Document:

Unassociated Document

    

    

    FORM
      OF SECURITIES PURCHASE AGREEMENT

    

    

    INSTRUCTION
      SHEET FOR INVESTOR

    

    (to
      be
      read in conjunction with the entire Securities Purchase Agreement and Investor
      Questionnaire)

    

    A. Complete
      the following items in the Securities Purchase Agreement and in the Investor
      Questionnaire:

    

    
      	 	
              1.

            	
              Provide
                the information regarding the investor requested on the signature
                pages
                (pages 3 and 22). Please submit a separate Securities Purchase Agreement
                and Investor Questionnaire for each individual fund/entity that will
                hold
                the Securities. The Securities Purchase Agreement and the Investor
                Questionnaire must be executed by an individual authorized to bind
                the
                investor.

            

    

     

    
      	 	2.	Return
              the signed Securities Purchase Agreement and Investor Questionnaire
              to:
              

    

     

    
      	
              Innovo
                Group Inc.

              5901
                South Eastern Avenue

              Commerce,
                CA 90040

              Attn:
                Marc B. Crossman, CEO, President and CFO

              Phone:
                (323) 837-3703

              Fax:
                (323) 837-3790

            	 

    

     

    
      	 	An executed original Securities
              Purchase
              Agreement and Investor Questionnaire or a fax thereof must be received
              by
              2:00 p.m., Pacific time, on a date to be determined and distributed
              to the
              investor at a later date.

    

     

    
      	
              B.

            	
              Instructions
                regarding the transfer of funds for the purchase of Securities will
                be
                faxed to the investor by the Company at a later
                date.

            

    

    

    
      	
              C.

            	
              Resales
                of the Securities after the Registration Statement covering the Securities
                is effective shall be made in accordance with the provisions of the
                Securities Purchase Agreement.

            

    

     

    
      
        
          
          

        

        
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    SECURITIES
      PURCHASE AGREEMENT

    

    Innovo
      Group Inc.

    5901
      South Eastern Avenue

    Commerce,
      CA 90040

    

    Ladies
      & Gentlemen: 

    

    The
      undersigned, _____________, (the “Investor”), hereby confirms its agreement with
      you as follows:

    

    1. This
      Securities Purchase Agreement (the “Agreement”) is made as of June 27, 2007
      between Innovo Group Inc., a Delaware corporation (the “Company”), and the
      Investor.

    

    2. The
      Company has authorized the sale and issuance of (x) up to 2,500,000 shares
      of
      common stock (the “Issued Shares”) of the Company, $0.10 par value per share
      (the “Common Stock”), and (y) warrants (the “Warrants”), in the form attached
      hereto as Annex
      II,
      to
      purchase up to 800,000 shares of Common Stock (the “Warrant Shares”), to certain
      investors in a private placement (the “Offering”).

    

    3. The
      Company and the Investor agree that the Investor will purchase from the Company
      and the Company will issue and sell to the Investor 800,000 shares, for a
      purchase price of $1.25 per share, or an aggregate purchase price of
      $1,000,000.00 pursuant to the Terms and Conditions for Purchase of Securities
      attached hereto as Annex I and incorporated herein by reference as if fully
      set
      forth herein (the “Terms and Conditions”) and the Warrant to purchase 240,000
      Warrant Shares attached as Annex II. Unless otherwise requested by the Investor,
      certificates representing the Issued Shares and Warrants purchased by the
      Investor will be registered in the Investor’s name and address as set forth
      below.

    

    4. The
      Investor represents that, except as set forth below, (a) it has had no position,
      office or other material relationship within the past three years with the
      Company or persons known to it to be affiliates of the Company, (b) neither
      it,
      nor any group of which it is a member or to which it is related, beneficially
      owns (including the right to acquire or vote) any securities of the Company
      and
      (c) it has no direct or indirect affiliation or association with any NASD member
      as of the date hereof. Exceptions:

    

     

      
        

      

    

    

    
      	
              (If
                no exceptions, write “none.” If left blank,
                response will be deemed to be
“none.”)

            

    

     

    Please
      confirm that the foregoing correctly sets forth the agreement between us by
      signing in the space provided below for that purpose. By executing this
      Agreement, you acknowledge that the Company may use the information in paragraph
      4 above and the name and address information below in preparation of the
      Registration Statement (as defined in Annex I).

    

    
      
        
          
          

        

        
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      	 AGREED AND ACCEPTED: 	 
	 	 
	 Innovo Group Inc.	 Investor:______________________________________________
	 	 
	 	 By:
              __________________________________________________
	 	 
	___________________________________________ 	 Print Name:
              ____________________________________________
	 By: Marc Crossman 	 
	 Title: CEO, President &
              CFO	 Title:  Authorized
              Signatory
	 	 
	 	 Address:
              ______________________________________________
	 	 _____________________________________________
	 	 
	 	Tax
              ID No.: _____________________________________________
	 	 
	 	Contact
              name:___________________________________________
	 	 
	 	Telephone:_____________________________________________
	 	 
	 	Name
              in which shares and warrant should be registered 
              (if
                different):

            
	 	
               N/A

            

    

    

     

    
      
        
          
          

        

        
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    ANNEX
      I

    

    TERMS
      AND CONDITIONS FOR PURCHASE OF SECURITIES

    

    1. Authorization
      and Sale of the Securities.
      Subject
      to these Terms and Conditions, the Company has authorized the sale of (x) up
      to
      2,500,000 shares of Common Stock (the “Issued Shares”), and (y) warrants, in the
      form attached hereto as Annex
      II
      (the
“Warrants”), to purchase up to 800,000 shares of Common Stock (the “Warrant
      Shares”). 

    

    2. Agreement
      to Sell and Purchase the Securities; Subscription Date.

    

    2.1 At
      the
      Closing (as defined in Section 3), the Company will sell to the Investor, and
      the Investor will purchase from the Company, upon the terms and conditions
      hereinafter set forth, (x) the number of Issued Shares set forth in Section
      3 of
      the Securities Purchase Agreement to which these Terms and Conditions are
      attached, and (y) a Warrant to purchase up to the number of Warrant Shares
      set
      forth in Section 3 of the Securities Purchase Agreement to which these Terms
      and
      Conditions are attached, at the aggregate purchase price set forth
      thereon.

    

    2.2 The
      Company may enter into the same form of Securities Purchase Agreement, including
      these Terms and Conditions, with certain other investors (the “Other Investors”)
      and expects to complete sales of Issued Shares and Warrants (collectively,
      “Securities”) to them. (The Investor and the Other Investors are hereinafter
      sometimes collectively referred to as the “Investors,” and the Securities
      Purchase Agreement to which these Terms and Conditions are attached and the
      Securities Purchase Agreements (including attached Terms and Conditions)
      executed by the Other Investors are hereinafter sometimes collectively referred
      to as the “Agreements.”) The Company may accept executed Agreements from
      Investors for the purchase of Securities commencing upon the date on which
      the
      Company provides the Investors with the proposed purchase price per share and
      concluding upon the date (the “Subscription Date”), on which the Company has
      executed Agreements with Investors for the purchase of Securities. The Company
      may not enter into any Agreements after the Subscription Date.

    

    3. Delivery
      of the Securities at Closing.
      The
      completion of the purchase and sale of the Securities (the “Closing”) shall
      occur on June 27, 2007, (the “Closing Date”), at the offices of the Company. At
      the Closing, the Company shall deliver to the Investor (x) one or more stock
      certificates representing the number of Issued Shares set forth in Section
      3 of
      the Securities Purchase Agreement, each such certificate to be registered in
      the
      name of the Investor or, if so indicated on the signature page of the Securities
      Purchase Agreement, in the name of a nominee designated by the Investor and
      (y)
      a Warrant, in the form attached hereto as Annex
      II,
      for the
      purchase the number of Warrant Shares set forth in Section 3 of the Securities
      Purchase Agreement, such Warrant to be registered by the Company in the name
      of
      the Investor or, if so indicated on the signature page of the Securities
      Purchase Agreement, in the name of the nominee designated by the
      Investor.

    

    The
      Company’s obligation to issue the Securities to the Investor shall be subject to
      the following conditions, any one or more of which may be waived by the Company:
      (a) receipt by the Company of a certified or official bank check or wire
      transfer of funds in the full amount of the purchase price for the Securities
      being purchased hereunder as set forth in Section 3 of the Securities Purchase
      Agreement; and (b) the accuracy of the representations and warranties made
      by
      the Investors and the fulfillment of those undertakings of the Investors to
      be
      fulfilled prior to the Closing.

    

    The
      Investor’s obligation to purchase the Securities shall be subject to the
      following conditions, any one or more of which may be waived by the Investor:
      (a) the Company shall have executed Agreements for the purchase of Securities
      (including the Warrants), (b) the representations and warranties of the Company
      set forth herein shall be true and correct as of the Closing Date in all
      material respects (except for representations and warranties that speak as
      of a
      specific date, which representations and warranties shall be true and correct
      as
      of such date) and (c) the Investor shall have received such documents as such
      Investor shall reasonably have requested, including, if requested, a standard
      opinion of Company Counsel in form and substance customary for transactions
      of
      this type.

     

    
      
        
        

      

      
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    4. Representations,
      Warranties and Covenants of the Company.
      The
      Company hereby represents and warrants to, and covenants with, the Investor,
      as
      follows:

    

    4.1 Organization.
      The
      Company is duly organized and validly existing in good standing under the laws
      of the jurisdiction of its organization. Each of the Company and its
      Subsidiaries (as defined in Rule 405 under the Securities Act) has full power
      and authority to own, operate and occupy its properties and to conduct its
      business as presently conducted and as described in the documents filed by
      the
      Company under the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”), since November 25, 2006 through the date hereof, including, without
      limitation, its report and any amendments thereto on Form 10-K for the fiscal
      year ended November 25, 2006, its reports on Form 10-Q for the fiscal quarters
      ended February 24, 2007 and all Current Reports on Form 8-K (the “SEC
      Documents”) and is registered or qualified to do business and in good standing
      in each jurisdiction in which the nature of the business conducted by it or
      the
      location of the properties owned or leased by it requires such qualification
      and
      where the failure to be so qualified would have a material adverse effect upon
      the condition (financial or otherwise), earnings, business or business
      prospects, properties or operations of the Company and its Subsidiaries,
      considered as one enterprise (a “Material Adverse Effect”), and no proceeding
      has been instituted in any such jurisdiction, revoking, limiting or curtailing,
      or seeking to revoke, limit or curtail, such power and authority or
      qualification. 

    

    4.2 Due
      Authorization and Valid Issuance.
      

    

    (a) The
      Company has all requisite power and authority to execute, deliver and perform
      its obligations under the Agreements and the Warrants, and the Agreements and
      Warrants have been duly authorized and validly executed and delivered by the
      Company and constitute legal, valid and binding agreements of the Company
      enforceable against the Company in accordance with their terms, except as rights
      to indemnity and contribution may be limited by state or federal securities
      laws
      or the public policy underlying such laws, except as enforceability may be
      limited by applicable bankruptcy, insolvency, reorganization, moratorium or
      similar laws affecting creditors’ and contracting parties’ rights generally and
      except as enforceability may be subject to general principles of equity
      (regardless of whether such enforceability is considered in a proceeding in
      equity or at law). The Company has all requisite power and authority to (x)
      issue, sell and deliver the Issued Shares to be issued, sold and delivered
      to
      the Investor at Closing, (y) sell and deliver the Warrants to be sold and
      delivered to the Investor at Closing and (z) issue, sell and deliver the Warrant
      Shares upon exercise of the Warrants in accordance with the terms
      thereof.

    

    (b) The
      issuance, sale and delivery of the Issued Shares at the Closing has been duly
      authorized by all necessary corporate action on the part of the Company, and
      all
      such Issued Shares have been duly reserved for issuance. The Issued Shares
      when
      so issued and delivered at the Closing in accordance with the terms of this
      Agreement will be duly and validly issued, fully paid and non-assessable, and
      free and clear of all liens, encumbrances, security interests, right of first
      refusals, and preemptive rights (collectively, “Liens”), other than Liens
      created by the Investor. The issuance, sale and delivery of the Warrants at
      the
      Closing, and the issuance and delivery of the Warrant Shares issuable upon
      exercise of the Warrants, has been duly authorized by all necessary corporate
      action on the part of the Company, and all such Warrant Shares have been duly
      reserved for issuance. The Warrants when so issued and delivered at the Closing
      in accordance with the terms of this Agreement, and the Warrant Shares issuable
      upon exercise of the Warrants when so issued, sold and delivered against payment
      therefor in accordance with the provisions of the Warrants, will be duly and
      validly issued, fully paid and non-assessable, and free and clear of all
      Liens.

     

    
      
        
        

      

      
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    4.3 Non-Contravention.
      The
      execution and delivery of the Agreements and Warrants, the issuance and sale
      of
      the Issued Shares and Warrants under the Agreements, the issuance and sale
      of
      the Warrant Shares in accordance with the terms of the Warrants, the fulfillment
      of the terms of the Agreements and Warrants and the consummation of the
      transactions contemplated hereby and thereby will not (A) conflict with or
      constitute a violation of, or default (with the passage of time or otherwise)
      under, (i) any bond, debenture, note or other evidence of indebtedness, lease,
      contract, indenture, mortgage, deed of trust, loan agreement, joint venture
      or
      other agreement or instrument to which the Company or any Subsidiary is a party
      or by which it or any of its Subsidiaries or their respective properties are
      bound, (ii) the charter, bylaws or other organizational documents of the Company
      or any Subsidiary, or (iii) any law, administrative regulation, ordinance or
      order of any court or governmental agency, arbitration panel or authority
      applicable to the Company or any Subsidiary or their respective properties,
      except in the case of clauses (i) and (iii) for any such conflicts, violations
      or defaults which are not reasonably likely to have a Material Adverse Effect
      or
      (B) result in the creation or imposition of any Lien whatsoever upon any of
      the
      material properties or assets of the Company or any Subsidiary or an
      acceleration of indebtedness pursuant to any obligation, agreement or condition
      contained in any material bond, debenture, note or any other evidence of
      indebtedness or any material indenture, mortgage, deed of trust or any other
      agreement or instrument to which the Company or any Subsidiary is a party or
      by
      which any of them is bound or to which any of the material property or assets
      of
      the Company or any Subsidiary is subject. No consent, approval, authorization
      or
      other order of, or registration, qualification or filing with, any regulatory
      body, administrative agency, or other federal, state or local governmental
      body
      or any other person is required for the execution and delivery of the Agreements
      and the Warrants, the valid issuance and sale of the Issued Shares and Warrants
      to be sold pursuant to the Agreements and the valid issuance and sale of the
      Warrant Shares issuable upon exercise of the Warrants, other than such as have
      been made or obtained, and except for (i) any post-closing securities filings
      required by state securities laws, and (ii) the filing of a Notice of Sale
      of
      Securities on Form D with the SEC as required under Regulation D of the
      Securities Act of 1933, as amended (the “Securities Act”).

