UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)*
INNOVO GROUP INC.
-----------------
(Name of Issuer)
Common Stock, Par Value $0.10 Per Share
---------------------------------------
(Title of Class of Securities)
457954501
---------
(CUSIP Number)
Joseph Mizrachi
6971 N. Federal Highway, #203
Boca Raton, Florida, 33487
(917)544-2424
--------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
February 21, 2003
-----------------
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule ss.240.13d-7 for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Continued on following page(s)
Page 1 of 28 Pages
Exhibit Index: Page 11
SCHEDULE 13D
CUSIP No. 457954501 Page 2 of 28 Pages
1 Names of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only).
JOSEPH MIZRACHI
2 Check the Appropriate Box if a Member of a Group (See Instructions)
a. [ ]
b. [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
Not Applicable
5 Check if Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e)
[ ]
6 Citizenship or Place of Organization
UNITED STATES
7 Sole Voting Power
Number of 0
Shares
Beneficially 8 Shared Voting Power
Owned By 173,283
Each
Reporting 9 Sole Dispositive Power
Person 0
With
10 Shared Dispositive Power
173,283
11 Aggregate Amount Beneficially Owned by Each Reporting Person
173,283
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions)
[X]
13 Percent of Class Represented By Amount in Row (11)
.08%
14 Type of Reporting Person (See Instructions)
IN
SCHEDULE 13D
CUSIP No. 457954501 Page 3 of 28 Pages
1 Names of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only).
SIMON MIZRACHI
2 Check the Appropriate Box if a Member of a Group (See Instructions)
a. [ ]
b. [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
Not Applicable
5 Check if Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e)
[ ]
6 Citizenship or Place of Organization
UNITED STATES
7 Sole Voting Power
Number of 72,183
Shares
Beneficially 8 Shared Voting Power
Owned By 173,283
Each
Reporting 9 Sole Dispositive Power
Person 72,183
With
10 Shared Dispositive Power
173,283
11 Aggregate Amount Beneficially Owned by Each Reporting Person
245,466
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions)
[ ]
13 Percent of Class Represented By Amount in Row (11)
1.2%
14 Type of Reporting Person (See Instructions)
IN
Page 4 of 28 Pages
This Amendment No. 2 to Schedule 13D relates to shares of
Common Stock, par value $0.10 per share (the "Shares") of Innovo Group Inc.
(the "Issuer"). This Amendment No. 2 supplementally amends the initial statement
on Schedule 13D, dated October 31, 2000 (the "Initial Statement"), filed by the
Reporting Persons (as defined herein). Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Initial Statement. The
Initial Statement is supplementally amended as follows.
Item 2. Identity and Background.
This Statement is being filed on behalf of each of the
following persons (collectively, the "Reporting Persons"):
i) Mr. Joseph Mizrachi ("Mr. Joseph Mizrachi"); and
ii) Mr. Simon Mizrachi ("Mr. Simon Mizrachi").
This Statement relates to the Shares held for the accounts of
C.J. Rahm, L.P., a Delaware limited partnership ("CJ Rahm"), and MidAtlantic
Agency Inc., a Florida corporation ("MidAtlantic").
The Reporting Persons
Mr. Joseph Mizrachi and Mr. Simon Mizrachi are brothers and
citizens of the United State of America. Mr. Joseph Mizrachi and Mr. Simon
Mizrachi are financiers and their principal office is located at 6971 N. Federal
Hwy, #203, Boca Raton, Florida 33487.
Mr. Joseph Mizrachi acts in the capacity of an advisor
pursuant to an advisory agreement with CJ Rahm. In such capacity, Mr. Joseph
Mizrachi may be deemed to be the beneficial owner of the Shares and warrants to
acquire Shares held for the account of CJ Rahm. In addition, certain Shares and
warrants to acquire Shares held for the account of CJ Rahm are owned by Mr.
Joseph Mizrachi's wife, Cheryl Mizrachi, who shares Mr. Mr. Joseph Mizrachi's
home. As a result, Mr. Joseph Mizrachi may be deemed to beneficially own these
Shares and warrants to acquire Shares. Current information concerning the
identity and background of the directors and officers of CJ Rahm is set forth in
Annex A hereto, which is incorporated by reference in response to this Item 2.
Mr. Simon Mizrachi serves as President of MidAtlantic and as
President of SAT Holdings, Inc., the general partner of CJ Rahm. In such
capacities, Mr. Simon Mizrachi may be deemed to be the beneficial owner of the
Shares and warrants to acquire Shares held for the accounts of MidAtlantic and
CJ Rahm. Current information concerning the identity and background of the
directors and officers of CJ Rahm and MidAtlantic is set forth in Annex A
hereto, which is incorporated by reference in response to this Item 2.
During the past five years, none of the Reporting Persons and,
to the best of the Reporting Persons' knowledge, no other person identified in
response to this Item 2 has been (a) convicted in a criminal proceeding or (b) a
party to any civil proceeding as a result of which it or he has been subject to
a judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws, or finding
any violation with respect to such laws.
Page 5 of 28 Pages
Item 5. Interest in Securities of the Issuer.
