SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 240.14a-12
INNOVO GROUP INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(4) Date Filed:
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INNOVO GROUP INC.
5900 S. Eastern Ave., Suite 124
Commerce, California 90040
(323) 725-5516
September 3, 2002
Dear Stockholder:
You are cordially invited to attend the 2002 Annual Meeting of Stockholders
of Innovo Group Inc. to be held on Tuesday, November 12, 2002 at 10:00 a.m.
(local time) at The University Club, 2704 Kingston Pike, Knoxville, Tennessee
37996.
At the annual meeting, you will be asked to vote in person or by proxy on
the election of directors for this year and ratification of the appointment
of the Company's auditors. Each of those proposals is described in the
enclosed Notice of Annual Meeting and Proxy Statement.
Regardless of your plans for attending in person, it is important that your
shares be represented and voted at the 2002 Annual Meeting. Accordingly,
you are urged to complete, sign and mail the enclosed proxy card as soon as
possible.
Sincerely,
/s/ Samuel J. Furrow
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Samuel J. Furrow
Chairman
INNOVO GROUP INC.
5900 S. Eastern Ave., Suite 124
Commerce, California 90040
(323) 725-5516
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, NOVEMBER 12, 2002
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Stockholders (the
"Annual Meeting")of Innovo Group Inc. (the "Company") will be held on Tuesday,
November 12, 2002 at 10:00 a.m. (local time) at The University Club, 2704
Kingston Pike, Knoxville, Tennessee 37996, to consider and act upon the
following proposals:
1. To elect six directors to serve on the Board of Directors for one-year
terms and until their respective successors are elected and qualified;
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending November 30, 2002; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on August 23, 2002
as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting. Only holders of the Company's common
stock of record at the close of business on that date will be entitled to
notice of and to vote at the Annual Meeting or any adjournments thereof.
A list of the Company's stockholders entitled to vote at the Annual Meeting
will be open to the examination of any stockholder for any purpose germane to
the meeting during ordinary business hours for a period of ten days before
the Annual Meeting at the Company's offices. All stockholders are cordially
invited to attend the Annual Meeting.
By Order of the Board of Directors
/S/ Samuel J. Furrow
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Samuel J. Furrow
Chairman
Los Angeles, CA
September 3, 2002
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY, IF YOU WISH, REVOKE YOUR
PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
INNOVO GROUP INC.
5900 S. Eastern Ave. Suite 124
Commerce, California 90040
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, NOVEMBER 12, 2002
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This Proxy Statement and the accompanying Notice of Annual Meeting and Proxy
Card are being furnished, on or about September 3, 2002, to the stockholders
of Innovo Group Inc. (the "Company") in connection with the solicitation of
proxies by the Board of Directors of the Company to be used at the 2002 Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held on
Tuesday, November 12, 2002 at 10:00 a.m. (local time) at The University Club,
2704 Kingston Pike, Knoxville, Tennessee 37996, and any adjournment thereof.
The Company's 2001 Annual Report, which includes its consolidated financial
statements and is not part of the proxy solicitation material, is being
mailed with this Proxy Statement.
If the enclosed form of proxy is properly executed and returned to the
Company in time to be voted at the Annual Meeting, the shares represented
thereby will be voted in accordance with the instructions thereon. EXECUTED
BUT UNMARKED PROXIES WILL BE VOTED: "FOR" PROPOSAL 1 TO ELECT THE BOARD OF
DIRECTOR'S SIX NOMINEES FOR DIRECTOR AND "FOR" PROPOSAL 2 TO RATIFY THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS. If any
other matters are properly brought before the Annual Meeting, proxies will be
voted in the discretion of the proxy holders. The Company is not aware of any
other matters to be presented at its Annual Meeting.
The cost of soliciting proxies in the form enclosed herewith will be borne
entirely by the Company. In addition to the solicitation of proxies by mail,
proxies may be solicited by Directors, officers and regular employees of the
Company, without extra remuneration, by personal interviews, telephone,
telegraph or otherwise. The Company will request persons, firms and
corporations holding shares in their name or in the names of their nominees,
which are beneficially owned by others, to send proxy materials to and
obtain proxies from the beneficial owners and will reimburse the holders for
their reasonable expenses in doing so.
The securities that may be voted at the Annual Meeting consist of shares of
common stock, par value $.10 per share ("Common Stock"), of the Company. Each
outstanding share of Common Stock entitles its owner to one vote on each
matter as to which a vote is taken at the Annual Meeting. The close of
business on August 23, 2002 has been fixed by the Board of Directors as
the record date (the "Record Date") for determination of stockholders
entitled to vote at the Annual Meeting. On the Record Date, 14,901,264 shares
of Common Stock were outstanding and entitled to vote. The presence, in person
or by proxy, of the holders of at least a majority of the shares of Common
Stock issued and outstanding and entitled to vote on the Record Date is
necessary to constitute a quorum at the Annual Meeting.
Assuming the presence of a quorum at the Annual Meeting, a plurality
vote is required for the election of a Director (Proposal 1) and the
affirmative vote of a majority of the shares present in person or
represented by proxy and entitled to vote is required to ratify the
appointment of Ernst & Young LLP as the Company's independent public
accountants for the 2002 fiscal year (Proposal 2). Unless otherwise required
by law or the Company's Certificate of Incorporation or the Company's Amended
and Restated Bylaws (the "Bylaws"), any other matter put to a stockholder
vote will be decided by the affirmative vote of a majority of the shares
present in person or represented by proxy at the Annual Meeting and entitled
to vote on the matter.
