EXHIBIT 4.1
CONVERTIBLE NOTE AGREEMENT
$_________ ____________
Date: _______________
FOR VALUE RECEIVED, the undersigned Innovo Group Inc., a
Delaware corporation ("Company"), hereby promises to pay to
____________, an individual with an address of
_______________("Holder"), at such place as Holder may specify,
in lawful money of the United States of America, the principal
amount of $________ on June ___, 2005 (the "Maturity Date"), plus
interest on the principal amount outstanding from time to time
hereunder at a rate equal to seven and one half percent (7.5%)
per annum. Interest shall be calculated in arrears on the
principal amount outstanding through the last day of each month
and shall be due and payable in arrears in monthly installments
on the first business day of each month commencing on July 1,
2004 and ending on the Maturity Date. Interest shall be
computed on the basis of a 365 day year. The Company shall pay
interest only on the principal amount outstanding hereunder from
the date of this Agreement until the day immediately prior to the
Maturity Date and on the Maturity Date, the Company shall repay
the principal amount outstanding plus any otherwise unpaid
interest in the full amount, unless either (i) Holder elects to
convert all or a portion of the loan under this Agreement into
shares of common stock of the Company in accordance with Section
4; or (ii) the Company elects to prepay the loan evidenced by
this Agreement in accordance with Section 3 and, after receipt of
written notice of such election, Holder declines or does not
exercise his right to convert any part of the loan into shares of
common stock of the Company in accordance with Section 4.
1. Advances; Payments. On or before the date of this
Convertible Note Agreement (the "Agreement"), Holder will deliver
to Company in immediately available funds the principal amount
specified above (net of any costs and expenses to be paid by
Company to Holder).
All payments under this Agreement shall be applied first to
interest and then to principal. Any principal or interest
payments on this Agreement outstanding after the occurrence and
during the continuance of a default under this Agreement shall
bear interest at a rate equal to the lesser of (i) the lawful
legal rate or (ii) three percent (3%) above the interest rate
otherwise applicable under this Agreement.
2. Representations, Warranties and Covenants of Company.
(a) Corporate Existence and Authority. Company is duly
organized, validly existing and in good standing under the laws
of the State of Delaware. Company has all requisite power to
execute and deliver this Agreement, and to perform the
provisions of this Agreement and to consummate the transactions
contemplated by this Agreement. The execution, delivery and
performance of this Agreement, and the consummation of the
transactions contemplated by this Agreement, have been duly
authorized and approved by Company.
(b) Compliance with Law. Company has complied, and
will comply, in all material respects, with all provisions of all
applicable laws and regulations, including, but not limited to,
those relating to Company's ownership of real or personal
property, the conduct and licensing of Company's business, and
all environmental matters.
(c) Disclosure. No representation, other statement or
information made or provided by Company to Holder contains any
untrue statement of a material fact or omits to state a material
fact necessary to make any statements made to Holder not
misleading.
(d) Information. Company will provide Holder with
access to or copies of Company's books, records, financial
statements and such additional financial and other information as
Holder may reasonably request from time to time; provided,
however, to the extent such information is not otherwise publicly
available, such information shall be kept confidential by Holder.
3. Prepayments. For the first three months from the date of
this Agreement, Company may not, at any time, prepay the loan
evidenced hereby. Thereafter, upon written notice by the Company
to the Holder, Company may, at its option, elect to prepay all or
a portion of the principal amount plus any unpaid and accrued
interest due hereunder without penalty. Notwithstanding any of
the forgoing provisions, upon receipt of the Company's notice to
prepay all or part of the principal amount plus any unpaid and
accrued interest due hereunder, Holder shall have the right to
prevent Company from prepaying by electing to convert all or a
portion of the principal amount plus any unpaid and accrued
interest due into shares of the common stock of the Company in
accordance with Section 4 herein.
4. Optional Conversion.
(a) At Holder's sole and exclusive option, at any time
after the effective date of this Agreement or within three (3)
business days following receipt by Holder of notice from the
Company that it wishes to exercise its prepayment rights set
forth in Section 3, all or a portion of the outstanding principal
balance and all unpaid and accrued interest due under the loan as
of the Conversion Date evidenced by this Agreement shall be
convertible, without the payment of any additional consideration
by the Holder and at the option of the Holder, into fully paid,
nonassessable shares of common stock of the Company subject to
such adjustment, if any, of the conversion rate and the
securities issuable upon conversion as may be required by the
provisions of Section 5 of this Agreement. In the event the
Holder elects to convert, Company shall issue the number of
shares of common stock equivalent to the amount calculated by
converting the outstanding principal balance to be converted and
all unpaid and accrued interest due under the loan evidenced by
this Agreement as of the Conversion Date into shares of common
stock at a price per share that is equal to one hundred ten
percent (110%) of the average of the closing price of the common
stock of the Company as reported on the Nasdaq SmallCap Market
for the five days immediately preceding the date of this
Agreement. The outstanding principal shall continue to accrue
interest, and Company shall be obligated to pay such interest,
according to the terms and conditions of this Agreement until the
Conversion Date (as defined below). In the event of a conversion
of a portion of the loan, this Agreement shall be amended to
reflect the unredeemed amount due and payable to Holder and all
other terms of this Agreement shall remain in full force and
effect.
