payable in equal
monthly installments commencing one month from the date of
termination and ending one year from the date of termination.
6. Restrictive Covenants. Employee covenants and agrees
that, during the term of her employment with Employer and for a
period of two (2) years thereafter, she shall be subject to the
following restrictions (the "Restrictive Covenants"):
A. Competition. Employee will not own or participate
in the ownership of any business that manufactures products
that compete in whole or in part with the products of the
Employer or its affiliates, anywhere within the continental
United States of America; provided, however, that Employee may
purchase or otherwise acquire up to (but not more than) one
percent (1%) of any class of securities of any enterprise (but
without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934.
B. Employee Solicitation. Employee will not in any
way, directly or indirectly, for herself or on behalf of or in
conjunction with any person or business entity other than the
Employer, solicit or attempt to solicit any officers,
directors, employees or agents of the Employer to leave,
resign or terminate their employment with the Employer.
C. Confidential Information.
(1) Definition. For purposes of this Agreement,
the term "Confidential Information" shall mean
information that the Employer owns or possesses, that it
uses or is potentially useful in its business, that it
treats as proprietary, private, or confidential, and that
is not generally known to the public, including, but not
limited to, information relating to Employer's existing
and contemplated businesses, sales, company financial
information, products, technology, manufacturing
techniques, engineering processes, chemical formulae,
marketing, sales methods, technical service expertise,
employees, lists of actual or potential customers, actual
and potential customer usage and requirements, new and
existing programs or services, prices and terms, pricing
strategy, sources of supplies and materials, operating
and other cost data, trade secrets, inventions, patent
applications, and other proprietary information as may
exist or be developed from time to time by the Employer,
or its affiliates.
(2) Information Access and Disclosure. Employee
acknowledges that she shall occupy a position of trust
and confidence with the Employer and will have access to
and may develop Confidential Information of actual or
potential value to or otherwise useful to Employer.
Employee shall hold in strictest confidence and not
disclose, without express written authorization from the
Chief Executive Officer or Board of Directors of
Employer, to any person or entity, other than the
Employer and its affiliates and their officers and
agents, or use in whole or in part any Confidential
Information that Employee may acquire while employed by
Employer.
(3) Employer Property Return. At the termination
of Employee's employment with Employer, or at any other
time that Employer may request, Employee shall promptly
deliver to Employer all memoranda, notes, records,
reports, documents, sketches, plans, models,
compositions, formulations, computer data, and other
tangible items made or compiled by Employee or in
Employee's possession concerning or relating to the
Employer or its affiliates and their businesses,
operations or affairs and any Confidential Information
that the Employee may possess or have under her control
("Company Property").
7. Remedies. Employee acknowledges that any violation of
any of the Restrictive Covenants contained in Section 6 of this
Agreement will cause continuing and irreparable harm to the
Employer for which monetary damages would not be adequate
compensation. Employee, therefore, agrees that, if she violates or
threatens to violate any of these restrictive covenants, the
Employer shall be entitled, in addition to any other legal or
equitable remedies available to it, to (a) entry of an injunction,
temporary and permanent, enjoining such breach and securing
specific performance of this Agreement, including requiring
Employee to return all Company Property; (b) monetary damages,
insofar as they can be determined; (c) forfeiture of all
compensation paid by Employer or otherwise owing to Employee under
this Agreement; and (d) recovery of Employer's reasonable
attorney's fees and costs of prosecuting any such action. The
parties waive the right to a jury trial with respect to any
controversy or claim between or among the parties hereto, including
but not limited to those arising out of or relating to this
Agreement, as well as any claim based on or arising from an alleged
tort.
8. Severability. Whenever possible, each provision and term
of this Agreement will be interpreted in a manner to be effective
and valid; however, if any provision or term of this Agreement is
held to be prohibited or invalid, then such provision or term will
be ineffective only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining
provisions or terms of this Agreement. More specifically, Employee
acknowledges that the restrictive covenants contained in Section 6
of this Agreement are reasonable in scope, time and geographic
area; however, if any of these covenants are held to be
unreasonable, arbitrary, or against public policy, such covenants
will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic
area, will be effective, binding and enforceable against the
Employee.
9. Successors and Assigns. This Agreement will be binding
upon the Employer and the Employee and will inure to the benefit of
the Employer and its affiliates, successors and assigns, as well as
to the Employee and her heirs. This Agreement is not assignable by
the Employee, except upon the written agreement of both parties.
10. Waiver. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement
will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege
will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing, signed by the
other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given;
and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice
or demand as provided in this Agreement.
11. Governing Law. This Agreement and all performance
hereunder shall be construed and governed by the laws of the State
of Tennessee, without regard to conflicts of laws principles.
12. Construction. The headings of Sections in this Agreement
are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or
"Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms. All
references herein to the word "and" shall mean "and/or," and all
references herein to the word "or" shall mean "and/or." The
parties, in acknowledgement that all of them have been represented
by counsel and that this Agreement has been carefully negotiated,
agree that the construction and interpretation of this Agreement
and other documents entered into in connection herewith shall not
be affected by the identity of the party or parties under whose
direction or at whose expense this Agreement and such documents
were prepared or drafted.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of
this Agreement and supersedes all prior written and oral agreements
and understandings between Employer and Employee with respect to
the subject matter of this Agreement, including the Employment
Agreement between Employer and Employee dated September 30, 1993.
Employee hereby agrees that Employer has no liability to Employee
under any prior employment agreement between the parties, and
Employee waives any claims by Employee under any prior employment
agreements between the parties. This Agreement may not be amended
except by a written agreement executed by the party to be charged
with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
INNOVO GROUP INC.
/s/Patricia Anderson-Lasko By: /s/L. E. Smith
____________________________ ____________________________
PATRICIA ANDERSON-LASKO
Title: CEO
INNOVO, INC. NP INTERNATIONAL, INC.
By:/s/Patricia Anderson-Lasko By:/s/Patricia Anderson-Lasko
____________________________ ____________________________
PATRICIA ANDERSON-LASKO PATRICIA ANDERSON-LASKO
Title: President Title: President
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") has been entered
into as of the 13th day of August, 1997 (the "Effective Date"), by
and between INNOVO GROUP INC., a Delaware corporation with
principal offices in Springfield, Tennessee ("Employer"), and
ALEXANDER MILLER, an individual and resident of the State of
California ("Employee").
Recitals
WHEREAS, Employer has entered into a Letter of Intent dated
July 29, 1997 ("Letter of Intent") with potential investors and a
potential management group ("Potential Investors"), a Stock
Purchase Agreement dated August 13, 1997 (the "Stock Purchase
Agreement"), whereby it has agreed to sell certain securities of
Employer to certain individuals;
WHEREAS, as a condition of the Stock Purchase Agreement, the
Employer agreed to enter into employment agreements with certain
persons, including Employee;
WHEREAS, Employer desires to retain the services of Employee,
and Employee desires to retain employment from the Employer upon
the following terms and conditions;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the parties agree as follows:
1. Employment. Employer hereby employs Employee as Director
of Investor Relations, and Employee hereby accepts and agrees to
such employment, pursuant and subject to the orders, advice and
direction of the President, Chief Executive Officer and Board of
Directors of Employer. Employee shall perform such other duties as
are customarily performed by one holding such position in other,
same or similar businesses or enterprises as that engaged in by
Employer. Employee also shall render such other and unrelated
services and duties as may be assigned to him from time to time by
the President, Chief Executive Officer or Board of Directors of
Employer. Employee shall report directly to the Chief Executive
Officer of Employer.
2. Best Efforts of Employee. Employee agrees that he will
at all times faithfully, industriously, and to the best of his
ability, experience and talents, perform all of the duties that may
be required of and from him pursuant to the express and implicit
terms hereof, to the reasonable satisfaction of Employer, and that
he will devote such portion of his professional time as he deems
appropriate to his duties. Such duties shall be rendered at the
principal offices of Employer as is hereinabove set forth, at
Employee's California residence, or at such other place or places
as Employer shall in good faith require or as the interest, needs,
business or opportunity of Employer shall require.
3. Term of Employment. The initial term of employment (the
"Initial Term") of Employee by Employer shall be for a period of
two (2) years, commencing August 14, 1997 (the "Commencement Date")
and terminating August 14, 1999 (the "Expiration Date"), and
therea2fter renewing for successive one (1) year terms, each such
term to commence on the successive anniversaries of the Expiration
Date, unless either party shall give written notice of intention to
terminate at least ninety (90) days prior to the Expiration Date or
prior to expiration of any such successive term, and subject to
earlier termination as provided in Section 5 of this Agreement.
4. Compensation of Employee. Employer shall pay Employee,
and Employee shall accept from Employer in return for his services
and the covenants contained herein, the following:
A. Base Compensation. During the term of employment of
Employee, Employer shall pay Employee, and Employee shall
accept from Employer, in payment of Employee's services
hereunder, base compensation of Forty Eight Thousand and 0/100
Dollars ($48,000.00) per year (less applicable payroll taxes),
payable monthly in accordance with the standard practices of
the Employer ("Base Compensation").
B. Bonus. In addition, Employee may also be paid, on
an annual or other basis, such bonus or other compensation as
the Board of Directors in its sole discretion may determine to
be reasonable compensation for Employee, considering the
performance of Employee, the business and financial condition
of the Employer and the operating results achieved.