Abstentions and broker non-votes will be treated as shares that are
present, in person or by proxy, and entitled to vote for purposes of
determining the presence of a quorum at the Annual Meeting. Because
abstentions will be counted for purposes of determining the shares present or
represented at the Annual Meeting and entitled to vote, abstentions will
have the same effect as a vote "against" Proposal 2. Abstentions on
Proposal 1 will not have any effect on the approval of Proposal 1. Broker
non-votes on a particular matter are not deemed to be shares present
and entitled to vote on such matter and, assuming presence of a quorum,
will not affect whether any proposal is approved at the Annual Meeting.
The presence of a stockholder at the Annual Meeting will not automatically
revoke such stockholder's proxy. Stockholders may, however, revoke a proxy
at any time prior to its exercise by filing with the Secretary of the
Company a written notice of revocation, by delivering to the Company a duly
executed proxy bearing a later date or by attending the Annual Meeting and
voting in person.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
PROPOSALS SET FORTH IN THIS PROXY STATEMENT.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table provides information as of August 27, 2002 concerning
beneficial ownership of Common Stock by (1) each person or entity known by
the Company to beneficially own more than 5% of the outstanding Common
Stock, (2) each Director and nominee for election as a Director of the
Company, (3) each Named Executive Officer, and (4) all Directors and
executive officers of the Company as a group. The information as to
beneficial ownership has been furnished by the respective stockholders,
Directors and executive officers of the Company, and, unless
otherwiseindicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned.
Name and Shares Beneficially Owned (1)
Offices Number Percent
Samuel J. (Sam) Furrow 3,494,015 (2)(9) 22.12%
Chairman and Director
Hubert Guez 6,746,637 (3) 37.23%
5804 East Slauson Avenue
Commerce, California 90040
Patricia Anderson-Lasko 583,146 (4) 3.83%
President and Director
Daniel A. (Dan) Page 472,774 (5)(9) 3.14%
Director
Samuel J. (Jay) Furrow, Jr. 1,586,688 (6) 9.97%
CEO and Acting Chief
Financial Officer; Director
Marc B. Crossman 115,671 (7)(9) *
Director
John G. Looney, MD 160,041 (9) 1.07%
Director
Joseph Mizrachi 2,738,500 (8) 16.93%
7700 Congress Avenue, Ste. 3106
Boca Raton, Florida 33487
Joe Dahan 632,990 (10) 4.20%
5900 S. Eastern
Commerce, CA 90040
All Executive Officers and 7,045,325 (2)(4)(5)(6)(7)(9)(10) 40.27%
Directors as a Group (7 persons)
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* Less than 1%.
(1) Pursuant to the rules of the Securities and Exchange Commission ("SEC"),
certain shares of the Company's common stock that a beneficial owner set
forth in this table has a right to acquire within 60 days of the date hereof
pursuant to the exercise of options or warrants for the purchase of shares
of common stock are deemed to be outstanding for the purpose of computing
the percentage ownership of that owner but are not deemed outstanding for
the purpose of computing percentage ownership of any other beneficial owner
shown in the table. Percentages are calculated based on 14,921,264 shares
outstanding as of August 23, 2002.
The address for the officers and directors is the corporate office of the
Company located at 2633 Kingston Pike, Suite 100, Knoxville, TN, 37919.
(2) Includes 97,901 shares subject to currently exercisable options and
750,000 shares subject to exercisable warrants with a 3-year term expiring
October 2003 and an exercise price of $2.10 per share.
(3) Includes 500,000 shares held of record by SHD Investments, LLC, of which
Mr. Guez's brother is the Manager, 250,000 shares held of record by each to
two trusts for Mr. Guez's sons and of which Mr. Guez's mother is trustee,
and 1,863,637 held of record by Commerce Investment Group, LLC, of which
Mr. Guez is the Manager (collectively, the "Commerce Group"). Mr. Guez
disclaims beneficial ownership the shares held by SHD Investments, LLC and
the trusts for his sons. Also includes 3,000,000 shares subject to
immediately exercisable warrants with a purchase price of $2.10 per share
and 200,000 shares subject to warrants with a purchase price of $2.10 per
share that become exercisable o ver two years. Also included is 700,000
shares owned by Azteca Production International, Inc., of which Mr. Guez is
an owner.
(4) Includes 250,000 shares purchased by Ms. Anderson-Lasko pursuant to the
1997 Stock Purchase Right Award, awarded to her in February 1997. Under the
terms of the 1997 Stock Purchase Right Award, Ms. Anderson-Lasko was
permitted to, and elected to, pay for the purchase of the 250,000 shares
(the "1997 Award Shares") by the execution of a non-recourse note (the
"Note") to the Company for the exercise price of $2.8125 per share
($703,125) in the aggregate). The Note was originally due without interest
on April 30, 2002, and has been extended to April 30, 2005, and is
collateralized by the 1997 Award Shares purchased therewith. Ms. Anderson-
Lasko may pay or prepay (without penalty) all or any part of the Note by (i)
the payment of cash, or (ii) the delivery to the Company of other shares of
Common Stock (other than the 1997 Award Shares) that Ms. Anderson-Lasko has
owned for a period of at least six months, which shares would be credited
against the Note on the basis of the closing bid price for the Common Stock
on the date of delivery. The 1997 Award Shares will be forfeited and
returned (at the rate of one shares per $2.8125) to the Company to the
extent the Note is not paid on or before its maturity; accordingly, the
number of shares owned by Ms. Anderson-Lasko could decrease in the future.
