Edgar Filing: INNOVO GROUP INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934

(Amendment No. __)

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.
(Name of Registrant as Specified In Its Charter)

--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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|X| No fee required.

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INNOVO GROUP INC.
5804 East Slauson Avenue
Commerce, California 90040
(323) 725-5516

April 13, 2004

Dear Stockholder:

You are cordially invited to attend the 2004 annual meeting of
stockholders of Innovo Group Inc., or Innovo Group, which will be held at The
Wyndham Commerce Hotel, 5757 Telegraph Road, Commerce, California 90040, (near
Los Angeles, California), on Thursday, June 3, 2004. The 2004 annual meeting of
stockholders will begin promptly at 10:00 a.m. local time.

The accompanying notice of annual meeting and proxy statement, which you
are urged to read carefully, provide important information regarding the
business to be conducted at the annual meeting.

Your Board of Directors recommends a vote "FOR" all of the director
nominees and proposals.

You are requested to complete, date and sign the enclosed proxy card and
promptly return it in the enclosed envelope, whether or not you plan to attend
the annual meeting. If you do attend the meeting, you may vote in person even if
you have submitted a proxy card. REGARDLESS OF THE NUMBER OF SHARES YOU OWN OR
WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING, IT IS IMPORTANT THAT YOUR SHARES
BE REPRESENTED AND VOTED. If you hold your shares in "street name" (that is,
through a broker, bank or other nominee), please review the instructions on the
proxy forwarded by your broker, bank or other nominee regarding the option, if
any, to vote on the Internet or by telephone. If you plan to attend the meeting
in person, please remember to bring a form of personal identification with you
and, if you are acting as a proxy for another stockholder, please bring written
confirmation from the record owner that you are acting as a proxy.

On behalf of the Board of Directors, I thank you for your support and
continued interest in Innovo Group.

Sincerely,

/s/ Samuel J. Furrow

Samuel J. Furrow
CHAIRMAN OF THE BOARD OF DIRECTORS
INNOVO GROUP INC.

INNOVO GROUP INC.
5804 East Slauson Avenue
Commerce, California 90040
(323) 725-5516

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, JUNE 3, 2004

Time and Date 10:00 a.m., local time on Thursday, June 3, 2004

Place The Wyndham Commerce Hotel, 5757 Telegraph Road,
Commerce, California 90040

Items of Business (1) To elect ten directors to serve on the Board of
Directors until the 2005 annual meeting of
stockholders and until their respective successors
are elected and qualified;

(2) To approve the adoption of the 2004 Stock
Incentive Plan;

(3) To ratify the appointment of Ernst & Young, LLP
as our independent auditors for the fiscal year
ending November 27, 2004; and

(4) To transact such other business as may properly
come before the annual meeting or any adjournments
thereof.

Adjournments and Any action on the items of business described above
Postponements may be considered at the annual meeting at the time
and on the date specified above or at any time and
date to which the annual meeting may be properly
adjourned or postponed.

Record Date You are entitled to vote only if you are an Innovo
Group common stockholder as of the close of
business on April 14, 2004, or the Record Date.

Meeting Admission You are entitled to attend the annual meeting only
if you are an Innovo Group common stockholder as of
the close of business on the Record Date or hold a
valid proxy for the annual meeting. You should be
prepared to present photo identification for
admittance. If you are not a common stockholder of
record, but hold shares through a broker, bank or
other nominee (i.e., street name), you should
provide proof of beneficial ownership as of the
Record Date, such as your most recent account
statement prior to April 14, 2004, a copy of the
proxy card provided by your broker, bank or
nominee, or other similar evidence of ownership. If
you do not provide photo identification or comply
with the other procedures outlined above upon
request, you will not be admitted to the annual
meeting.

List of Common Stockholders A list of our common stockholders entitled at the
Entitled to vote annual meeting to Vote will be open for the
examination by any common stockholder for any
purpose germane to the annual meeting during
ordinary business hours for a period of ten days
before the annual meeting at our office at 5804
East Slauson Avenue, Commerce, California, 90040.

Voting YOUR VOTE IS VERY IMPORTANT TO US. WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, WE ENCOURAGE
YOU TO READ THIS PROXY STATEMENT AND TO SUBMIT YOUR
PROXY AS SOON AS POSSIBLE. YOU MAY SUBMIT YOUR
PROXY FOR THE ANNUAL MEETING BY COMPLETING,
SIGNING, DATING AND RETURNING YOUR PROXY IN THE
PRE-ADDRESSED ENVELOPE PROVIDED, OR IN SOME CASES,
BY USING THE TELEPHONE OR INTERNET. FOR SPECIFIC
INSTRUCTIONS ON HOW TO VOTE YOUR SHARES, PLEASE
REFER TO THE SECTION ENTITLED QUESTIONS AND ANSWERS
BEGINNING ON PAGE 1 OF THIS PROXY STATEMENT OR THE
INFORMATION PROVIDED TO YOU BY YOUR BROKER, BANK OR
OTHER NOMINEE.

EVEN IF YOU HAVE VOTED YOUR PROXY, YOU MAY STILL
VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF
RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU
WISH TO VOTE IN PERSON AT THE MEETING, YOU MUST
OBTAIN FROM SUCH BROKER, BANK OR OTHER NOMINEE, A
PROXY ISSUED IN YOUR NAME.

By Order of the Board of Directors,

/s/ Samuel J. Furrow

Samuel J. Furrow
Chairman of the Board of Directors
Los Angeles, California
April 13, 2004

This notice of annual meeting and proxy statement and proxy are first being
mailed to our common stockholders on or about April 23, 2004.

iii

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS
AND THE ANNUAL MEETING

Although we encourage you to read the proxy statement in its entirety, we
include these Questions and Answers to provide background information and brief
answers to several questions that you may have about the proxy materials.

Q: Why am I receiving these materials?

A: The Board of Directors of Innovo Group, or the Board of Directors, is
providing these proxy materials to you in connection with our annual meeting of
stockholders, which will take place on Thursday, June 3, 2004. Our common
stockholders are invited to attend the annual meeting and are entitled to and
requested to vote on the proposals described in this proxy statement.

Q: What information is contained in this proxy statement?

A: The information included in this proxy statement relates to the proposals to
be voted on at the annual meeting, the voting process, information including
compensation concerning directors and the most highly paid executive officers,
and certain other required information.

Q: What proposals will be voted on at the annual meeting?