C. Non-Qualified Stock Options. Immediately upon the
closing of the Stock Purchase Agreement, Employee is hereby
granted options (the "Options") to purchase One Hundred Twenty
Five Thousand (125,000) shares of common stock (the "Stock")
of Employer at $0.33125 per share (the "Exercise Price"). The
Options shall vest and become exercisable in twenty-four (24)
equal monthly installments over the Initial Term, unless the
employment of Employee is terminated before the Expiration
Date, whether pursuant to Section 5 of this Agreement, by
resignation or voluntary termination, or otherwise, in which
event Employee (or his personal representative) is only
entitled to exercise such Options that have vested each month
on the first day of each such month commencing with the month
of the Effective Date of this Agreement, on or before the date
of termination of his employment and the remaining, unvested
Options shall be deemed forfeited. Employee (or his personal
representative) must exercise the Options by delivery of a
written instrument to Employer, together with payment in cash
of the Exercise Price for such number of Options as are being
exercised, by August 31, 2002. Notwithstanding the foregoing,
any then unvested and unforfeited Options shall vest and
become fully exercisable if either of the following events
occur before the Expiration Date and before any termination of
employment of Employee: (i) in the event the publicly traded
price of the Stock equals or exceeds One and 0/100 Dollars
($1.00) per share at any time prior to the exercise of any
such Options; or (ii) in the event of a Change in Control of
Employer that is not approved by the then acting Board of
Directors of Employer.
1. Change in Control. For purposes of this
Section 4(C), "Change in Control" shall mean an event not
approved by the then acting Board of Directors of
Employer which:
(a) the Employer effects any sale, lease,
assignment, transfer, or other conveyance of all or
substantially all of the assets of the Employer; or
(b) the Employer effects any consolidation or
merger involving the Employer; provided, however,
that in the event of a merger of any entity into
the Employer or the acquisition by the Employer of
such entity, no Change in Control shall occur so
long as (a) the Employer is the surviving entity,
and (b) the holders of voting stock of the Employer
immediately prior to such merger or acquisition are
the holders of not less than a majority of the
voting stock of the Employer immediately following
such merger or acquisition; or
(c) any person or group of persons acquires
not less than twenty percent (20%) of the
Employer's voting securities without prior approval
of the Employer's Board of Directors; or
(d) the Board of Directors of the Employer as
of the closing of the Stock Purchase Agreement
(including any new members elected or reelected in
the ordinary course of business at an annual or
special shareholders meeting) cease to comprise a
majority of the Board of Directors of the Employer.
2. Anti-Dilution Adjustment. For purposes of
Section 4(C), in the event the Stock shall be split or
divided into a greater number of shares of Stock, the
Options in effect immediately prior to each such split or
division, simultaneously with the effectiveness of such
split or division, shall be proportionately increased,
and the Exercise Price shall be proportionally decreased.
In the event of a reverse split or combination of the
Stock into a smaller number of shares of Stock, the
Options in effect immediately prior to each such reverse
split or combination, simultaneously with the
effectiveness of such reverse split or combination, shall
be proportionately decreased, and the Exercise Price
shall be proportionally increased. This Section and the
provisions contained herein will require the prior
approval of the Board of Directors of Employer.
D. Payment for Travel Expenses. During the term of
employment of Employee, the Employer also shall reimburse the
Employee for all reasonable and necessary expenses incurred by
Employee while traveling from his California residence to
Nashville, Tennessee in the performance of his duties
hereunder and approved in advance by the Employer. Certain
categories of expenses may be subject to a total dollar
limitation or pier diem allowance, as shall be determined from
time to time in the sole discretion of the Employer. Employee
agrees to maintain and provide to Employer such records of
business expenses as may be required by the applicable
sections of the Internal Revenue Code of 1954, as amended, and
the reasonable requirements of Employer.
E. Employee Benefits. Employee shall be entitled to
receive the normal health care benefits and such other
employment benefits as are generally available to senior
officers of Employer.
5. Termination. Employer may terminate the employment of
Employee at any time for "Cause." For the purposes hereof, the
term "Cause" shall mean, without limitation: the conviction of
Employee of a felony, or a crime of moral turpitude designated as
such under the laws of the State of Tennessee or the applicable
jurisdiction; a material omission or misstatement in the
information provided to the Potential Investors during their due
diligence investigation of Employer prior to the execution of the
Letter of Intent and prior to the closing of the transactions
contemplated by the Letter of Intent; the failure of the Employee
to carry out the reasonable written instructions of the President,
Chief Executive Officer or Board of Directors of Employer after the
Employee has received written notice of such instructions and a
reasonable opportunity to cure any such failure; the inability of
Employee, through sickness or other incapacity, to perform his
duties under this Agreement for a period in excess of ninety (90)
substantially consecutive days; or the determination by a court or
arbitrator of competent jurisdiction that a material term of this
Agreement has been violated. The Employee's employment by Employer
may also be terminated without Cause by either party upon sixty
(60) days' prior written notice to the other. In the event
Employee's employment is so terminated with or without Cause,
Employer shall have no obligation to make any further payments to
Employee, and Employee shall forfeit and lose his right to receive
any other form of compensation or benefits; provided, however,
Employee shall be entitled to: (i) all Base Compensation earned
through the date of termination; (ii) all Options that have vested
on or before the date of termination of employment and that by
their terms are exercisable thereafter; and (iii) a termination
payment of Forty Eight Thousand Dollars ($48,000.00), payable in
equal monthly installments commencing one month from the date of
termination and ending one year from the date of termination.
6. Restrictive Covenants. Employee covenants and agrees
that, during the term of his employment with Employer and for a
period of two (2) years thereafter, he shall be subject to the
following restrictions (the "Restrictive Covenants"):
A. Competition. Employee will not own or participate
in the ownership of any business that manufactures products
that compete in whole or in part with the products of the
Employer or its affiliates, anywhere within the continental
United States of America; provided, however, that Employee may
purchase or otherwise acquire up to (but not more than) one
percent (1%) of any class of securities of any enterprise (but
without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934.
B. Employee Solicitation. Employee will not in any
way, directly or indirectly, for himself or on behalf of or in
conjunction with any person or business entity other than the
Employer, solicit or attempt to solicit any officers,
directors, employees or agents of the Employer to leave,
resign or terminate their employment with the Employer.
C. Confidential Information.
(1) Definition. For purposes of this Agreement,
the term "Confidential Information" shall mean
information that the Employer owns or possesses, that it
uses or is potentially useful in its business, that it
treats as proprietary, private, or confidential, and that
is not generally known to the public, including, but not
limited to, information relating to Employer's existing
and contemplated businesses, sales, company financial
information, products, technology, manufacturing
techniques, engineering processes, chemical formulae,
marketing, sales methods, technical service expertise,
employees, lists of actual or potential customers, actual
and potential customer usage and requirements, new and
existing programs or services, prices and terms, pricing
strategy, sources of supplies and materials, operating
and other cost data, trade secrets, inventions, patent
applications, and other proprietary information as may
exist or be developed from time to time by the Employer,
or its affiliates.
(2) Information Access and Disclosure. Employee
acknowledges that he shall occupy a position of trust and
confidence with the Employer and will have access to and
may develop Confidential Information of actual or
potential value to or otherwise useful to Employer.
Employee shall hold in strictest confidence and not
disclose, without express written authorization from the
President, Chief Executive Officer or Board of Directors
of Employer, to any person or entity, other than the
Employer and its affiliates and their officers and
agents, or use in whole or in part any Confidential
Information that Employee may acquire while employed by
Employer.
(3) Employer Property Return. At the termination
of Employee's employment with Employer, or at any other
time that Employer may request, Employee shall promptly
deliver to Employer all memoranda, notes, records,
reports, documents, sketches, plans, models,
compositions, formulations, computer data, and other
tangible items made or compiled by Employee or in
Employee's possession concerning or relating to the
Employer or its affiliates and their businesses,
operations or affairs and any Confidential Information
that the Employee may possess or have under his control
("Company Property").
7. Remedies. Employee acknowledges that any violation of
any of the Restrictive Covenants contained in Section 6 of this
Agreement will cause continuing and irreparable harm to the
Employer for which monetary damages would not be adequate
compensation. Employee, therefore, agrees that, if he violates or
threatens to violate any of these restrictive covenants, the
Employer shall be entitled, in addition to any other legal or
equitable remedies available to it, to (a) entry of an injunction,
temporary and permanent, enjoining such breach and securing
specific performance of this Agreement, including requiring
Employee to return all Company Property; (b) monetary damages,
insofar as they can be determined; (c) forfeiture of all
compensation paid by Employer or otherwise owing to Employee under
this Agreement; and (d) recovery of Employer's reasonable
attorney's fees and costs of prosecuting any such action. The
parties waive the right to a jury trial with respect to any
controversy or claim between or among the parties hereto, including
but not limited to those arising out of or relating to this
Agreement, as well as any claim based on or arising from an alleged
tort.
8. Severability. Whenever possible, each provision and term
of this Agreement will be interpreted in a manner to be effective
and valid; however, if any provision or term of this Agreement is
held to be prohibited or invalid, then such provision or term will
be ineffective only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining
provisions or terms of this Agreement. More specifically, Employee
acknowledges that the restrictive covenants contained in Section 6
of this Agreement are reasonable in scope, time and geographic
area; however, if any of these covenants are held to be
unreasonable, arbitrary, or against public policy, such covenants
will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic
area, will be effective, binding and enforceable against the
Employee.
9. Successors and Assigns. This Agreement will be binding
upon the Employer and the Employee and will inure to the benefit of
the Employer and its affiliates, successors and assigns, as well as
to the Employee and his heirs. This Agreement is not assignable by
the Employee, except upon the written agreement of both parties.