Also includes 300,000 shares subject to exercisable options pursuant to a
400,000 option grant of nonqualified options made in June 2001 with an
exercise price of $1.25 per share and expiring June 5, 2005.
(5) Includes 120,000 shares subject to exercisable options at an exercise
price of $3.315 per share and expiring August 2002.
(6) Includes 98,530 shares subjec t to currently exercisable options and
750,000 shares subject to currently exercisable warrants with a 3-year term
expiring October 2003 and an exercise price of $2.10 per share.
Also includes 150,000 shares subject to exercisable options pursuant to a
200,000 option grant of nonqualified options made in June 2001 with an
exercise price of $1.25 per share and expiring June 5, 2005.
(7) Includes 73,530 shares subject to currently exercisable options expiring
February 2004 and with an exercise price of $4.75 per share.
(8) Includes 10,000 shares of common stock owned by the wife of Joseph
Mizrachi, Cheryl Mizrachi through CJ Rahm, LP and includes 1,241,000
warrants to purchase shares of common stock (including 16,000 warrants owned
by the wife of Joseph Mizrachi, Cheryl Mizrachi through CJ Rahm, L.P.).
(9) Includes 25,164 shares subject to exercisable 20-year term options
granted under the Company's 2000 Director Stock Incentive Plan in lieu of
cash directors' fees with an exercise price of $0.39 per share. See "2000
Director Stock Incentive Plan" below.
(10) Includes 500,000 shares as to which Mr. Dahan, President of the Joe's
Jeans subsidiary, shares beneficial ownership and 132,990 shares subject to
options exercisable at a price of $1 per share until February 7, 2003.
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Bylaws provide that the Board of Directors shall consist of not fewer
than three Directors, with the exact number of Directors (subject to such
minimum and any range of size established by the Company's stockholders) to
be determined by resolution of the Board of Directors. The Board of
Directors currently consists of six Directors. At the Annual Meeting, six
Directors will be elected to serve until the 2003 annual meeting of
stockholders, which is expected to be held in April 2003. The Board of
Directors' nominees for election are set forth below.
Unless otherwise instructed on the proxy, properly executed proxies will
be voted for the election as Directors of all of the nominees set forth
below. The Board of Directors believes that all such nominees will stand
for election and will serve if elected. However, if any of the persons
nominated by the Board of Directors fails to stand for election or is unable
to accept election, proxies will be voted by the proxy holders for the
election of such other person or persons as the Board of Directors may
recommend. Directors will be elected by a plurality vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ITS NOMINEES
FOR DIRECTORS.
Information as to Nominees
The following table sets forth certain information regarding the persons
nominated for election as Directors of the Company as of August 20, 2002.
Name Age Position with the Company
Samuel J. (Sam) Furrow Sr. 60 Chairman of the Board,
and Director
Samuel J. (Jay) Furrow, Jr. 29 CEO, Director and Acting
Chief Financial Officer
Patricia Anderson-Lasko 43 President; Director
Daniel A. (Dan) Page (1)(2) 53 Director
Marc B. Crossman (1)(2) 30 Director
John G. Looney, MD (1)(2) 60 Director
____________________
(1) Member of the audit committee of the Board of Directors
(2) Member of the executive compensation committee of the Board of Directors
Following is information with respect to the business experience for at
least the last five years and certain other information regarding each of the
nominees for election as a Director.
Samuel J. (Sam) Furrow became a Director in April 1998 and the Company's
Chairman and Chief Executive Officer in October 1998. He served as Chief
Executive Officer until December, 2000, when Ms. Anderson-Lasko resumed that
position. Mr. Furrow has also been the Chairman of Furrow Auction Company (a
real estate and equipment sales company) since April 1968, Chairman of Furrow-
Justice Machinery Corporation (a six-branch industrial and construction
equipment dealer) since September 1983, Owner of Knoxville Motor
Company - Mercedes Benz since December 1980 and of Land Rover of Knoxville
since July 1997. Mr. Furrow has been a Director of Southeastern Advertising
Inc. (an advertising agency) since April 1968, a Director of First American
National Bank since September 1993, and of Goody's Family Clothing, Inc, a
publicly traded retail clothing store chain, since 1995. Sam Furrow is Jay
Furrow's father.
Samuel J. (Jay) Furrow, Jr. became the Company's Vice President for
Corporate Development and In-House Counsel in August 1998 and a Director in
January 1999. Mr. Furrow served as President from December 2000 until July
2002, when he became Chief Executive Officer. He has also served as the
Company's Chief Operating Officer since April 1999 and its Acting Chief
Financial Officer since August 2000. Mr. Furrow is an attorney. Mr. Furrow
has a J.D degree from Southern Methodist University School of Law and has a
B.S. degree from Vanderbilt University. Jay Furrow is Sam Furrow's son, and
the President of StanRo Development, a real estate development company.
Patricia Anderson has been a Director of the Company since August 1990,
President of the Company from August 1990 through December 2000 and since July
2002, and President of the Company's Innovo, Inc. subsidiary since she founded
that company in 1987. From August 1990 until August 1997, Ms. Anderson was
also the Chairman and Chief Executive Officer of the Company, and she once
again served as Chief Executive Officer from December 2000 through July 2002.