According to information filed by the Issuer with the
Securities and Exchange Commission on its most recent Form 10-Q/A for the
quarterly period ended August 30, 2003, the number of Shares outstanding was
21,158,308 as of October 14, 2003.
(a) (i) Mr. Joseph Mizrachi may be deemed the beneficial owner
of 173,283 Shares (approximately .08% of the total number of Shares
outstanding). This number consists of 173,283 Shares held for the account of CJ
Rahm.
(ii) Mr. Simon Mizrachi may be deemed to be the beneficial
owner of 245,466 Shares (approximately 1.2% of the total number of Shares
outstanding). This number consists of A) 173,283 Shares held for the account of
CJ Rahm; and B) 72,183 Shares held for the account of MidAtlantic.
(b) (i) Mr. Joseph Mizrachi may be deemed to have shared power
to direct the voting and disposition of the 173,283 Shares held for the account
of CJ Rahm.
(ii) Mr. Simon Mizrachi may be deemed to have the sole
power to direct the voting and disposition of the 72,183 Shares held for the
account of MidAtlantic. Mr. Simon Mizrachi may be deemed to have shared power
to direct the voting and disposition of the 173,283 Shares held for the account
of CJ Rahm.
(c) Except for the transactions set forth in Annex B hereto,
there have been no transactions effected with respect to the Shares since August
31, 2003 (60 days prior to the date hereof) by any of the Reporting Persons.
(d) (i) The limited partners of CJ Rahm have the right to
participate in the receipt of dividends from, or proceeds from the sales of, the
securities held for the account of CJ Rahm in accordance with their partnership
interests in CJ Rahm.
(ii) The shareholders of MidAtlantic have the right
to participate in the receipt of dividends from, or proceeds from the sales of,
the securities held for the account of MidAtlantic in accordance with their
ownership interests in MidAtlantic.
(e) Effective February 21, 2003, the Reporting Persons ceased
to be the beneficial owner of more than five percent of the Shares.
Page 6 of 28 Pages
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer.
On February 21, 2003, Yardworth Mortgage Corporation A.V.V., a
corporation organized under the laws of Aruba ("Yardworth"), exercised its right
to acquire an 85% membership interest in Innavation LLC, a Delaware limited
liability company ("Innavation"), previously wholly-owned by Mr. Joseph
Mizrachi. Upon exercise of this right, Yardworth acquired the right to vote and
dispose of all of the 1,812,000 Shares held for the account of Innavation. In
addition, Yardworth may be deemed to have the right to acquire voting and
dispositive power within sixty days over the 1,400,000 shares issuable upon the
exercise of warrants held for the account of Innavation.
Yardworth had entered into a pledge agreement (the "Pledge
Agreement") with Mr. Joseph Mizrachi on November 1, 2000 (a copy of the Pledge
Agreement is incorporated by reference hereto as Exhibit A and is incorporated
herein by reference in response to this Item 6) Pursuant to the Pledge
Agreement, Yardworth loaned Mr. Joseph Mizrachi $1,500,000. As evidence of the
loan, Mr. Joseph Mizrachi gave Yardworth a convertible note (the "Note") (a copy
of the Note is incorporated by reference hereto as Exhibit B and is incorporated
herein by reference in response to this Item 6). The Note gave Yardworth the
right, at any time prior to the maturity or full pre-payment of the Note, to
convert the outstanding Note into an 85% membership interest in Innavation.
The foregoing descriptions of the Pledge Agreement and the
Note do not purport to be complete and are qualified in their entirety by the
terms of each such document, which are incorporated herein by reference.
Except as set forth above, the Reporting Persons do not have
any contracts, arrangements, understandings or relationships with respect to any
securities of the Issuer.
Item 7. Material to Filed as Exhibits.
The Exhibit Index is incorporated herein by reference.
Page 7 of 28 Pages
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief,
each of the undersigned certifies that the information set forth in this
Statement is true, complete and correct.
Date: October 30, 2003 JOSEPH MIZRACHI
/s/ Joseph Mizrachi
-------------------------------------
Joseph Mizrachi
Date: October 30, 2003 SIMON MIZRACHI
/s/ Simon Mizrachi
-------------------------------------
Simon Mizrachi
Page 8 of 28 Pages
ANNEX A
Directors and Officers of C.J. Rahm, L.P.
Name/Title/Citizenship Principal Occupation Business Address
---------------------- -------------------- ----------------
Simon Mizrachi President of SAT Holdings, Inc. 6971 N. Federal Hwy #203,
President Boca Raton, Florida 33487
(United States)
Joseph Mizrachi Vice-President of SAT Holdings, Inc. 6971 N. Federal Hwy #203
Vice-President Boca Raton, Florida 33487
(United States)
Directors and Officers of MidAtlantic Agency, Inc.
Name/Title/Citizenship Principal Occupation Business Address
---------------------- -------------------- ----------------
Simon Mizrachi President of MidAtlantic Agency, Inc. 6971 N. Federal Hwy #203,
President Boca Raton, Florida 33487
(United States)
Joseph Mizrachi Vice-President of MidAtlantic Agency, Inc. 6971 N. Federal Hwy #203,
Vice-President Boca Raton, Florida 33487
(United States)
Except as otherwise set forth herein with regard to Mr. Simon
Mizrachi and Mr. Joseph Mizrachi, to the best of the Reporting Persons'
knowledge:
(a) None of the above persons hold any Shares.