10. Waiver. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement
will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege
will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing, signed by the
other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given;
and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice
or demand as provided in this Agreement.
11. Governing Law. This Agreement and all performance
hereunder shall be construed and governed by the laws of the State
of Tennessee, without regard to conflicts of laws principles.
12. Construction. The headings of Sections in this Agreement
are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or
"Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms. All
references herein to the word "and" shall mean "and/or," and all
references herein to the word "or" shall mean "and/or." The
parties, in acknowledgement that all of them have been represented
by counsel and that this Agreement has been carefully negotiated,
agree that the construction and interpretation of this Agreement
and other documents entered into in connection herewith shall not
be affected by the identity of the party or parties under whose
direction or at whose expense this Agreement and such documents
were prepared or drafted.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of
this Agreement and supersedes all prior written and oral agreements
and understandings between Employer and Employee with respect to
the subject matter of this Agreement. This Agreement may not be
amended except by a written agreement executed by the party to be
charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
INNOVO GROUP INC.
/s/Alexander Miller By:/s/L. E. Smith
____________________________ _________________________
ALEXANDER MILLER L. E. SMITH
Title:CEO
COMMON STOCK VOTING AGREEMENT
This Common Stock Voting Agreement ("the Voting Agreement")
is made this 13th day of August, 1997 by and between L.E. Smith
("Smith"), Dan Page ("Page"), J. Eric Hendrickson ("Hendrickson")
and Herb Newton ("Newton") (collectively "SPHN"), and Patricia
Anderson-Lasko ("Anderson"), and Innovo Group Inc. ("IGI").
WHEREAS, concurrent with the date hereof, Smith, Page,
Hendrickson and Newton are purchasing certain shares of the
common stock, par value $.01 per share, of Innovo Group
Inc.("IGI") pursuant to a Stock Purchase Agreement (the
"Acquisition Agreement"); and
WHEREAS, Anderson has previously acquired shares of IGI
common stock ("the Anderson Shares"); and
WHEREAS, as a condition to the purchase by SPHN described in
the second preceding paragraph, SPHN has requested to obtain the
right to vote, in certain circumstances, certain shares of
Anderson Shares as Anderson may own from time to time and have
sole voting power with respect to; and
WHEREAS, Anderson, as an inducement to the purchase by SPHN
described in the third preceding paragraph is willing to grant to
SPHN the right to, in certain circumstances, vote certain of the
Anderson Shares as she may from time to time own and have sole
voting power with respect to; and
WHEREAS, because the terms of this Voting Agreement would be
disclosable in any proxy statement filed by IGI under Section 14
of the Securities Act of 1934 ("the 1934 Act") and Regulation
14(a) promulgated under the 1934 Act, IGI is willing to perform
certain clerical functions to implement the terms of this Voting
Agreement and SPHN and Anderson are willing to provide IGI with
the information necessary to prepare such disclosures;
NOW, THEREFORE, SPHN and Anderson agree as follows, and IGI
agrees with SPHN and Anderson as follows only as to the
procedures set forth in Section 3 of this Voting Agreement and
the related provisions of Sections 4, 5 and 6 of this Voting
Agreement:
Agreement
1. SPHN Entitlement to Direct Voting of Certain Anderson
Shares.
(a) As to any matter submitted to a vote of the
stockholders of IGI, SPHN shall be entitled to direct the manner
in which Anderson votes as a stockholder such number (the
"Directed Shares") of Anderson Shares as she, absent this Voting
Agreement, has the sole power to vote as equals one half of the
difference between (i) the number of shares of common stock over
which Smith, Page, Hendrickson and Newton have sole or shared
voting power, and (ii) the number of Anderson Shares over which
Anderson has sole voting power, each amount determined as of the
record date for the matter as to which stockholders are voting.
Anderson shall only be required to vote in accordance with such
agreement (A) until the earlier to occur of (x) two (2) years
from the date of this Agreement or (y) the date on which Anderson
shall have sold not less than one (1) million shares of common
stock beneficially owned by her or hereinafter acquired by her,
including by virtue of her exercise of the 1997 Stock Purchase
Right as of the date of this Agreement and (B) provided IGI's net
income, as determined under generally accepted accounting
principles and as reported in the reports filed by IGI under the
Securities Exchange Act of 1934, is for the twelve (12) month
period ending as of the latest fiscal quarter for which a
quarterly (or annual) report has been filed by IGI under the
Securities Exchange Act of 1934 as of the applicable voting
record date, greater than (or net loss less than) the net income
or loss for the comparable twelve (12) month period as of the
prior year.
(b) By way of, and only for the purposes of
illustration, if Anderson is required to vote her shares in
accordance with this Agreement and Smith, Page, Hendrickson and
Newton have sole or shared voting power with respect to 2,500,000
shares and Anderson has sole voting power with respect to
4,000,000 Anderson Shares, then the number of Directed Shares
would be (4,000,000 - 2,500,000) / 2 which equals 1,500,000 / 2
which equals 750,000.
2. No Direction Contrary to Board of Directors
Recommendation. Notwithstanding the provisions of Section 1 of
this Voting Agreement, Anderson shall not be required to follow
any direction from SPHN which would require her to vote shares of
common stock in a manner contrary to a recommendation of the
board of directors of IGI.
3. Procedures for Direction of Voting. The following
procedures shall be used in implementing Section 1:
(a) Within two (2) business days after the selection
of a record date by the board of directors, the secretary of IGI
will notify both SPHN and Anderson of (i) the record date
selected, and (ii) the matters as to which that record date is to
apply.
(b) Within five (5) business days of the receipt of
the notice delivered pursuant to subsection (a) above:
(i) SPHN will deliver to the secretary of IGI,
and to Anderson, a statement setting forth the number
of shares of common stock as to which they have sole or
shared voting power as of the record date, and
indicating whether, in their view, the requirements of
Section 1 have been met;
(ii) Anderson will deliver to the secretary of
IGI a statement indicating the number of Anderson
Shares as to which she has sole voting power as of the
record date, and indicating whether, in her view, the
requirements of Section 1 have been met.
(c) Within two (2) business days of the receipt of the
statements from SPHN and Anderson pursuant to subsection (b)
above, the secretary of IGI will deliver to SPHN and Anderson a
statement (i) setting forth the calculation of the number of
Directed Shares, and (ii) indicating whether there appears to
exist any difference or disagreement as to whether the
requirements of Section 1 have been met.
(d) If, upon the receipt from the secretary of IGI of
the statement delivered pursuant to subsection (c) above, SPHN or
Anderson disagree or have reason to disagree or question the
information set forth therein, they will, within two (2) business
days, notify both the secretary of IGI and the other party to
this Voting Agreement of the nature or such disagreement or
question. SPHN, Anderson and the secretary of IGI will then meet
to attempt to resolve or eliminate any such disagreement or
question. Any such disagreement or question which cannot be so
resolved or eliminated will be submitted to arbitration pursuant
to Section 5 of this Voting Agreement.
(e) Upon the passage of two (2) business days without
any notification pursuant to subsection (d) above, or
alternatively upon the resolution or arbitration of and
disagreements or questions, the secretary of IGI may and shall:
(i) utilize the number of Directed Shares
determined pursuant to subsections (c) and (d) above
in the preparation of proxy materials; and
(ii) request from IGI's transfer agent a separate
proxy card or form for Anderson, in the amount of the
Directed Shares, to facilitate her voting of the
Directed Shares separately from her voting of any other
shares of common stock.
(f) If, pursuant to subsections (c) and (d) above, it
has been determined that (i) the number of Directed Shares is
greater than zero, and (ii) that the requirements of Sections 1
have been met, then, within five (5) business days after the
receipt of a definitive proxy statement, but no less than twenty
(20) days prior to the scheduled date for the meeting of the
stockholders at which the applicable vote is to take place, SPHN
shall, subject to compliance with Section 2 of this Agreement,
deliver to Anderson a written notice indicating the manner in
which they wish the Directed Shares to be voted on each matter as
to which proxies have been solicited.
4. Representation and Agreement of Anderson.
(a) Anderson hereby represents to SPHN that as of the
date hereof she has sole voting power with respect to 4,363,440
shares of common stock of IGI.
(b) Anderson hereby agrees that, as long as this
Voting Agreement remains in effect, she will take no action that
causes the voting rights of the shares identified in Section 4(a)
above to be shared with any other person or entity, without the
express written consent of SPHN.
5. Indemnification.
(a) Each of Smith, Page, Hendrickson and Newton agrees
to indemnify and hold harmless Anderson, and her heirs,
executors, administrators, assigns, affiliates and agents, from
and against any and all losses, damages, liabilities, costs and
expenses which she or any of them may sustain or incur as the
result of any suit, complaint or other action arising out of or
alleging damages from the manner in which the Directed Shares
were voted.
(b) Each of Smith, Page, Hendrickson and Newton and
Anderson agrees to indemnify and hold harmless IGI and its
successors, assigns, affiliates, officers, directors, employees
and agents from and against any and all losses, damages,
liabilities, costs and expenses which it or any of them may
sustain or incur in connection with or arising out of this Voting
Agreement.