Daniel A. Page was the chief operating officer of the Company from August
1997 through April 1999 and has been a Director of the Company since August
1997. From June 1993 until August 1997, Mr. Page was the principal operating
and executive officer of Southeast Mat Company, a privately held manufacturer
of automobile floor mats. Prior thereto Mr. Page was the president of
Tennessee Properties Company, a privately held real estate development
company.
Marc B. Crossman has been a Director since January 1999. Mr. Crossman has
also been a Vice President and Equity Analyst with J.P. Morgan Securities
Inc., New York, New York, since January 1999, and was previously a Vice
President and Equity Analyst with CIBC Oppenheimer Corp. from September 1997
through January 1999 and an Associate and Equity Analyst with Dain Rauscher
Wessels from November 1994 through September 1997.
John G. Looney, MD has been a Director since August 1999. Dr. Looney is a
psychiatrist employed by the Duke Medical Center since 1986. Dr. Looney just
completed a role as Medical Director of Peninsula Behavioral Health, a multi-
hospital psychiatric treatment system in East Tennessee. He was responsible
for building the clinical programs of this large enterprise. Dr. Looney is
currently working with Carolinas' Medical Center in Charlotte, North Carolina,
pursuant to a contract between the Duke Medical Center and Carolinas' Medical
Center. Dr. Looney has been a Board of Director member of Covenant Behavioral
Health, Knoxville, TN, since 1995. He also participates in a variety of
venture capital investments independent of Duke, Carolinas' Medical Center and
the Company.
Each of the Company's Directors is elected at the annual meeting of
stockholders and serves until the next annual meeting and until a successor
has been elected and qualified or their earlier death, resignation or removal.
Vacancies in the Board of Directors are filled by a majority vote of the
remaining members of the Board of Directors.
Executive officers of the Company are elected on an annual basis and serve
at the discretion of the Board of Directors.
Commerce and Mizrachi Group Stock Purchase Agreements
In connection with investments by the Commerce Group during August 2000, the
Company has agreed to appoint to the Board of Directors and each of it
committees one person designated by Mr. Guez. In connection with additional
investments made in 2000, Mr. Guez is entitled to designate two additional
Board members. Mr. Guez has not designated a Board member at this time. The
Company has also agreed to appoint to the Board of Directors and each of it
committees one person designated by Mr. Mizrachi. Mr. Mizrachi has not
appointed a member at this time. The Company has also amended its Bylaws to
provide that from November 2, 2000 until November 1, 2003 the number of
members of the Board of Directors will be between three and twelve, with the
exact number to be designated by the Board of Directors.
Corporate Governance and Other Matters
The Board of Directors conducts its business through meetings and through
its committees. The Board of Directors acts as a nominating committee for
selecting candidates to stand for election as Directors. Other candidates may
also be nominated by any stockholder, provided such other nomination(s) are
submitted in writing to the Secretary of the Company no later than 120 days
prior to the anniversary date of the prior year's annual meeting of
stockholders at which Directors were elected, or such earlier date as the
Board of Directors may allow, together with the identity of the nominator and
the number of shares of the Company's stock owned, directly and indirectly,
by the nominator. No such nominations have been received as of the date
hereof in connection with the Annual Meeting.
The Board of Directors currently has two committees, the Audit Committee and
the Executive Compensation Committee.
The Audit Committee is primarily responsible for (i) monitoring the
integrity of the Company's financial reporting process and systems of
internal controls regarding finance, accounting, and legal compliance, (ii)
monitoring the independence and performance of the Company's independent
auditors and internal auditing department, and (iii) providing an avenue of
communication among the independent auditors, management, the internal
auditing department, and the Board of Directors. The Audit Committee has a
charter that details its duties and responsibilities. The current members of
the Audit Committee are Dr. Looney and Messrs. Page and Crossman. Pursuant
to a Nasdaq listing requirements exception, two of the committee members are
"independent" under Nasdaq guidelines while the third member, Dan Page, is
not independent under the guidelines because he has been a Company employee
within the prior three years. With the remaining Board members being
themselves or related to current employee's of the Company and due to Mr.
Page's operational knowledge of the Company, the Company determined that it
is in the best interest of the Company and its stockholders that Mr. Page
serve as a member of the Audit Committee. During fiscal 2001, the Audit
Committee met five times and acted by unanimous written consent once.
The Executive Compensation Committee reviews and recommends the
compensation arrangements for management of the Company. The current members
of the Executive Compensation Committee are Dr. Looney and Messrs. Page and
Sam Furrow. The Executive Compensation Committee also administers the
Company's 2000 Employee Stock Incentive Plan and 2000 Director Stock
Incentive Plan. In carrying out such responsibilities, the Executive
Compensation Committee reviews the salaries, benefits, performance, and
other incentive bonuses of key employees as well as the general terms and
conditions of the other benefit plans. During fiscal 2001, the Executive
Committee did not meet.
During fiscal 2001, the Board of Directors held three (3) meetings and
acted by unanimous written consent eight (8) times. No incumbent Director
attended fewer than 75% of the total number of meetings of the Board of
Directors and committees of the Board of Directors on which he served.
Report of the Audit Committee of the Board of Directors
The audit committee of the board of directors was comprised of three
directors in 2001 who were and continue to be independent directors except
to the extent described in "Corporate Governence and Other Matters" above.
