REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of the ___ day of July, 2003 (the "Effective Date") between
Innovo Group, Inc., a Delaware corporation (the "Company"), and the parties set
forth on the signature page and Exhibit A hereto (each, a "Purchaser" and
collectively, the "Purchasers").
R E C I T A L S:
A. The Purchasers have purchased shares of the Company's Common Stock
(as defined below) pursuant to Subscription Agreements (each, a "Subscription
Agreement" and collectively, the "Subscription Agreements") by and between the
Company and each Purchaser.
B. The Company has issued a warrant (the "Warrant") to purchase 17,500
shares of the Company's Common Stock to Pacific Summit Securities, a California
corporation ("PSS").
C. The Company, the Purchasers, and PSS desire to set forth the
registration rights to be granted by the Company to the Purchasers and PSS.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth herein and in
the Subscription Agreements, the parties mutually agree as follows:
A G R E E M E N T:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Approved Market" means the Nasdaq National Market, the New York Stock
Exchange, Inc., or the American Stock Exchange, Inc.
"Business Day" means any day of the year, other than a Saturday,
Sunday, or other day on which the Commission is required or authorized to close.
"Certificate of Incorporation" means the Fifth Amended and Restated
Certificate of Incorporation of the Company as filed with the Secretary of State
of the State of Delaware, as the same may be amended from time to time.
"Closing Date" means , 2003, or such other time as is mutually agreed
between the Company and the Purchasers for the closing of the sale referred to
in Recital A above.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, par value $0.10 per share, of
the Company and any and all shares of capital stock or other equity securities
of: (i) the Company which are added to or exchanged or substituted for the
Common Stock by reason of the declaration of any stock dividend or
stock split, the issuance of any distribution or the reclassification,
readjustment, recapitalization or other such modification of the capital
structure of the Company; and (ii) any other corporation, now or hereafter
organized under the laws of any state or other governmental authority, with
which the Company is merged, which results from any consolidation or
reorganization to which the Company is a party, or to which is sold all or
substantially all of the shares or assets of the Company, if immediately after
such merger, consolidation, reorganization or sale, the Company or the
stockholders of the Company own equity securities having in the aggregate more
than 50% of the total voting power of such other corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Family Member" means (a) with respect to any individual, such
individual's spouse, any descendants (whether natural or adopted), any trust all
of the beneficial interests of which are owned by any of such individuals or by
any of such individuals together with any organization described in Section
501(c)(3) of the Internal Revenue Code of 1986, as amended, the estate of any
such individual, and any corporation, association, partnership or limited
liability company all of the equity interests of which are owned by those above
described individuals, trusts or organizations and (b) with respect to any
trust, the owners of the beneficial interests of such trust.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any registration form under the Securities Act subsequently
adopted by the Commission, which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the Commission.
"Holder" means each Purchaser, PSS, or any of their respective
successors and Permitted Assigns who acquire rights in accordance with this
Agreement with respect to the Registrable Securities directly or indirectly from
a Purchaser or PSS, including from any Permitted Assignee.
"Inspector" means any attorney, accountant, or other agent retained by
a Purchaser for the purposes provided in Section 4(j).
"Majority Holders" means at any time Holders of a majority of the
Registrable Securities.
"Permitted Assignee" means (a) with respect to a partnership, its
partners or former partners in accordance with their partnership interests, (b)
with respect to a corporation, its shareholders in accordance with their
interest in the corporation, (c) with respect to a limited liability company,
its members or former members in accordance with their interest in the limited
liability company, (d) with respect to an individual party, any Family Member of
such party, (e) an entity that is controlled by, controls, or is under common
control with a transferor, or (f) a party to this Agreement.
The terms "register," "registered," and "registration" refers to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Securities" means shares of Common Stock issued to each
Purchaser pursuant to the Subscription Agreements or issued or issuable to PSS
pursuant to the Warrant, excluding (i) any Registrable Securities that have been
publicly sold or may be sold immediately without registration under the
Securities Act either pursuant to Rule 144 of the Securities Act or otherwise;
(ii) any
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Registrable Securities sold by a person in a transaction pursuant to a
registration statement filed under the Securities Act or (iii) any Registrable
Securities that are at the time subject to an effective registration statement
under the Securities Act.
