PLACEMENT AGENT AGREEMENT
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July 30, 2003
Pacific Summit Securities
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Dear Sirs:
1. Introductory. Innovo Group, Inc., a Delaware corporation (the
"Company"), proposes to sell up to 175,000 shares (the "Shares") of common
stock, $.10 par value ("Common Stock"), of the Company at a purchase price of $
3.62 per share (the "Offering Price").
2. Representations and Warranties of the Company. The Company
represents, warrants, and agrees that:
(i) All reports and statements required to be filed by the
Company with the Securities and Exchange Commission (the "Commission")
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder, due at or prior to the
date of this Agreement have been made. Such filings, together with all
documents incorporated by reference therein, are referred to as
"Exchange Act Documents." Each Exchange Act Document, as amended,
conformed in all material respects to the requirements of the Exchange
Act and the rules and regulations thereunder, and no Exchange Act
Document, as amended, at the time each such document was filed,
included any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading.
(ii) The audited financial statements, together with the
related notes of the Company at November 30, 2002 and December 1, 2001,
and for the years then ended, included in the Company's Annual Report
on Form 10-K for the year ended November 30, 2002, and the unaudited
financial statements of the Company at May 31, 2003, and for the six
months then ended (collectively, the "Company Financial Statements"),
included in the Company's Quarterly Report on Form 10-Q for the quarter
ended May 31, 2003, respectively, fairly present in all material
respects, on the basis stated therein and on the date thereof, the
financial position of the Company at the respective dates therein
specified and its results of operations and cash flows for the periods
then ended (subject to, in the case of the unaudited financial
statements, normal audit adjustments). To the knowledge of the Company,
such statements and related notes have been prepared in accordance with
generally accepted accounting principles in the United States applied
on a consistent basis except as expressly noted therein.
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(iii) Except as disclosed on Schedule 2(iii), subsequent to
May 31, 2003, the Company has not incurred any material liabilities or
obligations, direct or contingent, except in the ordinary course of
business and except for liabilities or obligations reflected or
reserved against on the Company's balance sheet dated May 31, 2003, and
there has not been any material adverse change, or to the actual
knowledge of the Company, any development involving a prospective
material adverse change, in the condition (financial or otherwise),
business, or results of operations of the Company or any change in the
capital or increase in the long-term debt of the Company, nor has the
Company declared, paid, or made any dividend or distribution of any
kind on its capital stock.
(iv) All action required to be taken by the Company as a
condition to the due and proper authorization, issuance, sale, and
delivery of the Shares to subscribers therefore in accordance with the
terms of this Agreement has been, or prior to the Closing Date (as
herein defined), will have been taken; and upon the payment of the
consideration for the Shares specified herein the Shares will be duly
and validly issued, fully paid, and non-assessable with no personal
liability attaching to the ownership thereof and free and clear of all
liens imposed by or through the Company.
(v) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware,
and has all requisite corporate right, power, and authority to own or
lease its properties, to conduct its business as described in the
Exchange Act Documents, and to execute, deliver, and perform this
Agreement; the Company is duly qualified to do business and in good
standing as a foreign corporation in all other jurisdictions in which
its ownership or leasing of properties, or the conduct of its business
requires or may require such qualification except where the failure to
be so qualified would not have a material adverse effect on the
Company. The Company has complied in all material respects with all
material laws, rules, regulations, applicable to the Company's
business, operations, properties, assets, products, and services, and
the Company is in possession of and operating in compliance with all
material permits, licenses, and other authorization, required to
conduct its business as currently conducted.
(vi) The authorized capital stock of the Company consists of
40,000,000 shares of Common Stock, $0.10 par value, of which 18,056,562
shares were issued and outstanding as of July 15, 2003, and 5,000
shares of 8% redeemable preferred stock, $0.10 par value, of which 194
shares were issued and outstanding as of the date hereof. Except as
contemplated by this Agreement, or as described in the Exchange Act
Documents or on Schedule 2(vi), (a) there is no commitment by the
Company to issue any shares of capital stock, subscriptions, warrants,
options, convertible securities, or other similar rights to purchase or
receive Company securities or to distribute to the holders of any of
its equity securities any evidence of indebtedness, cash, or other
assets, (b) the Company is
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under no obligation (contingent or otherwise) to purchase, redeem, or
otherwise acquire any of its equity or debt securities or any interest
therein or except with respect to its outstanding preferred stock to
pay any dividend or make any other distribution in respect thereof, and
(c) to the Company's knowledge there are no voting trusts or similar
agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights, or proxies
relating to any securities of the Company. Except as set forth in the
Exchange Act Documents or filings with the Commission made by third
parties pursuant to Schedule 13D or 13G or Form 3 or 4, and to the
knowledge of the Company, no person holds of record or beneficially, 5%
or more of the outstanding shares of the capital stock of the Company.