In accordance with its written charter, which was originally approved by
the Board of Directors on June 8, 2000, the audit committee assists the
board of directors in its oversight of the quality and integrity of the
accounting, auditing and financial reporting practices of our company. In
addition, the audit committee recommends to the full board the selection of
our independent auditors.
The audit committee has received and reviewed the written disclosures and
the letter from Ernst & Young LLP required by Independence Standards Board
Standard No. 1 and has discussed with Ernst & Young LLP its independence
from our company. In addition, the audit committee has considered whether
the provision of the non-audit services provided by Ernst & Young LLP is
compatible with maintaining Ernst & Young LLP's independence, and reviewed
and discussed with management and Ernst & Young LLP the Company's audited
financial statements contained in the Annual Report on Form 10-K delivered
with this proxy statement, and has recommended the inclusion of such
financial statements in that Annual Report for filing with the Securities
and Exchange Commission.
Members of the audit committee:
Marc B. Crossman
John G. Looney, MD
Daniel A. Page
Director Compensation
Directors who are not employees of the Company do not currently receive a
cash fee for attending meetings of the Board of Directors or its
committees. Mr. Page received a grant of nonqualified stock options to
purchase 120,000 shares of Common Stock at an exercise price of $3.31 per
share upon becoming a Director in August 1997. All of such options are
vested.
Sam Furrow received a grant of nonqualified stock options to purchase
100,000 shares of Common Stock at an exercise price of $4.75 per share upon
becoming a Director in March 1998. Jay Furrow received a grant of
nonqualified stock options to purchase 100,000 shares of Common Stock at an
exercise price of $4.75 per share upon becoming a Director in February
1999. Mr. Crossman received a grant of nonqualified stock options to
purchase 100,000 shares of Common Stock at an exercise price of $4.75 per
share upon becoming a Director in February 1999. The options vest and
become exercisable at the rate of 2,083 shares per month served.
Each non-management member of the Board of Directors also receives annual
compensation in the form of options to buy Common Stock with a nominal
initial value of $10,000. Each option has an exercise price equal to one-
half of the market price on the date of grant, and covers a number of
shares equal to $10,000 divided the exercise price per share. See "2000
Director Stock Option Plan" below.
Compensation Committee Report On Executive Compensation
Background and Interlocks. The Company currently has two executive
officers and six directors (Mr. Jay Furrow and Patricia Anderson-Lasko each
serve as a director and an executive officer). Three of the non-employee
directors, Dr. Looney and Messrs. Page and Crossman currently comprise the
Compensation Committee. Sam Furrow, rather than Mr. Crossman, served on
the Compensation Committee during 2001. Sam Furrow is Jay Furrow's father.
Objective and Philosophy. As the Company's business grows, the
Compensation Committee expects to work closely with management to design an
executive compensation program to assist the Company in attracting and
retaining needed outstanding executives and senior management personnel.
The design and implementation of such program will evolve as needed, but
will be based primarily on two elements: (i) providing compensation
opportunities that are competitive with competing companies of similar
size; and (ii) linking executives' compensation with the Company's or a
division's financial performance by rewarding the achievement of short-term
and long-term objectives of the Company.
Compensation Program Components. The three principal components of the
executive compensation program are expected to include annual base salary,
short-term incentive compensation in the form of performance bonuses
payable in cash each year, and long-term incentive compensation in the form
of stock options. The Company has not previously needed to attract
additional executive management through its compensation arrangement, but
expects have such requirements in the near future.
CEO Compensation. Ms. Patricia Anderson-Lasko served as CEO during fiscal
2001 and until July 2002, when Mr. Jay Furrow became CEO. Neither
Ms. Anderson-Lasko nor Mr. Furrow have employment agreements with the
Company. Ms. Anderson-Lasko's CEO compensation was determined by the full
Board of Directors and approved by the full Board of Directors (other than
Ms. Anderson-Lasko) based on her compensation in prior years. Because of
Ms. Anderson-Lasko's integral role as a founder of the Company's business
and her significant existing equity interest in the Company, the Board of
Directors and Ms. Anderson-Lasko did not consider compensation arrangements
for 2001 other than her base salary, and Company performance was not a
substantial factor in setting Ms. Anderson-Lasko's 2001 compensation. During
fiscal 2001, Ms. Anderson-Lasko received a base salary of $200,000.
Members of the Compensation Committee:
John G. Looney, MD
Daniel A. Page
Marc B. Crossman
The foregoing report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by
reference the Proxy Statement into any filing under the Securities Act of
1933, as amended, or the Exchange Act, and shall not otherwise be deemed
filed under such Acts.
Executive Compensation and Other Information
Summary Compensation Table. The following table sets forth the
compensation paid to the Chief Executive Officer of the Company during
fiscal 2001 and to the other executive officer of the Company who received
annual compensation in excess of $100,000 during fiscal 2001 (the "Named
Executive Officers") during fiscal years 2001, 2000 and 1999.
Summary Compensation Table
Annual Compensation(1) Long-term Compensation
Name and Other Annual Options/
Principal Position Year Salary Bonus Compensation(3) SARs
------------------ ---- ------ ----- --------------- -------
Patricia Anderson-Lasko, 2001 200,000 -- -- --
Chief Executive Officer(2) 2000 195,000 -- -- --
1999 157,500 15,750 509 --
Samuel J. Furrow, Jr. 2001 143,000 -- -- --
President, COO and 2000 100,000 -- -- --
and Acting CFO 1999 70,000 -- -- --
(1) No executive officers received or held restricted stock awards during
fiscal 2001, 2000 or 1999.