"Registration Default Date" means the date which is 90 days following
the Closing Date; provided, however, if the Registration Statement is subject to
review by the SEC staff the Registration Default Date shall be the date which is
150 days following the Closing Date.
"Registration Default Period" means the period following the
Registration Default Date during which any Registration Event occurs and is
continuing.
"Registration Event" means the occurrence of any of the following
events:
(a) the Company fails to file with the SEC the Registration
Statement on or before the date by which the Company is required to
file the Registration Statement pursuant to Section 3(a),
(b) the Registration Statement covering Registrable Securities
is not declared effective by the Commission on or before the
Registration Default Date,
(c) after the SEC Effective Date, 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 failure
to update the Registration Statement) but except as excused pursuant to
Section 3(a), or
(d) the Common Stock generally or the Registrable Securities
specifically are not listed or included for quotation on an Approved
Market, or trading of the Common Stock is suspended or halted on the
Approved Market, which at the time constitutes the principal market for
the Common Stock.
"Registration Statement" means the registration statement required to
be filed by the Company pursuant to Section 3(a).
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute promulgated in replacement thereof, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"SEC Effective Date" means the date the Registration Statement is
declared effective by the Commission.
"S-3 Blackout Period" means, with respect to a registration, a period
in each case commencing on the day immediately after the Company notifies the
Purchasers and PSS that they are required, pursuant to Section 4(f), to suspend
offers and sales of Registrable Securities during which the Company, in the good
faith judgment of its Board of Directors, determines (because of the existence
of, or in anticipation of, any acquisition, financing activity, or other
transaction involving the Company, or the unavailability for reasons beyond the
Company's control of any required financial statements, disclosure of
information which is in its best interest not to publicly disclose, or any other
event or condition of similar significance to the Company) that the registration
and distribution of the
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Registrable Securities to be covered by such registration statement, if any,
would be seriously detrimental to the Company and its shareholders and ending on
the earlier of (1) the date upon which the material non-public information
commencing the S-3 Blackout Period is disclosed to the public or ceases to be
material and (2) such time as the Company notifies the selling Holders that the
Company will no longer delay such filing of the Registration Statement,
recommence taking steps to make such Registration Statement effective, or allow
sales pursuant to such Registration Statement to resume; provided, however, that
the Company shall limit its use of S-3 Blackout Periods, in the aggregate, to 45
Trading Days in any 12-month period.
"Trading Day" means a day on whichever (a) the national securities
exchange, (b) the Nasdaq Stock Market, or (c) such other securities market, in
any such case which at the time constitutes the principal securities market for
the Common Stock, is open for general trading of securities.
2. Term. This Agreement shall continue in full force and effect for a
period of two (2) year from the Effective Date.
3. Registration.
(a) Registration on Form S-3. As promptly as reasonably practicable
after the date hereof, but in any event not later than 60 days after the Closing
Date (the "Registration Filing Date"), the Company shall use its commercially
reasonable best efforts to file with the Commission a shelf registration
statement on Form S-3 relating to the resale by the Holders of all of the
Registrable Securities; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 3(a), or keep such registration effective pursuant to Section 4:
(i) in any particular jurisdiction in which the Company would be required to
qualify to do business as a foreign corporation or as a dealer in securities
under the securities or blue sky laws of such jurisdiction or to execute a
general consent to service of process in effecting such registration,
qualification or compliance, in each case where it has not already done so; or
(ii) during any S-3 Blackout Period.
(b) Other Registrations. Prior to the SEC Effective Date, the Company
will not, without the prior written consent of the Majority Holders, file or
request the acceleration of any other registration statement filed with the
Commission, and during any time subsequent to the SEC Effective Date when the
Registration Statement for any reason is not available for use by any Holder for
the resale of any Registrable Securities, the Company shall not, without the
prior written consent of the Majority Holders, file any other registration
statement or any amendment thereto with the Commission under the Securities Act
or request the acceleration of the effectiveness of any other registration
statement previously filed with the Commission, other than (A) any registration
statement on Form S-8 and (B) any registration statement or amendment which the
Company is required to file or as to which the Company is required to request
acceleration pursuant to any obligation in effect on the date of execution and
delivery of this Agreement.