6. Arbitration. Each Party agrees that any controversy or
claim by it against another Party arising directly or indirectly
out of this Agreement including, without limitation, claims for
breach of contract, breach of warranty, claims arising from the
purchase or sale of Shares, or claims for fraud, whether due to
false representations or failure to disclose, shall be submitted
to arbitration pursuant to the Federal Arbitration Act ("FAA")
and in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") before a panel of three
arbitrators and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction
pursuant to the FAA. In arbitration proceedings hereunder, the
Parties shall be entitled to any and all remedies that would be
available in the absence of this section and the arbitrators, in
rendering their decision, shall follow the substantive laws of
the State of Delaware. The arbitration of any dispute pursuant
to this section shall be held in Atlanta, Georgia.
Notwithstanding the foregoing in order to preserve the status quo
pending the resolution by arbitration of a claim seeking relief
of an injunctive or equitable nature, any party, upon submitting
a matter to arbitration as required by this section, may
simultaneously or thereafter seek a temporary restraining order
or preliminary injunction from a court of competent jurisdiction
pending the outcome of the arbitration. The losing Party in an
arbitration under this section shall pay all costs and expenses
reasonably incurred by the prevailing Party with respect to this
arbitration including, but not limited to, reasonable attorneys'
fees.
7. Miscellaneous.
(a) Modification; Complete Agreement. This Voting
Agreement (i) represents the entire agreement among SPHN,
Anderson and IGI concerning the matters addressed herein, (ii)
may only be modified by a written instrument executed by IGI and
SPHN and sets forth the entire agreement of IGI and SPHN with
respect to the subject matter hereof; and (iii) shall inure to
the benefit of, and be binding upon IGI and SPHN and their
respective heirs, legal representatives and successors.
(b) Waiver. Any of the terms and conditions of this
Voting Agreement which may be lawfully waived may be waived in
writing at any time by the Party that is entitled to the benefit
thereof. Any waiver of any provision of this Voting Agreement
shall be binding only is set forth in an instrument in writing
signed on behalf of such Party. No failure to enforce any
provision of this Voting Agreement shall be deemed to or shall
constitute a waiver of such provision of this Voting Agreement,
and no waiver of a provision shall be deemed or constitute a
waiver of any other provision of this Voting Agreement, whether
or not similar, nor shall such waiver constitute a continuing
waiver.
(c) Governing Law. This Voting Agreement shall be
governed by the laws of the State of Delaware applicable to
contracts made and to be wholly performed therein.
(d) Fees and Expenses. Each Party shall bear their
own respective expenses in connection with the negotiation and
consummation of the transactions contemplated by this Voting
Agreement.
(e) Transfers and Assignments. Neither this Voting
Agreement nor any of the rights of hereunder may be transferred
or assigned except as provided herein.
(f) Gender. Unless the context otherwise requires,
all personal pronouns used in this Voting Agreement, whether in
the masculine, feminine or neuter gender, shall include all other
genders.
(g) Headings. The headings contained in this Voting
Agreement are for reference only and shall not affect in any way
the meaning of interpretation of this Voting Agreement.
(h) Severability. Any provision of this Voting
Agreement which is invalid, illegal or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to
the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in
such jurisdiction or rendering that or any other provision of
this Voting Agreement invalid, illegal or unenforceable in any
other jurisdiction.
(i) Notices. All notices or other communications
hereunder shall be in writing and shall be deemed to have been
duly given (i) on the date delivered personally or by confirmed
facsimile as set forth below; (ii) two (2) days after being sent
by Express Mail or such other similar service (i.e., Federal
Express) and addressed as set forth below; or (iii) four (4) days
after being mailed by certified or registered mail, return
receipt requested, postage prepaid, and addressed as set forth
below, as follows:
If to Innovo Group:
Innovo Group Inc.
27 North Main Street
Springfield, Tennessee 37172
Attn: Patricia Anderson-Lasko, President
Facsimile: (615) 384-5008
With a copy to:
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Attn: Jerry L. Sims, Esq.
Facsimile: (770) 481-7210
If to Anderson:
Patricia Anderson-Lasko
27 North Main Street
Springfield, Tennessee 37172
Facsimile: (615) 384-5008
With a copy to:
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Attn: Jerry L. Sims, Esq.
Facsimile: (770) 481-7210
If to Smith, Page, Hendrickson or Newton:
L.E. Smith or Dan Page or J. Eric Hendrickson
or Herb Newton
c/o Innovo Group Inc.
27 North Main Street
Springfield, Tennessee 37172
Facsimile: (615) 384-5008
With a copy to:
Jones, Day, Reavis & Pogue
303 Peachtree Street, N.E.
Suite 3500
Atlanta, Georgia 30308-3242
Attn: Lizanne Thomas
Facsimile: (404) 581-8330
or to such other address as a Party shall have designated to the
other by like notice.
(j) Public Announcements. Any and all public
announcements concerning the transactions contemplated or
completed under this Voting Agreement shall require the approval
of IGI and SPHN.
IN WITNESS WHEREOF, Smith, Page, Hendrickson, Newton and
Anderson and IGI have executed this Voting Agreement on the date
first written above.
L.E. Smith /s/ L.E. Smith
_________________________
L.E. Smith
Dan Page /s/ Dan Page
_________________________
Dan Page
J. Eric Hendrickson /s/ J. Eric Hendrickson
_________________________
J. Eric Hendrickson
Herb Newton /s/ Herb Newton
_________________________
Herb Newton
Patricia Anderson-Lasko /s/ Patricia Anderson-Lasko
_________________________
Patricia Anderson-Lasko
Innovo Group Inc.
By:/s/ Schren Head
_________________________
Schren Head, Secretary
(signing as to Sections 3, 4, 5 and 6 only)
Attest:/s/ Patricia Anderson-Lasko
_________________________
Patricia Anderson-Lasko
COMMON STOCK RESALE AND RIGHT
OF FIRST REFUSAL AGREEMENT
This Common Stock Resale and Right of First Refusal Agreement
("the Resale Agreement") is made this 13th day of August, 1997 by
and among L.E. Smith ("Smith"), Dan Page ("Page"), J. Eric
Hendrickson ("Hendrickson"), and Herb Newton (collectively "SPHN")
and Patricia Anderson-Lasko ("Anderson").
WHEREAS, concurrent with the date hereof, Smith, Page,
Hendrickson and Newton are purchasing certain shares of the common
stock, par value $.01 per share, of Innovo Group Inc.("IGI")
pursuant to a Stock Purchase Agreement (the "Acquisition
Agreement"); and
WHEREAS, Anderson has previously acquired 4 million shares of
IGI common stock ("the Award Shares") as the result of her exercise
of a stock purchase right awarded to her by IGI in February, 1997;
and
WHEREAS, as a condition to the purchase referred to in the
Acquisition Agreement, SPHN has requested to obtain from Anderson
certain restrictions on the resale of the Award Shares and certain
rights to purchase the Award Shares; and
WHEREAS, Anderson, as an inducement to the purchase referred
to in the third preceding paragraph, is willing on the terms and
conditions set forth herein to grant to SPHN and to IGI (which is
deemed an intended third party beneficiary of this Resale
Agreement) certain restrictions on the resale of the Award Shares
and certain rights to purchase the Award Shares;
NOW, THEREFORE, SPHN and Anderson agree as follows:
Agreement
1. Restriction on Resale of Award Shares. Anderson hereby
agrees that until the later of (i) ninety (90) days following the
date of termination of Anderson's employment or other affiliation
(other than an affiliation resulting merely from her ownership of
shares of common stock) with the Company or (ii) one year from the
date hereof, she will not offer for sale or sell any of the Award
Shares without obtaining as to each offer and sale the written
permission of SPHN; provided, however, that this restriction shall
not apply to:
(a) offers and sales of the Award Shares up to an
aggregate of 500,000 Award Shares during each six month period
commencing with the six month period that begins on the first
anniversary of this Resale Agreement:
(b) offers and sales affected through privately
negotiated transactions, provided, that the purchaser in such
privately negotiated transaction agrees, with respect to any Award
Shares acquired in such transaction, to be bound by the terms of
this Resale Agreement (including an allocation of such portion of
the 500,000 share limitation set forth in Section 1(a) as Anderson
and such purchaser may agree to, between themselves, in the
negotiation of such transaction) for the remaining term of this
Resale Agreement (a "Private Sale"); and
(c) a sale of the any of the Award Shares in response to
an offer made generally to all stockholders of IGI in connection
with a proposed or intended acquisition of a controlling interest
in IGI ("a Merger Offer").
2. Right of First Refusal on Purchase of Award Shares.
Anderson hereby grants, first to SPHN and then to IGI, the right
("the Right") to purchase any of the Award Shares that she offers
or intends to offer for sale other than pursuant to a Merger Offer.
The Right shall entitle SPHN first, and then IGI to the extent the
Right is not exercised by SPHN, to purchase Award Shares, when and
if Award Shares are offered by Anderson, on the following terms
("the First Refusal Price"):
(a) With respect to any offer or sale which Anderson
proposes to make ("a Proposed Sale") except for a Proposed Sale
which is a Private Sale or is in response to a Merger Offer, the
First Refusal Price shall be a per share price equal to the average
closing sale price, as reported on the NASDAQ SmallCap market or on
such other market of exchange as at that time may be the primary
trading market for the IGI common stock, for the five trading days
that follow the receipt by SPHN of the notice of Proposed Sale
("the Proposed Sale Notice") delivered to SPHN by Anderson pursuant
to Section 3(a) below; and
(b) With respect to a Proposed Sale that is a Private
Sale, the First Refusal Price shall be the lesser of (i) the price
set forth in Section 2(a) above, or (ii) the price contained in the
Proposed Sale Notice.