(b) In order for the Holder to convert any amounts
owing under this Agreement into shares of common stock of the
Company, Holder shall deliver a written notice to Company that
the Holder elects to convert this Agreement setting forth the
amount of principal subject to conversion. Any conversion made at
the election of the Holder shall be deemed to have been made
immediately prior to the close of business on the date Company is
deemed to have received such notice, and the Holder or its
nominee or nominees entitled to receive the shares of common
stock of the Company shall be treated for all such purposes as
the record holder or holders of such shares of common stock on
such date (the "Conversion Date"). Company shall have no
obligation to issue any fractional shares upon conversion. Any
fractional shares shall be rounded up to the nearest whole share.
(c) The Company agrees (a) that the shares issuable
upon any conversion of this Agreement shall be "Registrable
Securities" under the Registration Rights Agreement (the
"Registration Rights Agreement") between the Company and Holder,
a copy of which is attached hereto and incorporated herein by
reference as Exhibit A and (b) that the Holder shall have the
rights and obligations of a Holder set forth on the Registration
Rights Agreement.
5. Reclassification, Consolidation, Merger, Sale or Conveyance.
In case of any reclassification or change of outstanding shares
of common stock (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or in case of any
consolidation or merger of the Company whether into another
corporation (other than a consolidation or merger in which the
Company is the continuing corporation and that does not result in
any reclassification or change of outstanding shares of common
stock of the Company), or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety
or substantially as an entirety, the Company, or such successor
or purchasing corporation, as the case may be, shall execute and
deliver to the Holder a supplemental Agreement, in form
satisfactory to the Holder which shall provide that the Holder
shall have the right thereafter to convert all or any part of the
loan under this Agreement into the kind and amount of shares of
stock of the Company or such successor or purchasing corporation
and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or
conveyance, into which the loan under this Agreement might have
been converted immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance. Such
supplemental Agreement shall provide for adjustments that shall
be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 5. The provisions of this Section
shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales or conveyances. Company shall
promptly give Holder notice of any events giving rise to the
issuance of a Supplemental Agreement under this Section 5.
6. Fees and Expenses. Each party to this Agreement shall be
responsible for all costs and expenses, including reasonable
attorneys' fees incurred in the preparation of this Agreement and
the other documents executed in connection with this Agreement.
Company shall also have delivered a warrant to purchase stock to
Holder in form reasonably acceptable to Holder (together with the
Agreement and any other documents delivered in connection with
this Agreement, the "Loan Documents"). Company shall pay all
reasonable and actual costs that Holder incurs in successfully
enforcing this Agreement, including without limitation reasonable
attorneys' fees and expenses.
7. Events of Default; Remedies.
(a) Events of Default. If any of the following events
("Events of Default") shall occur and be continuing (for any
reason whatsoever and whether it shall be voluntary or
involuntary or by operation of law or otherwise):
(i) default shall be made in the payment of the
principal of, or interest on, the loan when and as the
same shall become due and payable, whether at stated
maturity, by acceleration, or otherwise; or
(ii) default shall be made in the performance or
observance of any covenant, agreement or condition
contained in this Agreement and such default shall have
continued for a period of five (5) business days; or
(iii) Company's dissolution, termination of
existence or insolvency, the appointment of a receiver
of all or any part of the property of Company; an
assignment for the benefit of creditors by Company; or
the commencement of any proceeding under any bankruptcy
or insolvency laws by or against Company which results
in the entry of an order for relief or which remains
undismissed, undischarged or unbonded for a period of
60 days or more; or
(iv) any representation, warranty, financial
statement or other information made or furnished by
Company to Holder, or any other documents or agreements
contemplated hereby and thereby or in any certificate
or other instrument delivered hereunder or pursuant
hereto or in connection with any provision hereof shall
be false or incorrect in any material respect on the
date as of which made or furnished;
then (x) upon the occurrence of any Event of Default
described in (iii), the unpaid principal amount of the loan,
together with the interest accrued thereon and all other amounts
payable by Company under this Agreement, shall automatically
become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are
hereby expressly waived by Company or (y) upon the occurrence of
any other Event of Default, Holder may, by written notice to
Company, declare the unpaid principal amount of the loan to be,
and the same shall forthwith become, due and payable, together
with the interest accrued thereon and all other amounts payable
by Company hereunder.