All outstanding securities of the Company were issued in compliance
with applicable Federal and state securities laws.
(vii) Except as disclosed in the Exchange Act Documents or as
described on Schedule 2(vii), there is no material pending or, to the
knowledge of the Company, threatened (a) action, suit, claim,
proceeding, or investigation against the Company, at law or in equity,
or before or by any Federal, state, municipal, or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign (each, a "Governmental Body"), (b) arbitration
proceeding against the Company, (c) governmental inquiry against the
Company, or (d) any action or suit by or on behalf of the Company
pending or threatened against others.
(viii) The Company is not in violation of its certificate of
incorporation or bylaws, or in default, or with the giving of notice or
lapse of time or both, would be in default, in the performance of any
material obligation, agreement, or condition contained in any lease,
license, material contract, indenture, or loan agreement or in any
bond, debenture, note, or any other evidence of indebtedness, except
for such defaults resulting from the closing of stores or as would not
have a material adverse effect on the Company. The execution, delivery,
and performance of this Agreement, the incurrence of the obligations
herein, the issuance, sale, and delivery of the Shares, and the
consummation of the transactions contemplated herein, have been duly
authorized by all requisite corporate action on the part of the Company
and (a) do not and will not conflict with the Company's certificate of
incorporation or bylaws, (b) do not and will not, with or without the
passage of time or the giving of notice, result in the breach of, or
constitute a default, cause the acceleration of performance, or require
any consent under, or result in the creation of any lien, charge or
encumbrance upon any property assets of the Company pursuant to, any
material loan agreement, mortgage, deed of trust, indenture, or other
instrument or agreement to which the Company is a party or by which the
Company or its properties are bound, except such consents as have been
obtained as of the date hereof or to the extent that the same have
been, or prior to the Closing Date will be, waived or cured, or (c) do
not and will not result in the violation of any law, statute, order,
rule, administrative regulation, or decree of any court, or
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governmental agency or body having jurisdiction over the Company or its
properties.
(ix) Except as disclosed in the Exchange Act Documents or as
described on Schedule 2(ix), there are no pre-emptive rights or other
rights to subscribe for or to purchase, or any restriction upon the
voting or transfer of, shares of Common Stock pursuant to the Company's
certificate of incorporation, bylaws, or any agreement or other
instrument to which the Company is a party. Except as disclosed on
Schedule 2(ix), the issuance of the Shares is not subject to any
preemptive right of any stockholder of the Company or to any right of
first refusal or other right in favor of any person.
(x) This Agreement has been duly and validly executed and
delivered by or on behalf of the Company and constitutes a legal,
valid, and binding obligation of the Company enforceable in accordance
with its terms, except to the extent that its enforceability is limited
by (a) applicable bankruptcy, insolvency, reorganization, moratorium,
or other laws of general application relating to or affecting the
enforcement of creditors' rights generally, and (b) laws relating to
the availability of specific performance, injunctive relief, or other
equitable remedies and except as enforceability of the indemnity and
contribution provisions contained in Section 7 hereof may be limited by
applicable law or principles of public policy.
(xi) No consent, approval, authorization, or order of any
court or governmental authority or agency is required for the
consummation by the Company of the transactions contemplated by this
Agreement, except such as may be required by the National Association
of Securities Dealers, Inc. ("NASD"), the Securities Act of 1933, as
amended (the "Act"), or the rules and regulations thereunder or state
securities or Blue Sky laws.
(xii) Except as would not have a material adverse effect on
the business, assets, results of operation, or condition of the
Company, the Company has filed, or caused to be filed, on a timely
basis, all tax returns (including payroll, unemployment, and other
taxes related to its employees and independent contractors) required to
be filed with any Governmental Body and has paid or caused to be paid
all taxes, levies, assessments, tariffs, duties or other fees imposed,
assessed, or collected by any Governmental Body that may have become
due and payable pursuant to those tax returns or otherwise except taxes
being disputed by the Company in good faith. No deficiency assessment
with respect to or proposed adjustment of any of the Company's Federal,
state, municipal, or local tax returns has occurred or, to the
Company's knowledge, is threatened. There has been no tax lien imposed
by any Governmental Body outstanding against the Company's assets or
properties, except the lien for current taxes not yet due. The charges,
accruals, and reserves on the books of the Company with respect to
taxes for all fiscal periods are adequate, in the opinion of the
Company, and the Company does not know of any actual or proposed tax
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assessment for any fiscal period or of any basis therefor against which
adequate reserves have not been set up. Except as disclosed on Schedule
2(xiv), the Company has not been advised that any Federal income tax
return of the Company has been, or will be, examined or audited by the
Internal Revenue Service.