    

    4.4 Capitalization.
      The
      number and type of all authorized, issued and outstanding capital stock of
      the
      Company, and all shares of Common Stock reserved for issuance under the
      Company’s various option and incentive plans or pursuant to any outstanding
      warrants or other equity or debt securities of the Company that are exercisable
      or convertible into shares of capital stock of the Company, in each case as
      of
      June 13, 2007, is as set forth in Schedule
      4.4.
      The
      Company has not issued any capital stock since June 13, 2007 except (i) certain
      options to purchase shares of the Company’s common stock since that date
      pursuant to the Company’s Stock Incentive Plan as described in the SEC
      Documents, or (ii) shares reserved pursuant to a collateral protection agreement
      disclosed in the SEC Documents. The outstanding shares of capital stock of
      the
      Company have been duly and validly issued and are fully paid and nonassessable,
      have been issued in compliance with all federal and state securities laws,
      and
      were not issued in violation of any preemptive rights or similar rights to
      subscribe for or purchase securities. Except as set forth in the SEC Documents
      and/or on Schedule
      4.4,
      there
      are no outstanding rights (including, without limitation, preemptive rights),
      warrants or options to acquire, or instruments convertible into or exchangeable
      for, any unissued shares of capital stock or other equity interest in the
      Company or any Subsidiary, or any contract, commitment, agreement, understanding
      or arrangement of any kind to which the Company is a party or of which the
      Company has knowledge and relating to the issuance or sale of any capital stock
      of the Company or any Subsidiary, any such convertible or exchangeable
      securities or any such rights, warrants or options. Without limiting the
      foregoing or as otherwise set forth in the Agreements, no preemptive right,
      co-sale right, right of first refusal, registration right, or other similar
      right exists with respect to the Issued Shares, the Warrants or the Warrant
      Shares or the issuance and sale thereof. No further approval or authorization
      of
      any stockholder or the Board of Directors of the Company is required for the
      issuance and sale of the Issued Shares and Warrants at the Closing or the
      issuance of the Warrant Shares upon the exercise of the Warrants. The Company
      owns the entire equity interest in each of its Subsidiaries, free and clear
      of
      any Lien, other than as described in the SEC Documents. Except as disclosed
      in
      the SEC Documents, there are no stockholders agreements, voting agreements
      or
      other similar agreements with respect to the Common Stock to which the Company
      is a party or, to the knowledge of the Company, between or among any of the
      Company’s stockholders.

    

    4.5 Legal
      Proceedings.
      Except
      as set forth on Schedule
      4.5,
      there
      is no material legal or governmental proceeding, claim, action or arbitration
      (each, an “Action”) pending or, to the knowledge of the Company, threatened to
      which the Company or any Subsidiary is or may be a party or of which the
      business or property of the Company or any Subsidiary is subject that is not
      disclosed in the SEC Documents. There is no Action pending or, to the knowledge
      of the Company, threatened to which the Company or any Subsidiary is or may
      be a
      party to or of which the business or property of the Company or any Subsidiary
      is subject which could adversely affect or challenge the legality, validity
      or
      enforceability of any of the Agreements or Warrants. The Company has not
      received any stop order or other order suspending the effectiveness of any
      registration statement filed by the Company or any Subsidiary under the Exchange
      Act or the Securities Act.

     

    
      
        
        

      

      
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    4.6 No
      Violations.
      Neither
      the Company nor any Subsidiary is (x) in violation of its charter, bylaws,
      or
      other organizational document, or (y) in violation of any law, administrative
      regulation, ordinance or order of any court or governmental agency, arbitration
      panel or authority applicable to the Company or any Subsidiary, which, in the
      case of clause (y) only, violation, individually or in the aggregate, would
      be
      reasonably likely to have a Material Adverse Effect, or (z) is in default (and
      there exists no condition which, with the passage of time or otherwise, would
      constitute a default) in any respect in the performance of any bond, debenture,
      note or any other evidence of indebtedness in any indenture, mortgage, deed
      of
      trust or any other agreement or instrument to which the Company or any
      Subsidiary is a party or by which the Company or any Subsidiary is bound or
      by
      which the properties of the Company or any Subsidiary are bound, which would
      be
      reasonably likely to have a Material Adverse Effect.

    

    4.7 Governmental
      Permits, Etc.
      With
      the exception of the matters which are dealt with separately in Sections 4.1,
      4.12, 4.13, and 4.14, each of the Company and its Subsidiaries has all necessary
      franchises, licenses, certificates and other authorizations from any foreign,
      federal, state or local government or governmental agency, department, or body
      that are currently necessary for the operation of the business of the Company
      and its Subsidiaries as currently conducted and as described in the SEC
      Documents except where the failure to currently possess could not reasonably
      be
      expected to have a Material Adverse Effect.

    

    4.8 Intellectual
      Property.
      Except
      as specifically disclosed in the SEC Documents (i) each of the Company and
      its
      Subsidiaries owns or possesses sufficient rights to use all patents, patent
      rights, trademarks, copyrights, licenses, inventions, manufacturing processes,
      design process, logos, trade names, hardware designs, programming processes,
      software, trade secrets, trade names and know-how (collectively, “Intellectual
      Property”) described or referred to in the SEC Documents as owned or possessed
      by it or that are necessary for the conduct of its business as now conducted
      or
      as proposed to be conducted except where the failure to currently own or possess
      would not have a Material Adverse Effect, (ii) neither the Company nor any
      of
      its Subsidiaries is infringing or has received any notice of, or has any
      knowledge of, any asserted infringement by the Company or any of its
      Subsidiaries of, any rights of a third party with respect to any Intellectual
      Property that, individually or in the aggregate, would have a Material Adverse
      Effect and (iii) neither the Company nor any of its Subsidiaries has received
      any notice of, or has any knowledge of, infringement by a third party with
      respect to any Intellectual Property rights of the Company or of any Subsidiary
      that, individually or in the aggregate, would have a Material Adverse Effect.
      

    

    4.9 Financial
      Statements.
      The
      financial statements of the Company and the related notes contained in the
      SEC
      Documents present fairly, in accordance with generally accepted accounting
      principles, the financial position of the Company and its Subsidiaries as of
      the
      dates indicated, and the results of its operations and cash flows for the
      periods therein specified consistent with the books and records of the Company
      and its Subsidiaries except that the unaudited interim financial statements
      were
      or are subject to normal and recurring year-end adjustments. Such financial
      statements (including the related notes) have been prepared in accordance with
      generally accepted accounting principles applied on a consistent basis
      throughout the periods therein specified, except as may be disclosed in
      the
      notes to such financial statements, or in the case of unaudited statements,
      as
      may be permitted by the Securities and Exchange Commission (the “SEC”) on Form
      10-Q under the Exchange Act and except as disclosed in the SEC Documents. The
      other financial information contained in the SEC Documents has been prepared
      on
      a basis consistent with the financial statements of the Company.

    

    4.10 No
      Material Adverse Change.
      Except
      as disclosed in the SEC Documents, Since the date of the latest audited
      financial statements included in the Company’s most recent Annual Report on Form
      10-K, there has not been (i) any material adverse change in the financial
      condition or earnings of the Company and its Subsidiaries considered as one
      enterprise, (ii) any material adverse event affecting the Company or its
      Subsidiaries, (iii) any obligation, direct or contingent, that is material
      to
      the Company and its Subsidiaries considered as one enterprise, incurred by
      the
      Company, except obligations incurred in the ordinary course of business, (iv)
      any dividend or distribution of any kind declared, paid or made on the capital
      stock of the Company or any of its Subsidiaries, (v) any loss or damage (whether
      or not insured) to the physical property of the Company or any of its
      Subsidiaries which has been sustained which has a Material Adverse Effect,
      or
      (vi) any event, occurrence or development that has had or that could reasonably
      be expected to have a Material Adverse Effect.

     

    
      
        
        

      

      
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    4.11 Disclosure.
      Except
      with respect to the material terms and conditions of the transaction
      contemplated by the Agreements and as may be covered by a separate
      confidentiality agreement which may be publicly disclosed by the Company
      pursuant to Section 15(b) hereof, the Company confirms that neither it nor
      any
      person acting on its behalf has provided the Investor with any information
      that
      constitutes material, non-public information. 

    

    4.12 Nasdaq
      Compliance.
      Except
      as otherwise disclosed in the SEC Documents, the Company’s Common Stock is
      registered pursuant to Section 12(b) of the Exchange Act and is listed on The
      Nasdaq Stock Market, Inc. Capital Market (the “Nasdaq Capital Market”), and the
      Company has taken no action designed to, or likely to have the effect of,
      terminating the registration of the Common Stock under the Exchange Act or
      de-listing the Common Stock from the Nasdaq Capital Market, nor has the Company
      received any notification that the SEC or the National Association of Securities
      Dealers, Inc. (“NASD”) is contemplating terminating such registration or
      listing. 

    

    4.13 Reporting
      Status.
      The
      Company believes that it has filed with the SEC in a timely manner all reports
      and documents that the Company was required to file under the Exchange Act
      during the 12 months preceding the date of this Agreement. The Company believes
      that it is eligible to use Form S-3 to register the resale of the Issued Shares
      and Warrant Shares by the Investors under the Securities Act in accordance
      with
      this Agreement, and if not, the Company shall file a resale registration
      statement on Form S-1. As of their respective dates, the SEC Documents complied
      as to form in all material respects with the requirements of the Securities
      Act
      and the Exchange Act and the rules and regulations of the SEC promulgated
      thereunder, and none of the SEC Documents, when filed, contained any untrue
      statement of a material fact or omitted to state a material fact required to
      be
      stated therein or necessary in order to make the statements therein, in light
      of
      the circumstances under which they were made, not misleading. The Company does
      not have pending before the SEC any request for confidential treatment of
      information or documents.

    

    4.14 Listing.
      The
      Company shall comply with all requirements of the National Association of
      Securities Dealers, Inc. (or any other securities exchange, interdealer
      quotation system or other market on which the Common Stock is then listed)
      with
      respect to the issuance of the Issued Shares, the Warrants and the Warrant
      Shares and the listing Issued Shares and Warrant Shares on the Nasdaq Capital
      Market (or any other securities exchange, interdealer quotation system or other
      market on which the Common Stock is then listed).

    

    4.15 No
      Manipulation of Stock.
      The
      Company has not taken and will not, in violation of applicable law, take, any
      action designed to or that might reasonably be expected to cause or result
      in
      stabilization or manipulation of the price of the Common Stock to facilitate
      the
      sale or resale of the Issued Shares or Warrant Shares.

    

    4.16 Company
      not an “Investment Company”.
      The
      Company has been advised of the rules and requirements under the Investment
      Company Act of 1940, as amended (the “Investment Company Act”). The Company is
      not, and immediately after receipt of payment for the Securities will not be,
      an
“investment company” or an entity “controlled” by an “investment company” within
      the meaning of the Investment Company Act and shall conduct its business in
      a
      manner so that it will not become subject to the Investment Company
      Act.

    

    4.17 Foreign
      Corrupt Practices.
      Neither
      the Company, nor to the knowledge of the Company, any agent or other person
      acting on behalf of the Company, has (i) directly or indirectly, used any
      corrupt funds for unlawful contributions, gifts, entertainment or other unlawful
      expenses related to foreign or domestic political activity, (ii) made any
      unlawful payment to foreign or domestic government officials or employees or
      to
      any foreign or domestic political parties or campaigns from corporate funds,
      (iii) failed to disclose fully any contribution made by the Company (or made
      by
      any person acting on its behalf of which the Company is aware) which is in
      violation of law, or (iv) violated in any material respect any provision of
      the
      Foreign Corrupt Practices Act of 1977, as amended.

    

    4.18 Accountants.
      Ernst
& Young LLP, whom the Company expects will express its opinion with respect
      to the financial statements to be included or incorporated by reference from
      the
      Company's Annual Report on Form 10-K for the year ended November 25, 2006,
      into
      the Registration Statement (as defined below) and the prospectus which forms
      a
      part thereof, are independent accountants as required by the Securities Act
      and
      the rules and regulations promulgated thereunder.

     

    
      
        
        

      

      
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    4.19 Contracts.
      The
      contracts described in the SEC Documents that are material to the Company are
      in
      full force and effect on the date hereof, and neither the Company nor, to the
      Company's knowledge, any other party to such contracts is in breach of or
      default under any of such contracts which would have a Material Adverse
      Effect.

    

    4.20 Taxes.
      The
      Company and each of its Subsidiaries have filed all foreign, federal, state
      and
      local income, excise or franchise tax returns, real estate and personal property
      tax returns, sales and use tax returns and other tax returns required to be
      filed by it and has paid all taxes shown thereon, except taxes which have not
      yet accrued or otherwise become due. The provision for taxes of the Company
      included in the provision for accrued liabilities in the Company’s financial
      statements is adequate for taxes due or accrued as of the dates thereof. All
      taxes and other assessments and levies which the Company or any of its
      Subsidiaries is required to withhold or collect have been withheld and collected
      in a timely manner and have been paid over to the proper governmental
      authorities to the extent required to be so paid. With regard to the income
      tax
      returns of the Company and its Subsidiaries, neither the Company nor any of
      its
      Subsidiaries has received notice of any audit or of any proposed deficiencies
      from any taxing authority, and no controversy with respect to taxes of the
      Company or any of its Subsidiaries of any type is pending or, to the Company’s
      knowledge, threatened. There are in effect no waivers of applicable statutes
      of
      limitations with respect to any taxes owed by the Company or any of its
      Subsidiaries for any year.

    

    4.21 Transfer
      Taxes.
      On the
      Closing Date, all stock transfer or other taxes (other than income taxes) which
      are required to be paid in connection with the sale and transfer of the
      Securities to be sold to the Investor hereunder will be, or will have been,
      fully paid or provided for by the Company and all laws imposing such taxes
      will
      be or will have been fully complied with.

    

    4.22 Private
      Offering.
      Assuming the correctness of the representations and warranties of the Investors
      set forth in Section 5 hereof, (i) the offer and sale of Issued Shares and
      Warrants hereunder is exempt from registration under the Securities Act and
      (ii)
      upon the exercise of the Warrants in accordance with the terms thereof, the
      issuance and sale of the Warrant Shares will be exempt from registration under
      the Securities Act. The Company has not distributed and will not distribute
      prior to the Closing Date any offering material in connection with this Offering
      and sale of the Securities other than the documents of which this Agreement
      is a
      part or the SEC Documents. The Company has not in the past nor will it hereafter
      take any action to sell, offer for sale or solicit offers to buy any securities
      of the Company which would bring the offer, issuance or sale of the Issued
      Shares, the Warrants or the Warrant Shares as contemplated by this Agreement,
      within the provisions of Section 5 of the Securities Act, unless such offer,
      issuance or sale was or shall be within the exemptions of Section 4 of the
      Securities Act. 