(b) None of the above persons has any contracts, arrangements,
understandings or relationships with respect to the Shares.
Page 9 of 28 Pages
ANNEX B
RECENT TRANSACTIONS IN THE SECURITIES OF
INNOVO GROUP INC.
Nature of Number of
For the Account of Date of Transaction Transaction Securities Price
------------------ ------------------- ----------- ---------- -----
C.J. Rahm, L.P. September 19, 2003 Cashless 100,000 Shares $2.00
Exercise of (received 72,183)
Options
MidAtlantic Agency, Inc. September 19, 2003 Cashless 100,000 Shares $2.00
Exercise of (received 72,183)
Options
C.J. Rahm, L.P. October 9, 2003 Sale 1,000 Shares $5.21
C.J. Rahm, L.P. October 9, 2003 Sale 1,000 Shares $5.20
C.J. Rahm, L.P. October 9, 2003 Sale 1,000 Shares $5.20
C.J. Rahm, L.P. October 9, 2003 Sale 1,000 Shares $5.17
C.J. Rahm, L.P. October 9, 2003 Sale 1,000 Shares $5.25
C.J. Rahm, L.P. October 10, 2003 Sale 900 Shares $5.21
C.J. Rahm, L.P. October 13, 2003 Sale 800 Shares $6.12
C.J. Rahm, L.P. October 13, 2003 Sale 1,200 Shares $5.95
C.J. Rahm, L.P. October 13, 2003 Sale 1,000 Shares $6.00
C.J. Rahm, L.P. October 13, 2003 Sale 1,000 Shares $6.008
C.J. Rahm, L.P. October 13, 2003 Sale 1,000 Shares $6.00
C.J. Rahm, L.P. October 13, 2003 Sale 200 Shares $6.01
C.J. Rahm, L.P. October 14, 2003 Sale 1,000 Shares $5.71
C.J. Rahm, L.P. October 16, 2003 Sale 300 Shares $5.16
Page 10 of 28 Pages
Nature of Number of
For the Account of Date of Transaction Transaction Securities Price
------------------ ------------------- ----------- ---------- -----
C.J. Rahm, L.P. October 16, 2003 Sale 1,000 Shares $5.15
C.J. Rahm, L.P. October 16, 2003 Sale 1,000 Shares $5.15
C.J. Rahm, L.P. October 17, 2003 Sale 500 Shares $5.25
C.J. Rahm, L.P. October 17, 2003 Sale 2,000 Shares $5.17
C.J. Rahm, L.P. October 17, 2003 Sale 5,000 Shares $5.16
C.J. Rahm, L.P. October 17, 2003 Sale 1,000 Shares $5.25
C.J. Rahm, L.P. October 20, 2003 Sale 1,000 Shares $5.20
Page 11 of 28 Pages
EXHIBIT INDEX
Ex. No. Page No.
------- -------
A. Joint Filing Agreement dated as of October 30, 2003 by and
between Mr. Joseph Mizrachi and Mr. Simon Mizrachi........ 12
B. Form of Pledge Agreement, dated as of November 1, 2000,
by and among Yardworth Mortgage Corporation A.V.V. and
Mr. Joseph Mizrachi.................................... 13
C. Form of 10 Year 12% Convertible Note, dated as of November
1, 2000 from Joseph Mizrachi to Yardworth Mortgage Corporation
A.V.V......................................................... 24
Page 12 of 28 Pages
EXHIBIT A
JOINT FILING AGREEMENT
The undersigned hereby agree that the statement on Schedule 13D with
respect to the common stock, par value $.10 per share, of Innovo Group Inc.,
dated as of October 30, 2003, is, and any amendments thereto (including
amendments on Schedule 13G) signed by each of the undersigned shall be, filed on
behalf of each of us pursuant to and in accordance with the provisions of Rule
13d-1(k) under the Securities Exchange Act of 1934, as amended.
Date: October 30, 2003 JOSEPH MIZRACHI
/s/ Joseph Mizrachi
-------------------------------------
Joseph Mizrachi
Date: October 30, 2003 SIMON MIZRACHI
/s/ Simon Mizrachi
-------------------------------------
Simon Mizrachi
Page 13 of 28 Pages
EXHIBIT B
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (the "Agreement"), dated as of November 1 2000, is by and
between JOSEPH MIZRACHI, having an address at 6971 N. Federal Highway, Suite
203, Boca Raton, Florida 33487, hereinafter referred to as "Pledgor", and
YARDWORTH MORTGAGE CORPORATION A.V.V., having an address at c/o Mido Trust &
Management N.V., Penstraat 105, Curacao, Netherlands Antilles, hereinafter
referred to as "Pledgee".
RECITALS
--------
Pledgee has loaned to Pledgor the sum of U.S. One Million Five
Hundred Thousand and 00/100 (U.S. $1,500,000.00) Dollars (the "Loan"), which
Loan is evidenced by a convertible note in favor of Pledgee dated of even date
herewith (the "Note").