(xiii) The Common Stock is registered pursuant to Section
12(g) of the Exchange Act and is listed for quotation with the symbol
"INNO" on the Nasdaq Small Cap Market maintained by the Nasdaq Stock
Market, Inc.
(xiv) The Company has not during the past six months offered
or sold any security by or for the Company that is of the same or a
similar class as the Shares, other than offers of securities made
solely to accredited investors or otherwise under an employee benefit
plan as defined in Rule 405 under the Act, securities issued in
connection with acquisitions, or other securities that will not
invalidate the exemption from registration relied on to offer and sell
the Shares.
(xv) Neither the Company nor any of its affiliates is or has
been subject to any order, judgment, or decree of any court of
competent jurisdiction temporarily, preliminarily, or permanently
enjoining such person for failure to comply with Rule 503 under
Regulation D.
3. Representations and Warranties of Pacific Summit Securities. You
represent and warrant to, and agree with, the Company that:
(i) You have been duly organized and are validly existing and
in good standing as a corporation under the laws of the State of
California, with power and authority (corporate and other) to perform
your obligations under this Agreement; you are a broker-dealer
registered and in good standing under the Exchange Act and under the
securities or Blue Sky laws of each state in which the Shares are being
offered or sold by you, and you are a member in good standing of the
NASD; you are in possession of and operating in compliance with all
authorizations, licenses, permits, consents, certificates, and orders
required for the performance of your duties under this Agreement, and
your performance of your duties hereunder and thereunder will be in
compliance with all applicable laws, including state securities and
Blue Sky laws.
(ii) There are no legal or governmental proceedings pending to
which you are a party or of which any of your properties is the subject
or, to your knowledge, threatened, which, if determined adversely to
you, would individually or in the aggregate materially and adversely
affect your ability to perform your obligations under this Agreement.
(iii) No consent, approval, authorization or order of any
court or governmental authority or agency is required for the
performance by you of your
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obligations under this Agreement, except such as may be required by the
NASD or under Regulation D or state securities or Blue Sky laws.
(iv) This Agreement has been duly and validly executed and
delivered by or on behalf of you and constitutes a legal, valid, and
binding obligation of you enforceable in accordance with its terms,
except to the extent that its enforceability is limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally, and (b) laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies
and except as enforceability of the indemnity and contribution
provisions contained in Section 7 hereof may be limited by applicable
law or principles of public policy.
4. Offering and Sale of the Shares. (a) On the basis of the
representations, warranties, and covenants herein contained, but subject to the
terms and upon the conditions herein set forth, you are hereby appointed the
non-exclusive selling agent of the Company during the term herein specified (the
"Offering Period") for the purpose of finding subscribers for the Shares on a
best-efforts basis for the account of the Company at the Offering Price through
a private offering (the "Offering") to an unlimited number of "accredited
investors" (as such term is defined in Rule 501 of Regulation D)("Accredited
Investors") pursuant to and in accordance with the Act. Subject to the
performance by the Company of all its obligations to be performed hereunder, and
to the completeness and accuracy of all the representations and warranties
contained herein, you hereby accept such agency and agree on the terms and
conditions herein set forth to use your best efforts during the Offering Period
to find subscribers for Shares at the Offering Price. Your agency hereunder,
which is terminable as provided in Section 11 hereof, shall terminate at 11:59
p.m., Los Angeles, California time, on Wednesday, August 6, 2003; provided that
such termination date (the "Termination Date") may be extended by mutual written
agreement of the parties until August 29, 2003, and thereafter by mutual written
agreement of the parties.
(b) Each subscriber must complete and execute a copy of the
Subscription Agreement, in the form attached as Exhibit A hereto, and an
Investor Questionnaire, in the form attached as Exhibit B hereto. Upon receipt,
you shall hold all such Subscription Agreements and Investor Questionnaires for
safekeeping and immediately forward all funds delivered to you to the [Company].
(c) In the event that acceptable subscriptions for $250,000 in Shares
(the "Minimum Shares") shall not have been received and accepted by the Company
by the Termination Date, all funds received from subscribers (if any) shall be
returned in full, and your agency and this Agreement shall terminate without
obligation on your part or on the part of the Company.