    

    4.23 Use
      of
      Proceeds. The
      proceeds from the sale of the Securities hereunder shall be used solely for
      general working capital purposes.

    

    4.24. Title
      to Assets.
      The
      Company and the Subsidiaries have good and marketable title in fee simple to
      all
      real property owned by them that is material to their respective businesses
      and
      good and marketable title in all personal property owned by them that is
      material to their respective businesses, in each case free and clear of all
      Liens, except for Liens disclosed in the SEC Documents and except as do not
      materially affect the value of such property and do not materially interfere
      with the use made and proposed to be made of such property by the Company and
      the Subsidiaries. Any real property and facilities or personal property held
      under lease by the Company and the Subsidiaries are held by them under valid,
      subsisting and enforceable leases of which the Company and the Subsidiaries
      are
      in compliance, except as would not, individually or in the aggregate, reasonably
      be expected to have a Material Adverse Effect.

    

    4.25 Transactions
      With Affiliates.
      Except
      as set forth in the SEC Documents, none of the officers or directors of the
      Company or any Subsidiary is presently a party to any transaction with the
      Company or any Subsidiary (other than for services as employees, officers and
      directors), including any contract, agreement or other arrangement providing
      for
      the furnishing of services to or by, providing for rental of real or personal
      property to or from, or otherwise requiring payments to or from any officer,
      director or such employee or, to the knowledge of the Company, any entity in
      which any officer or director has a substantial interest or is an officer,
      director, trustee or partner, in each case that would be required to be
      disclosed now or in the future in an SEC Document pursuant to the requirements
      of Item 404 of Regulation S-K.

     

    
      
        
        

      

      
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    4.26 Environmental
      Compliance.
      Except
      as set forth in the SEC Documents, to the know of the Company, neither the
      Company nor any of its Subsidiaries (a) is presently in noncompliance with,
      any
      federal, state, and local environmental and health and safety laws, rules,
      regulations, ordinances, guidelines, codes, orders, approvals and similar items
      (“Environmental Laws”) applicable to its business and properties; (b) has
      generated, manufactured, used, refined, transported, treated, stored, handled,
      disposed of, transferred, produced, or processed any pollutant, toxic substance,
      hazardous waste, hazardous substance, hazardous material, oil, or petroleum
      product other than ordinary cleaning and other similar products (“Hazardous
      Materials”) as defined under any Environmental Law, or any solid waste, other
      than such instances and Hazardous Materials as are normally consumed by
      businesses engaged in operations substantially similar to those conducted by
      the
      Company, and has any knowledge of the release or threat of release of any
      Hazardous Materials from its products, properties or facilities except in
      compliance with law; (c) has entered into or been subject to any consent decree,
      compliance order, or administrative order with respect to any environmental
      or
      health and safety matter relating to its business or any of its properties
      or
      facilities. 

    

    4.27 Brokerage.
      Except
      as set forth on Schedule 4.27, there are no, and will be no, claims for and
      no
      person or entity is entitled to any brokerage commissions, finder’s fees or
      similar compensation in connection with the transactions contemplated by this
      Agreement from the Company or any of its Subsidiaries or based on any
      arrangement or agreement made by or on behalf of the Company or any of its
      Subsidiaries.
      The
      Investor shall have no direct obligation with respect to any fees or with
      respect to any claims made by or on behalf of other persons or entities for
      fees
      of a type contemplated in this Section that may be due in connection with the
      transactions contemplated by this Agreement. 

    

    4.28 Employee
      Benefit Plans.
      Except
      as set forth in the SEC Documents, neither the Company nor any of its
      Subsidiaries maintains or contributes to any employee benefit plans. The Company
      and each of its Subsidiaries is in material compliance with the provisions
      of
      all laws or rules or regulations applicable to any employee benefit plan
      maintained or contributed to by the Company or any of its Subsidiaries for
      the
      benefit of its employees and, to the Company’s knowledge, there are no claims
      (other than routine claims for benefits) pending or threatened with respect
      to
      any of such employee benefit plans. Neither the Company nor any of its
      Subsidiaries has any retirement, pension or deferred compensation plans or
      programs. For purposes of this Section 4.28, the term “Company” includes all
      entities that have controlled, have been under the control of, or have been
      under common control with, the Company.

    

    4.29 Employees.
      Except
      as set forth in the SEC Documents, no officer or key employee of the Company
      or
      any of its Subsidiaries (orally or in writing) has notified the Company that
      he
      or she intends to terminate employment with the Company or any of its
      Subsidiaries.

    

    4.30 Insurance.
      The
      Company and the Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are prudent
      and customary in the businesses in which the Company and the Subsidiaries are
      engaged. Neither the Company nor any Subsidiary has any reason to believe that
      it will not be able to renew its existing insurance coverage as and when such
      coverage expires or to obtain similar coverage from similar insurers as may
      be
      necessary to continue its business without a significant increase in
      cost.

    

    4.31 Registration
      Rights.
      The
      Company has not granted or agreed to grant to any person or entity any rights
      (including “piggyback” registration rights) to have any securities of the
      Company registered with the SEC or any other governmental authority on any
      registration statement on which the Shares and Warrant Shares for the Investors
      (and for the finder’s fee, if any) will be registered pursuant to the terms of
      this Agreement; provided, however, the Company may elect to include certain
      shares issued pursuant to an Agreement and Plan of Merger dated as of February
      6, 2007, and amended on June 25, 2007 if issued on or before the filing date
      of
      the registration statement.

     

    
      
        
        

      

      
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    5. Representations,
      Warranties and Covenants of the Investor.

    

    5.1 The
      Investor represents and warrants to, and covenants with, the Company that:
      (i)
      the Investor is an “accredited investor” as defined in Regulation D under the
      Securities Act and the Investor is also knowledgeable, sophisticated and
      experienced in making, and is qualified to make decisions with respect to
      investments in shares presenting an investment decision like that involved
      in
      the purchase of the Securities, including investments in securities issued
      by
      the Company and investments in comparable companies, and has requested,
      received, reviewed and considered all information it deemed relevant in making
      an informed decision to purchase the Securities; (ii) the Investor is acquiring
      the number of Securities set forth in Section 3 of the Securities Purchase
      Agreement in the ordinary course of its business and for its own account for
      investment only and with no present intention of distributing any of such
      Securities or any arrangement or understanding with any other persons regarding
      the distribution of such Securities; (iii) the Investor will not, directly
      or
      indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
      any offers to buy, purchase or otherwise acquire or take a pledge of) any of
      the
      Securities except in compliance with the Securities Act, applicable state
      securities laws and the respective rules and regulations promulgated thereunder;
      (iv) the Investor has answered all questions on the Investor Questionnaire
      for
      use in preparation of the Registration Statement and the answers thereto are
      true, correct and complete as of the date hereof and will be true, correct
      and
      complete as of the Closing Date; (v) the Investor will notify the Company
      immediately of any change in any of such information until such time as the
      Investor has sold all of its Securities or until the Company is no longer
      required to keep the Registration Statement effective; and (vi) the Investor
      has, in connection with its decision to purchase the number of Securities set
      forth in Section 3 of the Securities Purchase Agreement, relied only upon the
      SEC Documents and the representations and warranties of the Company contained
      herein. The Investor understands that its acquisition of the Securities has
      not
      been registered under the Securities Act or registered or qualified under any
      state securities law in reliance on specific exemptions therefrom, which
      exemptions may depend upon, among other things, the bona fide nature of the
      Investor’s investment intent as expressed herein. The Investor has completed or
      caused to be completed and delivered to the Company the Investor Questionnaire,
      which questionnaire is true, correct and complete in all material
      respects.

    

    5.2 The
      Investor acknowledges that there may occasionally be times when the Company
      determines that it must suspend the use of the Prospectus forming a part of
      the
      Registration Statement, as set forth in Section 7.2 of this Agreement. The
      Investor is aware that, in such event, the Securities will not be subject to
      ready liquidation, and that any Securities purchased by the Investor would
      have
      to be held during such suspension. The overall commitment of the undersigned
      to
      investments which are not readily marketable is not excessive in view of the
      Investor’s net worth and financial circumstances, and any purchase of the
      Securities will not cause such commitment to become excessive. The undersigned
      is able to bear the economic risk of an investment in the
      Securities.

    

    5.3 The
      Investor has carefully considered the potential risks relating to the Company
      and a purchase of the Securities, and fully understands that the Securities
      are
      speculative investments which involve a high degree of risk of loss of the
      undersigned’s entire investment. Among others, the undersigned has carefully
      considered each of the risks identified in the SEC Documents.

    

    5.4 The
      Investor recognizes that an investment in the Company involves certain risks
      and
      it has taken full cognizance of and understands all of the risk factors relating
      to the purchase of Securities. The Investor has such knowledge and experience
      in
      financial and business matters that it is capable of evaluating the merits
      and
      risks of an investment in the Company and making an informed investment decision
      with respect thereto. The Investor is able to bear the substantial economic
      risks related to an investment in the Company for an indefinite period of time,
      has no need for liquidity in such investment, and, at the present time, can
      afford a complete loss of such investment.

    

    5.5 The
      Investor is not subscribing for Securities as a result of or subsequent to
      any
      advertisement, article, notice or other communication published in any
      newspaper, magazine, or similar media or broadcast over television or radio,
      or
      presented at any investment seminar or meeting open to the public.

    

    5.6 If
      the
      Investor is a partnership, corporation, limited liability company or trust,
      such
      partnership, corporation, limited liability company or trust has not been formed
      for the specific purpose of acquiring such Securities, unless each beneficial
      owner of such entity is qualified as an accredited investor within the meaning
      of Rule 501(a) of Regulation D and has submitted information substantiating
      such
      individual qualification.

    

    5.7 The
      Investor acknowledges, represents and agrees that no action has been or will
      be
      taken in any jurisdiction outside the United States by the Company that would
      permit an offering of the Securities, or possession or distribution of offering
      materials in connection with the issue of the Securities, in any jurisdiction
      outside the United States where legal action by the Company for that purpose
      is
      required. Each Investor outside the United States will comply with all
      applicable laws and regulations in each foreign jurisdiction in which it
      purchases, offers, sells or delivers Securities or has in its possession or
      distributes any offering material, in all cases at its own expense.

    
      
        
        

      

      
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    5.8 The
      Investor further represents and warrants to, and covenants with, the Company
      that (i) the Investor has full right, power, authority and capacity to enter
      into this Agreement and to consummate the transactions contemplated hereby
      and
      has taken all necessary action to authorize the execution, delivery and
      performance of this Agreement, and (ii) this Agreement constitutes a valid
      and
      binding obligation of the Investor enforceable against the Investor in
      accordance with its terms, except as enforceability may be limited by applicable
      bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
      creditors’ and contracting parties’ rights generally and except as
      enforceability may be subject to general principles of equity (regardless of
      whether such enforceability is considered in a proceeding in equity or at law)
      and except as the indemnification agreements of the Investors herein may be
      legally unenforceable.

    

    5.9 The
      Investor understands that nothing in the SEC Documents, this Agreement or any
      other materials presented to the Investor in connection with the purchase and
      sale of the Securities constitutes legal, tax or investment advice. The Investor
      has consulted such legal, tax and investment advisors as it, in its sole
      discretion, has deemed necessary or appropriate in connection with its purchase
      of Securities.

    

    5.10 The
      Investor represents and warrants that Investor (either alone or as part of
      a
“group” within the meaning of the Securities Act) shall not acquire or shall not
      have the right to acquire Securities as a result of the Agreements such that,
      on
      a pro forma basis for the purchase of Securities and Warrant Shares under this
      Agreement, the Investor or group would beneficially own 20% or more of the
      voting power or total shares outstanding of the Company. 

    

    5.11 The
      Investor understands that the Securities and Warrant Shares have not been
      registered under the Securities Act, that that the certificates evidencing
      the
      Securities and Warrant Shares will be imprinted with a legend that prohibits
      their transfer except in accordance therewith and will not sell, offer to sell,
      assign, pledge, hypothecate or otherwise transfer any of the Securities or
      Warrant Shares unless (i) pursuant to an effective registration statement under
      the Securities Act, (ii) the Investor provides the Company with an opinion
      of
      counsel, in a generally acceptable form, to the effect that a sale, assignment
      or transfer of the Securities or Warrant Shares may be made without registration
      under the Securities Act and the transferee agrees to be bound by the terms
      and
      conditions of this Agreement, (iii) the Investor provides the Company with
      reasonable assurances (in the form of seller and broker representation letters)
      that the Issued Shares, Warrants or the Warrant Shares, as the case may be,
      can
      be sold pursuant to Rule 144 promulgated under the Securities Act (“Rule 144”)
      or (iv) pursuant to Rule 144(k) promulgated under the Securities Act following
      the applicable holding period.

    

    6. Survival
      of Representations, Warranties and Agreements.
      Notwithstanding any investigation made by any party to this Agreement, all
      covenants, agreements, representations and warranties made by the Company and
      the Investor herein shall survive the execution of this Agreement, the delivery
      to the Investor of the Securities being purchased and the payment
      therefor.