(2) During fiscal 2001, 2000 and 1999 Ms. Anderson-Lasko received life
insurance benefits in the aggregate amounts of $0, $0 and $509, respectively.
Option Grants. No executive officers received option grants during 2001.
Stock Performance Graph
The following graph compares the cumulative total stockholder return of the
Company, the NASDAQ Stock Market (U.S. companies) Index (the "Nasdaq Market
Index") and the NASDAQ Non-Financial Stocks Index. Measurement points are the
last trading day of each of the Company's fiscal years ended November 30,
1996, November 30, 1997, November 30, 1998, November 30, 1999, November 30,
2000 and December 1, 2001. The graph assumes that $100 was invested on
November 30, 1996 in the Common Stock of the Company, the Nasdaq Market Index
and the Nasdaq Non-Financial Stocks Index and assumes reinvestment of any
dividends. The stock price performance on the following graph is not
necessary indicative of future stock price performance.
INNOVO GROUP, INC.
COMPARISON OF CUMULATIVE TOTAL RETURN
TO NASDAQ MARKET INDEX AND
NASDAQ NON-FINANCIAL INDEX
(PERFORMANCE GRAPH)
Measurement Point Innovo Group Inc. Nasdaq Market Index Nasdaq Non-Financial Stocks
----------------- ----------------- ------------------- ---------------------------
11/29/1996 $ 100.00 $ 100.00 $ 100.00
11/28/1997 $ 3,000.23 $ 124.57 $ 120.92
11/30/1998 $ 657.37 $ 152.71 $ 150.50
11/30/1999 $ 728.69 $ 262.35 $ 271.24
11/30/2000 $ 371.66 $ 203.44 $ 208.04
11/30/2001 $ 896.00 $ 151.58 $ 148.39
Aggregated Option/SAR Exercised in 2001 and Year-end Option/SAR Values
Shares Number of Unexercised Value of Unexercised
Acquired Options/SARs at FY-End In-the-Money Options/SARs
on Value (#) Exercisable/ ($) Exercisable/
Name Exercise Realized Unexerciable Unexerciable
---- -------- -------- ------------ ------------
Samuel J. Furrow Jr. 0 0 66,656 / 33,344 Not applicable(1)
(1) Based on a closing price per share of $1.96 for the Common Stock on
November 30, 2001, as reported by the Nasdaq SmallCap Market.
2000 Employee Stock Incentive Plan
The 2000 Employee Stock Incentive Plan (the "2000 Employee Plan") provides
for the grant of options to officers, employees and consultants of the Company
and its affiliates (an "Affiliate"). The 2000 Employee Plan continues in
effect until March 2010, unless terminated earlier. Options granted under the
2000 Employee Plan may be either "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or nonqualified stock options.
The 2000 Employee Plan was adopted by the Company's Board of Directors on
March 12, 2000 and approved by stockholders at the 2000 annual meeting. Up to
2,000,000 share of Common Stock, subject to adjustment as provided in the 2000
Employee Plan, may be issued under the 2000 Employee Plan.
2000 Director Stock Incentive Plan
The 2000 Director Stock Incentive Plan (the "2000 Director Plan") provides
for the automatic grant of options to directors of the Company and its
affiliates and subsidiaries (an "Affiliate") in place of director's fee
payable in cash. The 2000 Director Plan will continue in effect until
September 2010, unless terminated earlier. Options granted under the 2000
Director Plan are nonqualified stock options.
The 2000 Director Plan was adopted by the Company's Board of Directors on
September 13, 2000 and approved by stockholders at the 1999 annual meeting. A
total of 500,000 share of Common Stock, subject to adjustment as provided in
the 2000 Director Plan, may be issued pursuant to the 2000 Director Plan.
Stock Bonus Plan
The Board of Directors has authorized and may in the future authorize the
issuance of restricted stock to certain employees of the Company.
Certain Relationships and Related Transactions
The Company has adopted a policy requiring that any material transactions
between the Company and persons or entities affiliated with officers,
Directors or principal stockholders of the Company be on terms no less
favorable to the Company than reasonably could have been obtained in arms'
length transactions with independent third parties.
Anderson Stock Purchase Agreement. Pursuant to the 1997 Stock Purchase
Right Award awarded to her in February 1997, Ms. Anderson-Lasko purchased
250,000 shares of Common Stock (the "1997 Award Shares") with payment made by
the execution of a non-recourse note (the "Note") to the Company for the
exercise price of $2.8125 per share ($703,125 in the aggregate). The Note was
originally due, without interest, on April 30, 2002, which date has been
extended to April 30, 2005, and is collateralized by the 1997 Award Shares.
Ms. Anderson-Lasko may pay or prepay (without penalty) all or any part of the
Note by (i) the payment of cash, or (ii) the delivery to the Company of other
shares of Common Stock (other than the 1997 Award Shares) that Ms. Anderson-
Lasko has owned for a period of at least six months, which shares would be
credited against the Note on the basis of the closing bid price for the Common
Stock on the date of delivery.
Sam Furrow and Affiliate Loans. During the period from January 1999 to June
2000, Sam Furrow and affiliated companies made a total 24 loans in an
aggregate amount of $1,933,000 to the Company primarily to finance the
Company's import of product from the Orient and general operations. Each of
the loans was unsecured and provided for interest compounding annually at a
rate of from 8.5% to 10.0%. Most of the loans provided for a six-month term.