(c) Failure to File Registration Statement. If a Registration Event
occurs, then the Company will make payments to each Purchaser as partial
liquidated damages for the minimum amount of damages to the Purchaser by reason
thereof, and not as a penalty, at the rate of $0.05 per share of Common Stock
held by such Purchaser 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 (5) days after the end of each calendar
month of the Registration Default Period until the
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termination of the Registration Default Period and within five (5) days after
such termination. Such payments shall be in partial compensation to each
Purchaser, and shall not constitute such Purchaser's exclusive remedy for such
events. The Registration Default Period shall terminate upon (i) the filing of
the Registration Statement in the case of clause (a) of the definition of
"Registration Event," (ii) the SEC Effective Date in the case of clause (b) of
the definition of "Registration Event," (iii) the ability of the Purchaser to
effect sales pursuant to the Registration Statement in the case of clause (c) of
the definition of "Registration Event," (iv) the listing or inclusion and/or
trading of the Common Stock on an Approved Market, as the case may be, in the
case of clause (d) of the definition of "Registration Event," and (v) in the
case of the events described in clauses (b) and (c) of the definition of
"Registration Event," the earlier termination of the Registration Period. The
amounts payable as partial liquidated damages pursuant to this paragraph shall
be payable in lawful money of the United States. Amounts payable as partial
liquidated damages to each Purchaser hereunder shall cease when such Purchaser
no longer holds the Registrable Securities.
4. Registration Procedures. In the case of each registration,
qualification, or compliance effected by the Company pursuant to Section 3
hereof, the Company will keep each Holder including securities therein
reasonably advised in writing as to the initiation of each registration,
qualification, and compliance and as to the completion thereof. At its expense
with respect to any registration statement filed pursuant to Section 3, the
Company will use its commercially reasonable best efforts to:
(a) Prepare and file with the Commission with respect to such
Registrable Securities, a registration statement on Form S-3, and use its
commercially reasonable efforts to cause such registration statement to become
and remain effective at least for a period ending with the first to occur of (i)
the sale of all Registrable Securities covered by the registration statement,
(ii) the availability under Rule 144 for the Holder to immediately, freely
resell without restriction all Registrable Securities covered by the
registration statement, and (iii) one year after a registration statement filed
pursuant to Section 3(a) is declared effective by the Commission (in either
case, the "Effectiveness Period"); provided, however, if at the end of such
one-year period, any Holder is not able to immediately, freely resell all
Registrable Securities that it owns, the Effectiveness Period shall continue
until terminated pursuant to clause (i) or (ii); provided that no later than
five business days before filing with the Commission a registration statement or
prospectus or any amendments or supplements thereto, including documents
incorporated by reference after the initial filing of any registration
statement, the Company shall (i) furnish to one counsel ("Holders Counsel")
selected by the Holders of a majority of the Registrable Securities covered by
such registration statement copies of all such documents proposed to be filed
(excluding any exhibits other than applicable underwriting documents), in
substantially the form proposed to be filed, which documents shall be subject to
the review of such counsel, and (ii) notify each Holder of Registrable
Securities covered by such registration statement of any stop order issued or
threatened by the Commission and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered;
(b) I a registration statement is subject to review by the Commission,
promptly respond to all comments and diligently pursue resolution of any
comments to the satisfaction of the Commission;
(c) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
during the Effectiveness Period (but in any event at least until expiration of
the 90-day period referred to in Section 4(3) of the Securities Act and Rule
174, or any successor thereto, thereunder, if applicable), and comply with the
provisions of the Securities Act with respect to
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the disposition of all securities covered by such registration statement during
such period in accordance with the intended method(s) of disposition by the
sellers thereof set forth in such registration statement;
(d) Furnish, without charge, to each Holder of Registrable Securities
covered by such registration statement (i) a reasonable number of copies of such
registration statement (including any exhibits thereto other than exhibits
incorporated by reference), each amendment and supplement thereto as such Holder
may request, (ii) such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and any other
prospectus filed under Rule 424 under the Securities Act) as such Holders may
request, in conformity with the requirements of the Securities Act, and (iii)
such other documents as such Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Holder,
but only during the Effectiveness Period;
(e) Use its commercially reasonable best efforts to register or qualify
such Registrable Securities under such other applicable securities or blue sky
laws of such jurisdictions as any Holder of Registrable Securities covered by
such registration statement reasonably requests as may be necessary for the
marketability of the Registrable Securities (such request to be made by the time
the applicable registration statement is deemed effective by the Commission) and
do any and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such Holder; provided that
the Company shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (e), (ii) subject itself to taxation in any such jurisdiction, or
(iii) consent to general service of process in any such jurisdiction;
(f) Immediately notify each Holder of such Registrable Securities at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act of the happening of any event which comes to the Company's
attention if as a result of such event the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and the Company shall promptly prepare and
furnish to such Holder a supplement or amendment to such prospectus (or prepare
and file appropriate reports under the Exchange Act) so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, unless suspension of the use of such prospectus
otherwise is authorized herein or in the event of an S-3 Blackout Period, in
which case no supplement or amendment need be furnished (or Exchange Act filing
made) until the termination of such suspension or S-3 Blackout Period;
(g) Comply, and continue to comply during the period that such
registration statement is effective under the Securities Act, in all material
respects with the Securities Act and the Exchange Act and with all applicable
rules and regulations of the Commission with respect to the disposition of all
securities covered by such registration statement, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months, but not more than eighteen
(18) months, beginning with the first full calendar month after the effective
date of such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act.