In order to induce Pledgee to make the Loan, Pledgor has
agreed to pledge to Pledgee as security for the payment of the Note when due,
certain collateral, and Pledgee has agreed to accept the collateral, all upon
the terms and subject to the conditions hereinafter set forth.
AGREEMENT
---------
In consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
Section 1. Grant of Security Interest.
--------------------------------------
Pledgor hereby pledges, assigns, transfers and delivers to
Pledgee and grants to Pledgee a continuing security interest in all of Pledgor's
right, title and interest in and to a ninety-nine percent (99%) membership
interest (the "Collateral") in Innovation LLC, a Delaware limited liability
company (the "Company"), all upon the terms and subject to the conditions set
forth herein. The Collateral shall constitute security for the timely and full
payment of the Note when due.
Page 14 of 28 Pages
Section 2. Collateral Documentation.
------------------------------------
Pledgor shall deliver to Pledgee duly executed Form UCC-1
financing statements, assignments and such other documentation as Pledgee may
require to perfect Pledgee's security interest in the Collateral under
applicable law, in form and substance satisfactory to Pledgee.
Section 3. Further Assurances.
------------------------------
The Pledgor agrees to do such further acts and things and to
execute and deliver such additional documentation as Pledgee from time to time
may reasonably request in connection with the administration or enforcement of
this Agreement, whether related to the Collateral or any part thereof, to
evidence, confirm, perfect or protect any security interest granted or required
to have been granted hereunder or in order better to assure and confirm unto
Pledgee its rights, powers and remedies hereunder.
Section 4. Representations and Warranties.
------------------------------------------
To induce Pledgee to enter into this Agreement and to accept
the Note, Pledgor represents and warrants to Pledgee that to the best of
Pledgor's knowledge:
(a) Pledgor has the power to execute, deliver and perform
this Agreement;
(b) the execution, delivery and performance by Pledgor of
this Agreement (i) will not violate or be in conflict with any applicable law
(including, without limitation, any applicable usury or similar law) and (ii)
will not violate, be in conflict with, result in a breach of or constitute
(with or without the giving of notice or the passage of time or both)
a default under any material indenture, agreement or other instrument to which
Pledgor is a party or by which Pledgor or any of its properties or assets are or
may be bound or subject;
(c) Pledgor has obtained any necessary consents required to
the execution of this Agreement; (d) Upon execution and delivery hereof, this
Agreement will constitute Pledgor's legal, valid and binding obligation,
enforceable in accordance with its terms; and
(e) The Collateral pledged by Pledgor is not subject to any
security interest, lien or other encumbrance or any adverse claim of any kind
whatsoever, except for the security interest created hereunder and any other
security interest to which Pledgee may consent in writing ("Permitted
Encumbrances").
Page 15 of 28 Pages
Section 5. Affirmative and Negative Covenants.
----------------------------------------------
Pledgor covenants and agrees that, from the date hereof and until
payment in full of the Note, Pledgor:
(a) Shall give to Pledgee immediate notice of any material
change in the status of the Collateral or the assets of the Company;
(b) Except for the security interest granted hereunder
and the Permitted Encumbrances, shall not create, incur, assume or permit to
exist, or permit to be created, incurred or assumed, any pledge or hypothecation
of, or any mortgage, lien, security interest or encumbrance of any nature
against, all or any portion of the Collateral without the prior consent of
Pledgee;
(c) Shall not sell, lease, transfer, exchange or otherwise
dispose of all or any portion of the Collateral without the prior consent of
Pledgee;
(d) Shall maintain the company status of the Company in good
standing in the State of Delaware; and
(e) Shall not sell any shares of Innovo Group Inc. owned
by the Company unless the proceeds of such sale are applied to the repayment of
this Loan.
Section 6. Rights of Pledgee to Collateral.
-------------------------------------------
(a) In the event that the Note has become due and has not
been paid in full pursuant to the terms thereof, Pledgee in its sole and
absolute discretion may take (and/or may cause one or more of its designees to
take) any, some or all of the following actions, after giving the notice set
forth in Section 6(b) hereof:
(i) receive and retain all payments and all other
distributions of any kind with respect to any and all of the Collateral;
(ii) take such action with respect to the
liquidation, sale, assignment and delivery of the whole of, or from time to time
any part of, the Collateral including, without limitation, to liquidate, sell,
assign and deliver the whole of, or from time to time any part of, the
Collateral at any private sale or at public auction, with or without demand on
Pledgor or advertisement of the time or place of sale or adjournment thereof,
for cash, for credit or for other property, for immediate or future delivery,
and for such price or prices and on such terms as Pledgee in its discretion may
determine, and Pledgee may bid for and purchase the whole or any part of the
Collateral so sold free from any right or equity of redemption; to adjourn any
such sale or cause the same to be adjourned from time to time to a subsequent
time and place announced at the time and place fixed for the sale; and to carry
out any agreement to sell the whole or any part of the Collateral in accordance
with the terms of such agreement, notwithstanding that, after Pledgee shall have
entered into such an agreement, the Note may have been satisfied in full
provided, if such agreement is assignable, such agreement shall be assigned to
Pledgor if Pledgor assumes all liabilities of Pledgee thereunder;
Page 16 of 28 Pages
(iii) otherwise use or deal from time to time with
the Collateral, in whole or in part, in all respects as if Pledgee were the
outright owner thereof; and
(iv) in addition to, and not by way of limitation of,
any of the rights specified above, exercise any and all rights and remedies
afforded to Pledgee, as a secured party in possession of collateral or
otherwise, under any and all provisions of applicable law.