(b) Suits for Enforcement. If any Event of Default
shall have occurred and be continuing, Holder may proceed to
protect and enforce its rights against Company, either by suit in
equity or by action at law, or both, whether for the specific
performance of any covenant or agreement contained in this
Agreement or in aid of the exercise of any power granted in this
Agreement, or Holder may proceed to enforce the payment by
Company of all sums due under this Agreement or to enforce any
other legal or equitable right of Holder. Company covenants
that, if it shall default in the making of any payment due
hereunder or in the performance or observance of any agreement
contained in this Agreement, it will pay to Holder such further
amounts, to the extent lawful, to cover any reasonable costs and
expenses of collection or of otherwise enforcing Holder's rights,
including without limitation the reasonable counsel fees and
costs and expenses incurred in connection with any restructuring,
negotiation, refinancing, workout, bankruptcy or other similar
transaction or proceeding.
(c) Remedies Cumulative. No remedy herein conferred
upon Holder is intended to be exclusive of any other remedy and
each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or
otherwise.
(d) Remedies Not Waived. No course of dealing between
Company and any other person and no delay or failure in
exercising any rights hereunder or under the loan in respect
thereof shall operate as a waiver of Holder's rights.
8. Miscellaneous.
(a) Successors and Assigns. This Agreement shall bind
and inure to the benefit of and be enforceable by Company, Holder
and each of their respective successors and assigns, and, in
addition, shall inure to the benefit of and be enforceable by
each person who shall from time to time be a holder of the loan.
(b) Notices. All notices and other communications
provided for in this Agreement shall be in writing and delivered
by registered or certified mail, postage prepaid, or delivered by
overnight courier (for next business day delivery) or telecopied,
addressed as follows, or at such other address as any of the
parties hereto may hereafter designate by notice to the other
parties given at the addresses set forth on the signature page:
If to Company: Innovo Group Inc.
ATTN: ▇▇▇ ▇▇▇▇▇▇, CEO
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If to Holder: ________________________
________________________
________________________
Any such notice or communication shall be deemed to
have been duly given and received on the fifth (5th) day after
being so mailed, the next business day after delivery by
overnight courier, when received when sent by telecopy or upon
receipt when delivered personally.
(c) Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the
same instrument. Signatures may be exchanged by telecopy, with
original signatures to follow.
(d) Amendments. This Agreement may only be amended by
a writing duly executed by the parties hereto.
(e) Severability. If any term or provision of this
Agreement or any other document executed in connection herewith
shall be determined to be illegal or unenforceable, all other
terms and provisions hereof and thereof shall nevertheless remain
effective and shall be enforced to the fullest extent permitted
by applicable law.
(f) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Tennessee 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 Tennessee or in the United States District
Court for the Eastern District of Tennessee 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.
(g) Entire Agreement. This Agreement contains the
entire Agreement of the parties hereto with respect to the
transactions contemplated hereby and supersedes all previous oral
and written, and all previous contemporaneous oral negotiations,
commitments and understandings.
(h) Further Assurances. The parties agree to promptly
to execute and deliver such documents and to take such other acts
as are reasonably necessary to effectuate the purposes of this
Agreement.
(i) Headings. The headings contained herein are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(j) Assignments and Participations. Company may not
assign its rights or obligations hereunder or under the loan
without the prior written consent of Holder. Holder may assign
all or any portion of the loan or warrant without the prior
consent of Company. Holder may sell or agree to sell to one or
more other persons a participation in all or any part of any of
the loan or warrant without the prior consent of Company. Upon
surrender of the loan or warrant, Company shall execute and
deliver one or more substitute notes, warrants or other
securities in such denominations required by Holder's designated
transferee or transferees. Holder may furnish any information in
the possession of Holder concerning Company, or any of its
respective subsidiaries, from time to time to assignees and
participants (including prospective assignees and participants).
(k) Waivers; Indemnity. Company waives presentment
and demand for payment, notice of dishonor, protest of this
Agreement, and shall pay all costs of collection when incurred,
including reasonable attorneys' fees, costs and expenses.
Company shall indemnify and hold harmless from any claim,
obligation or liability (including without limitation reasonable
attorneys fees and expenses) arising out of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year set forth above.
COMPANY: HOLDER:
By: _______________________ By: _________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. Name
Chief Executive Officer