The Board of Directors determined in each instance that the loans were made
on fair terms and conditions that were more favorable to the Company than
could be obtained from third parties.
Of the amounts loaned by Sam Furrow and his affiliates, a total of
$1,200,000 has been exchanged for Common Stock as described below under "Debt
to Equity Conversions." All amounts owed to Sam Furrow have been repaid.
Dan Page Loans. During the period from February 1999 to March 1999, Dan Page
made a total five loans in an aggregate amount of $200,000 to the Company
primarily to finance the Company's import of product from the Orient and
general operations. Each of the loans was unsecured and provided for interest
compounding annually at a rate of from 10.0%. The loans provided for a six-
month term. The Board of Directors determined in each instance that the loans
were made on fair terms and conditions that were more favorable to the Company
than could be obtained from third parties.
All of the $200,000 loaned Dan Page to the Company has been exchanged for
Common Stock as described below under "Debt to Equity Conversions."
Debt to Equity Conversions. On February 26, 1999, Sam Furrow and Dan Page
each exchanged $150,000 of the indebtedness owed by the Company to them for
75,000 restricted shares of common stock each, or a price of $2.00 per share.
On the date that the Company's Board of Directors approved the debt exchanges,
the average closing sale price for the Common Stock as reported by Nasdaq for
the prior 30 days was $2.00.
Jay Furrow acquired $50,000 of the indebtedness owed by the Company to Sam
Furrow on April 26, 1999 and exchanged that amount for restricted Common Stock
at a price of $1.00 per share on that date. On the same date, a third party
acquired $50,000 of the indebtedness owed by the Company to Dan Page and
exchanged that amount for restricted Common Stock at a price of $1.00 per
share. On the date that the Company's Board of Directors approved those debt
exchanges, the average closing sale price for the Common Stock as reported by
Nasdaq for the prior 15 days was $1.43.
On February 28, 2000, Sam Furrow exchanged $500,000 of the indebtedness owed
by the Company to him for 423,729 restricted shares of common stock, or a
price of $1.18 per share. On the date that the Company's Board of Directors
approved the debt exchange, the closing sale price for the Common Stock as
reported by Nasdaq was $1.15.
On August 11, 2000, Sam and Jay Furrow converted $1 million of outstanding
Company debt owed to third parties that it had previously assumed and an
additional $500,000 of Company debt that was previously owed to the Furrows
for 1,363,637 shares of common stock, or $1.10 per share, and warrants to
purchase 1,500,000 shares of Common Stock that have a three-year term and an
exercise price of $2.10 per share.
The $1.0 million of converted debt that had been assumed by the Furrows and
that had previously been guaranteed by him consisted of $650,000 owed to
Commerce Capital, Inc., a Nashville, Tennessee based finance company unrelated
to the Commerce Group,and $350,000 owed to First Independent Bank of Gallatin.
With respect to each of the debt to equity conversions discussed above, the
Board of Directors determined that the purchases of Common Stock were made on
fair terms and conditions and were in the Company's best interests in order to
increase the Company's net tangible assets for Nasdaq listing compliance
purposes and considering recent trading prices and a reasonable discount due
to the restricted nature of the issued shares. All of the shares issued
pursuant to the debt conversions were subject to registration rights, and
resales of all of such shares are now subject to effective registration
statements.
Facility Lease Arrangements. On October 7, 1998, the Company entered into a
Warehouse Lease Agreement with Furrow-Holrob Development II, LLC pursuant to
which the Company has leased the 78,900 square foot plant that now houses the
Company's executive offices and its manufacturing, administrative and shipping
facilities. The "triple net" lease provides for an annual base rental rate of
$2.00 per square foot, or $157,800 annually, plus a pro rata share of real
estate taxes, insurance premiums and common area expenses, with an initial
five-year term and two Company five-year renewal options (subject to agreement
on any change in the base rental rate). The Board of Directors, with
Mr. Furrow excusing himself from deliberations and not voting, unanimously
approved the Warehouse Lease Agreement. The Warehouse Lease Agreement was
terminated on July 1, 2000.
New Facility Lease Arrangements. The Company currently leases its Knoxville,
TN office and storage space from a company owned by Sam Furrow. The office
space is approximately 5,000 square feet consisting of the first floor of a
two-story building located in downtown Knoxville, Tennessee, with a monthly
rental of $3,500 triple net. The storage space is used by the Company to
store its documents and is currently rented on a month-to month basis for $450
per month.
Section 16 Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors, officers
and persons who beneficially own more than ten percent of a registered class
of the Company's equity securities, to file reports of ownership and changes
in ownership with the Securities and Exchange Commission (the "Commission") on
a timely basis. Directors, officers and greater than ten percent beneficial
owners are required by the Commission's regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on a review of copies of such forms furnished to the Company
and certain of the Company's internal records, or upon written representations
that no Form 5s were required, the Company believes that during the year ended
December 31, 2001, all Section 16(a) filing requirements applicable to its
directors, officers and greater than ten percent beneficial owners were
satisfied on a timely basis.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(Proposal 2)
The Board of Directors has appointed Ernst & Young LLP ("E&Y") as the
Company's independent auditors for the fiscal year ended November 30, 2002,
subject to ratification by stockholders at the Annual Meeting.