(d) If, by the Termination Date or such earlier time as may be agreed
upon by you and the Company, you have received subscriptions for the Minimum
Shares and such subscriptions have been accepted by the Company (in its sole
discretion), you shall
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promptly notify the Company in writing of the aggregate amount of Shares for
which you have received subscriptions (the "Notice Date"). Payment of the
purchase price for the Shares for which you have found subscribers, and
delivery, with respect to each subscriber for Shares, of a copy of a
Subscription Agreement signed by such subscriber, shall then be made at such
place and time as shall be agreed upon between you and the Company, no later
than the fifth full business day after the Notice Date (the "Closing Date").
(e) As compensation for your services, a cash commission will be paid
to you with respect to subscriptions received by you as to which the payments
and deliveries provided for in this Section 4 are made at the Closing Date equal
to 6.0% of the purchase price of each Share purchased at the Closing. Such
commissions shall be paid to you on the Closing Date by bank wire transfer
payable in immediately available funds directly from each purchaser. In
addition, the Company agrees to reimburse you for your reasonable out-of-pocket
expenses in accordance with Section 6 hereof.
(f) Neither you nor the Company shall, directly or indirectly, pay or
award any finder's fees, commissions or other compensation to any person engaged
by a potential investor for investment advice as an inducement to such advisor
to advise the purchase of the Shares; provided, however, that normal sales
commissions payable to a registered broker-dealer or other properly licensed
person for selling the Shares shall not be prohibited hereby.
(g) You will prepare and file such statements and reports as are or may
be required to enable the Shares to be qualified for sale under the securities
laws of such jurisdictions as you may designate.
(h) As additional compensation, the Company will issue to you on the
Closing Date a Common Stock purchase warrant (the "Agent's Warrant") in
substantially the form attached hereto as Exhibit C granting you the right to
purchase from the Company for a period of five years after the Closing Date,
17,500 shares of Common Stock, at a per share purchase price equal to that price
paid by each purchaser at Closing. The Agent's Warrants shall contain a "net
exercise" provision pursuant to the engagement letter dated March 21, 2003. .
(i) In connection with the Offering you will, to the extent within your
control, conduct the Offering in accordance with the applicable provisions of
the Act and Regulation D so as to preserve for the Company the exemption
provided by Rule 506 of Regulation D. You agree not to offer or sell the Shares
by means of (a) any means of general solicitation, including any advertisement,
article, notice, or other communication published in any newspaper, magazine, or
similar media or broadcast over television or radio or (b) any seminar or
meeting, whose attendees have been invited by any general solicitation or
general advertising. Prior to the sale of any of the Shares, you will have
reasonable grounds to believe, and in fact believe, that each subscriber for
Shares is an Accredited Investor. You agree not to disclose any material
nonpublic information
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regarding the Company to any subscriber except as such disclosure may be
permitted pursuant to Regulation F-D and is agreed to in advance by the Company.
5. Covenants and Agreements of the Company. The Company covenants and
agrees with you that:
(a) Except as contemplated or described in this Agreement, it will not,
prior to the Closing Date, incur any material liability or obligation, direct or
contingent, or enter into any material transaction, in each case, other than in
the ordinary course of business. It will not, prior to the Closing Date, declare
or pay any dividend on the Common Stock or make any distribution on the Common
Stock payable to stockholders of record on a date prior to the Closing Date or
declare or pay any bonuses to employees or increase any the compensation of any
officers of the Company except normal and customary bonuses and increases.
(b) It will cooperate with you to enable the Shares to be qualified for
sale under the securities laws of such jurisdictions as you may designate,
subject to approval by the Company, and at your request will make such
applications and furnish such information as may be required of it for that
purpose; provided, however, that you and the Company shall first determine
whether an exemption from registration other than the Uniform Limited Offering
Exemption (ULOE) or a similar exemption is available in each such jurisdiction
and the Company shall not be required to qualify to do business or to file a
general consent to service of process in any such jurisdiction or to subject
itself to taxation. It will, from time to time, prepare and file such statements
and reports as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for the distribution of the
Shares.
(c) It will make available to you and each purchaser of Shares at a
reasonable time prior to the Closing Date the opportunity to ask questions and
receive answers concerning the terms and conditions of the Offering and to
obtain any additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of any information in the Exchange Act Documents or otherwise furnished by the
Company to you or any purchaser of Shares; provided, however, that the Company
shall not be required to disclose any material nonpublic information to any
purchaser of Shares.
(d) It will file all reports required by Regulation D with regard to
sales of the Shares and use of the proceeds therefrom; provided that you provide
all relevant information to the Company in writing as to purchasers of the
Shares required for such filings.