    

    7. Registration
      of the Securities; Compliance with the Securities Act.

    

    7.1 Registration
      Procedures and Other Matters.
      The
      Company shall:

    

    (a) prepare
      and file with the SEC, within 60 calendar days after the Closing Date (the
      “Registration Statement Filing Date”), a registration statement on Form S-3, or
      other appropriate form if the Company is not then eligible to use Form S-3,
      (the
“Registration Statement”), to enable the resale of the Registrable Securities by
      the Investors through the automated quotation system of the Nasdaq Capital
      Market (or any other securities exchange, interdealer quotation system or other
      market on which the Common Stock is traded) or in privately-negotiated
      transactions pursuant to Rule 415 of the Securities Act;

     

    
      
        
        

      

      
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    (b) use
      its
      commercially reasonable efforts to cause the Registration Statement to become
      effective within 60 days after the Registration Statement Filing Date (unless
      the Registration Statement is reviewed by the SEC, then within 90 days) (such
      60
      or 90 day period, as applicable, the “Registration Statement Effectiveness
      Date”), such efforts to include, without limiting the generality of the
      foregoing, preparing and filing with the SEC prior to the Registration Statement
      Effectiveness Date, any financial statements that are required to be filed
      prior
      to the effectiveness of such Registration Statement;

    

    (c) use
      its
      commercially reasonable efforts to prepare and file with the SEC such amendments
      and supplements to the Registration Statement and the Prospectus used in
      connection therewith as may be necessary to keep the Registration Statement
      current, continuously effective and free from any material misstatement or
      omission to state a material fact for a period (the “Effectiveness Period”) not
      exceeding, with respect to each Investor’s Registrable Securities, the earlier
      of (i) the second anniversary of the Closing Date, (ii) the date on which the
      Investor may sell all Registrable Securities then held by the Investor without
      restriction by the volume limitations of Rule 144(e) of the Securities Act,
      or
      (iii) such time as all Registrable Securities held by such Investor have been
      sold pursuant to a registration statement;

    

    (d) if
      at any
      time during the Effectiveness Period, less than 95% of the then outstanding
      Registrable Securities are then registered pursuant to a Registration Statement
      filed pursuant to clause (a) above, then (x) the Company shall file as soon
      as
      reasonably practicable, but in any case within 30 days following the event
      resulting in less than 95% of the then outstanding Registrable Securities being
      so registered (the “Additional Registration Statement Filing Date”), an
      additional Registration Statement conforming with the requirements of this
      Section 7.1 covering the resale by the Holders of not less than 100% of the
      number of then Registrable Securities, (y) use its best efforts to cause such
      additional Registration Statement to become effective within 60 days after
      the
      Additional Registration Statement Filing Date (unless such additional
      Registration Statement is reviewed by the SEC, then within 90 days) (such 60
      or
      90 day period, as applicable, the “Additional Registration Statement
      Effectiveness Date”), such efforts to include, without limiting the generality
      of the foregoing, preparing and filing with the SEC prior to the Additional
      Registration Statement Effectiveness Date, any financial statements that are
      required to be filed prior to the effectiveness of such additional Registration
      Statement, and (z) use its best efforts to cause such additional Registration
      Statement to remain current, continuously effective and free from any material
      misstatement or omission to state a material fact during the entire
      Effectiveness Period;

    

    (e) furnish
      to the Investor with respect to the Registrable Securities registered under
      the
      Registration Statement such number of copies of the Registration Statement,
      Prospectuses and Preliminary Prospectuses in conformity with the requirements
      of
      the Securities Act and such other documents as the Investor may reasonably
      request, in order to facilitate the public sale or other disposition of all
      or
      any of the Registrable Securities by the Investor; provided, however, that
      the
      obligation of the Company to deliver copies of Prospectuses or Preliminary
      Prospectuses to the Investor shall be subject to the receipt by the Company
      of
      reasonable assurances from the Investor that the Investor will comply with
      the
      applicable provisions of the Securities Act and of such other securities or
      blue
      sky laws as may be applicable in connection with any use of such Prospectuses
      or
      Preliminary Prospectuses;

    

    (f) file
      documents required of the Company for normal blue sky clearance in states
      specified in writing by the Investor and use its best efforts to maintain such
      blue sky qualifications during the period the Company is required to maintain
      the effectiveness of the Registration Statement pursuant to Section 7.1(c);
      provided, however, that the Company shall not be required to qualify to do
      business or consent to service of process in any jurisdiction in which it is
      not
      now so qualified or has not so consented;

    

    (g) use
      its
      commercially reasonable efforts to comply in all material respects with the
      provisions of the Securities Act and the Exchange Act, together with the rules
      and regulations promulgated thereunder, with respect to the Registration
      Statement and the disposition of all Registrable Securities covered
      thereby;

    

    (h) use
      its
      commercially reasonable efforts to avoid the issuance of, or, if issued, obtain
      the withdrawal of (i) any stop order or other order suspending the effectiveness
      of a Registration Statement, or (ii) any suspension of the qualification (or
      exemption from qualification) of any of the Registrable Securities for sale
      in
      any jurisdiction, at the earliest practicable moment;

     

    
      
        
        

      

      
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    (i) provide
      a
      transfer agent and registrar for all Registrable Securities subject to a
      Registration Statement.

    

    (j) if
      requested by the Investors, cooperate with the Investors to facilitate the
      timely preparation and delivery of certificates representing Registrable
      Securities to be delivered to a transferee pursuant to the Registration
      Statements, which certificates shall be free of all restrictive legends, and
      to
      enable such Registrable Securities to be in such denominations and registered
      in
      such names as any such Investors may request.

    

    (k) provide
      a
      copy of any Registration Statement and any amendments or supplements thereto
      and
      the Company shall notify the Holders’ Counsel and each seller of Registrable
      Securities of any stop order issued or threatened by the SEC;

    

    (l)
       provide
      a
      legal opinion of the Company’s outside counsel, dated the effective date of such
      Registration Statement (and, if such registration includes an underwritten
      offering, dated the date of the closing under the underwriting agreement),
      with
      respect to the Registration Statement, each amendment and supplement thereto,
      the prospectus included therein (including the preliminary prospectus) and
      such
      other documents relating thereto in customary form and covering such matters
      of
      the type customarily covered by legal opinions of such nature;

    

    (m) bear
      all
      expenses in connection with the procedures in paragraph (a) through (l) of
      this
      Section 7.1 and the registration of the Securities pursuant to the Registration
      Statement; and

    

    (n) in
      the
      event that (i) the Company fails to file the Registration Statement pursuant
      to
      clause (a) above on or before the Registration Statement Filing Date, (ii)
      the
      Company fails to file any additional Registration Statement required to be
      filed
      pursuant to clause (d) above on or before its applicable Additional Registration
      Statement Filing Date, (iii) the Registration Statement required to be filed
      pursuant to clause (a) above is not declared effective on or before the
      Registration Statement Effectiveness Date, (iv) any additional Registration
      Statement required to be filed pursuant to clause (d) above is not declared
      effective on or before the applicable Additional Registration Statement
      Effectiveness Date, (v) the Company fails to file with the SEC a request for
      acceleration within five business days of the date that the Company is notified
      by the SEC that any Registration Statement will not be “reviewed,” or is not
      subject to further review, or (vi) after a Registration Statement has been
      declared effective, either (x) such Registration Statement ceases to be
      effective or available for any reason or (y) the occurrence of any Suspension,
      other than, in the case of clause (x) or (y) a suspension by the Company of
      the
      use of the Prospectus forming a part of Registration Statement for not more
      than
      30 days in any period of 365 consecutive days solely to the extent it is
      suspended in reliance on an ability to do so due to the existence of a
      development that, in the good faith discretion of the Company’s Board of
      Directors, makes it appropriate to so suspend or which renders the Company
      unable to comply with SEC requirements (any such failure or event described
      in
      the foregoing clauses (i) through (vi), an “Event”, and the date on which such
      Event occurs being referred to as an “Event Date”) then, in addition to any
      other rights available to the Investors under this Agreement or applicable
      law,
      on each monthly anniversary of each such Event Date and until such time as
      all
      then continuing Events shall have been cured, the Company shall pay to each
      Investor in cash in immediately available funds, as partial liquidated damages
      and not as a penalty, an amount equal to 1% of the aggregate purchase price
      of
      the Registrable Securities purchased by the Investors pursuant to this Agreement
      (not to exceed 15% total) (the “Registration Penalty”) for each month, or pro
      rata from any portion thereof, following such Event Date. The Registration
      Penalty shall accrue on a daily basis and shall be payable in arrears by the
      Company within 10 days of the end of each monthly anniversary of the Event
      Date
      until such time as all then continuing Events shall have been cured. Any
      Registration Penalty payable under this Section 7.1(n) shall be in addition
      to
      any remedies available to the Investors at law or in equity by reason of any
      breach of this Agreement by the Company. 

    

    

    7.2 Transfer
      of Securities After Registration; Suspension.

    

    (a) The
      Investor agrees that it will not effect any disposition of the Registrable
      Securities or its right to purchase the Issued Shares or Warrants that would
      constitute a sale within the meaning of the Securities Act except as
      contemplated in a Registration Statement referred to in Section 7.1 and as
      described below or as otherwise permitted by law, and that it will promptly
      notify the Company of any changes in the information set forth in the
      Registration Statement regarding the Investor or its plan of
      distribution.

     

    
      
        
        

      

      
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    (b) Except
      in
      the event that paragraph (c) or (d) below applies, the Company shall (i) if
      deemed necessary by the Company, prepare and file from time to time with the
      SEC
      a post-effective amendment to the Registration Statement or a supplement to
      the
      related Prospectus or a supplement or amendment to any document incorporated
      therein by reference or file any other required document so that such
      Registration Statement will not contain an untrue statement of a material fact
      or omit to state a material fact required to be stated therein or necessary
      to
      make the statements therein not misleading, and so that, as thereafter delivered
      to purchasers of the Registrable Securities being sold thereunder, such
      Prospectus will not contain an untrue statement of a material fact or omit
      to
      state a material fact required to be stated therein or necessary to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading; (ii) provide the Investor copies of any documents filed pursuant
      to Section 7.2(b)(i); and (iii) inform each Investor that the Company has
      complied with its obligations in Section 7.2(b)(i) (or that, if the Company
      has
      filed a post-effective amendment to a Registration Statement which has not
      yet
      been declared effective, the Company will notify the Investor to that effect,
      will use its best efforts to secure the effectiveness of such post-effective
      amendment as promptly as possible and will promptly notify the Investor pursuant
      to Section 7.2(b)(i) hereof when the amendment has become effective).

    

    (c) In
      addition to any suspension rights under paragraph (d) below, upon the happening
      of any pending corporate development, public filing with the SEC or similar
      event, that, in the judgment of the Board, renders it advisable to suspend
      use
      of the Prospectus or upon the request by an underwriter in connection with
      an
      underwritten public offering of the Company’s securities, the Company may
      suspend use of the Prospectus, on written notice to each Purchaser (which notice
      will not disclose the content of any material non-public information and will
      indicate the date of the beginning and end of the intended period of suspension,
      if known), in which case the Investor shall discontinue disposition of
      Registrable Shares covered by the Registration Statement or Prospectus until
      copies of a supplemented or amended Prospectus are distributed to the Investor
      or until the Investor is advised in writing by the Company that sales of
      Registrable Securities under the applicable Prospectus may be resumed and have
      received copies of any additional or supplemental filings that are incorporated
      or deemed incorporated by reference in any such Prospectus. Notwithstanding
      the
      foregoing, in no event shall such suspension be for a period of more than ninety
      (90) consecutive days in any twelve month period from the giving of the
      suspension notice. The suspension and notice thereof described in this Section
      7.2(c) shall be held in strictest confidence and shall not be disclosed by
      the
      Investor.

    

    (d) Subject
      to paragraph (e) below, in the event (i) of any request by the SEC or any other
      federal or state governmental authority during the period of effectiveness
      of
      the Registration Statement for amendments or supplements to a Registration
      Statement or related Prospectus or for additional information; (ii) of the
      issuance by the SEC or any other federal or state governmental authority of
      any
      stop order suspending the effectiveness of a Registration Statement or the
      initiation of any proceedings for that purpose; (iii) of the receipt by the
      Company of any notification with respect to the suspension of the qualification
      or exemption from qualification of any of the Securities for sale in any
      jurisdiction or the initiation or threatening of any proceeding for such
      purpose; or (iv) of any event or circumstance which, upon the advice of its
      counsel, necessitates the making of any changes in a Registration Statement
      or
      Prospectus, or any document incorporated or deemed to be incorporated therein
      by
      reference, so that, in the case of the Registration Statement, it will not
      contain any untrue statement of a material fact or any omission to state a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading, and that in the case of the Prospectus, it will not
      contain any untrue statement of a material fact or any omission to state a
      material fact required to be stated therein or necessary to make the statements
      therein, in the light of the circumstances under which they were made, not
      misleading; then the Company shall deliver, via Federal Express or other
      overnight delivery service, a certificate in writing to the Investor (the
“Suspension Notice”) to the effect of the foregoing and, upon receipt of such
      Suspension Notice, the Investor will refrain from selling any Registrable
      Securities pursuant to the Registration Statement (a “Suspension”) until the
      Investor’s receipt of copies of a supplemented or amended Prospectus prepared
      and filed by the Company, or until it is advised in writing by the Company
      that
      the current Prospectus may be used, and has received copies of any additional
      or
      supplemental filings that are incorporated or deemed incorporated by reference
      in any such Prospectus. In the event of any Suspension, the Company will use
      its
      best efforts to cause the use of the Prospectus so suspended to be resumed
      as
      soon as reasonably practicable within 30 days after the delivery of a Suspension
      Notice to the Investor. In addition to and without limiting any other remedies
      (including, without limitation, at law or at equity) available to the Investor,
      the Investor shall be entitled to specific performance in the event that the
      Company fails to comply with the provisions of this Section 7.2(c).

     

    
      
        
        

      

      
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      (e) Notwithstanding
        the foregoing Section 7.2(d), the Investor shall not be prohibited from selling
        Securities under the Registration Statement as a result of Suspensions for
        more
        than 30 days in any twelve month period (the "Restricted Period"); provided
        that
        the Company may extend such Restricted Period for more than 30 days (but
        in no
        event for more than 60 days) if, in the good faith judgment of the Company’s
        Board of Directors, upon the written opinion of counsel, the sale of Registrable
        Securities under the Registration Statement in reliance on this paragraph
        7.2(d)
        would be reasonably likely to cause a violation of the Securities Act or
        the
        Exchange Act and result in liability to the Company, in which case, the Company
        shall pay the Investor in cash the Registration Penalty as set forth in Section
        7.1(s). The
        Investor hereby covenants not to sell any of the Registrable Securities during
        any Restricted Period in accordance with this Section. 

    

    (f) Provided
      that a Suspension is not then in effect, the Investor may sell Registrable
      Securities under the Registration Statement or in any other manner permitted
      by
      law. Upon receipt of a request therefor, the Company has agreed to provide
      an
      adequate number of current Prospectuses to the Investor and to supply copies
      to
      any other parties requiring such Prospectuses.

    

    7.3 Indemnification.
      For the
      purpose of this Section 7.3:

    

    (i) the
      term
“Registration Statement” shall include (a) any Registration Statement referred
      to in Section 7.1, (b) the Prospectus in the form first filed with the SEC
      pursuant to Rule 424(b) of the Securities Act or filed as part of a Registration
      Statement at the time of effectiveness if no Rule 424(b) filing is required,
      and
      (c) any exhibit, supplement or amendment included in or relating to a
      Registration Statement referred to in Section 7.1; and

    

    (ii) the
      term
“untrue statement” shall include any untrue statement or alleged untrue
      statement, or any omission or alleged omission to state in a Registration
      Statement a material fact required to be stated therein or necessary to make
      the
      statements therein, in the light of the circumstances under which they were
      made, not misleading.