(b) Prior to enforcing any of the remedies provided in
Section 6 (a), Pledgee shall provide to Pledgor written notice of at least ten
business days during which Pledgor may cure the default. A business day shall
mean any day other than a Saturday, Sunday or legal holiday in the State of New
York. Pledgor acknowledges the notice period to be adequate and reasonable, and
acknowledges that a single such notice shall be sufficient to entitle Pledgee
from time to time thereafter to take any one or more of the actions described in
Section 6(a), provided that upon the curing of an event of default hereunder,
Pledgor shall again be entitled to the notice as provided herein.
(c) Pledgee and its trustees,officers, directors, employees,
agents and counsel shall not incur any liability (other than for acts or
omissions amounting to gross negligence or willful misconduct) as a result of
the liquidation or sale of the Collateral or any part thereof, in a commercially
reasonable manner in accordance with the provisions of subsection (a) above or
of applicable law, for the failure to sell or offer for sale the Collateral, or
any part thereof, or by reason of the exercise of any other rights of Pledgee
for any reason whatsoever. Pledgor hereby waives any claims (other than those
attributable to acts or omissions amounting to gross negligence or willful
misconduct) against Pledgee and its trustees, officers, directors, employees,
agents and counsel arising with respect to proceeds from the Collateral, or any
part thereof, or by reason of the fact that such proceeds were less than the
amount of the Note, provided that all such actions have been effected in a
commercially reasonable manner.
Page 17 of 28 Pages
(d) Pledgee shall collect the cash proceeds received from
any sale or other disposition or from any other source contemplated by
subsection (a) above and, after deducting all costs and expenses incurred by
Pledgee in connection with such collection and sale or disposition (including
without limitation, reasonable counsel fees and expenses), shall apply the same
in accordance with the provisions of this Agreement.
(e) Notwithstanding the foregoing, none of the provisions of
this Section shall confer on Pledgee any rights or privileges that are not
permissible under applicable law; provided that to the extent Pledgor may waive
any provision of applicable law that would or could be in conflict with the
terms of this Section, Pledgor hereby expressly waives the applicability of any
and all such applicable laws.
(f) In connection with the provisions of this Agreement,
Pledgor from time to time promptly shall execute and deliver, or cause to be
executed and delivered, to Pledgee such reasonable documents and instruments,
shall join in such notices and shall take, or cause to be taken, such other
reasonable and lawful action as Pledgee shall deem reasonably necessary or
desirable to enable it to exercise any of the rights with respect to the
Collateral granted to it pursuant to this Agreement.
Section 7. Application of Funds.
--------------------------------
In the event that the Note has become due and has not been paid
in full pursuant to the terms thereof, Pledgee and the Pledgor agree that any
funds received from or on behalf of the Pledgor (pursuant to the provisions of
Section 6 hereof or otherwise) by Pledgee shall be applied, in such manner and
order as Pledgee may elect, to the following items:
(a) to pay to or reimburse Pledgee for any reasonable
out-of-pocket expenses for which Pledgee is entitled to be paid or reimbursed
pursuant to the provisions of this Agreement or the Note;
(b) to payment of interest owing under the Note;
(c) to payment of the outstanding principal amount of the
Note;
(d) to payment in full of all other obligations of Pledgor
hereunder; and
Page 18 of 28 Pages
(e) to return any remainder to the Pledgor.
Section 8. Termination of Security Interest.
--------------------------------------------
Pursuant to certain terms and conditions as more fully set forth
in the Note, Pledgee shall have the right to convert the Loan (the "Conversion")
into an eighty-five percent (85%) membership interest in the Company. The
security interest of Pledgee hereunder shall terminate upon the first to occur
of (a) the Conversion, or (b) the full payment and satisfaction of the Note.
Following such occurrence, Pledgee shall execute and deliver to the Pledgor any
instrument or document that the Pledgor deems reasonably necessary to evidence
the termination of Pledgee's security interest and the satisfaction of the Note
and return of collateral, all without recourse upon or warranty by Pledgee and
at the cost and expense of the Pledgor.
Section 9. Power of Attorney.