(e) It will not offer or sell any securities of the Company that are of
the same or a similar class as the Shares for a period of six months after the
Closing Date, other than those offers or sales of securities under an employee
benefit plan as defined in Rule 405 under the Act, in connection with options,
warrants, or convertible securities outstanding as of the Closing Date, or in
connection with an acquisition of assets or
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another business by the Company, if such offering will be integrated with the
Offering of the Shares pursuant to this Agreement for purposes of the exemptions
under Regulation D, so as to invalidate the exemption from registration relied
on to offer and sell the Shares.
(f) It will use its commercially reasonable best efforts to, as
promptly as practicable after the Closing Date, but in any event within 60 days
of the Closing Date (the "Filing Due Date"), file with the Commission a shelf
registration (the "Registration Statement") on Form S-3 (or such successor form)
relating to the resale of the Shares by the purchasers of the Shares and to the
shares underlying the Placement Agent Warrants.. If a Registration Event occurs,
then the Company will make payments to the purchasers of the Shares as full
liquidated damages to the purchasers by reason thereof, at the rate of $0.05 per
share per month, for each calendar month of the registration default period (pro
rated for any period less than 30 days). Each such payment shall be due and
payable within five days after the end of each calendar month of the
registration default period. Such payments shall be in full compensation to the
purchasers and shall constitute the purchasers' exclusive remedy for such
events. A "Registration Event" means the occurrence of any of the following
events:
(i) the Company fails to file with the Commission the
Registration Statement on or before the date by which the Company is
required to file the Registration Statement pursuant to paragraph 5(f),
(ii) the Registration Statement is not declared effective by
the Commission within 90 days following the Closing Date; provided,
however, that if the Registration Statement is subject to review by the
SEC staff, such effective date shall be within 150 days following the
Closing Date,
(iii) after the effective date of the Registration Statement,
sales cannot be made pursuant to the Registration Statement for any
reason (including without limitation by reason of a stop order, or the
Company's imposition of a blackout period or periods in excess of 45
trading days in any 365-day period; provided, however, that the
Company's obligation to maintain the effectiveness of the Registration
Statement shall cease at such time as each purchaser can sell its or
his Shares immediately under Rule 144).
(g) The Company will maintain the registration of its Common Stock
under Section 12 of the Exchange Act so long as the Exchange Act requires it to
be so registered, will comply in all respects with its reporting and filing
obligations under the Exchange Act, and will not take any action or file any
document (whether or not permitted by the Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Act unless required to do so by the
Exchange Act.
(h) The Company shall prepare and file with the Nasdaq Stock Market an
additional shares listing application covering the Shares and take all steps
necessary to cause such shares to be approved for listing as soon as practicable
thereafter.
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(i) The Company will use its commercially reasonable best efforts (i)
to timely file all reports required to be filed by the Company after the date
hereof under the Securities Act and the Exchange Act (including the reports
pursuant to Section 13(a) or 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144) and the rules and regulations adopted by the
Commission thereunder), (ii) if the Company is not required to file reports
pursuant to such sections, it will prepare and furnish to the purchasers of
Shares and make publicly available in accordance with Rule 144(c) such
information as is required for the purchasers to sell the Shares under Rule 144,
and (iii) to take such further action as any holder of Shares may reasonably
request, all to the extent required from time to time to enable the purchasers
to sell Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144, including causing its
attorneys to issue and deliver any appropriate legal opinion required to permit
a purchaser to sell Shares under Rule 144 upon receipt of appropriate
documentation relating to such sale.
6. Payment of Expenses. If this Agreement becomes effective and the
transactions contemplated by this Agreement are consummated, the Company will
pay (a) all reasonable expenses incident to the performance of the obligations
of the Company under this Agreement, (b) all of your reasonable out-of-pocket
expenses (including fees and disbursements of your counsel, travel, and related
expenses incurred in connection with this Agreement and the Offering) incurred
in connection with this Agreement, preparing to market, and marketing the Shares
not to exceed $5,000; and (c) the reasonable legal fees and expenses incurred by
counsel to subscribers for Shares in connection with the negotiation, execution,
and delivery of subscription agreements and any related agreements not to exceed
$5,000 in the aggregate.
7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless you and each person, if any, who controls you within
the meaning of the Act, against any losses, claims, damages, liabilities, or
expenses (including, unless the Company elects to assume the defense as
hereinafter provided, the reasonable cost of investigating and defending against
any claims therefor and counsel fees incurred in connection therewith), joint or
several, which arise out of the Company's breach of a representation or warranty
or covenant or agreement contained in this Agreement; provided that in no case
is the Company to be liable with respect to any claims made against you, or any
such controlling person unless you or such controlling person shall have
notified the Company in writing promptly after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon you or such controlling person, but failure to notify the Company of any
such claim shall not relieve it from any liability that it may have to you or
such controlling person otherwise than on account of the indemnity agreement
contained in this paragraph. In addition, the Company shall not be liable for
any losses, claims, damages, liabilities or expenses of you or any other
indemnified person that are determined by final and nonappealable judgment of a
court of competent jurisdiction to have resulted primarily from actions taken or
omitted to be taken by such indemnified person in bad faith or from such
indemnified person's gross negligence or willful misconduct.
