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SCHEDULE 6.3(c)
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement dated as of
,
2007 (this " Agreement ") is entered into by and among
Innovo Group Inc., a Delaware corporation (the " Company "),
and Joseph M. Dahan, a California resident (the " Investor
").
WHEREAS, the Company and the Investor have entered into an
Agreement and Plan of Merger dated as of February 6, 2007 (the
" Merger Agreement ") pursuant to which the Investor shall
receive a number of shares of the common stock, par value $0.10 per
share, of the Company (the " Common Stock "), as set forth
therein;
WHEREAS, in order to induce the Investor to enter into the
Merger Agreement, the Company has agreed to grant certain
registration rights to the Investor with respect to such shares and
certain Board designation rights, in each case, subject to the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as
follows:
Section 1. Definitions. As
used herein, the following terms have the indicated meanings,
unless the context otherwise requires:
" Agreement " has the meaning given to such term in the
preamble hereto.
" Beneficially Own ," " Beneficially Owned ," "
Beneficial Ownership " and " Beneficial Owner " with
respect to any securities means the Investor having such ownership,
control or power to direct the voting with respect to, or which
otherwise enables the Investor to legally act with respect to, such
securities as contemplated hereby, including without limitation
pursuant to any agreement, arrangement or understanding, regardless
of whether in writing. Securities " Beneficially Owned "
shall include securities Beneficially Owned by all other persons
with whom the Investor would constitute a "group" as within the
meaning of Section 13(d) of the Exchange Act.
" Blackout Period " means, with respect to a Registration
Statement, a period in each case commencing on the day immediately
after the Company notifies the Investor that he is required,
pursuant to Section 3(c)(vi), to suspend offers and sales of
Registrable Securities during which the Company, in the good faith
judgment of the Board, 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 (and/or the registration of the
offer and sale of) the Registrable Securities covered or to be
covered by such Registration Statement would be seriously
detrimental to the Company and its stockholders and ending on the
earlier of (a) the date upon which the material non-public
information commencing the Blackout Period is disclosed to the
public or ceases to be material and (b) such time as the
Company notifies the Investor that the Company will no longer delay
such filing of such Registration Statement, recommence taking steps
to make such Registration Statement effective, or allow sales
pursuant to such Registration Statement to resume; provided
that no Blackout Period may last for more than 60 consecutive days;
provided, further , that during any period of 365
consecutive days, Blackout Periods may not, in the aggregate, last
for more than the greater of (a) zero days and (b) the
result of 90 days minus the number of days that the Investor
is required pursuant to Section 3(d) to discontinue and
suspend disposition of Registrable Securities because of the
happening of any event described in Section 3(c)(vi).
" Board " means the board of directors of the
Company.
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" Business Day " means any day of the
year, other than a Saturday, Sunday, or other day on which the SEC
is required or authorized to close.
" Closing Date " has the meaning given to such term in
the Merger Agreement.
" Common Stock " has the meaning given to such term in
the recitals hereto.
" Company " has the meaning given to such term in the
preamble hereto.
" Effectiveness Period " has the meaning given to such
term in Section 3(c)(i).
" Equity Securities Offering " means any underwritten
registered offering of Relevant Securities, and any offering or
placement of any Relevant Securities pursuant to Rule 144A
under the Securities Act.
" Exchange Act " means the Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC
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, limited liability company or other entity
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-1 " means such form under the Securities
Act as in effect on the date of this Agreement or any successor
registration form thereto under the Securities Act subsequently
adopted by the SEC.
" Form S-3 " means such form under the Securities
Act as in effect on the date of this Agreement or any successor
registration form thereto under the Securities Act subsequently
adopted by the SEC.
" Form S-4 " means such form under the Securities
Act as in effect on the date of this Agreement or any successor
registration form thereto under the Securities Act subsequently
adopted by the SEC.
" Form S-8 " means such form under the Securities
Act as in effect on the date of this Agreement or any successor
registration form thereto under the Securities Act subsequently
adopted by the SEC.
