Exhibit 10.2

 

AMENDED AND RESTATED PROMISSORY NOTE
AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED PROMISSORY NOTE AND SECURITY AGREEMENT (the “Restated
Note”) is made and entered into this the 11th day of October, 2004 by and
between Innovo Group Inc., a Delaware corporation (the “Company”) and Marc
Crossman (“Crossman”).

 

WHEREAS, the Company has executed two promissory notes in favor of Crossman each
for the principal sum of Two Hundred Fifty Thousand and No/100 ($250,000.00)
Dollars, together with interest thereon as set forth in each Promissory Note
dated February 7, 2003 and February 13, 2003, respectively, as extended on
August 8, 2003 and August 14, 2003 for an additional six (6) months,
respectively, and extended and modified on February 9, 2004 and February 15,
2004 for an additional ninety (90) days, respectively, (together, each of the
promissory notes and extensions shall be referred to collectively as the
“Promissory Notes”);

 

WHEREAS, since the expiration of the Promissory Notes on May 9, 2004 and May 15,
2004, respectively, the Company and Crossman have been in discussions regarding
the terms of repayment for the Promissory Notes, as Crossman, in accordance with
the terms of the Promissory Notes as amended, has elected not to renew said
Promissory Notes and the Company has been in default of its interest payments
thereunder; and

 

WHEREAS, in connection with the discussions between the Company and Crossman
regarding terms of repayment, the Audit Committee of the Board of Directors of
the Company have acknowledged, in the minutes of an Audit Committee meeting on
October 8, 2004, that the terms of repayment, as set forth herein and as more
fully described in the repayment schedule attached hereto as Schedule A, are in
the best interest of the parties and that the Promissory Notes shall be deleted
in their entirety and replaced with this Restated Note.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:

 

1.                                       The Promissory Notes shall be deleted
in their entirety and replaced with this Restated Note.

 

2.                                       Within three (3) days of execution of
this Restated Note, the Company shall pay to Crossman the sum of $39,250.85,
which represents unpaid and accrued interest and interest thereon at a default
rate of 10% due under the original Promissory Notes until October 21, 2004.

 

3.                                       In addition to any payment under
Section 2 or any other provision of this Restated Note, the Company shall pay to
the order of Crossman the aggregate principal sum of

 

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Five Hundred Thousand and No/100 ($500,000.00) Dollars (the “Principal Sum”),
together with interest thereon as hereinafter set forth on the outstanding
Principal Sum, payable without demand beginning on Friday, October 22, 2004 and
thereafter on the Friday of each successive week and continuing for a period of
nine (9) months (the “Term of Repayment”) until the Principal Sum is paid in
full, as such payments are set forth more particularly on Schedule A attached
hereto and incorporated herein (the “Payment Schedule” and each payment on the
Payment Schedule shall be deemed a “Payment”).

 

4.                                       (a)  Except as set forth in
subsection (b) of this Section 4, interest on the outstanding Principal Sum
shall accrue at a rate of ten percent (10%) per annum (“Initial Rate”) and such
accrued interest shall be payable in accordance with the Payment Schedule.  All
interest accruing hereunder shall be calculated based upon a three hundred sixty
five (365) days’ year and charged based upon the actual number of days elapsed.

 

(b)  In the event any Payment is not made when due and not cured within the
period prescribed in Section 8(a), then (i) interest on the outstanding
Principal Sum shall accrue at a rate of fourteen and three-quarters percent
(14.75%) per annum (“Contingency Rate”), from and including such due date, and
shall continue to accrue at the Contingency Rate until all outstanding principal
and accrued and unpaid interest are paid in full, and (ii) the Company shall pay
interest on the unpaid and accrued interest otherwise due under the Payment
Schedule at the Contingency Rate until payment is made.  Except as provided
otherwise in this Restated Note, payments made pursuant to this subsection (b)
shall be applied first to any outstanding late charges, then to payment of
interest, with any remaining payment applied to the outstanding Principal Sum.

 

(c)  The Company hereby waives and agrees not to assert any defense of usury
with respect to any interest rate or amounts paid or payable pursuant to this
Restated Note.

 

5.                                       This Restated Note may be prepaid at
any time, in whole, or in part, without penalty or premium during the Term of
Repayment.

 

6.                                       To the extent permissible under that
certain Subordination Agreement executed by Crossman in favor of CIT Commercial
Services dated April 11, 2003, the Company hereby grants a security interest in
the following property (the “Collateral”) to Crossman in order to secure prompt
payment and performance of all obligations of the Company under this Restated
Note:  all goods, equipment, inventory, contract rights and general intangibles,
now owned or hereafter acquired by the Company.

 

7.                                       An Event of Default shall occur upon
any of the following:

 

(a)  Any failure by the Company to pay any amount owing under or in respect of
this Restated Note as and when due;

 

(b)  Any breach by the Company of or under any term of this Restated Note;

 

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(c)  Any change in ownership or control of fifty percent (50%) or more of the
issued and outstanding common stock of the Company in one or a series of related
transfers;

 

(d)  The Company sells, transfers, leases or otherwise disposes of substantially
all of its assets;

 

(e)  The Company acquires, merges or consolidates with or into any other
business organization and the shareholders of the Company do not own a majority
of the ownership interest of the surviving organization; or

 

(f)  The Company becomes insolvent, is generally not paying its debts as such
debts become due and the nonpayment of such debts has a material adverse effect
on the Company, or suffers a material adverse change of financial condition.