A: The proposals scheduled to be voted on at the annual meeting are:

(1) To elect ten directors to serve on the Board of Directors until the
2005 annual meeting of stockholders and until their respective
successors are elected and qualified;

(2) To approve the adoption of the 2004 Stock Incentive Plan; and

(3) To ratify the appointment of Ernst & Young, LLP as our independent
auditors for the fiscal year ending November 27, 2004.

We will also consider any other business that properly comes before the
annual meeting.

Q: How does the Board of Directors recommend that I vote?

A: Our Board of Directors unanimously recommends that you vote your shares "FOR"
each of the nominees to the Board of Directors, "FOR" the approval of the
adoption of the 2004 Stock Incentive Plan and "FOR" the ratification of the
appointment of Ernst & Young, LLP as our independent auditors for the fiscal
year ending November 27, 2004.

Q: What shares can I vote?

A: Each share of our common stock issued and outstanding as of the close of
business on the April 14, 2004, or the Record Date, is entitled to be voted for
all proposals being voted upon at the annual meeting. You may cast one vote per
share of common stock held by you as of the Record Date. These shares include
shares that are (1) held directly in your name as the common stockholder of
record, and (2) shares held for you as the beneficial owner through a broker,
bank or other nominee. As of April 11, 2004, we had approximately 29,082,593
shares of common stock issued and outstanding and approximately 1,000 common
stockholders of

record.

Q: What is the difference between holding shares as a common stockholder of
record and as a beneficial owner?

A: Most of our common stockholders hold their shares through a broker, bank or
other nominee rather than directly in their own name. As summarized below, there
are some distinctions between shares held of record and those owned
beneficially.

Common Stockholder of Record

If your shares are registered directly in your name with our transfer
agent, North American Transfer Company, you are considered with respect to those
shares the common stockholder of record and these proxy materials are being sent
directly to you by us. As the common stockholder of record, you have the right
to grant your voting proxy directly to us or to vote in person at the annual
meeting. We have enclosed a proxy card for you to use.

Beneficial Owner

If your shares are held in a brokerage account or by a bank or other
nominee, you are considered the beneficial owner of shares of our common stock
held in street name, and these proxy materials are being forwarded to you by
your broker, bank or nominee who is considered with respect to those shares the
common stockholder of record. As the beneficial owner, you have the right to
direct your broker, bank or other nominee on how to vote and are also invited to
attend the annual meeting. However, since you are not the common stockholder of
record, you may not vote these shares in person at the annual meeting unless you
obtain a legal proxy from the broker, bank, or nominee that holds your shares
giving you the right to vote the shares at the annual meeting. Your broker, bank
or nominee has enclosed a voting instruction card for you to use in directing
the broker or nominee regarding how to vote your shares. You may also be able to
vote your shares by Internet or telephone as described below under "How can I
vote my shares without attending the annual meeting?"

Q: How can I attend the annual meeting?

A: You are entitled to attend the annual meeting only if you are an Innovo Group
common stockholder as of the close of business on Record Date or you hold a
valid proxy for the annual meeting. You should be prepared to present photo
identification for admittance. If you are not a common stockholder of record,
but hold the shares through a broker, bank or nominee (i.e., in street name),
you should provide proof of beneficial ownership on the Record Date, such as
your most recent account statement prior to April 14, 2004, a copy of the voting
instruction card provided by your broker, bank or nominee, or other similar
evidence of ownership. If you do not provide photo identification or comply with
the other procedures outlined above upon request, you will not be admitted to
the annual meeting.

Q: How can I vote my shares in person at the annual meeting?

A: Shares held in your name as the common stockholder of record may be voted in
person at the annual meeting. Shares held beneficially in street name may be
voted in person only if you obtain a legal proxy from your broker, bank or other
nominee that holds your shares giving you the right to vote the shares. Even if
you plan to attend the annual meeting, we recommend that you also submit your
proxy or voting instructions as

described below so that your vote will be counted if you later decide not to
attend the meeting.

Q: How can I vote my shares without attending the annual meeting?

A: Whether you hold your shares directly as the common stockholder of record or
beneficially in street name, you may direct how your shares are voted without
attending the meeting. If you are a common stockholder of record, you may vote
by submitting a proxy. If you hold shares beneficially in street name, you may
vote by submitting voting instructions to your broker, bank or nominee. For
directions on how to vote, please refer to the instructions below and those
included on your proxy card, or for shares held beneficially in street name, you
may vote by submitting voting instructions to your broker, bank or nominee.

By Mail - Our common stockholders of record may submit proxies by
completing, signing and dating their proxy cards and mailing them in the
accompanying pre-paid, pre-addressed envelope. Our common stockholders who hold
shares beneficially in street name may vote by mail by completing, signing and
dating the voting instruction card provided by their broker, bank or nominee and
mailing them in the accompanying pre-addressed envelope.

By Internet - Most of our common stockholders who hold shares beneficially
in street name may vote by accessing the website specified on the voting
instruction cards provided by their brokers, banks or nominees. Please check the
voting instruction card for Internet voting availability.

By Telephone - Most of our common stockholders who hold shares
beneficially in street name may vote by phone by calling the number specified on
the voting instruction cards provided by their brokers, banks or nominees.
Please check the voting instruction card for telephone voting availability.

Q: May I change my vote?

A: You may change your vote at any time prior to the vote at the annual meeting.
If you are the common stockholder of record, you may change your vote by
granting a new proxy card bearing a later date (which automatically revokes the
earlier proxy), by providing written notice of revocation to our Corporate
Secretary prior to your shares being voted, or by attending the annual meeting
and voting in person. Attendance at the annual meeting will not cause your
previously granted proxy to be revoked unless you specifically so request. For
shares you hold beneficially in street name, you may change your vote by
submitting new voting instructions to your broker, bank or nominee, or, if you
have obtained a legal proxy from your broker, bank or nominee giving you the
right to vote your shares, by attending the meeting and voting in person.

Q: Is my vote confidential?

A: Proxy instructions, ballots and voting tabulations that identify individual
common stockholders are handled in a manner that protects your voting privacy.
Your vote will not be disclosed either within Innovo Group or to third parties,
except: (1) as necessary to meet applicable legal requirements, (2) to allow for
the tabulation of votes and certification of the vote, and (3) to facilitate a
successful proxy solicitation. If a common stockholder submits a proxy card with
a written comment, then that proxy card will be forwarded to Innovo Group
management.

Q: How many shares must be present or represented to conduct business at the
annual meeting?

A: The quorum requirement for holding the annual meeting and for transacting
business is that the holders of a majority of shares of our common stock
entitled to vote must be present in person or represented by proxy. Both
abstentions and broker non-votes are counted for the purposes of determining the
presence of a quorum.

Q: How are votes counted?