    

    (a) The
      Company agrees to indemnify and hold harmless each Investor, the officers,
      directors, investment advisors, partners, members, attorneys, and employees
      of
      each of the Investor, each person or entity who controls any such Investor
      (within the meaning of Section 15 of the Securities Act or Section 20 of the
      Exchange Act) and the officers, directors, investment advisors, partners,
      members, attorneys, and employees of each such controlling person or entity
      (collectively, the “Investor Indemnitees”) from and against any losses, claims,
      damages or liabilities to which such Investor Indemnitee may become subject
      (under the Securities Act or otherwise) insofar as such losses, claims, damages
      or liabilities (or actions or proceedings in respect thereof) arise out of,
      or
      are based upon (i) any breach of the representations or warranties of the
      Company contained herein or failure to comply with the covenants and agreements
      of the Company contained herein, (ii) any untrue statement of a material fact
      contained in the Registration Statement as amended at the time of effectiveness
      or any omission of a material fact required to be stated therein or necessary
      to
      make the statements therein not misleading, or (iii) any failure by the Company
      to fulfill any undertaking included in the Registration Statement as amended
      at
      the time of effectiveness, and the Company will reimburse such Investor
      Indemnitee for any reasonable legal or other expenses reasonably incurred in
      investigating, defending or preparing to defend any such action, proceeding
      or
      claim, or preparing to defend any such action, proceeding or claim, provided,
      however,
      that
      the Company shall not be liable in any such case to the extent that such loss,
      claim, damage or liability arises out of, or is based upon, an untrue statement
      made in such Registration Statement or any omission of a material fact required
      to be stated therein or necessary to make the statements therein not misleading
      in reliance upon and in conformity with written information furnished to the
      Company by or on behalf of the applicable Investor specifically for use in
      preparation of the Registration Statement or the failure of the applicable
      Investor to comply with its covenants and agreements contained in Section 7.2
      hereof respecting sale of the Registrable Securities or any statement or
      omission in any Prospectus that is corrected in any subsequent Prospectus that
      was delivered to the Investor at a reasonable time prior to the pertinent sale
      or sales by the Investor. The Company shall reimburse each Investor Indemnitee
      for the amounts provided for herein on demand as such expenses are
      incurred.

     

    
      
        
        

      

      
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    (b) The
      Investor agrees to indemnify and hold harmless the Company (and each person,
      if
      any, who controls the Company within the meaning of Section 15 of the Securities
      Act, each officer of the Company who signs the Registration Statement and each
      director of the Company) from and against any losses, claims, damages or
      liabilities to which the Company (or any such officer, director or controlling
      person) may become subject (under the Securities Act or otherwise), insofar
      as
      such losses, claims, damages or liabilities (or actions or proceedings in
      respect thereof) arise out of, or are based upon, (i) any failure by such
      Investor to comply with the covenants and agreements contained in Section 7.2
      hereof respecting sale of the Registrable Securities, or (ii) any untrue
      statement of a material fact contained in the Registration Statement or any
      omission of a material fact required to be stated therein or necessary to make
      the statements therein not misleading if such untrue statement or omission
      was
      made in reliance upon and in conformity with written information furnished
      by or
      on behalf of the Investor specifically for use in preparation of the
      Registration Statement, and the Investor will reimburse the Company (or such
      officer, director or controlling person, as the case may be) for any legal
      or
      other expenses reasonably incurred in investigating, defending or preparing
      to
      defend any such action, proceeding or claim; provided
      that the
      Investor’s obligation to indemnify the Company shall be limited to the net
      proceeds received by the Investor from the sale of Registrable Securities giving
      rise to such liability.

    

    (c) Promptly
      after receipt by any indemnified person of a notice of a claim or the beginning
      of any action in respect of which indemnity is to be sought against an
      indemnifying person pursuant to this Section 7.3, such indemnified person shall
      notify the indemnifying person in writing of such claim or of the commencement
      of such action, but the omission to so notify the indemnifying person will
      not
      relieve it from any liability which it may have to any indemnified person under
      this Section 7.3 (except to the extent that such omission materially and
      adversely affects the indemnifying person’s ability to defend such action) or
      from any liability otherwise than under this Section 7.3. Subject to the
      provisions hereinafter stated, in case any such action shall be brought against
      an indemnified person, the indemnifying person shall be entitled to participate
      therein, and, to the extent that it shall elect by written notice delivered
      to
      the indemnified person promptly after receiving the aforesaid notice from such
      indemnified person, shall be entitled to assume the defense thereof, with
      counsel reasonably satisfactory to such indemnified person. After notice from
      the indemnifying person to such indemnified person of its election to assume
      the
      defense thereof, such indemnifying person shall not be liable to such
      indemnified person for any legal expenses subsequently incurred by such
      indemnified person in connection with the defense thereof, provided,
      however,
      that
      (x) if there exists or shall exist a conflict of interest that would make it
      inappropriate, in the opinion of counsel to the indemnified person, for the
      same
      counsel to represent both the indemnified person and such indemnifying person
      or
      any affiliate or associate thereof or (y) the indemnifying party shall have
      failed promptly to assume the defense of such action or to employ counsel
      reasonably satisfactory to such indemnified party in any such action, then,
      in
      the case of either clause (x) or (y), the indemnified person shall be entitled
      to retain its own counsel at the expense of such indemnifying person; provided,
      however, that no indemnifying person shall be responsible for the fees and
      expenses of more than one separate counsel (together with appropriate local
      counsel) for all indemnified parties. In no event shall any indemnifying person
      be liable in respect of any amounts paid in settlement of any action unless
      the
      indemnifying person shall have approved the terms of such settlement;
provided
      that
      such consent shall not be unreasonably withheld. No indemnifying person shall,
      without the prior written consent of the indemnified person, effect any
      settlement of any pending or threatened proceeding in respect of which any
      indemnified person is or could have been a party and indemnification could
      have
      been sought hereunder by such indemnified person, unless such settlement
      includes an unconditional release of such indemnified person from all liability
      on claims that are the subject matter of such proceeding.

     

    
      
        
        

      

      
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    (d) If
      the
      indemnification provided for in this Section 7.3 is unavailable to or
      insufficient to hold harmless an indemnified person under subsection (a) or
      (b)
      above in respect of any losses, claims, damages or liabilities (or actions
      or
      proceedings in respect thereof) referred to therein, then each indemnifying
      person shall contribute to the amount paid or payable by such indemnified person
      as a result of such losses, claims, damages or liabilities (or actions in
      respect thereof) in such proportion as is appropriate to reflect the relative
      fault of the Company on the one hand and the Investor on the other in connection
      with the statements or omissions or other matters which resulted in such losses,
      claims, damages or liabilities (or actions in respect thereof), as well as
      any
      other relevant equitable considerations. The relative fault shall be determined
      by reference to, among other things, in the case of an untrue statement, whether
      the untrue statement relates to information supplied by the Company on the
      one
      hand or the Investor on the other and the parties’ relative intent, knowledge,
      access to information and opportunity to correct or prevent such untrue
      statement. The Company and the Investor agree that it would not be just and
      equitable if contribution pursuant to this subsection (d) were determined by
      pro
      rata allocation (even if the Investor and other selling shareholders were
      treated as one entity for such purpose) or by any other method of allocation
      which does not take into account the equitable considerations referred to above
      in this subsection (d). The amount paid or payable by an indemnified person
      as a
      result of the losses, claims, damages or liabilities (or actions in respect
      thereof) referred to above in this subsection (d) shall be deemed to include
      any
      legal or other expenses reasonably incurred by such indemnified person in
      connection with investigating or defending any such action or claim.
      Notwithstanding the provisions of this subsection (d), the Investor shall not
      be
      required to contribute any amount in excess of the amount by which the net
      proceeds received by the Investor from the sale of Registrable Securities giving
      rise to such liability exceeds the amount of any damages which such Investor
      has
      otherwise been required to pay by reason of such untrue statement. No person
      guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
      of
      the Securities Act) shall be entitled to contribution from any person who was
      not guilty of such fraudulent misrepresentation. The Investor’s obligations in
      this subsection to contribute shall be in proportion to its sale of Registrable
      Securities to which such loss relates and shall not be joined with any other
      selling shareholders.

    

    (e) The
      parties to this Agreement hereby acknowledge that they are sophisticated
      business persons who were represented by counsel during the negotiations
      regarding the provisions hereof including, without limitation, the provisions
      of
      this Section 7.3, and are fully informed regarding said provisions. They further
      acknowledge that the provisions of this Section 7.3 fairly allocate the risks
      in
      light of the ability of the parties to investigate the Company and its business
      in order to assure that adequate disclosure is made in the Registration
      Statement as required by the Act and the Exchange Act. The parties are advised
      that federal or state public policy as interpreted by the courts in certain
      jurisdictions may be contrary to certain of the provisions of this Section
      7.3,
      and the parties hereto hereby expressly waive and relinquish any right or
      ability to assert such public policy as a defense to a claim under this Section
      7.3 and further agree not to attempt to assert any such defense.

    

    7.4 Termination
      of Conditions and Obligations.
      The
      conditions precedent imposed by Section 5 or this Section 7 upon the
      transferability of the Securities shall cease and terminate as to any particular
      number of the Securities when such Securities shall have been effectively
      registered under the Securities Act and sold or otherwise disposed of in
      accordance with the intended method of disposition set forth in the Registration
      Statement covering such Securities or at such time as an opinion of counsel
      reasonably satisfactory to the Company shall have been rendered to the effect
      that such conditions are not necessary in order to comply with the Securities
      Act.

    

    7.5 Information
      Available.
      So long
      as the Registration Statement is effective covering the resale of Securities
      owned by the Investor, the Company will furnish to the Investor upon the
      reasonable request of the Investor, an adequate number of copies of the
      Prospectuses to supply to any other party requiring such Prospectuses; and
      upon
      the reasonable request of the Investor, the Chief Executive Officer or the
      Chief
      Financial Officer of the Company (or an appropriate designee thereof) will
      meet
      with the Investor or a representative thereof during normal business hours
      at
      the Company’s headquarters to discuss all information relevant for disclosure in
      the Registration Statement covering the Securities and will otherwise use its
      commercially reasonable best efforts to cooperate with any Investor conducting
      an investigation for the purpose of reducing or eliminating such Investor’s
      exposure to liability under the Securities Act, including the reasonable
      production of information at the Company’s headquarters; provided, that the
      Company shall not be required to disclose any confidential information to or
      meet at its headquarters with any Investor until and unless the Investor shall
      have entered into a confidentiality agreement in form and substance reasonably
      satisfactory to the Company with the Company with respect thereto and, provided,
      further, that such investigation shall not interfere with the normal business
      operations of the Company.

     

    
      
        
        

      

      
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    7.6 Registrable
      Securities.
      As used
      herein, the term “Registrable Securities” shall mean (i) the Issued Shares, (ii)
      the Warrant Shares, and (iii) any shares of Common Stock issued or issuable
      directly or indirectly with respect to the securities referred to in clauses
      (i)
      and (ii) by way of stock dividend or stock split or in connection with a
      combination of shares, recapitalization, merger, consolidation or other
      reorganization.

    

    8. Notices.
      All
      notices, requests, consents and other communications hereunder shall be in
      writing, shall be mailed (A) if within the United States by first-class
      registered or certified airmail, or nationally recognized overnight express
      courier, postage prepaid, or by facsimile, or (B) if delivered from outside
      the
      United States, by International Federal Express or facsimile, and shall be
      deemed given (i) if delivered by first-class registered or certified mail,
      three
      business days after so mailed, (ii) if delivered by nationally recognized
      overnight carrier, one business day after so mailed, (iii) if delivered by
      International Federal Express, two business days after so mailed, (iv) if
      delivered by facsimile, upon electronic confirmation of receipt and shall be
      delivered as addressed as follows:

    

    (a) if
      to the
      Company, to:

    Innovo
      Group Inc.

    5901
      South Eastern Avenue

    Commerce,
      CA 90040

    Attn:
      Marc. B. Crossman

    

    (b) if
      to the
      Investor, at its address on the signature page hereto, or at such other address
      or addresses as may have been furnished to the Company in writing.

    

    9. Changes.
      This
      Agreement may not be modified or amended except pursuant to an instrument in
      writing signed by the Company and the Investor.

    

    10. Headings.
      The
      headings of the various sections of this Agreement have been inserted for
      convenience of reference only and shall not be deemed to be part of this
      Agreement.

    

    11. Severability.
      In case
      any provision contained in this Agreement should be invalid, illegal or
      unenforceable in any respect, the validity, legality and enforceability of
      the
      remaining provisions contained herein shall not in any way be affected or
      impaired thereby.

    

    12. Governing
      Law.
      This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State of Delaware.

    

    13. Counterparts.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      constitute an original, but all of which, when taken together, shall constitute
      but one instrument, and shall become effective when one or more counterparts
      have been signed by each party hereto and delivered to the other
      parties.

    

    14. Rule
      144.
      The
      Company covenants that it will timely file the reports required to be filed
      by
      it under the Securities Act and the Exchange Act and the rules and regulations
      adopted by the SEC thereunder (or, if the Company is not required to file such
      reports, it will, upon the request of any Investor holding Registrable
      Securities, make publicly available such information as necessary to permit
      sales pursuant to Rule 144 under the Securities Act), and it will take such
      further action as any such Investor may reasonably request, all to the extent
      required from time to time to enable such Investor to sell Registrable
      Securities without registration under the Securities Act within the limitation
      of the exemptions provided by (a) Rule 144 under the Securities Act, as such
      Rule may be amended from time to time, or (b) any similar rule or regulation
      hereafter adopted by the SEC. Upon the request of the Investor, the Company
      will
      deliver to such holder a written statement as to whether it has complied with
      such information and requirements.

    

    15. Non-Public
      Information.
      

    

    15.1 The
      Investor represents to the Company that, at all times during the Company’s
      offering of the Securities, the Investor has maintained in confidence all
      non-public information regarding the Company received by the Investor from
      the
      Company or its agents, and covenants that it will continue to maintain in
      confidence such information until such information (a) becomes generally
      publicly available other than through a violation of this provision by the
      Investor or its agents or (b) is required to be disclosed in legal
      proceedings (such as by deposition, interrogatory, request for documents,
      subpoena, civil investigation demand, filing with any governmental authority
      or
      similar process), provided, however, that before making any use or disclosure
      in
      reliance on this subparagraph (b) the Investor shall give the Company at least
      fifteen (15) days prior written notice (or such shorter period as required
      by
      law) specifying the circumstances giving rise thereto and will furnish only
      that
      portion of the non-public information which is legally required and will
      exercise its best efforts at the sole expense of the Company to obtain reliable
      assurance that confidential treatment will be accorded any non-public
      information so furnished.

     

    
      
        
        

      

      
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    15.2 The
      Company shall on the Closing Date issue a press release (the “Closing Date Press
      Release”) disclosing the material terms of the transactions contemplated hereby
      (including at least the number of Securities sold and proceeds therefrom).
      The
      Company will use its commercially reasonable efforts to disclose on or before
      the Registration Statement Effectiveness Date, any other material, non-public
      information disclosed to the Investor pursuant to Section 15.1 above, if
      applicable. 