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The Company will be entitled to participate at its own expense in the defense,
or if it so elects, to assume the defense of any suit brought to enforce any
such liability, but, if the Company elects to assume the defense, such defense
shall be conducted by counsel chosen by it and reasonably acceptable to you. In
the event the Company elects to assume the defense of any such suit and retain
such counsel, you or such controlling person or persons, defendant or defendants
in the suit, may retain additional counsel but shall bear the fees and expenses
of such counsel unless (i) the Company shall have specifically authorized the
retaining of such counsel or (ii) the parties to such suit include you or such
controlling person or persons, and the Company and you or such controlling
person or persons have been advised by counsel that one or more material legal
defenses may be available to you or them that may not be available to the
Company in which case the Company shall not be entitled to assume the defense of
such suit notwithstanding its obligation to bear the reasonable fees and
expenses of such counsel. In no event shall the Company be liable for the fees
and expenses of more than one counsel for all indemnified parties in connection
with any one action or separate but similar or related actions arising out of
the same general allegations or circumstances. The Company shall not be required
to indemnify any person for any settlement of any such claim effected without
the Company's consent, which shall not be unreasonably withheld. The Company
shall not, without your consent, consent to the entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof, the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation. This indemnification
obligation will be in addition to any primary liability that the Company might
otherwise have. The foregoing obligation of indemnification of the Company shall
be limited to the net proceeds of the Offering.
(b) You agree to indemnify and hold harmless the Company, each of the
Company's officers, directors, and each other person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages,
liabilities, or expenses (including, unless you elect to assume the defense, the
reasonable cost of investigating and defending against any claims therefor and
counsel fees incurred in connection therewith), joint or several, which (i)
arise of any untrue statement of a material fact with respect to the Company
made by you or any purchaser of Shares not contained in an Exchange Act Document
or other written material provided to you by the Company, (ii) arise out of any
acts or omissions by you or any purchaser of Shares that cause the offering to
involve a public offering under the Act or your failure to be properly licensed
to sell the Shares or (iii) arise out of your breach of a representation or
warranty or covenant or agreement contained in this Agreement; provided,
however, that in no case are you to be liable with respect to any claims made
against the Company or any such person against whom the action is brought unless
the Company or such person shall have notified you in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Company
or such person, but failure to notify you of such claim shall not relieve you
from any liability that you may have to the Company or such person otherwise
than on account of the indemnity agreement contained in this paragraph. You
shall be entitled to participate at your expense in the defense, or if you so
elect, to assume the defense of any suit brought to enforce any such liability,
but, if you elect to assume the defense, counsel
-11-
chosen by you and reasonably acceptable to the Company shall conduct such
defense. In the event that you elect to assume the defense of any such suit and
retain such counsel, the Company, said officers and directors and any person or
persons, defendant or defendants in the suit, may retain additional counsel but
shall bear the fees and expenses of such counsel unless (i) you shall have
specifically authorized the retaining of such counsel or (ii) the parties to
such suit include you or such controlling person or persons, and the Company and
you or such controlling person or persons have been advised by counsel that one
or more material legal defenses may be available to the Company that may not be
available to you or them in which case you shall not be entitled to assume the
defense of such suit notwithstanding your obligation to bear the reasonable fees
and expenses of such counsel. You shall not be liable to indemnify any person
for any settlement of any such claim effected without your or its consent which
consent shall not be unreasonably withheld. You shall not, without the consent
of the Company, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof, the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation. This indemnification obligation will be
in addition to any primary liability that you might otherwise have.
(c) If the indemnification provided for in this Section 7 is
unavailable, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect not only the relative benefits received by the Company on
one hand and you on the other from the offering, but also the relative fault of
the Company on the one hand and you on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities, or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and you on the other, shall be deemed to be in the same
proportion as the total net proceeds from the Offering (before deducting
expenses) received by the Company, bear to the total selling commissions
received by you and the value of the warrants issued to you pursuant to Section
4(h). The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
and whether a party breached a representation or warranty or covenant or
agreement contained in this Agreement. The Company and you agree that it would
not be just and equitable if contribution were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be
-12-
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. Survival of Indemnities, Representations, Warranties, etc. The
respective representations and warranties of you and the Company as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of you, the Company, or any of the officers or directors of the Company
or any controlling person, and shall survive delivery of and payment for the
Shares for a period ending on May 31, 2005.