A: For the election of directors, you may vote "FOR" all of the nominees or your
vote may be "WITHHELD" for one or more of the nominees. For the other items of
business, you may vote "FOR," "AGAINST" or "ABSTAIN." If you "ABSTAIN," the
abstention has the same effect as a vote "AGAINST" the proposal. If you provide
specific instructions with regard to certain items, your shares will be voted as
you instruct on such items. If you sign your proxy card or voting instruction
card without giving specific instructions, your shares will be voted in
accordance with the recommendations of the Board of Directors.

Q: Who will count the vote?

A: A representative of North American Transfer Company will tabulate the votes
up until the morning of the meeting. At the meeting, our inspector of election
will tabulate the votes.

Q: Who will serve as inspector of election?

A: Mr. Jay Furrow, our Chief Executive Officer, will serve as our inspector of
election.

Q: What is the voting requirement to approve each of the proposals?

A: For the election of directors, the ten persons receiving a plurality of "FOR"
votes at the annual meeting will be elected. All other proposals require the
affirmative "FOR" vote of a majority of those shares present in person or
represented by proxy and entitled to vote on those proposals at the annual
meeting. If you hold shares beneficially in street name and do not provide your
broker with voting instructions, your shares may constitute "broker non-votes."
Generally, broker non-votes occur on a matter when a broker is not permitted to
vote on that matter without instructions from the beneficial owner and
instructions are not given. Brokers may not vote shares on Proposal 2 without
instructions from the beneficial owner of such shares. If the broker is not
instructed with respect to Proposal 2, the shares will constitute broker
non-votes. In tabulating the voting results for any particular proposal, shares
that constitute broker non-votes are not considered entitled to vote on that
proposal. Thus, broker non-votes will not affect the outcome of any matter being
voted on at the meeting, assuming a quorum is obtained. Abstentions have the
same effect as votes against the matter.

Q: What happens if additional proposals are presented at the annual meeting?

A: Other than the three proposals described in this proxy statement, we are not
aware of any other business to be acted upon at the annual meeting. If you grant
a proxy, the persons named as proxyholders, Samuel J. Furrow, Jr. and Patricia
Anderson, will have the discretion to vote your shares on any additional matters
properly presented for a vote at the meeting. If for any unforeseen reason any
of our nominees for the Board of Directors is not available as a candidate, the
persons named as proxyholders will vote your proxy for

such other candidate or candidates as may be nominated by the Board of
Directors.

Q: What should I do if I receive more than one set of voting materials?

A: You may receive more than one set of voting materials, including multiple
copies of this proxy statement and multiple proxy cards or voting instruction
cards. For example, if you hold your shares in more than one brokerage account,
you may receive a separate voting instruction card for each brokerage account in
which you hold shares. If you are a common stockholder of record and your shares
are registered in more than one name, you will receive more than one proxy card.
Please complete, sign, date and return each proxy card and voting instruction
card that you receive.

Q: Who will bear the costs of soliciting votes for the annual meeting?

A: We are making this solicitation and will pay the entire cost of preparing,
assembling, printing, mailing and distributing these proxy materials and
soliciting votes. In addition to the mailing of these proxy materials, the
solicitation of proxies or votes may be made in person, by telephone or by
electronic communication by our directors, officers and employees, who will not
receive any additional compensation for such solicitation activities.

Q: Where can I find the results of the annual meeting?

A: We will announce preliminary voting results at the annual meeting and publish
final results in our quarterly report on Form 10-Q for the third quarter of
fiscal 2004.

Q: Where can I obtain a copy of Innovo Group's Annual Report on Form 10-K and
Amendment No. 1 to Innovo Group's Annual Report on Form 10-K for the year ended
November 29, 2003?

A: A copy of our Annual Report on Form 10-K and Amendment No.1 to our Annual
Report on Form 10-K for the year ended November 29, 2003 is enclosed with this
proxy statement.

Q: What if I share an address with another stockholder?

A: In some instances, we may deliver to multiple common stockholders sharing a
common address only one copy of this proxy statement and its attachments. If
requested by phone or in writing, we will promptly provide a separate copy of
the proxy statement and its attachments to a stockholder sharing an address with
another stockholder. Requests by phone should be directed to our Corporate
Secretary at (323) 725-5516 and requests in writing should be sent to Innovo
Group Inc., Attention: Corporate Secretary, 5804 East Slauson Avenue, Commerce,
California 90040. Our common stockholders sharing an address who currently
receive multiple copies and wish to receive only a single copy should contact
their broker or send a signed, written request to us at the address above.

Q: What is the deadline to propose actions for consideration at next year's
annual meeting of stockholders or to nominate individuals to serve as directors?

A: You may submit proposals, including director nominations, for consideration
at future stockholder meetings. We expect to hold our 2005 annual meeting of
stockholders in or around May of 2005. Our common stockholders may submit
proposals that they believe should be voted upon at the 2005 annual meeting
consistent with regulations of the Securities and Exchange Commission, or SEC,
and our bylaws.

Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, some
stockholder proposals may be eligible for inclusion in our 2005 proxy statement.
Any such stockholder proposals must be submitted in writing to and received by
the Corporate Secretary of Innovo Group at 5804 East Slauson Avenue, Commerce,
California 90040 no later than December 24, 2004. The submission of a
stockholder proposal does not guarantee that it will be included in our proxy
statement.

A stockholder may also submit a proposal for consideration outside of Rule
14a-8. Pursuant to Rule 14a-4(c)(1), a stockholder may submit a proposal for
consideration at the annual meeting. Any such stockholder proposals to be
considered at the annual meeting must be submitted in writing to and received by
our Corporate Secretary no later than March 9, 2005. The submission of a
stockholder proposal does not guarantee that it will be presented at the annual
meeting.

Our common stockholders interested in submitting a proposal are advised to
contact knowledgeable legal counsel with regard to the detailed requirements of
applicable federal securities laws and the our bylaws, as applicable.

Q: Do I have any appraisal rights under the General Corporation Law of the State
of Delaware?

A: Under the General Corporation Law of the State of Delaware, you do not have
any appraisal rights in connection with the proposals upon which a vote is
scheduled to be taken at this annual meeting of stockholders.

INNOVO GROUP INC.
5804 East Slauson Avenue
Commerce, California 90040

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
THURSDAY, JUNE 3, 2004

PROPOSAL 1

ELECTION OF DIRECTORS

Our bylaws provide that our Board of Directors will consist of not less
than three directors, with the exact number of directors (subject to such
minimum and any range of size established by our common stockholders) to be
determined by resolution of our Board of Directors. Currently, our Board of
Directors has set the number of directors at ten directors. At our annual
meeting, ten directors will be elected to serve until the 2005 annual meeting of
stockholders, which is expected to be held in May 2005. Our Board of Directors'
nominees for election are set forth below.