    

    16. Right
      to Participate in Future Offerings.
      

    

    16.1 For
      a
      period of eighteen months after the Closing Date, the Investor shall have the
      right, but not the obligation, to purchase a pro rata portion of any future
      sales of Common Stock or securities convertible into Common Stock, except for
      Certain Permitted Issuances (as defined below) (each, a “Subsequent Financing”),
      on the same terms and conditions that are offered to the investor participating
      in such Subsequent Financing. The Investor shall have the right to purchase
      up
      to the number of shares of Common Stock or securities convertible into Common
      Stock such that the Investor acquires the number of shares equivalent to
      maintain the same percentage ownership in the Company, excluding Certain
      Permitted Issuances. Notwithstanding the foregoing, the Company shall not be
      required to increase the amount of shares of Common Stock or securities
      convertible into Common Stock offered in the Subsequent Financing to ensure
      that
      the Investor maintains his percentage ownership. The amount of shares of Common
      Stock or securities convertible into Common Stock to be sold in such Subsequent
      Financing shall be reduced by the amount of shares being purchased by the
      Investor and any other Investor pursuant to the rights granted under the
      Agreements.

    

    16.2 In
      the
      event of a Subsequent Financing, the Company shall promptly inform the Investor
      in writing of the terms and conditions of the Subsequent Financing, state the
      nature of the rights granted thereunder and directions for exercise (the
“Notice”). The Investor may exercise all or part of such right and must respond
      within the time frames set forth in the Notice (which time frame shall not
      be
      less than 14 calendar days) , the failure to respond shall be deemed to mean
      the
      Investor declines his rights hereunder. Should the Investor decline for any
      reason or fail to respond to the Notice, then Company shall have the right
      to
      proceed with the Subsequent Financing with no further obligation to the
      Investor, except as provided in Section 17 hereunder. 

    

    16.3 For
      purposes of the Agreements, the term “Certain Permitted Issuances” shall mean
      any shares of Common Stock or securities convertible into Common Stock issued
      pursuant to (i) consideration for any acquisition or merger with another
      company, (ii) consideration for the purchase of all or substantially all of
      a
      company’s assets, (iii) any employee benefit plans disclosed in the SEC
      Documents, or (iv) any outstanding warrants, options or other securities
      disclosed in the SEC Documents.

    

    17. Future
      Offering Payment.
      In the
      event that the Company issues any shares of Common Stock, securities convertible
      into Common Stock, options or warrants to other investors in another private
      placement offering for a period of eighteen (18) months after the Closing Date
      where the exercise price of the securities convertible into Common Stock,
      options or warrants or purchase price of the Common Stock is at a price less
      than the exercise price of the Warrants, then the Company shall pay to the
      Investors an amount equal to the product of the difference between the exercise
      price of the Warrants and the exercise price of the securities convertible
      into
      Common Stock, options or warrants or the issue price of the equity, as
      applicable, times the maximum number of Warrants issued herein (“Future Offering
      Payment”). The Future Offering Payment shall be paid in cash within 10 days of
      the closing of the future offering. The Investor shall not be entitled to a
      Future Offering Payment in the event of a Certain Permitted Issuance.

    

    18. Expenses.
      The
      Company shall reimburse the Investors for up to $50,000 of the Investors’ costs
      and expenses related to preparation and execution of the Agreements, including,
      but not limited to, due diligence expenses, accounting expenses, other
      incidental costs and expenses and reasonable attorney’s fees for one outside
      counsel selected by the Investors in their sole discretion. 

    

    
      
        
          
          

        

        
          -
            20
            -

          
            

          

        

        
          
          

        

      

    

    

    

    INNOVO
      GROUP INC

    

    INVESTOR
      QUESTIONNAIRE

    

    (ALL
      INFORMATION WILL BE TREATED CONFIDENTIALLY)

    
 

    
      
        
          	To: 	 	
                       Innovo Group
                    Inc.

                

          	
                	      	    5901 South Eastern
                  Avenue

          	
                	      
                    	Commerce, CA 
90040

        

      

      This
        Investor Questionnaire (“Questionnaire”) must be completed by each potential
        investor in connection with the offer and sale of the shares of the common
        stock, par value $0.10 per share, of Innovo Group Inc. (the “Common Stock”) and
        warrants to purchase shares of Common Stock (the “Warrants” and together with
        the Common Stock, the “Securities”). The Securities are being offered
        and sold by Innovo Group Inc. (the “Company”) without registration under the
        Securities Act of 1933, as amended (the “Act”), and the securities laws of
        certain states, in reliance on the exemptions contained in Section 4(2) of
        the
        Act and on Regulation D promulgated thereunder and in reliance on similar
        exemptions under applicable state laws. The Company must determine that a
        potential investor meets certain suitability requirements before offering
        or
        selling Securities to such investor. The purpose of this Questionnaire is
        to
        assure the Company that each investor will meet the applicable suitability
        requirements. The information supplied by you will be used in determining
        whether you meet such criteria, and reliance upon the private offering exemption
        from registration is based in part on the information herein
        supplied.

    

    

    This
      Questionnaire does not constitute an offer to sell or a solicitation of an
      offer
      to buy any security. Your answers will be kept strictly confidential. However,
      by signing this Questionnaire you will be authorizing the Company to provide
      a
      completed copy of this Questionnaire to such parties as the Company deems
      appropriate in order to ensure that the offer and sale of the Securities will
      not result in a violation of the Act or the securities laws of any state and
      that you otherwise satisfy the suitability standards applicable to purchasers
      of
      the Securities. All potential investors must answer all applicable questions
      and
      complete, date and sign this Questionnaire. Please print or type your responses
      and attach additional sheets of paper if necessary to complete your answers
      to
      any item.

    

    A. BACKGROUND
      INFORMATION

     

    
      

        Name:___________________________________________________________________________________________________________________

        

        Business
          Address:_________________________________________________________________________________________________________

        (Number
          and Street)

         

        _______________________________________________________________________________________________________________________

        (City)                                                                           
             (State)     (Zip
          Code)

         

        

        Telephone
          Number: (___) ___________________________________________________________________________________________________

        

        Residence
          Address (for individuals):
          ___________________________________________________________________________________________

        (Number
          and Street)

         

        _______________________________________________________________________________________________________________________

                                                   
          (City)                     
(State)     (Zip
          Code)

        

        Telephone
          Number: (___) ___________________________________________________________________________________________________    

        

        If
          an individual:

                   
          
          
            	
                     Age:________ 

                  	 	 Citizenship:___________________	 	 Where registered to
                    vote:_______________________

          

        

         

        If
          a corporation, partnership, limited liability
          company, trust or other entity:

        Type
          of
          entity:_____________________________________________________________________________________________________

         

        
          
            
              	
                      State
                        of formation:________________________________

                    	Date of
                      formation:____________________________________________

            

          

        

         

        
          
            	Social Security or Tax Identification
                    No.__________________________________________________

          

        

         

        Send
          all
          correspondence to (check one): ____ Residence Address         ____
          Business Address

         

        
          	Current ownership of securities
                  of the
                  Company:  (1) __________shares of common stock, par $0.10 per share;
                  (2) options and/or warrants to purchase__________shares of Common
                  Stock

                                                                                            

      

       

       

    

    
      
        -
          21
          -

        
          

        

      

      
        
        

      

    

    
       

    

    B. STATUS
      AS ACCREDITED INVESTOR

    

    The
      undersigned is an “accredited investor” as such term is defined in Regulation D
      under the Act, as at the time of the sale of the Securities the undersigned
      falls within one or more of the following categories (Please
      initial one or more, as applicable):1

     

    ____
      (1) a
      bank as
      defined in Section 3(a)(2) of the Act, or a savings and loan association or
      other institution as defined in Section 3(a)(5)(A) of the Act whether acting
      in
      its individual or fiduciary capacity; a broker or dealer registered pursuant
      to
      Section 15 of the Securities Exchange Act of 1934; an insurance company as
      defined in Section 2(13) of the Act; an investment company registered under
      the
      Investment Corporation Act of 1940 or a business development company as defined
      in Section 2(a)(48) of that Act; a Small Business Investment Corporation
      licensed by the U.S. Small Business Administration under Section 301(c) or
      (d)
      of the Small Business Investment Act of 1958; a plan established and maintained
      by a state, its political subdivisions, or any agency or instrumentality of
      a
      state or its political subdivisions for the benefit of its employees, if such
      plan has total assets in excess of $5,000,000; an employee benefit plan within
      the meaning of the Employee Retirement Income Security Act of 1974 if the
      investment decision is made by a plan fiduciary, as defined in Section 3(21)
      of
      such Act, which is either a bank, savings and loan association, insurance
      company, or registered investment adviser, or if the employee benefit plan
      has
      total assets in excess of $5,000,000 or, if a self-directed plan, with the
      investment decisions made solely by persons that are accredited
      investors;

    

    ____
      (2) a
      private
      business development company as defined in Section 202(a)(22) of the Investment
      Adviser Act of 1940;

    

    ____
      (3) an
      organization described in Section 501(c)(3) of the Internal Revenue Code of
      1986, as amended, corporation, Massachusetts or similar business trust, or
      partnership, not formed for the specific purpose of acquiring the Securities
      offered, with total assets in excess of $5,000,000;

    

    ____
      (4) a
      natural
      person whose individual net worth, or joint net worth with that person’s spouse,
      at the time of such person’s purchase of the Securities exceeds
      $1,000,000;

    

    ____
      (5) a
      natural
      person who had an individual income in excess of $200,000 in each of the two
      most recent years or joint income with that person’s spouse in excess of
      $300,000 in each of those years and has a reasonable expectation of reaching
      the
      same income level in the current year;

    

    ____
      (6) a
      trust,
      with total assets in excess of $5,000,000, not formed for the specific purpose
      of acquiring the Securities offered, whose purchase is directed by a
      sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D;
      and

     

    
      
        

      

       

      1
        As used
        in this Questionnaire, the term “net worth” means the excess of total assets
        over total liabilities. In computing net worth for the purpose of subsection
        (4), the principal residence of the investor must be valued at cost, including
        cost of improvements, or at recently appraised value by an institutional
        lender
        making a secured loan, net of encumbrances. In determining income, the investor
        should add to the investor’s adjusted gross income any amounts attributable to
        tax exempt income received, losses claimed as a limited partner in any limited
        partnership, deductions claimed for depiction, contributions to an IRA or
        KEOGH
        retirement plan, alimony payments, and any amount by which income from long-term
        capital gains has been reduced in arriving at adjusted gross
        income.

       

    

     

    
      
        
        

      

      
        -
          22
          -

        
          

        

      

      
        
        

      

    

    

    ____
      (7) an
      entity
      in which all of the equity owners are accredited investors (as defined above).
      (Note: If this item is selected, each equity owner must submit an individual
      investor questionnaire.)

    

    IN
      WITNESS WHEREOF, the undersigned has executed this Questionnaire this
      27th
      day of
      June 2007, and declares under oath that it is truthful and correct.

     

    

    
      	 	 
	 	
              Print
                Name

            
	 	 
	 	By: _____________________________________________________
	 	
               

            
	 	 
	 	
              Title: Authorized
                Signatory                                                                                    

            
	 	
              (required
                for any purchaser that is a corporation, partnership, trust or other
                entity)

            

    

    

    
 

    
      
        
          
          

        

        
          -
            23
            -

          
            

          

        

        
          
          

        

      

    

    

    

      [Company
        Letterhead]

      _________,
        2007

    

    

    Re: Innovo
      Group Inc.; Registration Statement on Form S-3

    

    Dear
      Selling Shareholder:

    

    Enclosed
      please find five (5) copies of a prospectus dated ______________, ____ (the
      “Prospectus”)
      for
      your use in reselling your shares of common stock, $0.10 par value (the
“Securities”),
      of
      Innovo Group Inc. (the “Company”),
      under
      the Company’s Registration Statement on Form S-3 (or other acceptable Form)
      (Registration No. 333-XXXXX) (the “Registration
      Statement”),
      which
      has been declared effective by the Securities and Exchange Commission.
As
      a selling shareholder under the Registration Statement, you have an obligation
      to deliver a copy of the Prospectus to each purchaser of your Securities, either
      directly or through the broker-dealer who executes the sale of your
      Securities.

    

    The
      Company is obligated to notify you in the event that it suspends trading under
      the Registration Statement in accordance with the terms of the Securities
      Purchase Agreement between the Company and you. During the period that the
      Registration Statement remains effective and trading thereunder has not been
      suspended, you will be permitted to sell you Securities which are included
      in
      the Prospectus under the Registration Statement. Upon a sale of any Securities
      under the Registration Statement, you or your broker will be required to deliver
      to the Transfer Agent, Continental Stock Transfer and Trust Company (1) your
      restricted stock certificate(s) representing the Securities, (2) instructions
      for transfer of the Securities sold, and (3) a representation letter from your
      broker, or from you if you are selling in a privately negotiated transaction,
      or
      from such other appropriate party, in the form of Exhibit
      A
      attached
      hereto (the “Representation Letter”). The Representation Letter confirms that
      the Securities have been sold pursuant to the Registration Statement and in
      a
      manner described under the caption “Plan of Distribution” in the Prospectus and
      that such sale was made in accordance with all applicable securities laws,
      including the prospectus delivery requirements.

    

    Please
      note that you are under no obligation to sell your Securities during the
      registration period. However, if you do decide to sell, you must comply with
      the
      requirements described in this letter or otherwise applicable to such sale.
      Your
      failure to do so may result in liability under the Securities Act of 1933,
      as
      amended, and the Securities Exchange Act of 1934, as amended. Please remember
      that all sales of your Securities must be carried out in the manner set forth
      under the caption “Plan of Distribution” in the Prospectus if you sell under the
      Registration Statement. The Company may require an opinion of counsel reasonably
      satisfactory to the Company if you choose another method of sale. You
      should consult with your own legal advisor(s) on an ongoing basis to ensure
      your
      compliance with the relevant securities laws and
      regulations.

    

    In
      order to maintain the accuracy of the Prospectus, you must notify the
      undersigned upon the sale, gift, or other transfer of any Securities by you,
      including the number of Securities being transferred, and in the event of any
      other change in the information regarding you which is contained in the
      Prospectus. For example, you must notify the undersigned if you enter into
      any
      arrangement with a broker-dealer for the sale of shares through a block trade,
      special offering, exchange distribution or secondary distribution or a purchase
      by a broker-dealer. Depending on the circumstances, such transactions may
      require the filing of a supplement to the prospectus in order to update the
      information set forth under the caption “Plan of Distribution” in the
      Prospectus.

    

    Should
      you need any additional copies of the Prospectus, or if you have any questions
      concerning the foregoing, please write to me at Innovo Group Inc., 5901 South
      Eastern Avenue, Commerce, CA 90040. Thank you.

    

    Sincerely,

    

    Marc
      B.
      Crossman, 

    CEO,
      President and CFO

    Innovo
      Group, Inc.