3. Notice of Proposed Sale; Exercise of the Right.
(a) At any time as Anderson determines to offer and sell
any of the Award Shares (Anderson having no obligation to so
determine), she shall first deliver to SPHN and to IGI a Proposed
Sale Notice. The Proposed Sale Notice shall be delivered to SPHN
not less than ten (10) business days before Anderson proposes to
(i) place an order for the sale of any of the Award Shares, or (ii)
sell, in a Private Sale, any of the Award Shares. The Notice of
Proposed Sale shall set forth the number of Award Shares Anderson
proposes to offer or sell ("the Offered Shares"), the manner (i.e.,
a market transaction or a private sale) in which Anderson proposed
to sell the Offered Shares, the date on which Anderson proposes to
offer or sell the Offered Shares, and, in the case of a Private
Sale, the identity of the proposed purchaser of the Offered Shares
and the per share price and other terms or conditions of the
Proposed Sale. If, at the time of the delivery of the Proposed Sale
Notice, the reoffer or resale of the Offered Shares is the subject
of an effective registration statement filed under the Securities
Act of 1933 ("the 1933 Act"), Anderson shall also deliver to SPHN
the prospectus constituting a part of such registration statement.
In the case of a Private Sale, the proposed purchaser shall be a
bonafide purchaser, and the proposed price shall be made in an arms
length transaction.
(b) Within three (3) business days after the receipt of
the Proposed Sale Notice, SPHN and IGI shall deliver to Anderson a
notice ("the Response Notice") indicating whether SPHN, first, and
then IGI elects to exercise the Right and the number of Offered
Shares each elects to purchase (the "Exercised Shares"). SPHN and
IGI may, in aggregate, exercise the Right: (i) for only all of the
Offered Shares in the case of a Proposed Sale that is a Private
Sale or in response to a Merger Offer; or (ii) for any number of
Offered Shares, up to the total number of Offered Shares, in the
case of any other type of proposed sale. The failure of SPHN or
IGI to deliver a Response Notice within the time period set forth
in this subsection (b) shall be deemed an election by SPHN or IGI
not to exercise the Right with respect to the Offered Shares.
(c) To the extent that SPHN and IGI indicate in the
Response Notice that they do not intend to exercise the Right with
respect to Offered Shares, Anderson shall, upon receipt of the
Response Notice, be free to proceed with the Proposed Sale as
described in, or on terms essentially the same as described in, the
Proposed Sale Notice.
(d) To the extent SPHN and IGI elect to exercise the
Right with respect to Offered Shares, SPHN and IGI shall deliver to
Anderson within ten (10) business days of the delivery of the
Response Notice payment for the Exercised Shares, at the First
Refusal Price, in immediately available funds in the form of a
cashier's check, wire transfer, or such other form of payment as
Anderson may agree to, and Anderson shall deliver to SPHN and IGI
certificates for the Exercised Shares, endorsed to SPHN or IGI as
to the number of Exercised Shares being purchased by each, together
with appropriate stock powers. The failure of SPHN or IGI to
deliver such payment within the time period set forth in this
subsection (d) shall be deemed a forfeiture of the Right with
respect to the Exercised Shares, and Anderson shall be free to
proceed with the Proposed Sale of the Exercised Shares as described
in, or on terms essentially the same as described in, the Proposed
Sale Notice.
4. Restricted Securities. The Award Shares, to the extent
not the subject of an effective registrations statement, if offered
and sold, must be offered and sold in a transaction that is exempt
from registration under Sections 4(1) and /or 4(2) of the 1933 Act
(such shares referred to herein as the "Restricted Shares"). As a
result, the Restricted Shares will constitute "restricted
securities" as that term is defined under the 1933 Act.
Accordingly, the Restricted Shares may not be resold, in whole or
in part, unless they are the subject of registration under the 1933
Act and any applicable state securities laws, or there is available
an exemption from such registration. A legend, as follows, will be
placed on any certificate or certificates representing the
Restricted Shares:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), IN
RELIANCE UPON THE EXEMPTION FROM REGISTRATION PROVIDED BY SECTION
4(2) OF THE 1933 ACT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES LAWS OF APPLICABLE STATES IN RELIANCE UPON APPLICABLE
EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES LAWS OF SUCH
STATES. THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES
ONLY AND MAY NOT BE OFFERED FOR SALE, HYPOTHECATED, SOLD OR
TRANSFERRED, NOR WILL ANY ASSIGNEE OR TRANSFEREE THEREOF BE
RECOGNIZED BY THE COMPANY AS HAVING ANY INTEREST IN THESE SHARES,
IN THE ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT TO THE SHARES UNDER THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS OR (ii) COMPLIANCE WITH APPLICABLE EXEMPTIONS FROM
REGISTRATION UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES
LAWS. THE COMPANY MAY, IF IT DEEMS APPROPRIATE IN ITS SOLE
DISCRETION, REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT THE OFFER, SALE, HYPOTHECATION OR TRANSFER OF THESE
SHARES IS EXEMPT FROM REGISTRATION UNDER THE 1933 ACT AND
APPLICABLE STATE SECURITIES LAWS.
5. Representations and Warranties of SPHN.
Each of Smith, Page, Hendrickson and Newton represents as
to himself the following:
(a) Each of Smith, Page, Hendrickson and Newton have the
full power and authority to enter into this Resale Agreement and
have taken all action or will use their best efforts to take all
action, personal, corporate and otherwise, necessary to authorize
the execution, delivery and performance of this Resale Agreement,
the completion of the transaction contemplated hereby and the
execution and delivery on behalf of SPHN of any and all instruments
necessary or appropriate in order to effectuate fully the terms and
conditions of this Resale Agreement.
(b) No consent or approval of any court, governmental
agency or other public authority, or of any other person,
corporation or entity with any actual or alleged interest is
required as a condition to (i) the validity or enforceability of
this Resale Agreement of any other instruments to be executed by
SPHN to effectuate this Resale Agreement, or (ii) the completion or
validity of any of the transactions contemplated by this Resale
Agreement. This Resale Agreement has been properly executed and
delivered by SPHN and constitutes the valid and legally binding
agreement of SPHN and is enforceable against Smith, Page,
Hendrickson and Newton in accordance with its terms.
(c) No fees or commissions are payable by SPHN by virtue
or in connection with the transaction contemplated by this Resale
Agreement.
(d) Smith, Page, Hendrickson and Newton are purchasing
the Shares for their own respective accounts, with the intention of
holding such Shares for investment and not with the intention of
participating, directly or indirectly, in any resale or
distribution of the Shares.
(e) Each of Smith, Page, Hendrickson and Newton is an
"accredited investor" as that term is defined in Regulation D under
the 1933 Act and each of the Purchasers has (i) such knowledge and
experience in financial and business matters that he is capable of
evaluating the merits and risks of the investment in the Shares,
(ii) had such risk explained to him and has determined that such
investment is suitable in view of his financial circumstances and
available investment opportunities, (iii) sufficient net worth and
income to bear the economic risk of losing this entire investment,
and (iv) no current need for liquidity of the investment and no
reason to anticipate any change in his financial circumstances
which may cause or require any sale, transfer or other distribution
of the Shares.
(f) SPHN has received and carefully reviewed IGI's
Annual Report on Form 10-K for the year ended November 30, 1996,
its Quarterly Report on Form 10-Q for the period ended February 28,
1997, its Quarterly Report on Form 10-Q for the period ended May
31, 1997, its Form 8-K dated March 14, 1997, proxy statement as
filed March 5, 1997, and a statement of "Risk Factors" prepared by
IGI (the "Company Materials") and such additional IGI records and
information regarding historical and proposed operations as SPHN or
their advisers have requested. SPHN further understand that the
information provided by IGI to SPHN was compiled by IGI and has not
been independently reviewed or verified in any manner. Smith,
Page, Hendrickson and Newton have each had a reasonable opportunity
to ask questions of and receive answers from IGI concerning IGI and
all such questions, if any, have been answered to the full
satisfaction of SPHN. Except as set forth in the Company Materials
or in the representations and warranties contained in the
Acquisition Agreement, no representations or warranties have been
made to SPHN by IGI or any agent, employee or affiliate of IGI,
SPHN are relying only on the Company Materials and the results of
their own investigation in deciding to acquire any Restricted
Shares and no information from such investigation contradicts the
Company Materials in any material respect.
(g) Smith, Page, Hendrickson and Newton understand that
any Restricted Shares would be transferred to them in reliance on
specific exemptions from the registration requirements of Federal
and State securities laws and that Anderson and IGI are relying
upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of each of Smith,
Page, Hendrickson and Newton set forth herein in order to determine
the applicability of such exemptions and the suitability of Smith,
Page, Hendrickson and Newton to acquire any Restricted Shares.
Smith, Page, Hendrickson and Newton further understand that the
transfer of any Restricted Shares will not have been the subject of
a registration statement filed under the 1933 Act, and as a result
will be "restricted securities" as that term is defined under the
1933 Act. Accordingly, any Restricted Shares may not be resold, in
whole or in part, unless they are the subject of registration under
the 1933 Act and any applicable state securities laws, or there is
available an exemption from such registration. A legend, as set
forth in Section 4 of this Resale Agreement, will be placed on any
certificate or certificates representing any Restricted Shares.
(h) Each of Smith, Page and Hendrickson represents that
he is a resident of the State of Tennessee. Newton represents that
he is a resident of the State of Georgia. Each of Smith, Page,
Hendrickson and Newton also agrees to cooperate in the filing of a
Form D by the Company and in compliance with the requirements of
Regulation D.