-----------------------------
With respect to the Collateral that Pledgee or its designee hold
or are entitled to obtain hereunder, the Pledgor hereby irrevocably makes,
constitutes and appoints Pledgee, with full power of substitution, as Pledgor's
true and lawful attorney-in-fact with full power, from time to time, in the
Pledgor's name, place and stead to, as entitled under this Agreement: (a) take
possession of and endorse any one or more contracts, mortgages, deeds, pledges,
assignments and other documents, and any one or more notes, checks, drafts,
bills of exchange, money orders or any other documents received on account of
the Collateral; (b) collect, sue for and give acquittance for moneys due on
account of those assets and properties; (c) withdraw any claims, suits or
proceedings pertaining to or arising out of those assets and properties; (d)
execute and record or file on behalf of Pledgor any financing statements or
other evidence of a security interest contemplated by this Agreement or any
refiling, continuation or extension thereof; (e) take any other action
contemplated by this Agreement; and (f) sign, execute, acknowledge, swear to,
verify, deliver, file, record and publish any one or more of the foregoing. This
power of attorney is hereby declared to be irrevocable, with full power of
substitution and coupled with an interest. This power of attorney shall survive
the death, retirement, incapacity and bankruptcy of the Pledgor and shall extend
to and be binding upon the Pledgor's heirs, successors or assigns. This power of
attorney may be exercised (i) by the above named attorney-in-fact, or by any
substitute designated by the attorney-in-fact, and (ii) by signing for Pledgor
individually on any document or instrument. Pledgee shall not be liable for any
failure to collect or enforce the payment of any of those assets and properties.
Page 19 of 28 Pages
Section 10. Indemnification.
----------------------------
Pledgee and its designees, and its respective trustees, officers,
directors, attorneys, agents and employees, shall be indemnified, held harmless
and, at the request of Pledgee, defended by the Pledgor from and against any and
all liabilities that may be imposed upon, incurred by, or asserted against any
of them or any of their respective designees, officers, directors, attorneys,
agents or employees growing out of or related directly or indirectly to this
Agreement or the Collateral, except such as are occasioned by their own gross
negligence or willful misconduct; provided however that in connection with any
such claim for indemnification, Pledgor shall have been given written notice of
any claim, action, suit or proceeding that gave rise to the claim for
indemnification within a reasonable time after Pledgee became aware of such
claim, action, suit or proceeding and an opportunity to participate in the
negotiation, settlement or defense thereof at the Pledgor's own expense.
Section 11. Expenses of Pledgee.
--------------------------------
Pledgor shall pay all reasonable costs and expenses incurred by
Pledgee in connection with the enforcement and protection of Pledgee's interests
and rights under this Agreement including reasonable attorneys fees.
Section 12. Non-Recourse.
-------------------------
Pledgor's obligations hereunder are non-recourse and Pledgor
shall have no personal liability hereunder except if Pledgor violates the
provisions of Section 5(e) hereof.
Section 13. Notices.
--------------------
All notices and other communications hereunder shall be in
writing and shall be (i) delivered by hand, (ii) delivered by Federal Express or
any other internationally recognized courier service, or (iii) telecopied and
confirmed by certified mail, return receipt requested, to any party hereto as
follows:
(a) If to Pledgor:
Mr. Joseph Mizrachi
6971 N. Federal Highway
Suite 203
Boca Raton, Florida 33487
Fax No.: (561) 995-8116
Page 20 of 28 Pages
with a copy to:
Braun & Goldberg
110 East 59th Street
New York, N.Y. 10022
Attention: Seymour Braun, Esq.
Fax No.: (212) 826-9315
(b) If to Pledgee:
Yardworth Mortgage Corporation A.V.V.
c/o Mido Trust & Management N.V.
Penstraat 105, P. O. Box 6132
Curacao, Netherlands Antilles
Fax No.: 011-59-99-461-2911
Any party may by notice in writing designate a new or other
address to which such notice or communication or copies of such notice or
communication shall thereafter be given, made or mailed. Any notice given
hereunder by mail shall be deemed received five days following its mailing.
Section 14. Section and Other Headings.
---------------------------------------
The Section and other headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
Section 15. Pronouns.
---------------------
All pronouns and any variations thereof shall be deemed to refer
to the masculine, feminine, neuter, singular or plural as the context shall
require.
Section 16. Governing Law.
--------------------------
This Agreement shall be governed by and construed and given
effect to in all respects in accordance with the laws of the State of Delaware.
The Pledgor hereby irrevocably consents to any legal action or proceeding with
respect to this Agreement being brought in the State of Delaware.
Section 17. Injunctive Relief.
------------------------------
Pledgor acknowledges that it will be impossible to measure in
money the damage to Pledgee in the event of a breach of any of the provisions of
Section 5 of this Agreement, and Pledgor agrees that, in the event of any such
breach, Pledgee will not have an adequate remedy at law, although the foregoing
shall not constitute a waiver of Pledgee's rights or remedies at law or
otherwise against a breaching party. It therefore is agreed that Pledgee, in
addition to any other rights that it may have under applicable law and this
Agreement, shall be entitled to injunctive relief to enforce any of the
provisions of Section 5 hereof and to restrain and enjoin any act prohibited
thereby, and that, in the event any action shall be brought in equity to enforce
any such provision, the Pledgor will not urge the defense that there is an
adequate remedy available at law.
Page 21 of 28 Pages
Section 18. Severability.
-------------------------
In the event that any provision of this Agreement shall be
finally determined to be superseded, invalid or otherwise unenforceable pursuant
to applicable law, such determination shall not affect the validity of the
balance of this Agreement, and the remaining provisions of this Agreement shall
be enforced as if the invalid provision were deleted.