Representatives of E&Y will be present at the Annual Meeting and will have the
opportunity to make a statement if they so desire and be available to respond
to appropriate questions. Unless otherwise instructed on the proxy, properly
executed proxies will be voted in favor of ratifying the appointment of E&Y to
audit the books and accounts of the Company for the fiscal year ended November
30, 2002. The affirmative vote of a majority of the votes present in person or
represented by proxy at the Annual Meeting is required to approve Proposal 2.
The aggregate fees billed for professional services rendered by E&Y for the
audit of the Company's consolidated financial statements for fiscal 2001,
including the reviews of the Company's condensed consolidated financial
statements included in its quarterly reports on Form 10-Q during fiscal 2001,
were approximately $106,000. E&Y also billed the Company $33,000 for audit
related services, which primarily consisted o f accounting consultations and
audit work related to an acquired business. E&Y did not render any services
to the Company related to financial information systems design and
implementation during fiscal 2001. The aggregate fees billed for all other
professional services rendered by Ernst & Young LLP during fiscal 2001 other
than those described above were approximately $29,000. These services
consisted primarily of tax return preparation fees. The Audit Committee has
determined that the services provided by Ernst & Young LLP were compatible
with maintaining Ernst & Young LLP's independence.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
DATE OF SUBMISSION OF STOCKHOLDER PROPOSALS
TO BE INCLUDED IN PROXY MATERIALS
Any proposal or proposals intended to be presented by any stockholder at the
2003 Annual Meeting of Stockholders, which the Company expects to hold during
April 2003, must be received by the Company at its principal executive offices
no later than the close of business on November 30, 2002 and must otherwise
comply with the rules of the Commission for inclusion in the proxy materials
to be considered for inclusion in the Company's Proxy Statement and form of
proxy relating to that meeting.
OTHER BUSINESS TO BE TRANSACTED
As of the date of this Proxy Statement, the Board of Directors knows of no
other business which may come before the Annual Meeting. If any other business
is properly brought before the Annual Meeting, it is the intention of the
proxy holders to vote or act in accordance with their best judgment with
respect to such matters.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 1, 2001 ACCOMPANIES THIS PROXY STATEMENT. STOCKHOLDERS MAY OBTAIN,
FREE OF CHARGE, AN ADDITIONAL COPY OF THE COMPANY'S 2001 ANNUAL REPORT ON FORM
10-K (WITHOUT EXHIBITS) BY WRITING TO INNOVO GROUP INC., ATTENTION: INVESTOR
RELATIONS, 5900 S. EASTERN AVE, SUITE 124, COMMERCE, CA 90040. THE COMPANY
WILL PROVIDE COPIES OF THE EXHIBITS TO THE FORM 10-K UPON PAYMENT OF A
REASONABLE FEE.
INNOVO GROUP INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, NOVEMBER 12, 2002
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder of Innovo Group Inc. (the "Company") hereby
appoints Samuel J. Furrow, Jr., and Patricia Anderson-Lasko or either of
them, with full power of substitution, as proxies to cast all votes, as
designated below, which the undersigned stockholder is entitled to cast at
the 2002 Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Tuesday, November 12, 2002 at 10:00 a.m. (local time) at The University Club,
2704 Kingston Pike, Knoxville, Tennessee 37996, upon the following matters
and any other matter as may properly come before the Annual Meeting or any
adjournments thereof.
1. Election of six Directors to serve on the Board of Directors:
Samuel J. Furrow Samuel J. Furrow, Jr.
Patricia Anderson-Lasko Marc B. Crossman
Daniel A. Page John G. Looney
[ ] FOR all the nominees listed above (except as marked to the contrary
below).
[ ] WITHHOLD AUTHORITY to vote for all the nominees listed above.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
-----------------------------------------------------------------------
2. Proposal to ratify the appointment of Ernst & Young LLP as the
independent auditors of the Company for the fiscal year ending
November 30, 2002.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued and to be dated and signed on reverse side.)
(continued from other side)
This proxy, when properly executed, will be voted as directed by the
undersigned stockholder and in accordance with the best judgment of the
proxies as to other matters. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED "FOR" THE NOMINEES LISTED IN PROPOSAL 1, "FOR" PROPOSAL 2, AND IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXIES AS TO OTHER MATTERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED IN
PROPOSAL 1 AND "FOR" PROPOSAL 2.
The undersigned hereby acknowledges prior receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement dated September 3,
2002 and the Annual Report on Form10-K for the year ended December 1,
2001, and hereby revokes any proxy or proxies heretofore given. This
Proxy may be revoked at any time before it is voted by delivering to the
Secretary of the Company either a written revocation of proxy or a duly
executed proxy bearing a later date, or by appearing at the Annual
Meeting and voting in person.
If you receive more than one proxy card, please sign and return all
cards in the accompanying envelope.
Date: _________________ , 2002.
--------------------------------------------
Signature of Stockholder or Authorized Representative
Please date and sign exactly as name
appears hereon. Each executor,
administrator, trustee, guardian,
attorney-in-fact and other fiduciary
should sign and indicate his or her
full title. In the case of stock
ownership in the name of two or more
persons, all persons should sign.
[ ] I PLAN TO ATTEND THE NOVEMBER 12, 2002 ANNUAL STOCKHOLDERS MEETING
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY TO
ENSURE A QUORUM AT THE MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW
OR MANY SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY
TO ADDITIONAL EXPENSE.