(i) All of the representations by Smith, Page,
Hendrickson and Newton set forth herein are true as of the date
hereof and shall be true as of the date any Restricted Shares are
acquired by any of them in a transfer contemplated by this Resale
Agreement.
6. Representations and Warranties of Anderson.
(a) Anderson has full power and authority to enter into
this Resale Agreement and has taken all action or will use her best
effor2ts to take all actions, personal, corporate and otherwise,
necessary to authorize the execution, delivery and performance of
this Resale Agreement, the completion of the transaction
contemplated hereby and the execution and delivery on behalf of
Anderson of any and all instruments necessary or appropriate in
order to effectuate fully the terms and conditions of this Resale
Agreement. Upon delivery of the Exercised Shares, and the payment
therefore, good and clear title to the Exercised Shares will pass,
free and clear of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever, to Smith,
Page, Hendrickson and Newton.
(b) No consent or approval of any court, governmental
agency or other public authority, or of any other person,
corporation or entity with any actual or alleged interest in
Anderson is required as a condition to (i) the validity or
enforceability of this Resale Agreement of any other instruments to
be executed by Anderson to effectuate this Resale Agreement, or
(ii) the completion or validity of any of the transactions
contemplated by this Resale Agreement. This Resale Agreement has
been properly executed and delivered by Anderson, and constitutes
the valid and legally binding agreement of Anderson and is
enforceable against Anderson in accordance with its terms.
(c) Anderson knows of no outstanding claims against
Anderson for taxes which constitute a lien on the Award Shares
being offered or sold hereunder.
(d) No fees or commissions are payable by Anderson by
virtue or in connection with the transaction contemplated by this
Resale Agreement.
(e) All of the representations by Anderson set forth
herein are true as of the date hereof and shall be true as of the
date any Exercised Shares are acquired by any of Smith, Page,
Hendrickson and Newton in a transfer contemplated by this Resale
Agreement.
7. Indemnification. Smith, Page, Hendrickson and Newton and
Anderson (each being an "Indemnifying Party") agrees to indemnify
and hold harmless each other Party, and its heirs, executors,
administrators, assigns, agents and affiliates, as the case may be,
from and against any and all losses, damages, liabilities, costs
and expenses ("Losses") sustained or incurred as a proximate and
foreseeable result of the breach by the Indemnifying Party of, or
any misrepresentation or inaccuracy contained in, any
representation, warranty or covenant made by the Indemnifying Party
herein. The Indemnifying Party shall pay such Losses within 30
days after the receipt of demand for payment., assigns, agents and
affiliates, as the case may be, from and against any and all
losses, damages, liabilities, costs and expenses ("Losses")
sustained or incurred as a proximate and foreseeable result of the
breach by the Indemnifying Party of, or any misrepresentation or
inaccuracy contained in, any representation, warranty or covenant
made by the Indemnifying Party herein. The Indemnifying Party
shall pay such Losses within 30 days after the receipt of demand
for payment.
8. Arbitration. Each Party agrees that any controversy or
claim by it against another Party arising directly or indirectly
out of this Resale Agreement including, without limitation, claims
for breach of contract, breach of warranty, claims arising from the
purchase or sale of Shares, or claims for fraud, whether due to
false representations or failure to disclose, shall be submitted to
arbitration pursuant to the Federal Arbitration Act ("FAA") and in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA") before a panel of three arbitrators
and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction pursuant to the FAA. In
arbitration proceedings hereunder, the Parties shall be entitled to
any and all remedies that would be available in the absence of this
section and the arbitrators, in rendering their decision, shall
follow the substantive laws of the State of Delaware. The
arbitration of any dispute pursuant to this section shall be held
in Atlanta, Georgia. Notwithstanding the foregoing in order to
preserve the status quo pending the resolution by arbitration of a
claim seeking relief of an injunctive or equitable nature, any
party, upon submitting a matter to arbitration as required by this
section, may simultaneously or thereafter seek a temporary
restraining order or preliminary injunction from a court of
competent jurisdiction pending the outcome of the arbitration. The
losing Party in an arbitration under this section shall pay all
costs and expenses reasonably incurred by the prevailing Party with
respect to this arbitration including, but not limited to,
reasonable attorneys' fees.
9. Miscellaneous.
(a) Modification; Complete Agreement. This Resale
Agreement (i) may only be modified by a written instrument executed
by SPHN and Anderson, (ii) sets forth the entire understanding
between SPHN and Anderson with respect to the subject matter
hereof; and (iii) shall inure to the benefit of, and be binding
upon IGI, SPHN and Anderson and their respective heirs, legal
representatives and successors.
(b) Waiver. Any of the terms and conditions of this
Resale Agreement which may be lawfully waived may be waived in
writing at any time by the Party that is entitled to the benefit
thereof. Any waiver of any provision of this Resale Agreement
shall be binding only is set forth in an instrument in writing
signed on behalf of such Party. No failure to enforce any
provision of this Resale Agreement shall be deemed to or shall
constitute a waiver of such provision of this Resale Agreement, and
no waiver of a provision shall be deemed or constitute a waiver of
any other provision of this Resale Agreement, whether or not
similar, nor shall such waiver constitute a continuing waiver.
(c) Governing Law. This Resale Agreement shall be
governed by the laws of the State of Delaware applicable to
contracts made and to be wholly performed therein.
(d) Fees and Expenses. Each Party shall bear their own
respective expenses in connection with the negotiation and
consummation of the transactions contemplated by this Resale
Agreement.
(e) Transfers and Assignments. Neither this Resale
Agreement nor any of the rights of hereunder may be transferred or
assigned except as provided herein.
(f) Gender. Unless the context otherwise requires, all
personal pronouns used in this Common Stock Resale and Right of
First Refusal Agreement, whether in the masculine, feminine or
neuter gender, shall include all other genders.
(g) Headings. The headings contained in this Resale
Agreement are for reference only and shall not affect in any way
the meaning of interpretation of this Resale Agreement.
(h) Severability. Any provision of this Resale
Agreement which is invalid, illegal or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the
extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this
Resale Agreement invalid, illegal or unenforceable in any other
jurisdiction.
(i) Notices. All notices or other communications
hereunder shall be in writing and shall be deemed to have been duly
given (i) on the date delivered personally or by confirmed
facsimile as set forth below; (ii) two (2) days after being sent by
Express Mail or such other similar service (i.e., Federal Express)
and addressed as set forth below; or (iii) four (4) days after
being mailed by certified or registered mail, return receipt
requested, postage prepaid, and addressed as set forth below, as
follows:
If to Innovo Group:
Innovo Group Inc.
27 North Main Street
Springfield, Tennessee 37172
Attn: Patricia Anderson-Lasko, President
Facsimile: (615) 384-5008
With a copy to:
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Attn: Jerry L. Sims, Esq.
Facsimile: (770) 481-7210
If to Anderson:
Patricia Anderson-Lasko
27 North Main Street
Springfield, Tennessee 37172
Facsimile: (615) 384-5008
With a copy to:
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Attn: Jerry L. Sims, Esq.
Facsimile: (770) 481-7210
If to Smith, Page, Hendrickson or Newton:
L.E. Smith or Dan Page or J. Eric Hendrickson
or Herb Newton
c/o Innovo Group Inc.
27 North Main Street
Springfield, Tennessee 37172
Facsimile: (615) 384-5008
With a copy to:
Jones, Day, Reavis & Pogue
303 Peachtree Street, N.E.
Suite 3500
Atlanta, Georgia 30308-3242
Attn: Lizanne Thomas
Facsimile: (404) 581-8330
or to such other address as a Party shall have designated to the
other by like notice.
(j) Public Announcements. Any and all public
announcements concerning the transactions contemplated or completed
under this Resale Agreement shall require the approval of IGI and
SPHN.
IN WITNESS WHEREOF, Smith, Page, Hendrickson and Newton and
Anderson have executed this Common Stock Resale and Right of First
Refusal Agreement on the date first written above.
L.E. Smith /s/ L.E. Smith
_________________________
L.E. Smith
Dan Page /s/ Dan Page
_________________________
Dan Page
J. Eric Hendrickson /s/ J. Eric Hendrickson
_________________________
J. Eric Hendrickson
Herb Newton /s/ Herb Newton
_________________________
Herb Newton
Patricia Anderson-Lasko /s/ Patricia Anderson-Lasko
_________________________
Patricia Anderson-Lasko
COMMON STOCK PURCHASE AND RIGHT OF
FIRST REFUSAL AGREEMENT
This Common Stock Purchase and Right of First Refusal
Agreement (the "Agreement") is made this 30th day of July, 1997
by and between L.E. Smith, Dan Page and J. Eric Hendrickson
(collectively "Smith, Page and Hendrickson") and William T.
Williams, Sr. and Virginia C. Williams/William T. Williams, Jr.
and Allison Williams ITTN ("Williams").
