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


 
















 


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


 


6