(h) As promptly as practicable after becoming aware of such event,
notify each Holder of Registrable Securities being offered or sold pursuant to
the Registration Statement of the issuance by
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the Commission of any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(i) Permit the Holders of Registrable Securities being included in the
Registration Statement and their legal counsel, at such Holders' sole cost and
expense (except as otherwise specifically provided in Section 6) to review and
have a reasonable opportunity to comment on the Registration Statement and all
amendments and supplements thereto at least three Business Days prior to their
filing with the Commission and shall not file any such document to which any
Holder reasonably objects;
(j) Make available for inspection by any Holder and any Inspector
retained by such Holder, at such Holder's sole expense, all Records as shall be
reasonably necessary to enable such Holder to exercise its due diligence
responsibility, and cause the Company's officers, directors, and employees to
supply all information which such Holder or any Inspector may reasonably request
for purposes of such due diligence; provided, however, that such Holder shall
hold in confidence and shall not make any disclosure of any record or other
information which the Company determines in good faith to be confidential, and
of which determination such Holder is so notified at the time such Holder
receives such information, unless (i) the disclosure of such record is necessary
to avoid or correct a misstatement or omission in the Registration Statement and
a reasonable time prior to such disclosure the Holder shall have informed the
Company of the need to so correct such misstatement or omission and the Company
shall have failed to correct such misstatement of omission, (ii) the release of
such record is ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction or (iii) the information in such
record has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such records to any Inspector until
and unless such Inspector shall have entered into a confidentiality agreement
with the Company with respect thereto, substantially in the form of this Section
4(j), which agreement shall permit such Inspector to disclose records to the
Holder who has retained such Inspector. Each Holder agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the records deemed confidential. The Company shall hold in confidence
and shall not make any disclosure of information concerning an Holder provided
to the Company pursuant to this Agreement unless (i) disclosure of such
information is necessary to comply with federal or state securities laws, (ii)
disclosure of such information is necessary to avoid or correct a misstatement
or omission in the Registration Statement, (iii) release of such information is
ordered pursuant to a subpoena or other order from a court or governmental body
of competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that disclosure
of such information concerning a Holder is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Holder and allow such Holder, at such Holder's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information;
(k) Use its best efforts to cause all the Registrable Securities
covered by the Registration Statement to be quoted on the Nasdaq National Market
or such other principal securities market on which securities of the same class
or series issued by the Company are then listed or traded;
(l) Provide a transfer agent and registrar, which may be a single
entity, for the Registrable
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Securities at all times;
(m) Cooperate with the Holders of Registrable Securities being offered
pursuant to the Registration Statement to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to the Registration Statement and
enable such certificates to be in such denominations or amounts as the Holders
may reasonably request and registered in such names as the Holders may request;
(n) During the Registration Period, refrain from bidding for or
purchasing any Common Stock or any right to purchase Common Stock or attempting
to induce any Person to purchase any such security or right if such bid,
purchase or attempt would in any way limit the right of the Holders to sell
Registrable Securities by reason of the limitations set forth in Regulation M
under the 1934 Act; and
(o) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Holders of the Registrable Securities pursuant to
the Registration Statement.