Recitals
Whereas, pursuant to a letter of intent agreement dated July
29, 1997 by and between Smith, Page and Hendrickson and Innovo
Group Inc. ("Innovo Group") and Patricia Anderson-Lasko, Smith,
Page and Hendrickson propose to purchase, and Innovo Group
proposes to sell to Smith, Page and Hendrickson, certain shares
of the common stock, par value $.01 per share, of Innovo Group
("common stock") (such proposed transaction referred to
hereinafter as the "Share Purchase"); and
Whereas, in May, 1997, Williams acquired 1,500,000 shares of
common stock ("the Conversion Shares") upon the conversion of a
$175,000 Innovo Group 10% Unsecured Convertible Promissory Note,
and acquired 500,000 shares of common stock (the "Warrant
Shares") upon the exercise of an Innovo Group Class J common
stock purchase warrant; and
Whereas, in connection with and as a condition of the Share
Purchase Smith, Page and Hendrickson wish to acquire the Warrant
Shares, and wish to obtain from Williams certain restrictions on
the resale of the Conversion Shares and certain rights to
purchase the Conversion Shares; and
Whereas, Williams is willing to sell to Smith, Page and
Hendrickson the Warrant Shares, on the terms and conditions set
forth herein, and as an inducement to the purchase of the Warrant
Shares, and to the Share Purchase, is willing on the terms and
conditions set forth herein to grant to Smith, Page and
Hendrickson and to Innovo Group (which is deemed an intended
third party beneficiary of this Agreement) certain restrictions
on the resale of the Conversion Shares and certain rights to
purchase the Conversion Shares;
Therefore, Smith, Page and Hendrickson and Williams agree as
follows:
Agreement
1. Closing. The closing of the transactions contemplated by
this Agreement ("the Closing") shall take place at the offices of
Innovo Group immediately following the closing of the Share
Purchase.
2. Purchase of Warrant Shares. Within 10 business days of the
Closing, Smith, Page and Hendrickson shall purchase, and Williams
shall sell to Smith, Page and Hendrickson, the Warrant Shares for
an aggregate price of $67,500.00. Within 10 business days of the
Closing or within thirty (30) days following the Closing, Smith,
Page and Hendrickson shall deliver to Williams payment of
immediately available funds in the form of a cashier's check,
wire transfer, or such other form of payment as Williams may
agree to, and Williams shall deliver to Smith, Page and
Hendrickson the certificate for the Warrant Shares, properly
endorsed and with appropriate stock powers.
3. Restriction on Resale of Conversion Shares. Williams hereby
agrees that, upon and conditioned upon the occurrence of the
Closing, for a period of one year from the Closing he will not,
without the written permission of Smith, Page and Hendrickson,
obtained as to each offer and sale, offer for sale or sell any of
the Conversion Shares, provided, however, that this restriction
shall not apply to a sale of the Conversion Shares in response to
an offer made generally to all stockholders of Innovo Group in
connection with a proposed or intended acquisition of a
controlling interest in Innovo Group ("a Merger Offer").
4. Right of First Refusal on Purchase of Conversion Shares.
Upon and conditioned upon the occurrence of the Closing, Williams
hereby grants, first to Smith, Page and Hendrickson and then to
Innovo Group, the right ("the Right") to purchase any of the
Conversion Shares that he offers or intends to offer for sale
during the period which commences on the first anniversary of
Closing and ends on the second anniversary of Closing ("the Right
Period"). The Right shall entitle Smith, Page and Hendrickson
first, and then Innovo Group to the extent the Right is not
exercised by Smith, Page and Hendrickson, to purchase Conversion
Shares, when and if Conversion Shares are offered by Williams
during the Right Period, at the following prices ("the Right
Prices");
(a) With respect to any offer or sale which Williams
proposes to make ("a Proposed Sale") except for a Proposed
Sale which is in response to a Merger Offer, at a per share
price equal to 75% of the average closing bid price, as
reported on the NASDAQ SmallCap market or on such other
market of exchange as at that time may be the primary
trading market for the common stock, for the five trading
days prior to the receipt by Smith, Page and Hendrickson of
the notice of Proposed Sale ("the Proposed Sale Notice")
delivered to Smith, Page and Hendrickson by Williams
pursuant to section 5(a) below;
(b) With respect to a Proposed Sale in response to a Merger
Offer, at the price and on the terms contained in the Merger
Offer.
5. Notice of Proposed Sale; Exercise of the Right.
(a) At any time during the Right Period as Williams
determines to offer and sell any of the Conversion Shares
(Williams having no obligation to so determine during the
Right Period), he shall first deliver to Smith, Page and
Hendrickson and to Innovo Group a Proposed Sale Notice. The
Proposed Sale Notice shall be delivered to Smith, Page and
Hendrickson not less than five (5) days before Williams
proposes to (i) place an order for the sale of any of the
Conversion Shares, or (ii) sell, in a non-market transaction
(i.e., a private sale) ("a Private Sale") or in response to
a Merger Offer, any of the Conversion Shares. The Notice of
Proposed Sale shall set forth the number of Conversion
Shares Williams proposes to offer or sell ("the Offered
Shares"), the manner (i.e., a market transaction or a
private sale) in which Williams proposed to sell the Offered
Shares, the date on which Williams proposes to offer or sell
the Offered Shares, and, in the case of a Private Sale or a
Merger Offer, the identity of the proposed purchaser of the
Offered Shares and the per share price and other terms or
conditions of the Proposed Sale. If, at the time of the
delivery of the Proposed Sale Notice the reoffer or resale
of the Offered Shares is the subject of an effective
registration statement filed under the Securities Act of
1933 ("the 1933 Act") Williams shall also deliver to Smith,
Page and Hendrickson the prospectus constituting a part of
such registration statement.
(b) Within three (3) business days after the receipt of the
Proposed Sale Notice, Smith, Page and Hendrickson and Innovo
Group shall deliver to Williams a notice ("the Response
Notice") indicating whether, as to what number of Offered
Shares ("the Exercised Shares"), first Smith, Page and
Hendrickson and then Innovo Group elects to exercise the
Right. Smith, Page and Hendrickson and Innovo Group may
exercise the Right;
(i) as to a Proposed Sale that is a Private Sale or in
response to a Merger Offer, either in the aggregate to
none of the Offered Shares or in the aggregate to all
of the Offered Shares:
(ii) as to any other Proposed Sale, for any number to
Offered Shares, up to the total number of Offered
Shares.
The failure of Smith, Page and Hendrickson or Innovo
Group to deliver a Response Notice within the time
period set forth in this subsection (b) shall be deemed
an election by Smith, Page and Hendrickson or Innovo
Group not to exercise the Right with respect to the
Offered Shares.
(c) To the extent that Smith, Page and Hendrickson and
Innovo Group indicate in the response notice that they do
not intend to exercise the Right with respect to Offered
Shares, Williams shall, upon receipt of the Response Notice,
be free to proceed with the Proposed Sale as described in,
or on terms essentially the same as described in, the
Proposed Sale Notice.
(d) To the extent Smith, Page and Hendrickson and Innovo
Group elect to exercise the Right with respect to Offered
Shares, Smith, Page and Hendrickson and Innovo Group shall
deliver to Williams within five (5) days of the delivery of
the Response Notice payment for the Exercised Shares, at the
Right Price, in immediately available funds in the form of a
cashier's check, wire transfer, or such other form of
payment as Williams may agree to, and Williams shall deliver
to Smith, Page and Hendrickson and Innovo Group certificates
for the Exercised Shares, endorsed to Smith, Page and
Hendrickson or Innovo Group as to the number of Exercised
shares being purchased by each, together with appropriate
stock powers. The failure of Smith, Page and Hendrickson or
Williams to deliver such payment within the time period set
forth in this subsection (d) shall be deemed a forfeiture of
the Right with respect to the Exercised Shares, and Williams
shall be free to proceed with the Proposed Sale of the
Exercised Shares as described in, or on terms essentially
the same as described in, the Proposed Sale Notice.
6. Restricted Securities
(a) The Warrant Shares are being offered and sold, and to
the extent not the subject of an effective registrations
statement, the Exercised Shares would be offered and sold,
in a transaction that is exempt from registration under
Sections 4(1) and /or 4(2) of the 1933 Act (such shares
referred to herein as the "Restricted Shares"). As a
result, the Restricted Shares will constitute "restricted
securities" as that term is defined under the 1933 Act.
Accordingly, the Restricted Shares may not be resold, in
whole or in part, unless they are the subject of
registration under the 1933 Act and any applicable state
securities laws, or there is available an exemption from
such registration. A legend, as follows, will be placed on
any certificate or certificates representing the Restricted
Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN THE
SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE 1933 ACT") OR UNDER ANY STATE SECURITIES LAWS. THE
SHARES HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE RESALE OR
DISTRIBUTION THEREOF. SUCH SHARES MAY NOT BE TRANSFERRED OR
DISPOSED OF IN THE ABSENCE OF REGISTRATION WITHOUT AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR
DISPOSITION DOES NOT VIOLATE THE 1933 ACT, THE RULES AND
REGULATIONS THEREUNDER, OR ANY APPLICABLE STATE SECURITIES LAWS.
IN CONNECTION WITH COMPLIANCE WITH THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, NO TRANSFER OF THESE SHARES
SHALL BE MADE UNLESS THE CONDITIONS SPECIFIED HEREIN ARE
SATISFIED."
7. Representations and Warranties of Smith, Page and Hendrickson.
(a) Each of Smith, Page and Hendrickson have the full power
and authority to enter into this Agreement and have taken
all action or will use their best efforts to take all
action, personal, corporate and otherwise, necessary to
authorize the execution, delivery and performance of this
Agreement, the completion of the transaction contemplated
hereby and the execution and delivery on behalf of Smith,
Page and Hendrickson of any and all instruments necessary or
appropriate in order to effectuate fully the terms and
conditions of this Agreement.