In connection with investments by Commerce Investment Group, LLC and other
investors affiliated with two of our significant common stockholders, Hubert
Guez and Paul Guez, or collectively, the Commerce Group, during August and
October 2000, we entered into an investor rights agreement whereby Commerce
Group has the right to nominate three individuals for election to our Board of
Directors. Additionally, one of Commerce Group's nominees, if elected, will have
the right to serve on the each of the committees of our Board of Directors. At
this time, Commerce Group has not nominated any person to serve as a member on
our Board of Directors. Joseph Mizrachi, pursuant to investments made in October
2000, has the right to nominate one individual for election to our Board of
Directors, with this individual having the right to serve on the committees of
our Board of Directors committees if elected. Mr. Mizrachi, at this time, has
not nominated any person to be elected as a member of our Board of Directors.

Q: What is the vote required to approve Proposal 1?

A: Our Board of Directors will be elected by a plurality vote. Unless otherwise
instructed on the proxy, properly executed proxies will be voted for the
election of all of the director nominees set forth below. Our 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.

Q: How does the Board of Directors recommend I vote?

A: Our Board of Directors unanimously recommends a vote "FOR" the director
nominees listed below.

Q: What information is provided with respect to nominees to the Board of
Directors?

A: The following table sets forth information regarding our nominees to our
Board of Directors:

Year First Elected
Name Age Position Director
---- --- -------- --------

Samuel J. (Sam) Furrow 62 Chairman of the Board of Directors 1998
Samuel J. (Jay) Furrow, Jr. 30 Chief Executive Officer and Director 1999
Patricia Anderson 43 President and Director 1990
Marc B. Crossman 32 Chief Financial Officer and Director 1999
Daniel A. Page(1)(3) 52 Director 1997
Suhail R. Rizvi(1)(2)(3) 38 Director 2003
Vincent Sanfilippo 38 Director 2003
Kent Savage 42 Director 2003
Dean Factor 39 Nominee for Director N/A
Kelly Hoffman 46 Nominee for Director N/A

(1) Member of the Audit Committee

(2) Member of the Compensation and Stock Option Committee

(3) Member of the Nominating and Governance Committee

Q: What is the business experience of the nominees for election to our Board of
Directors?

A: The business experience of our nominees for election to our Board of
Directors is as follows:

Samuel J. (Sam) Furrow has served as Chairman of our Board of Directors
since October 1998. Mr. Furrow became a member of our Board of Directors in
April 1998 and served as our Chief Executive Officer from October 1998 until
December 2000, after which Patricia Anderson resumed the position. Mr. Furrow
also has been Chairman of the Board of Furrow Auction Company, a real estate and
equipment sales company with its headquarters in Knoxville, Tennessee, since
April 1968; Chairman of Furrow-Justice Machinery Corporation, a six-branch
industrial and construction equipment dealer, since 1983; owner of Knoxville
Motor Company-Mercedes Benz and Land Rover of Knoxville since December 1980 and
July 1997, respectively. 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 a Director of Goody's Family
Clothing, Inc. (NASDAQ: GDYS), a publicly traded retail clothing chain, since
1995. Mr. Furrow received his undergraduate and J.D. degree from the University
of Tennessee. Sam Furrow is the father of our Chief Executive Officer, Samuel J.
(Jay) Furrow, Jr.

of personal computers. Mr. Furrow received his J.D. degree from Southern
Methodist University School of Law and his B.S. degree in Political Science from
Vanderbilt University. Jay Furrow is the son of the Chairman of our Board of
Directors, Samuel J. (Sam) Furrow.

Patricia Anderson has served as our President since July 2002 and a member
of our Board of Directors since August 1990. Ms. Anderson served as our Chief
Executive Officer from December 2000 until July 2002, our President from August
1990 until December 2000, and Chairman of our Board of Directors from August
1990 until August 1997. Prior to founding Innovo, Inc., Ms. Anderson worked as
Vice President of Sales and Marketing for Lexem, Inc., an import wholesale
houseware gift company located in Houston, Texas, from August 1985 until July
1987. Prior to that, Ms. Anderson owned and operated three retail stores
focusing on home decorating/gift shops all under the name of Basket Case from
November 1979 until April 1983. Ms. Anderson attended the University of Texas
and the University of Houston, with a focus on Accounting and Food Management.

Marc B. Crossman has served as our Chief Financial Officer since March
2003 and a member of our Board of Directors since January 1999. Prior to joining
our company, Mr. Crossman served as a Vice President and Equity Analyst with
J.P. Morgan Securities Inc., New York City, New York, from January 1999 until
March 2003. Prior to joining J.P. Morgan Securities, Inc., Mr. Crossman served
as a Vice President and Equity Analyst with CIBC Oppenheimer Corporation from
September 1997 until January 1999. Mr. Crossman also serves on the Board of
Directors of Northgate Innovations, Inc. (NGTE.OB), a publicly traded
manufacturer and distributor of personal computers. Mr. Crossman received his
B.S. degree in Mathematics from Vanderbilt University.

Daniel A. Page has served as a member of our Board of Directors since
August 1997. Mr. Page served as our Chief Operating Officer from August 1997
until April 1999. 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 to that, Mr. Page was the president
of Tennessee Properties Company, a privately held real estate development
company, from 1980 until 1993.

Suhail R. Rizvi has served as a member of our Board of Directors since
April 2003. Mr. Rizvi has served as Chairman of the Board of Directors for the
Avatar Group, formerly known as Electronic Manufacturing Services, Inc. a Puerto
Rico-based manufacturing company, since December 1995. Mr. Rizvi also serves as
a member of the Board of Directors for Varsity Television, a TV network
dedicated to teens; Northgate Innovations, Inc. (NGTE.OB), a publicly traded
manufacturer and distributor of personal computers; Doublespace Holdings, a
brand strategy and web development firm based in New York; and International
Sourcing Group, a distributor of electronic components. Mr. Rizvi received his
B.S. degree in Economics from the Wharton School of the University of
Pennsylvania.

Vincent Sanfilippo has served as a member of our Board of Directors since
July 2003. Mr. Sanfilippo is the Chief Investment Officer and Principal of
Urdang & Associates Real Estate Advisors, Inc., a real estate investment
management firm with a portfolio of real estate investments valued at
approximately $2 billion. Mr. Sanfilippo has been responsible for originating or
overseeing the acquisition of approximately $3 billion of real estate assets
during his 15 years with Urdang & Associates. Mr. Sanfilippo received his B.S.
degree in Economics from the University of Pennsylvania's Wharton Business
School.