5. Suspension of Offers and Sales. Each Holder of Registrable
Securities agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(f) hereof or of the
commencement of an S-3 Blackout Period, such Holder shall discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 4(f) hereof or
notice of the end of the S-3 Blackout Period, and, if so directed by the
Company, such Holder shall deliver to the Company (at the Company's expense) all
copies (including, without limitation, any and all drafts), other than permanent
file copies, then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the period mentioned in Section
4(a)(iii) hereof shall be extended by the greater of (i) ten business days or
(ii) the number of days during the period from and including the date of the
giving of such notice pursuant to Section 4(f) hereof to and including the date
when each Holder of Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by Section 4(f) hereof.
6. Registration Expenses. The Company shall pay all expenses in
connection with any registration, including, without limitation, all
registration, filing, stock exchange and NASD fees, printing expenses, all fees
and expenses of complying with securities or blue sky laws, the fees and
disbursements of counsel for the Company and of its independent accountants, and
the reasonable fees and disbursements of a Holders Counsel; provided that, in
any underwritten registration, each party shall pay for its own underwriting
discounts and commissions and transfer taxes. Except as provided above in this
Section 6 and Section 9, the Company shall not be responsible for the expenses
of any attorney or other advisor employed by a Holder of Registrable Securities.
7. Assignment of Rights. No Holder may assign its rights under this
Agreement to any party without the prior written consent of the Company;
provided, however, that a Holder may assign its rights under this Agreement
without such restrictions to a Permitted Assignee as long as (a) such transfer
or assignment is effected in accordance with applicable securities laws; (b)
such transferee or assignee agrees in writing to become subject to the terms of
this Agreement; and (c) the Company is given written notice by such Holder of
such transfer or assignment, stating the name and address of the transferee or
assignee and identifying the Registrable Securities with respect to which such
rights are being transferred or assigned.
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8. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing.
9. Indemnification.
(a) In the event of the offer and sale of Registrable Securities held
by Holders under the Securities Act, the Company shall, and hereby does,
indemnify and hold harmless, to the fullest extent permitted by law, each
Holder, its directors, officers, partners, each other person who participates as
an underwriter in the offering or sale of such securities, and each other
person, if any, who controls or is under common control with such Holder or any
such underwriter within the meaning of Section 15 of the Securities Act, against
any losses, claims, damages or liabilities, joint or several, and expenses to
which the Holder or any such director, officer, partner or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such shares
were registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading,
and the Company shall reimburse the Holder, and each such director, officer,
partner, underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating, defending or
settling any such loss, claim, damage, liability, action or proceeding; provided
that the Company shall not be liable in any such case (i) to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by or on behalf of
such Holder specifically stating that it is for use in the preparation thereof
or (ii) if the person asserting any such loss, claim, damage, liability (or
action or proceeding in respect thereof) who purchased the Registrable
Securities that are the subject thereof did not receive a copy of an amended
preliminary prospectus or the final prospectus (or the final prospectus as
amended or supplemented) at or prior to the written confirmation of the sale of
such Registrable Securities to such person because of the failure of such Holder
or underwriter to so provide such amended preliminary or final prospectus and
the untrue statement or alleged untrue statement or omission or alleged omission
of a material fact made in such preliminary prospectus was corrected in the
amended preliminary or final prospectus (or the final prospectus as amended or
supplemented). Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Holders, or any such director,
officer, partner, underwriter or controlling person and shall survive the
transfer of such shares by the Holder.
(b) As a condition to including any Registrable Securities to be
offered by a Holder in any registration statement filed pursuant to this
Agreement, each such Holder agrees to be bound by the terms of this Section 9
and to indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors and officers, and each other person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director or officer or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or
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actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
in or omission or alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information about such Holder as a Holder of the Company
furnished to the Company, and such Holder shall reimburse the Company, and each
such director, officer, and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating, defending, or
settling and such loss, claim, damage, liability, action, or proceeding;
provided, however, that such indemnity agreement found in this Section 8(b)
shall in no event exceed the gross proceeds from the offering received by such
Holder. Such indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such director, officer
or controlling person and shall survive the transfer by any Holder of such
shares.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in
Section 9(a) or (b) hereof (including any governmental action), such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the indemnifying party of the commencement of such
action; provided that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under Section 9(a) or (b) hereof, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in the reasonable
judgment of counsel to such indemnified party a conflict of interest between
such indemnified and indemnifying parties may exist or the indemnified party may
have defenses not available to the indemnifying party in respect of such claim,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party
and, after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties arises in respect of such claim after the
assumption of the defenses thereof or the indemnifying party fails to defend
such claim in a diligent manner, other than reasonable costs of investigation.