9. Conditions of Your Obligations. Your obligations hereunder are
subject to the accuracy in all material respects at and (except as otherwise
stated herein) as of the date hereof and at and as of the Closing Date, of the
representations and warranties made herein by the Company, to the compliance in
all material respects at and as of the Closing Date by the Company with its
covenants and agreements herein contained and other provisions hereof to be
satisfied at or prior to the Closing Date and to the following additional
conditions:
(a) You shall not have stated in writing prior to the Closing Date to
the Company that any Exchange Act Document, or any amendment or supplement
thereto contains an untrue statement of fact which, in your reasonable opinion,
is material, or omits to state a fact which, in your reasonable opinion, is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) You shall have received a certificate, dated the Closing Date, on
behalf of the Company by the Chief Executive Officer or the President and the
chief financial or accounting officer of the Company to the effect that:
(i) To the best of the knowledge of the signers, the
representations and warranties of the Company in this Agreement are
true and correct in all material respects at and as of the Closing
Date, and the Company has complied in all material respects with all
the agreements and satisfied in all material respects all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) Between the date of this Agreement and the Closing Date,
no litigation has been instituted or, to the knowledge of the Company,
threatened against the Company of a character required to be disclosed
in an Exchange Act Document under Item 103 of Regulation S-K that has
not been so disclosed to you; and
(iii) Between the date of this Agreement and the Closing Date,
there has not been any material adverse change in the financial
condition, business, or results of operations of the Company.
-13-
(d) The Company shall have entered into the Registration Rights
Agreement with the Purchasers in the form attached hereto as Exhibit D.
If any of the conditions provided for in this Section 9 shall not have
been satisfied when and as required by this Agreement, this Agreement may be
terminated by you by notifying the Company of such termination in writing at or
prior to the Closing Date, but you shall be entitled to waive any of such
conditions.
10. Effective Date. This Agreement shall become effective at 11:00
A.M., Los Angeles, California Time, on the date hereof (the "Effective Time").
11. Termination. In the event of any termination of this Agreement
under this or any other provision of this Agreement, there shall be no liability
of any party to this Agreement to any other party, other than as provided in
Sections 6, 7, and 8.
This Agreement may be terminated after the Effective Time by (a) the
Company for any reason by notice to you and (b) you by notice to the Company (i)
if at or prior to the Closing Date trading in securities on the New York Stock
Exchange, the American Stock Exchange, or the Nasdaq Stock Market (collectively,
the "Exchanges") shall have been suspended for longer than four consecutive
hours or minimum or maximum prices shall have been established on either such
exchange or stock market, or a banking moratorium shall have been declared by
California or United States authorities (unless such suspension is made pending
completion of the sale of the Shares, at which time, such suspension will be
lifted); (ii) if at or prior to the Closing Date there shall have been an
material escalation of hostilities between the United States and any foreign
country (other than Iraq), or any other material insurrection or armed conflict
involving the United States which, in your reasonable judgment, after
consultation with the Company, makes it impracticable or inadvisable to offer or
sell the Shares; or (iii) if there shall be any material litigation or
regulatory action, pending or threatened against or involving the Company,
which, in your reasonable judgment, after consultation with the Company, makes
it impracticable or inadvisable to offer or deliver the Shares on the terms
contemplated by this Agreement.
If, and only if, the Company terminates this Agreement after it becomes
effective for any reason (other than your material failure to comply with your
obligations under this Agreement or material breach of your representations and
warranties) or the Offering fails to close because of the Company's breach of
any representations or warranties contained in this Agreement or the Company's
failure to fulfill its covenants and agreements contained in this Agreement, the
Company shall pay you your actual out-of-pocket expenses incurred as provided in
Section 6 hereof.
12. Agreement Concerning Disclosure of Information. You agree to treat
confidentially any material nonpublic information that is furnished to you (or
to parties acting on your behalf) by or on behalf of the Company (the
"Information"). You agree that you will use the Information only for the
purposes related to a determination of your willingness to act as exclusive
selling agent pursuant to this Agreement, and that the
-14-
Information will be kept confidential by you and your partners, members,
managers, officers, directors, employees, agents, and other affiliates
(collectively, the "Affiliates"), and your attorneys and accountants
(collectively, the "Professionals"), and that you, such Affiliates, or
Professionals will not disclose the Information to any investor or other person;
provided, however, that the Information may be disclosed to (a) Affiliates and
Professionals who need to know such Information for the purpose of evaluating or
providing services in connection with the your and your clients' investment in
the Company; provided such parties agree to be bound by this undertaking, (b) to
any federal or state regulatory agency and their employees, agents, and
attorneys (collectively, "Regulators") for the purpose of making any filings
with Regulators if disclosure of such Information is required by law (provided
that you advise the Company in writing of the Information to be so disclosed
within a reasonable time prior to such filing), and (c) any other person to
which the Company consents in writing prior to any such disclosure.