Section 19. Survival of Representations. Etc.
---------------------------------------------
All representations, warranties, covenants and other agreements
made herein shall survive the execution and delivery of this Agreement and shall
continue in full force and effect until all amounts due Pledgee hereunder have
been paid in full.
Section 20. Counterparts.
-------------------------
This Agreement may be executed in two or more counterparts, each
of which may be executed by one or more of the parties hereto, but all of which,
when taken together, shall constitute one agreement.
Section 21. Successors and Assigns: Assignment.
-----------------------------------------------
Whenever in this Agreement reference is made to any party, such
reference shall be deemed to include the successors and assigns of such party,
and, without limiting the generality of the foregoing, all covenants,
agreements, representations and warranties made by or on behalf of Pledgor in
this Agreement shall inure to the successors and assigns of Pledgee; provided
however that nothing herein shall be deemed to authorize or permit Pledgor to
assign any of its rights or obligations hereunder to any other person or entity
and the Pledgor agrees that it shall not make any such assignment, and any
attempt to do so shall be null and void.
Page 22 of 28 Pages
Section 22. No Waiver by Actions. Etc.
--------------------------------------
Any waiver or consent respecting any covenant, representation,
warranty or other provision of this Agreement shall be effective only in the
specific instance and for the specific purpose for which given and shall not be
deemed, regardless of frequency given, to be a further or continuing waiver or
consent. The failure or delay of Pledgee at any time or times to require
performance of, or to exercise its rights with respect to, any covenant,
representation, warranty or other provision of this Agreement in no manner
(except as otherwise expressly provided herein) shall affect its right at a
later time to enforce any such provision. No notice to or demand on a party in
any case shall entitle such party to any other or further notice or demand in
the same, similar or other circumstances. All remedies, rights, powers and
privileges of Pledgee hereunder are cumulative and not alternative, and they are
in addition to and shall not limit (except as otherwise expressly provided
herein) any other remedy, right, power or privilege of Pledgee hereunder or
under applicable law.
Section 23. Modification, Amendment, Etc.
-----------------------------------------
Each and every modification and amendment of this Agreement shall
be in writing and signed by all of the parties hereto; and each and every waiver
of, and consent to any departure from, any covenant, representation, warranty or
other provision of this Agreement shall be in writing and signed by each party
adversely affected by such waiver or consent.
Section 24. Entire Agreement.
-----------------------------
This Agreement contains the entire agreement of the parties and
supersedes all other representations, agreements and understandings, oral or
otherwise, between the parties with respect to the matters contained herein.
Page 23 of 28 Pages
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first above written.
PLEDGOR:
----------------------------------
Joseph Mizrachi
PLEDGEE:
Yardworth Mortgage Corporation A.V.V.
By: ______________________________
Page 24 of 28 Pages
EXHIBIT C
$1,500,000 November 1, 2000
10 YEAR 12% CONVERTIBLE NOTE
FOR VALUE RECEIVED, JOSEPH MIZRACHI, having an address at 6971 N.
Federal Highway, Suite 203, Boca Raton, Florida 33487 (the "Borrower") HEREBY
PROMISES TO PAY TO YARDWORTH MORTGAGE CORPORATION A.V.V. (the "Lender") or
order, at Lender's bank, or at such other bank or place inside or outside the
United States as the holder hereof may, from time to time designate in writing,
the principal sum of U.S. ONE MILLION FIVE HUNDRED THOUSAND AND 00/100 (U.S.
$1,500,000.00) DOLLARS on November 1, 2010 (the "Maturity Date") together with
interest on the principal amount outstanding hereunder at the rate of twelve
(12%) percent per annum, interest only payable on November 1, 2001 and annually
thereafter on the first day of each November, and the entire principal balance
with interest thereon on the Maturity Date.
The following additional provisions shall govern this note (the
"Note"):
1. Computation of Interest. Interest under this Note shall be
computed on the basis of a 360-day year for the actual number of days elapsed.
2. Currency of Payments. All payments hereunder shall be made in
lawful money of the United States.
3. Conversion Rights. (a) At any time prior to the Maturity Date or
the earlier full prepayment of this Note, Lender shall have the right, upon
fifteen (15) days written notice to Borrower (the "Notice"), to convert the
entire amount of principal and interest then outstanding under this Note into
an Eighty-Five Percent (85%) membership interest (the "Interest") in
Innovation LLC, a Delaware limited liability company.
Page 25 of 28 Pages
(b) This conversion shall be effective upon the giving of said
Notice and surrender of this Note and the cancellation of the Pledge Agreement,
as hereinafter described, to the Borrower, accompanied, if so required by
Borrower by an instrument or instruments of cancellation in form satisfactory to
Borrower and duly executed by the Lender.
(c) The Borrower, as soon as practicable after conversion, but
in any event within thirty (30) days after receipt of said Notice, shall issue
and deliver to Lender an assignment and such other documentation as shall be
required or necessary to evidence the transfer of the Interest.
(d) Notwithstanding anything to the contrary herein, the
conversion shall be deemed immediately effective upon the death of Borrower.