     

    
      
        
        

      

      
        -
          24
          -

        
          

        

      

      
        
        

      

       

       

       

      
        
          
          

        

        
          -
            i
            -ANNEX
          II

        

        THIS
          SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
          FROM
          REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
          (THE
“SECURITIES
          ACT”),
          AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED,
          HYPOTHECATED, OR OTHERWISE TRANSFERRED OR DISPOSED OF ABSENT SUCH REGISTRATION
          OR AN APPLICABLE EXEMPTION THEREFROM.

        

        THE
          HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH
          SECURITY
          MAY BE OFFERED, RESOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
          OR
          DISPOSED OF, ONLY (1) (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
          UNDER
          THE SECURITIES ACT, (B) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN
          A
          TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT,
          (C)
          PURSUANT TO ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
          SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
          REQUESTS)
          OR (D) TO THE COMPANY, AND (2) IN EACH CASE, IN ACCORDANCE WITH APPLICABLE
          BLUE
          SKY LAWS AND THE SECURITIES LAWS OF ANY OTHER APPLICABLE DOMESTIC OR FOREIGN
          JURISDICTION. THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
          NOTIFY
          ANY PURCHASER FROM IT THAT THE SECURITY EVIDENCED HEREBY IS SUBJECT TO
          THE
          FOREGOING RESALE RESTRICTIONS.

        

        THE
          SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS SECURITY HAVE
          NOT BEEN
          REGISTERED UNDER THE SECURITIES ACT OR ANY OTHER STATE SECURITIES, OR “BLUE
          SKY,” LAWS, AND WILL BE RESTRICTED IN THE SAME MANNER AS THESE SECURITIES. SUCH
          SHARES ARE ENTITLED TO THE BENEFIT OF A SECURITIES PURCHASE AGREEMENT,
          DATED AS
          OF JUNE 27, 2007, BY AND AMONG THE ISSUER AND THE PURCHASERS NAMED THEREIN,
          THAT
          COVERS THE RESALE OF THE SHARES ACQUIRED UPON EXERCISE OF THESE WARRANTS.
          A COPY
          OF THE PURCHASE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
          ISSUER.

        

        

        WARRANT
          TO PURCHASE

        SHARES
          OF COMMON STOCK

        OF

        INNOVO
          GROUP INC.

        

        DATE
          OF
          INITIAL ISSUANCE: JUNE 27, 2007

        

        THIS
          CERTIFIES THAT, for value received, _________ (the “Holder”)
          is
          entitled to purchase, subject to the exercise and other provisions of this
          Warrant, from Innovo Group Inc., a Delaware corporation (the “Company”),
          at
          any time beginning on the one hundred and eight-first (181st)
          day
          following the date of initial issuance and ending at 5:00 P.M. Eastern
          Time on
          June 27, 2012 (the “Expiration
          Date”),
          up to
          240,000 shares (as such number of shares may be adjusted in accordance
          with
          Section 2 hereof, the “Warrant
          Shares”)
          of the
          Company’s common stock, par value $0.10 per share (the “Common
          Stock”),
          in
          whole or in part, at an exercise price per share of $1.36 (subject to adjustment
          as provided in Section 2 hereof, the “Exercise
          Price”).
          This
          Warrant shall expire on the Expiration Date, and shall become void
          thereafter.

         

        
          
            
            

          

          
            -
              1
              -

            
              

            

          

          
            
            

          

        

        

        WHEREAS,
          the Company proposes to sell, pursuant to a Securities Purchase Agreement,
          dated
          as of the date hereof (the “Purchase
          Agreement”),
          by
          and among the Company, the Holder and the other Purchasers named therein,
          an
          aggregate of up to 2,500,000 shares of the Company’s Common Stock and, as an
          inducement for the Purchasers to purchase such shares, the Company also
          proposes
          to grant to the Purchasers Warrants to purchase an aggregate of up to 800,000
          shares of the Company’s Common Stock;

        

        NOW,
          THEREFORE, in consideration of the premises, the mutual agreements herein
          contained and other good and valuable consideration, the receipt and sufficiency
          of which are hereby acknowledged, the parties hereto, intending to be legally
          bound, agree as follows:

        

        Section
          1. Exercise
          of Warrant.

        

        1.1. Vesting.
          The
          Holder’s rights under this Warrant shall fully be fully vested as of the date
          hereof; provided that this Warrant may only be exercised during the Exercise
          Period (as hereinafter defined).

        

        1.2. Exercisability.
          This
          Warrant shall be exercisable, in whole or in part, beginning on the one
          hundred
          and eight first (181st)
          day
          following the date of initial issuance until the Expiration Date (such
          period,
          the “Exercise
          Period”).

        

        1.3. Procedure
          for Exercise of Warrant.

        

        (a) To
          exercise this Warrant in whole or in part, the Holder shall deliver to
          the
          Company, at 5901 South Eastern Avenue, Commerce, California 90040, Facsimile
          No.
          (323) 837-3791, Attention: Legal Department: (i) a completed and signed
          Notice
          of Exercise (including the Substitute Form W-9, which forms a part thereof),
          as
          attached hereto as Schedule
          A;
          (ii)
          delivery of payment to the Company of the Exercise Price in any manner
          specified
          in subsection (c) of this Section 1.3; and (iii) this Warrant. Upon irrevocable
          payment in good collected funds of the aggregate Exercise Price (rounded
          up to
          the nearest cent) for the Warrant Shares being purchased, the Holder shall
          be
          deemed to be the holder of record of such Warrant Shares, notwithstanding
          that
          the stock transfer books of the Company may then be closed or that certificates
          representing such Warrant Shares may not then be actually delivered to
          the
          Holder.

        

        (b) The
          Company shall, as promptly as practicable after completion of the actions
          specified in Section 1.3(a) above (the “Date of Exercise”), and in no event
          later than three (3) business days after the Date of Exercise, cause to
          be
          executed, and deliver to the Holder a certificate representing the aggregate
          number of Warrant Shares specified in the Notice of Exercise. Each stock
          certificate so delivered shall be in such denomination as may be requested
          by
          the Holder and shall be registered in the name of the Holder. If this Warrant
          shall have been exercised only in part, the Company shall, at the time
          of
          delivery of said stock certificate or certificates, deliver to the Holder
          a new
          Warrant evidencing the right of the Holder to purchase the remaining Warrant
          Shares covered by this Warrant. The Company shall pay all expenses, stock
          transfer taxes and other charges payable in connection with the preparation,
          execution and delivery of such stock certificates. 

         

        
          
            
            

          

          
            -
              2
              -

            
              

            

          

          
            
            

          

        

        (c) The
          Exercise Price shall be payable (i) in cash or its equivalent, payable
          by wire
          transfer of immediately available funds to a bank account specified by
          the
          Company or by certified or bank cashiers’ check in lawful money of the United
          States of America; or (ii) by presentation and surrender of this Warrant
          to the
          Company at its principal offices with a written notice of the Holder’s intention
          to effect a cashless exercise, including a calculation of the number of
          shares
          of Common Stock to be issued upon such exercise in accordance with the
          terms
          hereof (a “Cashless
          Exercise”).
          In
          the event of a Cashless Exercise, in lieu of paying the Exercise Price
          in cash,
          the Holder shall surrender this Warrant, in whole or in part, for that
          number of
          shares of Common Stock determined by multiplying the number of Warrant
          Shares to
          which such Holder would otherwise be entitled by a fraction, the numerator
          of
          which shall be the excess of the then Current Market Price per share of
          Common
          Stock over the Exercise Price, and the denominator of which shall be the
          then
          Current Market Price per share of Common Stock. For purposes of this subsection
          (c), “Current
          Market Price”
means,
          with respect to the Common Stock, on any given day, (i) the price of the
          last
          trade, as reported on the Nasdaq Capital Market (or other comparable system)
          on
          the business day immediately prior to the date on which the Holder surrenders
          this Warrant to the Company for the purposes of the Cashless Exercise,
          not
          identified as having been reported late to such system during regular trading
          hours, or (ii) if the Common Stock is so traded, but not so reported, the
          average of the last bid and ask prices, as those prices are reported on
          the
          Nasdaq Capital Market (or other comparable system) during regular trading
          hours
          on the business day immediately prior to the date on which the Holder surrenders
          this Warrant to the Company for the purposes of the Cashless Exercise,
          or (iii)
          if the Common Stock is not listed or authorized for trading on the Nasdaq
          Capital Market or any comparable system, the average of the closing bid
          and ask
          prices as furnished by two members of the National Association of Securities
          Dealers, Inc. selected from time to time in good faith by the Board of
          Directors
          for that purpose. If the Common Stock is not listed and traded in a manner
          that
          the quotations referred to above are available for the period required
          hereunder, the Current Market Price per share of Common Stock shall be
          deemed to
          be the fair value per share of such security as determined in good faith
          by the
          Board of Directors. For purposes of Rule 144 promulgated under the Securities
          Act, it is intended, understood and acknowledged that the Warrant Shares
          issued
          in a Cashless Exercise transaction shall be deemed to have been acquired
          by the
          Holder, and the holding period for the Warrant Shares shall be deemed to
          have
          commenced, on the date this Warrant was originally issued.

         

        (d) The
          Company’s obligations to issue and deliver Warrant Shares in accordance with the
          terms hereof are absolute and unconditional, irrespective of any action
          or
          inaction by the Holder to enforce the same, any waiver or consent with
          respect
          to any provision hereof, the recovery of any judgment against any person
          or
          entity or any action to enforce the same, or any setoff, counterclaim,
          recoupment, limitation or termination, or any breach or alleged breach
          by the
          Holder or any other person or entity of any obligation to the Company or
          any
          violation or alleged violation of law by the Holder or any other person
          or
          entity, and irrespective of any other circumstance which might otherwise
          limit
          such obligation of the Company to the Holder in connection with the issuance
          of
          Warrant Shares. Nothing herein shall limit a Holder’s right to pursue any other
          remedies available to it hereunder, at law or in equity including, without
          limitation, a decree of specific performance and/or injunctive relief with
          respect to the Company’s failure to timely deliver certificates representing
          Warrant Shares upon exercise of the Warrant as required pursuant to the
          terms
          hereof.

         

        
          
            
            

          

          
            -
              3
              -

            
              

            

          

          
            
            

          

        

        

        1.4. Restrictive
          Legend.
          Each
          certificate for Warrant Shares shall contain the following legend:

        

        “THIS
          SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
          FROM
          REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
          (THE
“SECURITIES
          ACT”),
          AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED,
          HYPOTHECATED, OR OTHERWISE TRANSFERRED OR DISPOSED OF ABSENT SUCH REGISTRATION
          OR AN APPLICABLE EXEMPTION THEREFROM.

        

        THE
          HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH
          SECURITY
          MAY BE OFFERED, RESOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
          OR
          DISPOSED OF, ONLY (1) (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
          UNDER
          THE SECURITIES ACT, (B) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN
          A
          TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT,
          (C)
          PURSUANT TO ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
          SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
          REQUESTS)
          OR (D) TO THE COMPANY, AND (2) IN EACH CASE, IN ACCORDANCE WITH APPLICABLE
          BLUE
          SKY LAWS AND THE SECURITIES LAWS OF ANY OTHER APPLICABLE DOMESTIC OR FOREIGN
          JURISDICTION. THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
          NOTIFY
          ANY PURCHASER FROM IT THAT THE SECURITY EVIDENCED HEREBY IS SUBJECT TO
          THE
          FOREGOING RESALE RESTRICTIONS.”

        

        

        The
          certificates shall also bear any additional legends that are required by,
          or are
          appropriate with respect to the rules and regulation of, any state, local,
          foreign or other securities authorities. The Company’s transfer agent and
          registrar will maintain
          stop transfer instructions on record for the Warrant Shares until it has
          been
          notified by the Company, upon the advice of counsel, that such instructions
          may
          be waived. Such stop transfer instructions will limit the method of sale
          of the
          Warrant Shares, consistent with Rule 144 or other available exemptions
          from
          registration under the Securities Act of 1933, as amended. Any transfers
          other
          than pursuant to Rule 144 will require an opinion of counsel reasonably
          satisfactory to the Company and its counsel prior to such
          transfers.

        

        1.5. Character
          of Warrant Shares.
          The
          Company represents and warrants that all Warrant Shares shall be duly
          authorized, validly issued, and, upon payment of the Exercise Price therefor,
          fully paid and nonassessable, and free from all taxes, liens, hypothecations,
          security interests, adverse claims or interests and charges created in
          respect
          of the issue thereof. Each person in whose name any such certificate for
          Warrant
          Shares is issued shall for all purposes be deemed to have become the holder
          of
          record of the Common Stock represented thereby on the Exercise Date of
          the
          Warrants resulting in the issuance of such shares, irrespective of the
          date of
          issuance or delivery of such certificate.

        

        1.6 No
          Fractional Shares.
          The
          Company shall have no obligation to issue fractional shares, or scrip
          representing fractional shares, of its Common Stock under this Warrant,
          and, to
          the extent that the Holder would otherwise be entitled to purchase and/or
          receive fractional shares of Common Stock hereunder, the Company shall,
          in lieu
          of issuing such fractional share, pay to the Holder an amount in cash equal
          to
          the product of (x) the Current Market Price per share of Common Stock,
          times (y)
          a fraction equal to the fraction of a share of Common Stock into which
          this
          Warrant would otherwise be exercisable.

         

        
          
            
            

          

          
            -
              4
              -

            
              

            

          

          
            
            

          

        

        

        Section
          2. Certain
          Adjustments.

        

        2.1. Stock
          Dividends, Subdivisions and Combinations.
          If at
          any time the Company shall:

        

        (a) establish
          a record date for the determination of holders of record of its Common
          Stock for
          the purpose of entitling them to receive a dividend payable in, or other
          distribution of, additional shares of the Company’s Common Stock,

        

        (b) subdivide
          its outstanding shares of Common Stock into a larger number of shares of
          Common
          Stock, or

        

        (c) combine
          its outstanding shares of Common Stock into a smaller number of shares
          of Common
          Stock,

        

        then
          (1)
          the Warrant Shares for which this Warrant is exercisable immediately after
          the
          occurrence of any such event shall be adjusted to equal the number of shares
          of
          Common Stock which a record holder of the same number of shares of Common
          Stock
          for which this Warrant is exercisable immediately prior to the occurrence
          of
          such event would own or be entitled to receive after the happening of such
          event, and (2) the Exercise Price shall be adjusted to equal (x) the Exercise
          Price multiplied by the Warrant Shares for which this Warrant is exercisable
          immediately prior to the adjustment divided by (y) the Warrant Shares for
          which
          this Warrant is exercisable immediately after such adjustment.