Kent Savage has served as a member of our Board of Directors since July
2003. Mr. Savage currently serves as Chief Executive Officer for Northgate
Innovations, Inc. (NGTE:OB). Prior to joining Northgate in January 2004, Mr.
Savage served as co-founder, Chief Sales and Marketing Officer for TippingPoint,

Technologies (NASDAQ: TPTI) from September 2002 until February 2003. Prior to
joining TippingPoint, Mr. Savage served as co-founder, CEO and President for
Netpliance, Inc., from February 1999 until August 2001. Prior to joining
Netpliance, Mr. Savage served as General Manager, Broadband for Cisco Systems
Inc. Service Provider Line of Business from April 1998 until February 1999.
Prior to joining Cisco, Mr. Savage served as Vice President, Sales and Marketing
for NetSpeed, Inc., from July 1996 until April 1998. Mr. Savage received his
B.S. degree in Business from Oklahoma State University, attended University of
Virginia's Executive Leadership Program, and his M.B.A. degree from Southern
Methodist University.

Dean Factor was nominated to serve as a member of our Board of Directors
unanimously by our existing directors up for re-election at a meeting of our
Board of Directors in April 2004. Mr. Factor has served as the Chairman of the
Board of Directors and Chief Executive Officer of Smashbox Enterprises, which
includes Smashbox Studios and Smashbox Cosmetics, since he founded the company
in 1990. Prior to founding Smashbox Enterprises, Mr. Factor was a financial
analyst and an inventory analyst with Eldon Industries from 1987 until 1989.
Prior to that, Mr. Factor worked for Drexel Burnham Lambert from 1981 until
1983. Mr. Factor received his B.S. degree in Business Administration from
American University and his M.B.A. from University of Southern California.

Kelly Hoffman was nominated to serve as a member of our Board of Directors
unanimously by our existing directors up for re-election at a meeting of our
Board of Directors in April 2004. Mr. Hoffman has served as Chairman of the
Board of Directors and Chief Executive Officer of VTV: Varsity Television, a
television company designed to entertain, enable and inspire teenagers, since he
founded the company in 1998. Prior to that, Mr. Hoffman owned AOCO Operating, a
company that raised capital for the acquisition of property in Texas, Louisiana
and New Mexico from 1991 until 1998. From 1989 until 1991, Mr. Hoffman served in
a similar position for Texakoma Financial, an oil and gas partnership that
raised capital for acquisition of property in Texas, Louisiana and New Mexico.
Prior to that, Mr. Hoffman served in various sales and marketing positions for
PAZ Syndicate, a conglomerate based in Tel Aviv, Israel that owned diverse
interests worldwide. Prior to that, Mr. Hoffman specialized in securing capital
from investors for investment in various limited partnerships for the oil and
gas industry for Paso Energy. Prior to that, Mr. Hoffman began his oil and gas
career at Amoco Production Company in Texas in various positions. Mr. Hoffman
attended Texas Tech University and majored in Business Administration.

Q: What incumbent member of our Board of Directors is not a nominee for election
as a member to our Board of Directors?

A: John G. Looney, MD, 62, first elected as a member of our Board of Directors
in 1999, was not nominated by a majority of our Board to stand for re-election
to our Board of Directors. However, our Board of Directors believe that the
proposed slate that they are asking stockholders to vote in favor of better
represents the mix of skills and business experience in the industry that would
be a benefit to us on a going forward basis. There was no disagreement between
our management, our Board of Directors and Dr. Looney. Dr. Looney is a tenured
Professor of Psychiatry and an Associate Professor of Pediatrics at Duke
University Medical Center and a member of Duke University's faculty since 1986.
Dr. Looney received his B.A. degree from Cornell University, his B.M.S. degree
from Dartmouth Medical School, his M.D. degree from Southwestern Medical School,
and his M.B.A. degree from Southern Methodist University. Dr. Looney will
continue to serve as a member of our Board of Directors until his successor is
elected by plurality vote for the nominees set forth in Proposal 1 at our annual
meeting of stockholders on June 3, 2004.

Q: How are the Board of Directors elected and how many meetings were held in
fiscal 2003?

A: Each member of our Board of Directors is elected at the annual meeting of
stockholders and serves until the next annual meeting of stockholders and until
a successor has been elected and qualified or his or her earlier death,
resignation or removal. Vacancies on the Board of Directors are filled by a
majority vote of the remaining Board of Directors. Our Board of Directors
manages us through board meetings and through its committees. During fiscal
2003, our Board of Directors met a total of five times and acted through written
consent a total of nine times. No incumbent member of our Board of Directors who
served as a director in 2003 attended in person or via teleconference less than
75% of all the meetings of our Board of Directors and the committees on which he
or she served during 2003. Although we do not have a formal policy regarding
attendance at our annual meeting of stockholders, we attempt to accommodate the
schedules of each member of our Board of Directors in choosing a date for our
annual meeting of stockholders and our annual meeting of our Board of Directors.
In 2003, all of our members of our Board of Directors attended the annual
meeting of our Board of Directors either in person or via teleconference. Only
one member of our Board of Directors was not in attendance in person at the
annual meeting of stockholders on May 22, 2003.

Q: What committees does the Board of Directors have?

A: Our Board of Directors has an Audit Committee, Compensation and Stock Option
Committee and Nominating and Governance Committee.

Audit Committee. The Audit Committee is currently comprised of Messrs.
Rizvi, Looney and Page. Mr. Rizvi serves as Chairman of the Audit Committee. The
Audit Committee met a total of four times in fiscal 2003.

The Audit Committee has been established to: (a) assist our Board of
Directors in its oversight responsibilities regarding (1) the integrity of our
financial statements, (2) our compliance with legal and regulatory requirements,
(3) the independent accountant's qualifications and independence and (4) the
performance of the our internal audit function; (b) prepare the report required
by the SEC for inclusion in the our annual proxy statement; (c) retain and
terminate our independent accountant; (d) approve audit and non-audit services
to be performed by the independent accountant; and (e) perform such other
functions as our Board of Directors may from time to time assign to the Audit
Committee. The Audit Committee has a charter that details its duties and
responsibilities, which was adopted by our Board of Directors on May 22, 2003
and filed with this proxy statement as Attachment A. Currently, all Audit
Committee members are "independent" under NASDAQ listing standards and as such
term is defined in the rules and regulations of the SEC, and Mr. Rizvi has also
been designated to be an "audit committee financial expert" as such term is
defined in the rules and regulations of the SEC. A copy of the Audit Committee
charter can be found on our website at www.innovogroup.com under our Investor
Relations heading.