4. Transfer of Note. (a) The Borrower shall maintain at its office a
book entry system to reflect and record the ownership of the Note or any
interest in the Note. No transfer of the Note and the stated interest therein or
any interest thereon shall be valid, and the Borrower will not recognize any
party other than the Lender as entitled to receive payment hereon unless such
transfer has been entered on the books of the Borrower. The Borrower shall not
enter any transfer of the Note on its books unless the original Note or any
validly issued replacement thereof is presented together with instruments of
assignment executed by the party named in the Note or any validly issued
replacement thereof. In the event the Note or any validly issued replacement is
lost or destroyed, the Borrower may accept an affidavit under oath from the
party reflected in its books and records as holder of the Note in lieu of the
original Note together with such additional security or assurances as the
Borrower may reasonably request for purposes of issuing a replacement note or
reflecting a transfer on its books and records.
(b) This note is intended to be a registered obligation within
the meaning of the Internal Revenue Code and interest paid thereon is intended
to qualify as portfolio interest within the meaning of Sections 871(h) and
881(c).
5. Security. This Note is secured by a pledge agreement dated of
even date herewith from Borrower to Lender (the "Pledge Agreement") and all of
the covenants, conditions and agreements of the Pledge Agreement are made a part
hereof by this reference.
Page 26 of 28 Pages
6. Acceleration. The entire principal balance hereunder and all
accrued and unpaid interest thereon shall, at the option of Lender, become due
and payable in the event of any default herein or as defined in the Pledge
Agreement which default shall continue beyond the applicable grace period.
7. Default Interest Rate. From and upon the occurrence of any event
of default herein or under the Pledge Agreement, which default shall continue
beyond the applicable grace period, if any, the principal sum payable hereunder
shall bear interest at the lesser of (i) 18% per annum or (ii) the maximum rate
permissible by law.
8. Late Charge and Additional Interest. Notwithstanding any grace
period hereunder or under the Pledge Agreement, if any payment required
hereunder is not paid within 10 days of the date such payment is due, then the
Borrower shall pay to the Lender, upon demand, a late charge equal to three (3)
cents for each one ($1.00) dollar of such unpaid installment to defray the
expenses incurred by the Lender in handling and processing such delinquent
payment.
9. Administration and Enforcement Fees. The Borrower shall pay all
out of pocket fees and charges incurred by the Lender in the administration and
enforcement of the Note and Pledge Agreement including reasonable fees and
disbursements of Lender's attorneys.
10. Notices. All notices and other communications hereunder shall be
in writing and shall be (i) delivered by hand, (ii) delivered by D.H.L., Federal
Express or any other internationally recognized courier service, or (iii)
telecopied and confirmed by certified mail, return receipt requested, to any
party hereto as follows:
(a) If to Pledgor:
Mr. Joseph Mizrachi
6971 N. Federal Highway
Suite 203
Boca Raton, Florida 33487
Fax No.: (561) 995-8116
<
Page 27 of 28 Pages
with a copy to:
Braun & Goldberg
110 East 59th Street
New York, N.Y. 10022
Attention: Seymour Braun, Esq.
Fax No.: (212) 826-9315
(b) If to Pledgee:
Yardworth Mortgage Corporation A.V.V.
c/o Mido Trust & Management N.V.
Penstraat 105
P. O. Box 6132
Curacao, Netherlands Antilles
Fax No.: 011-59-99-461-2911
Any party may by notice in writing designate a new or other
address to which such notice or communication or copies of such notice or
communication shall thereafter be given, made or mailed. Any notice given
hereunder by mail shall be deemed received five days following its mailing.
11. Non-Recourse. Borrower shall have no personal liability under
the Note except as provided in the Pledge Agreement. Lender shall look solely to
the collateral pledged pursuant to the Pledge Agreement for collection of any
amount owing hereunder and shall not be entitled to look to any other asset of
Borrower except as provided in the Pledge Agreement.
12. Change in Tax Laws. In the event of any changes in income tax
laws of the United States which would require the Borrower to withhold any
portion of any interest payment hereunder, the interest rate hereunder shall be
increased so that the Lender shall receive the net amount of the interest rate
provided herein.
13. Governing Law. This Note shall be governed by and construed
in accordance with the laws of the State of Delaware.
14. Waivers. Borrower hereby waives demand, presentment for
payment, notice of dishonor, protest and notice of protest, and all other
demands and notices in connection with the delivery, acceptance, default,
performance or enforcement of the Note except as specifically set forth herein.
Page 28 of 28 Pages
15. Excessive Interest. In no event shall the total of all
charges payable under the Note or the Pledge Agreement exceed the maximum charge
permissible by applicable law and any payments received by Lender in excess of
such maximum permissible rate shall be applied to reduce the unpaid principal
outstanding under the Note.
16. Modifications. The Note may not be modified or discharged
orally but only by an instrument in writing signed by the party against whom
enforcement of such modification or discharge is sought.
17. Prepayment. This Note may be prepaid at any time except after
the issuance of the Notice described in Paragraph 3 above.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed
and delivered by its duly authorized officer as of the 1st day of November,
2000.
------------------------------
Joseph Mizrachi