Neither an indemnified nor an indemnifying party shall be liable for any
settlement of any action or proceeding effected without its consent. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement, which 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. Notwithstanding anything to the contrary set forth herein, and
without limiting any of the rights set forth above, in any event any party shall
have the right to retain, at its own expense, counsel with respect to the
defense of a claim.
(d) In the event that an indemnifying party does or is not permitted to
assume the defense of an action pursuant to Section 9(c) or in the case of the
expense reimbursement obligation set forth in Section 9(a) and (b), the
indemnification required by Section 9(a) and (b) hereof shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills received or expenses, losses, damages, or
liabilities are incurred.
(e) If the indemnification provided for in this Section 9 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party
10
hereunder, shall (i) contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
as is appropriate to reflect the proportionate relative fault of the
indemnifying party on the one hand and the indemnified party on the other
(determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission relates to information supplied
by the indemnifying party or the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission), or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, not only the
proportionate relative fault of the indemnifying party and the indemnified
party, but also the relative benefits received by the indemnifying party on the
one hand and the indemnified party on the other, as well as any other relevant
equitable considerations. No indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any indemnifying party who was not guilty
of such fraudulent misrepresentation.
(f) Other Indemnification. Indemnification similar to that specified in
the preceding subsections of this Section 9 (with appropriate modifications)
shall be given by the Company and each Holder of Registrable Securities with
respect to any required registration or other qualification of securities under
any federal or state law or regulation or governmental authority other than the
Securities Act.
10. Miscellaneous
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California and the United States of
America, both substantive and remedial. 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 for the Southern District
of California, or similar court having jurisdiction over the County of Los
Angeles, 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.
(b) Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, Permitted Assigns, executors and administrators of the parties
hereto. In the event the Company merges with, or is otherwise acquired by, a
direct or indirect subsidiary of a publicly traded company, the Company shall
condition the merger or acquisition on the assumption by such parent company of
the Company's obligations under this Agreement.
(c) Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof.
(d) Notices, etc. All notices or other communications which are
required or permitted under this Agreement shall be in writing and sufficient if
delivered by hand, by facsimile transmission, by registered or certified mail,
postage pre-paid, or by courier or overnight carrier, to the persons at the
addresses set forth below (or at such other address as may be provided
hereunder), and shall be deemed to have been delivered as of the date so
delivered:
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If to the Company: Innovo Group, Inc.
0000 X. Xxxxxxx Xxx., Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
If to the Purchasers: To each Purchaser at the address
set forth on Exhibit A
with a copy to: Pacific Summit Securities
000 Xxxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attention: President
or at such other address as any party shall have furnished to the other parties
in writing.
(e) Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any Holder of any Registrable Securities, upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such Holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereunder occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any Holder of any breach or default under
this Agreement, or any waiver on the part of any Holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
(f) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
(g) Severability. In the case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
(h) Amendments. The provisions of this Agreement may be amended at any
time and from time to time, and particular provisions of this Agreement may be
waived, with and only with an agreement or consent in writing signed by the
Company and by the holders of an 80% majority of the number of shares of
Registrable Securities outstanding as of the date of such amendment or waiver.
The Purchasers acknowledge that by the operation of this Section 10(h), the
holders of an 80% majority of the outstanding Registrable Securities may have
the right and power to diminish or eliminate all rights of the Purchasers under
this Agreement.
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(i) Limitation on Subsequent Registration Rights. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of at least a majority of the Registrable Securities then outstanding,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would grant such holder registration rights senior to those
granted to the Holders hereunder.
This Registration Rights Agreement is hereby executed as of the date
first above written.
COMPANY:
INNOVO GROUP, INC.
By:_______________________________
Name:_____________________________
Its:______________________________
PURCHASERS:
The Purchasers listed on Exhibit A attached
hereto
PACIFIC SUMMIT SECURITIES
By:_______________________________
Name:_____________________________
Its:______________________________
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Exhibit A
---------
Purchaser Information
---------------------
Name Address Number of Shares
---- ------- ----------------
14