Compensation and Stock Option Committee. The Compensation and Stock Option
Committee is currently comprised of Messrs. Rizvi and Looney. Mr. Rizvi serves
as Chairman of the Compensation and Stock Option Committee. The Compensation and
Stock Option Committee met a total of four times in fiscal 2003.

The principal responsibilities of the Compensation and Stock Option
Committee are to (a) assist our Board of Directors in ensuring that a proper
system of long-term and short-term compensation is in place to provide
performance-oriented incentives to management, and that compensation plans are
appropriate and

competitive and properly reflect the objectives and performance of management
and the company; (b) discharge our Board of Director's responsibilities relating
to compensation of our executive officers; (c) evaluate our Chief Executive
Officer and set his remuneration package; (d) prepare an annual report on
executive compensation for inclusion in our annual proxy statement; (e) make
recommendations to our Board of Directors with respect to incentive-compensation
plans and equity-based plans; and (f) perform such other functions as our Board
of Directors may from time to time assign. The Compensation and Stock Option
Committee has a charter that details its duties and responsibilities, which was
adopted by our Board of Directors on May 22, 2003. Currently, all Compensation
and Stock Option Committee members are "independent" under NASDAQ listing
standards. A copy of the Compensation and Stock Option Committee charter can be
found on our website at www.innovogroup.com under our Investor Relations
heading.

Nominating and Governance Committee. The Nominating and Governance
Committee is currently comprised of Messrs. Looney, Page and Rizvi. Dr. Looney
serves as Chairman of the Nominating and Governance Committee. The Nominating
and Governance Committee met a total of two times in fiscal 2003 and also two
times prior to April 7, 2004 to propose a slate of nominees for the election by
our common stockholders at our annual meeting of stockholders. However, the
slate of nominees, as originally proposed by our Nominating and Governance
Committee, was not approved by our Board of Directors and a new slate was
proposed and voted in favor of by a majority of our Board of Directors at a
special meeting of our Board of Directors held on April 7, 2004. One of our
current directors, as discussed above, is not included as a nominee for election
at this annual meeting of stockholders to be held on June 3, 2004.

The principal responsibilities of the Nominating and Governance Committee
are to (a) assist our Board of Directors in determining the desired experience,
mix of skills and other qualities to assure appropriate Board composition,
taking into account the current Board members and the specific needs of the
company and the Board of Directors; (b) identifying highly qualified individuals
meeting those criteria to serve on our Board of Directors; (c) proposing to our
Board of Directors a slate of nominees for election by our common stockholders
at the annual meeting of stockholders and prospective director candidates in the
event of the resignation, death, removal or retirement of directors or a change
in our Board of Directors composition requirements; (d) developing plans
regarding the size and composition of our Board of Directors and its committees;
(e) reviewing management succession plans; (f) reviewing the Corporate
Governance Guidelines of our Board of Directors at least annually and monitoring
and making recommendations with respect to the corporate governance principles
applicable to the company; and (g) such other functions as the Board of
Directors may from time to time assign to the Nominating and Governance
Committee.

The Nominating and Governance Committee has a charter that details its
duties and responsibilities, which was adopted by our Board of Directors on May
22, 2003. Currently, all Nominating and Governance Committee members are
"independent" under NASDAQ listing standards. There is no specific procedure
outlined in the charter for the Nominating and Governance Committee to consider
nominees to our Board of Directors that are recommended by our common
stockholders, but such nominees will be considered in accordance with the
principal responsibilities of the Nominating and Governance Committee, our
bylaws and all applicable rules and regulations relating to such nominations by
our common stockholders. The Nominating and Governance Committee has the
responsibility for developing criteria for the selection of new directors and
nominees for vacancies. The members of the Nominating and Governance Committee
have the discretion to choose candidates that have the desired experience, mix
of skills and other qualities to assure appropriate composition while taking
into account the current members and the specific needs of Innovo Group and our
Board of Directors. To date, no more specific criteria has been developed than
that set forth in the charter. Furthermore, we have not had a stockholder
propose a nominee to our Board of Directors nor have we paid any third party a
fee to assist us in the process of identifying or evaluating candidates for our
Board of

Directors. A copy of the Nominating and Governance Committee charter can be
found on our website at www.innovogroup.com under our Investor Relations
heading.

Q: How are members of the Board of Directors compensated for their service?

A: For fiscal 2003 and pursuant to our 2000 Director Stock Incentive Plan, each
non-employee director receives annual compensation at the first annual meeting
of stockholders following his or her appointment and annually thereafter a grant
in the form of options to buy common stock with an aggregate fair market value
of $10,000. These options are exercisable beginning one year from the date of
grant and expire ten years from the date of grant. The exercise price is set at
50% of the fair market value of the common stock on the date of grant. The
discount was originally proposed to be in lieu of director fees. A member of our
Board of Directors who is also our employee receives no additional compensation
for his or her service as member of our Board of Directors. Members of our Board
of Directors who also serve on one or more committees of our Board of Directors
do not receive any additional compensation for such service. In addition to this
stock option compensation, at the annual meeting of stockholders held on May 22,
2003, our Board of Directors voted to compensate all non-employee directors in
the form of a cash payment at an annual rate of $12,500 for service as a member
of our Board of Directors. In the event of approval and adoption of the 2004
Stock Incentive Plan, we will not make any further grants under the 2000
Director Stock Incentive Plan on or after the date of approval and adoption of
Proposal 2. Notwithstanding anything to the contrary, any outstanding award
granted under the 2000 Director Stock Incentive Plan will remain outstanding in
accordance with the terms and conditions of the prior plan and the award
agreements evidencing such grants. After the annual meeting of stockholders on
June 3, 2004, our Board of Directors will meet to discuss compensation
arrangements for members of our Board of Directors for service throughout fiscal
2004.

Q: Has our Board of Directors adopted a code of ethics?

A: Our Board of Directors adopted a Code of Business Conduct and Ethics for all
of our directors, officers and employees on May 22, 2003. Our Code of Business
Conduct and Ethics is available on our website at www.innovogroup.com or you may
request a free copy of our Code of Business Conduct and Ethics from our Chief
Operating Officer at our corporate headquarters at the following address: 5804
East Slauson Avenue, Commerce, California 90040 or by calling (323) 725-5526.