 

8.                                       (a)                                  In
the Event of Default, the Company shall have five (5) business days to cure such
Event of Default from the receipt of written notice from Crossman of the Event
of Default.

 

(b)                                 In the event that the Company fails to cure
the Event of Default within five (5) business days after the date of receipt of
written notice of such default from Crossman (such date to be defined as the
“Non-cured Default Date”), Crossman may at his election, notwithstanding any
other provision of this Restated Note, and without notice of his election and
without demand, which the Company hereby expressly waives, do any one or more of
the following, all of which are authorized by the Company:

 

(i)  Declare the outstanding Principal Sum and all accrued interest on this
Restated Note immediately due and payable.  Upon such declaration, interest
shall accrue on the outstanding Principal Sum and outstanding interest at the
Contingency Rate from the date of the Event of Default until all principal and
accrued and unpaid interest are paid in full;

 

(ii)  Exercise any or all of the rights given to a secured party under law,
without notice to or demand upon the Company, all of which the Company hereby
expressly waives.

 

9.                                       In addition to any other provision of
this Restated Note, including the Contingency Rate set forth in Section 4(b), if
any payment is not paid when due and not cured within the period prescribed in
Section 8(a), the Company shall pay a sum equal to six (6) percent of the amount
of the unpaid payment (“Late Charge”).  The Company and Crossman agree that
actual damages will be extremely difficult and impracticable to ascertain if any
payment is not paid when due, and that the late charge calculated pursuant to
this Section are a reasonable estimate of Crossman’s anticipated loss.  Any Late
Charge shall be immediately due and payable, and if not paid within fifteen (15)
days, shall accrue interest at the Contingency Rate until paid in full.

 

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10.                                 Except insofar as the waiver of applicable
usury laws contained in Section 4 of this Restated Note is valid and
enforceable, in no event shall the amount of interest or any other amount paid
or agreed to be paid to Crossman exceed the highest lawful rate permissible
under applicable usury laws.  If for any reason amounts payable under this
Restated Note are deemed by a court of competent jurisdiction to involve the
payment of interest in excess of the maximum amount permissible by law, then the
obligation shall be reduced to the limit of such validity, and any amount
received by Crossman in excess of the maximum rate shall be applied to reduce
the unpaid Principal Sum of this Restated Note and not to the payment of
interest.  Such application shall be made with the same force and effect as
though the Company had specifically designated such sums to be applied to
principal and Crossman had agreed to accept such sums for that purpose.

 

11.                                 Failure of the either party to exercise any
rights hereunder or at law, or indulgence granted by the holder hereof from time
to time, shall in no event be considered as a waiver of any other right
hereunder, including, but not limited to the right to demand the payment of
principal and/or interest comprising a portion of the indebtedness evidenced
hereby.

 

12.                                 Any notice required to be given by the
parties hereunder shall be deemed to be given if it is in writing and sent via
fax, email, overnight courier or regular mail with confirmation of transmission
to the following addresses:

 

If to Company:

Innovo Group Inc.

 

5804 East Slauson Avenue

 

Commerce, CA 90040

 

Attention: Jay Furrow, CEO

 

Fax: 323.201.3846

 

jfurrow@innovogroup.com

 

 

With a copy to:

Dustin Huffine, Esq.

 

5804 East Slauson Avenue

 

Commerce, CA 90040

 

Fax: 323.201.3846

 

dhuffine@innovogroup.com

 

 

If to Crossman:

Marc Crossman

 

2600 Mandeville Canyon Road

 

Los Angeles, CA 90049

 

mcrossman@innovogroup.com

 

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With a copy to:

William J. Kelley

 

19200 Von Karman Avenue, Suite 600

 

Irvine, California 92612

 

Fax: (949) 622-5578

 

Email: wjk@kelleyandkelleylaw.com

 

13.                                 If it is necessary to enforce the payment of
this Restated Note through an attorney or by suit, the Company shall pay all
Crossman’s attorney’s fees and costs of collection, including, but not limited
to court costs, court reporter’s charges, postage, delivery service and
transportation costs.

 

14.                                 This Restated Note has been executed in the
State of California and the laws of said State shall govern the enforcement and
construction of this Restated Note.

 

IN WITNESS WHEREOF, the Company has caused this Restated Note to be executed as
of the date first written above.

 

 

COMPANY:

 

 

 

INNOVO GROUP INC.

 

 

 

By:

/s/ Samuel J. Furrow, Jr.

 

 

 

Samuel J. Furrow, Jr.

 

Its:

Chief Executive Officer

 

 

 

 

 

/s/ Marc B. Crossman

 

 

Marc B. Crossman

 

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Schedule A

 

Repayment

 

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