" Inspector " means any attorney, accountant or other
agent retained by the Investor for the purposes provided in
Section 3(c)(ix).
" Investor " has the meaning given to such term in the
preamble hereto.
" Investor Director " means any member of the Board that
was nominated for election to the Board by the Investor pursuant to
and in accordance with Section 2(a).
" Merger Agreement " has the meaning given to such term
in the recitals hereto.
" NASD " means the National Association of Securities
Dealers.
" Piggyback Registration " has the meaning given to such
term in Section 3(b)(i).
" Piggyback Registration Statement " has the meaning
given to such term in Section 3(b)(i).
" register ," " registered ," and "
registration " refer 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 the Unlocked Shares,
excluding any such Unlocked Shares (a) that have been publicly
sold or may be sold immediately without registration or the
requirement to make filings with the SEC under the Securities Act
either pursuant to Rule 144 of the Securities Act or
otherwise, (b) sold
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by a person in a transaction pursuant to a
registration statement filed under the Securities Act or
(c) that are at the time subject to an effective registration
statement under the Securities Act (other than the Registration
Statements contemplated hereby).
" Registration Expenses " has the meaning given to such
term in Section 3(e).
" Registration Statement " means either any of the
Piggyback Registration Statements or the Shelf Registration
Statement; and " Registration Statements " means,
collectively, the Piggyback Registration Statements and the Shelf
Registration Statement.
" Relevant Security " means the Shares, any other equity
security of the Company or any of its subsidiaries and any security
convertible into, or exercisable or exchangeable for, any Shares or
other such equity security.
" SEC " means the Securities and Exchange Commission or
any other federal agency at the time administering the Securities
Act.
" SEC Effective Date " means, with respect to a
Registration Statement, the date as of which such Registration
Statement is originally declared effective by the SEC.
" 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 SEC thereunder,
all as the same shall be in effect from time to time.
" Selling Expenses " has the meaning given to such term
in Section 3(e).
" Shares " means the shares of Common Stock issued to the
Investor pursuant to the Merger Agreement and (a) any and all
shares of capital stock or other equity securities of the Company
which are added to or exchanged or substituted for such shares of
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
(b) any and all shares of capital stock or other equity
securities of 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, for which such shares of Common Stock are exchanged or
substituted in connection with such merger, consolidation,
reorganization or sale, 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.
" Shelf Registration Statement " has the meaning given to
such term in Section 3(a).
" Transfer " has the meaning given to such term in
Section 3(a).
"Unlocked Shares" means on the six month anniversary of
the Closing Date 1/6 of the Shares and thereafter at the end of
every additional six month period, an additional 1/6 of the Shares
until the Shares are released in full on the third year anniversary
of the Closing Date.
Section 2. Board Designation
Rights.
(a) Designation. Upon execution
of this Agreement, the Investor shall have the right to designate
himself for election to the Board.
(b) Company Support. The
Company shall support the nomination of the Investor pursuant to
Section 2(a), and the Company shall use its best efforts to
cause the Board (and the Company’s nominating committee, if
any) to recommend the inclusion of such person in the slate of
nominees recommended to stockholders for election as directors at
the next annual meeting of stockholders of the Company.
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Section 3. Registration
Rights.
(a) Shelf Registration Statement.
On the written request of the Investor beginning on or
after six months from the Closing Date of the Shares , the Company
shall (i) file with the SEC a shelf registration statement on
Form S-1 (or, if the Company is eligible to use such form,
Form S-3) relating to the registration of the offer and resale
by the Investor of the number of Registrable Securities specified
in such written request (the " Shelf Registration Statement
") and (ii) use its commercially reasonable efforts to cause
the Shelf Registration Statement to be declared effective by the
SEC no later than 60 days after the filing of the Shelf
Registration Statement in response to such written request;
provided , however , that the Company shall not be
obligated to effect any such registration pursuant to this
Section 3(a), or keep such registration or the Shelf
Registration Statement effective pursuant to Section 3(c)(i),
during any Blackout Period and provided further that the Company
shall not be obligated to file any such registration statement
pursuant to this Section 3(a) within 90 days after the
date of the filing of the most recent registration statement
pursuant to this Section 3(a).