To date, there have been no waivers under our Code of Business Conduct and
Ethics. We intend to disclose any amendments to our Code of Business Conduct and
Ethics and any waiver granted from a provision of such Code on a Form 8-K filed
with the SEC within five business days following such amendment or waiver or on
our website at www.innovogroup.com within five business days following such
amendment or waiver. The information contained or connected to our website is
not incorporated by reference into this proxy statement and should not be
considered a part of this or any other report that we file or furnish to the
SEC.

Q: Does our Board of Directors have a process for our common stockholders to
communicate with its members?

A: At the present time, our Board of Directors has not adopted a formal policy
to set forth a process by which our common stockholders may communicate with its
members. However, any communications directed to members of our Board of
Directors will be given due consideration and will be handled in accordance with
the principal responsibilities of various committees, the duties as a member of
our Board of Directors, our bylaws and all applicable rules and regulations
relating to communications by our common stockholders.

PROPOSAL 2

APPROVAL AND ADOPTION OF THE 2004 STOCK INCENTIVE PLAN

On April 7, 2004, our Board of Directors adopted the 2004 Stock Incentive
Plan, or the Plan, subject to stockholder approval at the annual meeting of
stockholders to be held on June 3, 2004. We are asking you to approve the
adoption of the 2004 Stock Incentive Plan and the reservation of a total of
1,265,172 shares for issuance thereunder. The number of shares reserved for
issuance under the 2004 Stock Incentive Plan is equal to the aggregate number of
shares remaining for issuance under our 2000 Employee Stock Incentive Plan and
our 2000 Director Stock Incentive Plan as of April 13, 2004, or the Prior Plans.
If the Plan is approved, we will not make any further grants under the Prior
Plans on or after the date of approval and adoption of Proposal 2.
Notwithstanding anything to the contrary, any outstanding award granted under
the Prior Plans will remain outstanding in accordance with the terms and
conditions of those Prior Plans and the award agreements evidencing such grants.
The proposed Plan provides for an award of options, whether nonqualified or
incentive, restricted common stock, restricted common stock units, performance
shares, performance share units, purchases, share awards, stock appreciation
rights or other awards based on the value of our common stock.

The Plan permits the Compensation and Stock Option Committee to grant
certain awards, such as performance shares, contingent based upon
pre-established performance goals to our executives and our subsidiaries. In
order to qualify for deductibility under Section 162(m) of the Internal Revenue
Code, or the Code, the Plan, including, without limitation, the performance
goals for determining performance awards set forth in the Plan must be approved
by our common stockholders.

Our Board of Directors has concluded that the adoption of the Plan is in
our best interest and the interest of our common stockholders. This Plan
provides us with greater flexibility with respect to the type and timing of
awards to be granted under this Plan than we had previously under our Prior
Plans.

Q: What is the vote required to approve Proposal 2?

A: The affirmative vote of a majority of the shares present in person or
represented by proxy at the annual meeting is required to approve and adopt the
Plan.

Q: How does the Board of Directors recommend I vote?

A: Our Board of Directors unanimously recommends a vote "FOR" the approval and
adoption of the Plan.

Q: What is a general description of the principal terms of the Plan?

A: A general description of the principal terms of the Plan is set forth below.
However, this summary does not purport to be a complete description of all of
the provisions of the Plan, as proposed to be adopted, a copy of which is
attached to this proxy statement as Attachment B.

General. The purpose of the Plan is to enhance our ability to attract and
retain officers, directors, employees and consultants of outstanding ability and
to provide selected officers, employees, directors and consultants with an
interest in us parallel to that of our common stockholders. The Plan provides
for the award of options, whether nonqualified or incentive, restricted common
stock, restricted common stock units, performance shares, performance share
units, purchases, share awards, stock appreciation rights or other awards based
on the value of our common stock to our officers, employees, directors and
consultants, as well as those officers, employees, directors and consultants of
our subsidiaries, such as Innovo, Inc., Innovo Azteca Apparel, Inc. and Joe's
Jeans, Inc.

Effective Date. The Plan will become effective on the date it is approved
by our common stockholders in accordance with this Proposal 2.

Number of Shares. Subject to adjustment for certain corporate events, the
total of the number of shares of common stock which will be available for the
grant of awards under the Plan will not exceed 1,265,172 shares of common stock;
provided, that, for purposes of this limitation, any common stock subject to an
option which is canceled or expires without exercise will again become available
for award under the Plan. Upon forfeiture of awards in accordance with the
provisions of the Plan and the terms and conditions of the award, such shares
will again be available for subsequent awards under the Plan. Subject to
adjustment, no employee will be granted, during any one (1) year period, options
to purchase more than 1,250,000 shares of common stock, and the number of shares
of common stock subject to any awards other than options or stock appreciation
rights will not exceed 1,250,000 shares of common stock. Common stock available
for issue or distribution under the Plan will be authorized and unissued shares
or shares reacquired by us in any manner.

Administration. The Compensation and Stock Option Committee of our Board
of Directors will administer the Plan, or the Committee. The Committee is
currently comprised of Messrs. Rizvi and Looney. Mr. Rizvi is Chairman of the
Committee. Both Messr. Rizvi and Looney are non-employee directors within the
meaning of Rule 16b-3 as promulgated under Section 16 of the Securities Exchange
Act of 1934, as amended, and are also outside directors within the meaning of
Section 162(m) of the Code. The Committee will (i) approve the selection of
participants, (ii) determine the type of stock awards to be made to
participants, (iii) determine the number of shares of common stock subject to
awards, (iv) determine the terms and conditions of any awards granted there
under (including, but not limited to, any restriction and forfeiture conditions
on such awards) and (v) have the authority to interpret the Plan, to establish,
amend, and rescind any rules and regulations relating to the Plan, to determine
the terms and provisions of any agreements entered into there under, and to make
all other determinations necessary or advisable for the administration of the
Plan.

Eligibility. Employees, officers, directors and consultants of us and our
subsidiaries selected by the Committee are eligible to receive grants of awards
under the Plan.

Awards. Awards under the Plan may consist of options, restricted common
stock, restricted common stock units, performance shares, performance share
units, stock purchases, share awards, stock appreciation rights or other awards
based on the value of the common stock.

(1) Options. Both "nonqualified stock options", or Nonqualified
Stock Options, and "incentive stock options", or ISOs, may be granted under the
Plan, which we will collectively refer to as Options. The terms of any such
Option will be set forth in an option agreement and will be consistent with the
following:

Exercise Price. The exercise price per share of the shares of
our common stock to be purchased pursuant to any Option will be fixed by
the Committee at the time such Option is granted. In general, in no event
will the exercise price for ISOs be less than the fair market value of a
share on the day on which the ISO is granted. The Committee may also
reduce the Option price of any outstanding Option either through a direct
amendment to such Option or through a cancellation of such Option and
immediate grant of a new Option with a lower Option price or in any other
manner it deems appropriate.