(b) No consent or approval of any court, governmental agency
or other public authority, or of any other person,
corporation or entity with any actual or alleged interest is
required as a condition to (i) the validity or
enforceability of this Agreement of any other instruments to
be executed by Smith, Page and Hendrickson to effectuate
this Agreement, or (ii) the completion or validity of any of
the transactions contemplated by this Agreement. This
Agreement has been properly executed and delivered by Smith,
Page and Hendrickson and constitutes the valid and legally
binding agreement of Smith, Page and Hendrickson and is
enforceable against Smith, Page and Hendrickson in
accordance with its terms.
(c) No fees or commissions are payable by Smith, Page and
Hendrickson by virtue or in connection with the transaction
contemplated by this Agreement.
(d) Smith, Page and Hendrickson are acquiring the Restricted
Shares for their own account and not with a view towards
the resale of distribution thereof. Smith, Page and
Hendrickson are not acting as an underwriter or distributor
as those terms are defined under the 1933 Act.
(e) Each of Smith, Page and Hendrickson are an "accredited
investor" as that term is defined in Regulation D under the
1933 Act and has such knowledge and expertise in financial
and business matters that each of Smith, Page and
Hendrickson is capable of evaluating the merits and risks
involved in an investment in the Warrant Shares or the
Offered Shares;
(f) Smith, Page and Hendrickson understand that the
Restricted Shares are being offered and sold to them in
reliance on specific exemptions from the registration
requirements of Federal and State securities laws and that
Williams is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgements
and understandings of Smith, Page and Hendrickson set forth
herein in order to determine the applicability of such
exemptions and the suitability of Smith, Page and
Hendrickson to acquire the Shares.
(g) Smith, Page and Hendrickson understand that the offer
and sale of the Restricted Shares will not have been the
subject of a registration statement filed under the 1933
Act, and as a result will be "restricted securities" as that
term is defined under the 1933 Act. Accordingly, the
Restricted Shares may not be resold, in whole or in part,
unless they are the subject of registration under the 1933
Act and any applicable state securities laws, or there is
available an exemption from such registration. A legend, as
set forth in Section 5 of this Agreement, will be placed on
any certificate or certificates representing the Restricted
Shares.
(h) Each of the representations by Smith, Page and
Hendrickson shall be deemed to be repeated as of the date of
any Response Notice.
8. Representations and Warranties of Williams.
(a) Williams is a __________ duly organized, validly
existing, and in good standing under the laws of the State
of __________, and it has full power and authority to enter
into this Agreement and to carry out the transactions
contemplated hereby. Williams has full power and authority
to carry on its business as it is now being conducted and to
own its assets.
(b) Williams has full power and authority to enter into
this Agreement and has taken all action or will use its best
efforts to take all action, personal, corporate and
otherwise, necessary to authorize the execution, delivery
and performance of this Agreement, the completion of the
transaction contemplated hereby and the execution and
delivery on behalf of Williams of any and all instruments
necessary or appropriate in order to effectuate fully the
terms and conditions of this Agreement. Upon delivery of
the Shares, and the payment therefore, good and clear title
to the Shares will pass, free and clear of all restrictions
on transfer, liens, encumbrances, security interests and
claims whatsoever, to the Smith, Page and Hendrickson.
(c) No consent or approval of any court, governmental agency
or other public authority, or of any other person,
corporation or entity with any actual or alleged interest in
Williams is required as a condition to (i) the validity or
enforceability of this Agreement of any other instruments
to be executed by Williams to effectuate this Agreement, or
(ii) the completion or validity of any of the transactions
contemplated by this Agreement. This Agreement has been
properly executed and delivered by the duly authorized
officer of Williams, and constitutes the valid and legally
binding agreement of Williams and is enforceable against
Williams in accordance with its terms.
(d) Williams knows of no outstanding claims against
Williams for taxes which constitute a lien on the Shares
being offered or sold hereunder.
(e) No fees or commissions are payable by Williams by virtue
or in connection with the transaction contemplated by this
Agreement.
(f) Each of the representations by Williams shall be deemed
to be repeated as of the date of any Proposed Sale Notice.
9. Indemnification.
(a) Each of Smith, Page and Hendrickson, and Williams (each
being a "Party") agrees to indemnify each of other Party,
and their, heirs, successors, assigns, agents and
affiliates, and hold each of the other Party and their
heirs, successors assigns, agents and affiliates, harmless
from and against any and all losses, damages, liabilities,
costs and expenses which it or any of them may sustain or
incur in connection with the breach by the indemnifying
Party of, or any misrepresentation or inaccuracy contained
in, any representation, warranty or covenant made by that
Party herein.
10. Arbitration. Each Party represents, warrants, covenants and
agrees that any controversy or claim brought directly,
derivatively or in a representative capacity by it, him or her in
the capacity as a present or former securityholder, whether
against Innovo Group, Smith, Page and Hendrickson or Williams,
brought by a Party or in the name of a Party, or any
shareholders, officers, directors, agents, affiliates,
associates, employees or controlling persons a Party, including
without limitation any controversy or claim relating this
Agreement or to a purchase or sale of securities of Innovo Group,
shall be settled by arbitration under the Federal Arbitration Act
in accordance with the commercial arbitration rules of the
American Arbitration Association ("AAA") and judgment upon the
award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. In arbitration proceedings under
this Section 9, the parties shall be entitled to any and all
remedies that would be available in the absence of this Section 9
and the arbitrators, in rendering their decision, shall follow
the substantive laws of the State of Delaware. This Section 9
shall apply, without limitation, to actions arising in connection
the offer and sale of Innovo Group common stock or contemplated
by this Agreement under any Federal or State securities laws.
The arbitration of any dispute pursuant to this Section 9 shall
be held in Springfield, Tennessee.
Notwithstanding the foregoing in order to preserve the
status quo pending the resolution by arbitration of a claim
seeking relief of an injunctive or equitable nature, any party,
upon submitting a matter to arbitration as required by this
Section 9, may simultaneously or thereafter seek a temporary
restraining order or preliminary injunction from a court of
competent jurisdiction pending the outcome of the arbitration.
This Section 9 is intended to benefit the shareholders,
agents, affiliates, associates, employees and controlling persons
of each Party, each of whom shall be deemed to be a third party
beneficiary of this Section 9, and each of whom may enforce this
Section 9 to the full extent that the Party could do so if a
controversy or claim were brought against it.
11. Miscellaneous.
(a) Modification; Complete Agreement. This Agreement (i)
may only be modified by a written instrument executed by
Smith, Page and Hendrickson and Williams, (ii) sets forth
the entire understanding between Smith, Page and Hendrickson
and Williams with respect to the subject matter hereof; and
(iii) shall inure to the benefit of, and be binding upon
Innovo Group and Smith, Page and Hendrickson and Williams
their respective heirs, legal representatives and
successors.
(b) Waiver. Any of the terms and conditions of this
Agreement which may be lawfully waived may be waived in
writing at any time by the Party that is entitled to the
benefit thereof. Any waiver of any provision of this
Agreement shall be binding only is set forth in an
instrument in writing signed on behalf of such Party. No
failure to enforce any provision of this Agreement shall be
deemed to or shall constitute a waiver of such provision of
this Agreement, and no waiver of a provision shall be deemed
or constitute a waiver of any other provision of this
Agreement, whether or not similar, nor shall such waiver
constitute a continuing waiver.
(c) Governing Law. This Agreement shall be governed by the
laws of the State of Delaware applicable to contracts made
and to be wholly performed therein.
(d) Fees and Expenses. Each Party shall bear their own
respective expenses in connection with the negotiation and
consummation of the transactions contemplated by this
Agreement.
(e) Transfers and Assignments. Neither this Agreement nor
any of the rights of hereunder may be transferred or
assigned except as provided herein.
(f) Gender. Unless the context otherwise requires, all
personal pronouns used in this Agreement, whether in the
masculine, feminine or neuter gender, shall include all
other genders.
(g) Headings. The headings contained in this Agreement are
for reference only and shall not affect in any way the
meaning of interpretation of this Agreement.
(h) Severability. Any provision of this Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall,
as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of
this Agreement invalid, illegal or unenforceable in any
other jurisdiction.
(i) Notices. All notices or other communications hereunder
shall be in writing and shall be deemed to have been duly
given if delivered personally, sent by express mail or such
other similar service (i.e., Federal Express), or mailed by
certified or registered mail, return receipt requested,
postage prepaid, as follows:
if to Smith, Page or Hendrickson:
L.E. Smith or Dan Page or Eric Hendrickson
27 North Main Street
Springfield, Tennessee 37172
with a copy to:
if to Williams:
William T. Williams , Sr.
2800 S. Ocean Blvd. #21M
Boca Raton, Florida 33432-8381
with a copy to:
if to Innovo Group:
Innovo Group Inc.
27 North Main Street
Springfield, Tennessee 37172
Attn: Patricia Anderson-Lasko, President
with a copy to:
Sims, Moss, Kline & Davis LLP
400 North Park Center
Suite 310
1000 Abernathy Road, NE
Atlanta, Georgia, 30328
Attn: Jerry L. Sims, Esq.
or to such other address as a Party shall have designated to the
other by like notice.
IN WITNESS WHEREOF, Smith, Page and Hendrickson and Williams have
executed this Common Stock Purchase and Right of First Refusal
Agreement on the date first written above.
/s/L.E. Smith
_________________________
L.E. Smith
/s/Dan Page
_________________________
Dan Page
/s/Eric Hendrickson
_________________________
Eric Hendrickson
William T. Williams, Sr. and
Virginia C. Williams/William T. Williams, Jr.
and Allison Williams ITTN
By: /s/William T. Williams, Sr.
_________________________
William T. Williams, Sr.
Title: Partner
____________________