        

        2.2. Adjustment
          Procedures.
          The
          following provisions shall be applicable to adjustments to be made pursuant
          to
          Section 2.1 hereof:

        

        (a) When
          Adjustments to be Made.
          The
          adjustments required by this Section 2 shall be made whenever and as often
          as
          any event requiring an adjustment shall occur. For the purpose of any such
          adjustment, any event shall be deemed to have occurred at the close of
          business
          on the date of its occurrence.

        

        (b) Fractional
          Interests.
          In
          computing adjustments under this Section 2, fractional interests in the
          Common
          Stock shall be taken into account to the nearest 1/10th of a share. Subject
          to
          Section 1.6, in no event, however, shall fractional shares or scrip representing
          fractional shares be issued upon the exercise of this Warrant.

        

        (c) When
          Adjustment Not Required.
          If the
          Company shall establish a record date for the determination of the holders
          of
          record of the Common Stock for the purpose of entitling such holders to
          receive
          a dividend payable in Common Stock and shall, thereafter and before the
          distribution to shareholders thereof, legally abandon its plan to pay or
          deliver
          such dividend, then no adjustment shall be required by reason of the
          establishment of such record date and any such adjustment previously made
          in
          respect thereof shall be rescinded and annulled.

        

        2.3. Reorganization,
          Reclassification, Merger, Consolidation or Share Exchange.
          If the
          Company at any time reorganizes or reclassifies the outstanding shares
          of Common
          Stock (other than a change in par value, or from no par value to par value,
          or
          from par value to no par value, or as a result of a subdivision or combination)
          or consolidates with, merges into, or effects a share exchange with, another
          corporation (where the Company is not the continuing corporation after
          such
          merger or consolidation), then the Holder shall thereafter be entitled
          to
          receive upon exercise of this Warrant in whole or in part, the same kind
          and
          number of shares of stock and other securities, cash or other property
          (and upon
          the same terms and with the same rights) as would have been distributed
          to the
          Holder upon such reorganization, reclassification, consolidation, merger
          or
          share exchange had the Holder exercised this Warrant immediately prior
          to such
          reorganization, reclassification, consolidation, merger or share exchange
          (subject to subsequent adjustments under this Section 2), and the Exercise
          Price
          shall be adjusted appropriately to reflect such action and
          adjustment.

         

        
          
            
            

          

          
            -
              5
              -

            
              

            

          

          
            
            

          

        

        

        If
          any
          such reorganization, reclassification, consolidation, merger or share exchange
          results in a cash distribution in excess of the Exercise Price provided
          by this
          Warrant, the Holder may, at the Holder's option, exercise this Warrant
          without
          making payment of the Exercise Price, and in such case the Company or its
          successors and assigns shall, upon distribution to such Holder, consider
          the
          Exercise Price to have been paid in full, and in making settlement to such
          Holder, shall deduct an amount equal to the Exercise Price from the amount
          payable to such Holder. Notwithstanding anything herein to the contrary,
          the
          Company will not effect any such reorganization, reclassification, merger,
          consolidation or share exchange unless prior to the consummation thereof,
          the
          corporation that may be required to deliver any stock, securities or other
          assets upon the exercise of this Warrant shall agree by an instrument in
          writing
          to deliver such stock, cash, securities or other assets to the Holder.
          A sale,
          transfer or lease of all or substantially all of the assets of the Company
          to
          another person shall be deemed a reorganization, reclassification,
          consolidation, merger or share exchange for the foregoing purposes.

        

        2.4. Officer’s
          Certificate.
          Upon
          each adjustment of the Exercise Price and the Warrant Shares issuable upon
          the
          exercise of this Warrant, and in the event of any change in the rights
          of the
          Holder by reason of other events herein set forth, then and in each such
          case,
          the Company will promptly prepare a certificate of a responsible officer
          of the
          Company, stating the adjusted Exercise Price, the adjusted number of Warrant
          Shares so issuable, and setting forth in reasonable detail the method of
          calculation and the facts upon which such calculation is based. The Company
          will
          promptly mail a copy of such certificate to the Holder. Such calculation
          shall
          be final and binding on the parties and shall be conclusive evidence of
          the
          correctness of the computation with respect to any such adjustment of the
          Exercise Price and any such change in the number of Warrant Shares so issuable,
          absent manifest error.

        

        2.5 Notice
          of Certain Proposed Actions.
          In the
          event the Company shall propose to take any action of the types described
          in
          Sections 2.1 or 2.3 above, then the Company shall forward, at the same
          time and
          in the same manner, to the Holder such notice and related proxy or other
          materials, if any, that the Company gives to the holders of the Common
          Stock.
          Failure to give such notice, or any defect therein, however, shall not
          affect
          the legality or validity of any such action.

        

        Section
          3. Ownership
          and Transfer.

        

        3.1. Ownership.
          The
          Company may deem and treat the person in whose name this Warrant is registered
          as the Holder and owner hereof (notwithstanding any notations of ownership
          or
          writing hereon made by anyone other than the Company) for all purposes
          and shall
          not be affected by any notice to the contrary until presentation of this
          Warrant
          to the Company for registration of transfer.

        

        3.2. Transfers.
          Upon
          the sale, disposition, transfer or conveyance of this Warrant, the purchaser,
          transferee or other recipient hereof shall, together with the previous
          Holder
          hereof, promptly notify the Company of such sale, disposition, transfer
          or
          conveyance and shall provide such recipient’s name, address and capacity in
          which this Warrant is held, and present such other information as the Company
          may reasonably request, and such recipient will thereafter be subject to,
          and
          bound by, the terms and provisions of, this Warrant to the same extent
          as the
          previous Holder.

        

        3.3. Replacement.
          Upon
          receipt by the Company of evidence reasonably satisfactory to it of the
          loss,
          theft or destruction of this Warrant, and of indemnity or security reasonably
          satisfactory to it, or upon surrender of this Warrant if mutilated, the
          Company
          will make and deliver a new Warrant of like tenor, in lieu of this Warrant.
          This
          Warrant shall be promptly canceled by the Company upon the surrender hereof
          in
          connection with any transfer or replacement. Except as otherwise provided
          above
          in the case of the loss, theft or destruction of a Warrant, the Company
          shall
          pay all expenses, taxes and other charges payable in connection with any
          transfer or replacement of this Warrant. Applicants for such substitute
          Warrants
          shall also comply with such other reasonable regulations and pay such other
          reasonable charges incidental thereto as the Company may reasonably prescribe.
          Any such new Warrant shall constitute an original contractual obligation
          of the
          Company, whether or not the allegedly lost, stolen, mutilated or destroyed
          Warrant shall at any time be presented. 

         

        
          
            
            

          

          
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              6
              -

            
              

            

          

          
            
            

          

        

        

        3.4 Cancellation
          of Warrant.
          Any
          Warrant surrendered upon exercise or for split up, combination, exchange
          or
          transfer, or purchased or otherwise acquired by the Company, shall be cancelled
          and shall not be reissued by the Company; and, except as provided herein
          in the
          case of the purchase of less than all of the Warrant Shares that the Holder
          may
          purchase hereunder or in the case of a split up, combination, exchange
          or
          transfer, no Warrant shall be issued hereunder in lieu of such cancelled
          Warrant. Any Warrant so cancelled shall be marked cancelled and destroyed
          by the
          Company.

        

        Section
          4. Miscellaneous.

        

        4.1 Reservation
          of Shares.
          The
          Company covenants that, at all times during the Exercise Period, it will
          reserve
          from its authorized and unissued Common Stock a sufficient number of shares
          to
          provide for the issuance of Common Stock upon the exercise of this Warrant,
          as
          well as for the issuance of Common Stock pursuant to any other outstanding
          warrants, options or other instruments convertible or exercisable into
          the
          Company’s Common Stock, and with respect to any employee benefit or similar
          plans.

        

        4.2 No
          Rights as Shareholder; Limitation of Liability.
          This
          Warrant shall not entitle the Holder to any of the rights of a shareholder
          of
          the Company, including, without limitation, the right to vote, to receive
          dividends and other distributions, or to receive any notice of, or to attend,
          meetings of Company shareholders, prior to exercise of this Warrant and
          irrevocable payment in good, collected funds of the Exercise Price
          therefor.

        

        4.3 Amendment.
          This
          Warrant may only be modified or amended and any provision hereof may only
          be
          waived by a writing executed by the Company and the Holder of this
          Warrant.

        

        4.4 Successors
          and Assigns.
          This
          Warrant shall be binding upon, and inure to the benefit of, the parties
          hereto
          and their respective successors and assigns permitted hereunder, and no
          other
          parties shall have any rights hereunder. The Company will not merge or
          consolidate with or into any other corporation or other entity or sell
          or
          otherwise transfer its property, assets and business substantially as an
          entirety to a successor corporation or other entity, unless the corporation
          or
          other entity resulting from such merger, consolidation, sale or transfer
          (if not
          the Company) shall expressly assume, by supplemental agreement, the due
          and
          punctual performance and observance of each and every covenant and condition
          of
          this Warrant to be performed and observed by the Company.

        

        4.5 Governing
          Law.
          This
          Warrant shall be governed by, and construed and enforced in accordance
          with, the
          laws of the State of Delaware.

        

        4.6 Entire
          Agreement; Other Benefits.
          The
          Holder is entitled, with respect to his ownership of this Warrant and/or
          the
          Warrant Shares to the benefits of the Securities Purchase Agreement, dated
          as of
          the date hereof (the “Purchase
          Agreement”),
          by
          and among the Company, the Holder and the other Purchasers named in the
          Purchase
          Agreement. Except as otherwise expressly provided herein, this Warrant
          (including the Purchase Agreement and any other agreements, instruments
          and
          other documents referred to herein or therein) constitutes the entire agreement
          among the parties hereto with respect to the transactions contemplated
          hereunder
          and supersedes all prior arrangements or understandings with respect thereto,
          written or oral.

         

        
          
            
            

          

          
            -
              7
              -

            
              

            

          

          
            
            

          

        

        

        4.7 Standing.
          Nothing
          in this Warrant is intended, or shall be construed, to confer upon, or
          give to,
          any person other than the Company and the Holder any right, remedy or claim
          under or by reason of this Agreement or of any covenant, condition, stipulation,
          promise or agreement contained herein. All covenants, conditions, stipulations,
          promises and agreements contained in this Warrant shall be for the sole
          and
          exclusive benefit of the Company and its successors, and the Holder, and
          no
          other person shall have any other rights or interests herein, whether as
          third
          party beneficiaries or otherwise.

        

        4.8 Headings,
          etc.
          The
          descriptive headings of the articles and sections of this Warrant are inserted
          for convenience of reference only and shall not control or affect the meaning
          or
          construction of any of the provisions hereof. As under herein, the singular
          shall include the plural and the terms “include” and “including” shall mean
          without limitation by way of enumeration or otherwise.

        

        4.9 Counterparts.
          This
          Warrant may be executed in any number of counterparts, each of which shall
          be
          deemed to be an original, but all such counterparts shall together constitute
          but one and the same instrument.

        

        

        [Signatures
          on following page.]

        
          
            
            

          

          
            -
              8
              -

            
              

            

          

          
            
            

          

        

        IN
          WITNESS WHEREOF, the parties hereto have set their hands as of the date
          first
          written above.

        
          	 	 	 
	 	INNOVO
                  GROUP INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
                  

                  Name: Marc
                    Crossman

                  Title: CEO,
                    President and CFO

                
	 	 

        
          	 	 	 
	 	THE
                  HOLDER
	 
 	 
 	 
 
	 	 
	 	
                   

                  
                    

                  

                  Name: 

                  Authorized
                    Signatory 

                
	 	
                
	 	 

        

         

        
          
            
            

          

          
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              9
              -

            
              

            

          

          
            
            

          

        

        SCHEDULE
          A

        

        NOTICE
          OF EXERCISE OF

        WARRANT
          TO PURCHASE COMMON STOCK OF

        INNOVO
          GROUP INC.

        

        

        To: Innovo
          Group Inc.

        

        The
          undersigned, the registered owner of this Warrant, hereby irrevocably elects
          to
          exercise the purchase rights represented thereby for, and to purchase
          thereunder, _________ shares of Common Stock of Innovo Group Inc. and

        ______
          herewith makes payment of $__________ therefore; or 

        ______
          hereby elects a “Cashless Exercise” as defined and in the manner stated in
          Section 1.3(c) of this Warrant; and

        requests
          that the certificates evidencing such shares be issued in the name of and
          be
          delivered to

        

        Name:_________________________________________________________________________________________________

        

        Address:_______________________________________________________________________________________________

        

        ___________________________________________________________________________________

        

        ___________________________________________________________________________________

        

        Social
          Security or 

        Tax
          I.D.
          Number:_________________________________________________________________________________________

        

        and
          if
          such shares shall not be all of the shares purchasable hereunder, that
          a new
          Warrant of like tenor for the balance of the shares purchasable hereunder
          be
          delivered to the undersigned.

        

        Dated:
          __________________

        

        
          	 	 	 
	 	THE
                  HOLDER
	 
 	 
 	 
 
	 	By:  	 
	 	
                  
Name: 

        

        

        

               

         

        
          
            
            

          

          
            -
              10
              -

            
              

            

          

          
            
            

          

        

        SUBSTITUTE
          FORM W-9

        

        Under
          the
          penalties of perjury, I certify that: 

        

        (1)
          the
          Social Security Number or Taxpayer Identification Number given below is correct;
          and 

        

        (2)
          I am
          not subject to backup withholding either because I have not been notified
          that I
          am subject to backup withholding as a result of a failure to report all
          interest
          or dividends, or because the Internal Revenue Service has notified me that
          I am
          no longer subject to backup withholding.

        

        Important
          Instructions:
          You must
          cross out #2 above if you have been notified by the Internal Revenue Service
          that you are subject to backup withholding because of under reporting interest
          or dividends on your tax return and if you have not received a notice from
          the
          Internal Revenue Service advising you that backup withholding due to notified
          payee under reporting has terminated. For additional instructions, please
          refer
          to the attached “Guidelines for Certification of Taxpayer Identification Number
          on Substitute Form W-9.”

        

        Signature*:
          ___________________________________

        

        Date:
          _______________________, 

        

        ______________________

        *
          If a
          corporation, please sign in full corporate name by president or other authorized
          officer. When signing as officer, attorney, custodian, trustee, administrator,
          guardian, etc., please give your full title as such. In case of joint tenants,
          each person must sign.

        

        THIS
          NOTICE OF EXERCISE SHALL NOT BE GIVEN EFFECT 

        BY
          THE COMPANY UNLESS THE HOLDER OF THE UNDERLYING

        WARRANT
          HAS PROPERLY COMPLETED AND SIGNED BOTH 

        THE
          NOTICE OF EXERCISE FORM AND THE SUBSTITUTE FORM W-9.

         

         

        
          
            
            

          

          
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              11
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            -
              i
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