(b) Piggyback Registration Rights.
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(i) Piggyback Registration. If
after the date that is six (6) months after the Closing Date,
the Company shall determine to register the offer and sale for cash
of any of its Common Stock for its own account, other than
(i) a registration relating solely to employee benefit plans
or securities issued or issuable to employees, consultants (to the
extent the securities owned or to be owned by such consultants
could be registered on Form S-8) or any of their Family
Members (including a registration on Form S-8), (ii) a
registration on Form S-4 in connection with a merger,
acquisition, divestiture, reorganization, exchange offer or similar
event, or (iii) a registration in which the only Common Stock
being registered is Common Stock issuable upon conversion of debt
securities that are also being registered, then (subject to
Section 3(b)(ii)) the Company shall promptly give to the
Investor written notice thereof, and in no event shall such notice
be given less than 20 calendar days prior to the filing of the
registration statement (a " Piggyback Registration Statement
") with respect to such registration (a " Piggyback
Registration "), and shall, subject to Section 3(b)(ii),
include in the Piggyback Registration, all of the Registrable
Securities specified in a written request, made within 10 calendar
days after receipt of such written notice from the Company, by the
Investor. However, the Company may, without the consent of the
Investor, withdraw the Piggyback Registration Statement prior to
its becoming effective if the Company has elected to abandon the
proposal to register the securities proposed to be registered
thereby.
(ii) Underwriting. If a
Piggyback Registration is for a registered public offering
involving an underwriting, the Company shall so advise the Investor
in writing or as a part of the written notice given pursuant to
Section 3(b)(i). In such event the right of the Investor to
registration pursuant to Section 3(b)(i) shall be
conditioned upon the Investor’s participation in such
underwriting and the inclusion of the Investor’s Registrable
Securities in the underwriting to the extent provided herein. The
Investor proposing to distribute his securities through such
underwriting shall (together with the Company) enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 3(b)(ii),
if the underwriter or the Company determines that marketing factors
require a limitation of the number of shares to be underwritten,
the underwriter may exclude some or all Registrable Securities from
such registration and underwriting. The Company shall so advise the
Investor and the number of shares that may be included in the
registration and underwriting shall be allocated:
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(B) then, subject to written
obligations and commitments existing as of the date hereof, to all
selling stockholders, including the Investor, who have requested to
sell in the registration on a pro rata basis according to the
number of shares requested to be included.
No Registrable Securities excluded from the underwriting by
reason of the underwriter’s marketing limitation shall be
included in such registration. If the Investor disapproves of the
terms of any such underwriting, the Investor may elect to withdraw
therefrom by written notice to the Company and the underwriter. The
Registrable Securities and/or other securities so withdrawn from
such underwriting shall also be withdrawn from such
registration.
(c) Registration Procedures. In
the case of each registration, qualification, or compliance
effected by the Company pursuant to Section 3(a) and
Section 3(b), the Company will keep the Investor reasonably
advised in writing (which may include e-mail) as to the initiation
of each registration, qualification, and compliance and as to the
completion thereof. In addition, the Company hereby agrees as
follows with respect to each Registration Statement:
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(i) The Company will 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 (A) the sale by the Investor of all Registrable
Securities covered by such Registration Statement, (B) the
availability under Rule 144 for the Investor to immediately,
freely resell without restriction under United States federal
securities laws all Registrable Securities covered by such
Registration Statement, or (C) the date that is two years
after the SEC Effective Date of such Registration Statement (
provided , however , that if the Company files a
Registration Statement on Form S-1 and subsequently becomes
eligible to use Form S-3, it may file a post-effective
amendment to such Form S-1 on Form S-3 prior to the end
of such period and use its commercially reasonable efforts to cause
such Registration Statement as amended to become effective until
the end of such period, and provided further, that if the Company
has filed a Registration Statement and thereafter receives another
written request in accordance with this Agreement to include
additional Registrable Securities in such Registration Statement,
the Company ma
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