In the event that you are requested or required (by oral questions,
documents, subpoena, civil investigation, demand, interrogatories, request for
information, or other similar process) to disclose to any person or entity any
information supplied to you, your Affiliates, or your Professionals in the
course of their dealings with the Company or their respective representatives,
you agree that you will provide the Company with prompt notice of such
request(s) within a reasonable time prior to such disclosure so that the Company
may seek an appropriate protective order and/or waiver of compliance with the
provisions of this Agreement. It is further agreed that, if a protective order
is not obtained, or a waiver is not granted hereunder, and you are nonetheless,
in the written opinion of counsel, compelled to disclose information concerning
the Company to any tribunal or else stand liable for contempt or suffer the
censure or penalty, you may disclose such information to such tribunal without
liability hereunder. Prior to making such disclosure, you shall deliver a
written opinion of your counsel to the Company's counsel that disclosure is
compelled by law. You will exercise your best efforts to obtain a protective
order or other reliable assurance that confidential treatment will be accorded
the Information.
13. Notice. Any and all communications hereunder shall be in writing
and, if sent to you shall be mailed, delivered or telegraphed and confirmed to
you at ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ , ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Attention: President,
or if sent to the Company shall be mailed, delivered or telegraphed and
confirmed to the Company, at ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Chief Executive Officer.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon you, the Company, and their respective successors and legal
representatives, except that neither the Company nor you may assign or transfer
any of its or your rights or obligations under this Agreement without the prior
written consent of the other. Nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any person other than the persons
mentioned in the preceding sentence any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be
-15-
and being for the sole and exclusive benefit of such persons and for the benefit
of no other person; except that the representations, warranties, covenants,
agreements and indemnities of the Company contained in this Agreement shall also
be for the benefit of the person or persons, if any, who control you within the
meaning of Section 15 of the Act, and your indemnities shall also be for the
benefit of each officer and director of the Company and the person or persons,
if any, who control the Company within the meaning of Section 15 of the Act.
15. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware. Any judicial proceeding
brought against either of the parties to this agreement or any dispute arising
out of this Agreement or any matter related hereto may be brought in the courts
of the State of California or in the United States District Court with
jurisdiction over the county of Los Angeles in said State of California and, by
its execution and delivery of this agreement, each party to this Agreement
accepts the jurisdiction of such courts. The foregoing consent to jurisdiction
shall not be deemed to confer rights on any person other than the parties to
this Agreement. The prevailing party in any such litigation shall be entitled to
receive from the losing party or parties all costs and expenses, including
reasonable attorney fees, incurred by the prevailing party.
[Signatures on the following page]
-16-
If the foregoing correctly sets forth our understanding please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
INNOVO GROUP, INC.
By: ___________________________
Name: ___________________________
Title: ___________________________
Accepted and delivered
as of the date first above written
PACIFIC SUMMIT SECURITIES
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
-17-
INNOVO GROUP INC.
August 6, 2003
▇▇▇ ▇▇▇▇▇
Pacific Summit Securities
▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Extension of Placement Agent Agreement
Dear ▇▇▇:
By way of this written letter agreement, Pacific Summit Securities
("PSS") and Innovo Group Inc. ("IGI") hereby agree to extend the Placement Agent
Agreement between PSS and IGI dated July 30, 2003 (the "Agreement") until August
29, 2003, per Section 4(a) of the Agreement. PSS and IGI hereby agree that this
extension shall expire at 11:59 p.m. (PST) on August 29, 2003, and any further
extensions of the Agreement shall be made in writing by the parties.
The parties further agree that all other terms and conditions of the
Agreement shall remain in full force and effect.
Innovo Group Inc.
▇▇▇ ▇▇▇▇▇▇
Chief Executive Officer
Agreed and accepted this 6th day
of August, 2003.
Pacific Summit Securities
By: _________________________
▇▇▇ ▇▇▇▇▇
Its: _________________________
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(Tele) ▇▇▇.▇▇▇.▇▇▇▇ o (Fax) ▇▇▇.▇▇▇.▇▇▇▇
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