Option Term. Subject to termination, the duration of each
Option will be determined by the Committee, but may not exceed 10 years
from the date of grant; provided, however, that in the case of ISOs
granted to 10% shareholders, the term of such Option will not exceed 5
years from the date of grant. In the event of a participant's death (other
than ISOs) Options that would otherwise remain exercisable following such
death, will remain exercisable for one year following such death
irrespective of the terms of the Option.

Vesting. An Option will vest and become exercisable at a rate
determined by the Committee on the date of grant.

(2) Restricted Common Stock. The Plan permits the Committee to award
restricted common stock under the Plan to eligible participants. The Committee
may also award restricted common stock in the form of restricted common stock
units having a value equal to an identical number of shares of common stock.
Payment of restricted common stock units will be made in common stock or in cash
or in a combination thereof (based upon the Fair Market Value (as defined in the
Plan) of the common stock on the day the restricted period expires).

(3) Performance Shares. Performance shares may be granted in the
form of actual shares of common stock or common stock units having a value equal
to an identical number of shares of common stock. The performance conditions and
the length of the performance period will be determined by the Committee, but in
no event may a performance period be less than twelve (12) months. The Committee
will determine in its sole discretion whether performance shares granted in the
form of common stock units will be paid in cash, common stock, or a combination
of cash and common stock. Awards of performance shares to Covered Employee (as
defined in the Plan) will be subject to performance goals. Performance goals may
be expressed in terms of one or more of the following business criteria:
revenue, earnings before interest, taxes, depreciation and amortization, or
EBITDA, funds from operations, funds from operations per share, operating
income, pre or after tax income, cash available for distribution, cash available
for distribution per share, net earnings, earnings per share, return on equity,
return on assets, share price performance, improvements in our attainment of
expense levels, and implementing or completion of critical projects, or
improvement in cash-flow (before or after tax). The Committee will establish the
relevant performance conditions within ninety (90) days after the commencement
of the performance period (or such later date as may be required by Section
162(m) of the Code. A performance goal may be measured over a performance period
on a periodic, annual, cumulative or average basis and may be established on a
corporate-wide basis or established with respect to one or more operating units,
divisions, subsidiaries, acquired businesses, minority investments,
partnerships, or joint ventures. The maximum number of performance shares
subject to any award to a Covered Employee is 1,250,000 for each twelve (12)
months during the performance period (or, to the extent the award is paid in
cash, the maximum dollar amount of any such award is the equivalent cash value,
based on the fair market value of the common stock, of such number of shares of
common stock on the last day of the performance period). An award of performance
shares to a participant who is a Covered Employee will (unless the Committee
determines otherwise) provide that in the event termination of continuous
service prior to the end of

the performance period for any reason, such award will be payable only if the
applicable performance objectives are achieved and to the extent, if any, as the
Committee will determine. The Committee may reduce or eliminate the amount of
payment with respect to any award of performance shares notwithstanding the
achievement of specified performance objective however, no adjustments will be
made that would adversely impact a participant following a change in control.

No payments will be made with respect to any performance award unless and
until the Committee certifies the achievement of the performance goals.

(4) Share Purchases. The Compensation and Stock Option Committee may
authorize eligible individuals to purchase common stock at price equal to, below
or above the fair market value of the common stock at the time of grant.

(5) Share Awards. Subject to such performance and employment
conditions as the Committee may determine, awards of common stock or awards
based on the value of the common stock may be granted either alone or in
addition to other awards granted under the Plan.

(6) Stock Appreciation Rights. The Committee may, either alone or in
connection with the grant of another award grant stock appreciation rights, the
terms of which will be set forth in an agreement.

Change in Control. Unless otherwise provided in an award agreement, upon
the occurrence of a "Change in Control" (as defined in the Plan), all options
and stock appreciation rights will automatically become vested and exercisable
in full and all restrictions or performance conditions, if any, on any common
stock awards, restricted common stock, restricted common stock units,
performance shares or performance share units granted will automatically lapse.

Adjustments. The Plan provides that in the event of certain corporate
events or changes in the common stock, awards and the number of shares under the
Plan may be adjusted to reflect such event.

Deferrals. The Committee will be authorized to establish procedures
pursuant to which the payment of any award may be deferred.

Amendment and Termination. The Plan will expire on the 10th anniversary of
the Plan's effective date (except as to awards outstanding on that date). The
Board may terminate or amend the Plan in any respect at any time, except that,
no amendment will be made without stockholder approval, if such approval is
necessary to comply with any applicable law, regulation or stock exchange rule
and, no amendment will be made that would adversely affect the rights of a
participant without such participant's written consent, except as provided under
Adjustments.

Q: What are the federal income tax consequences of options granted under the
Plan, as well as the Prior Plans, under the federal tax laws currently in
effect?

The following is a summary of the material federal tax consequences of
receiving options in the Plan and is based upon an analysis of the present
provisions of the Code and the regulations promulgated thereunder, all of which
are subject to change. A participant may also be subject to state and local
taxes, the consequences of which are not discussed herein, in the jurisdiction
in which he works and/or resides. This summary is for general information
purposes only and is not tax advice.

Section 162(m) Limitation. Subject to a limited number of exceptions,
Section 162(m) of the Code denies a deduction to a publicly held corporation for
payments of remuneration to certain employees to the extent the employee's
remuneration for the taxable year exceeds $1,000,000. For this purpose,
remuneration attributable to stock options is included within the $1,000,000
limitation. However, to the extent that certain procedural requirements are met
(e.g., the Plan is approved by our common stockholders, grants are made by the
Committee, the exercise price is equal to the fair market value of the
underlying shares upon grant, etc.), gain from the exercise of stock options
should not be subject to the $1,000,000 limitation. We have attempted to
structure the plan in such a manner that the remuneration attributable to the
stock options will not be subject to the $1,000,000 limitation. We have not,
however, requested a ruling from the Internal Revenue Service or an opinion of
counsel regarding this issue.

Non-Qualified Stock Options. An individual receiving non-qualified stock
options should not recognize taxable income at the time of grant. A participant
should generally recognize ordinary compensation income in an amount equal to
the excess, if any, in the fair market value of the option shares on exercise of
the non-qualified stock options over the exercise price thereof. In general,
subject to the limitations set forth in Section 162(m) and discussed above, we
are entitled to deduct from our taxable income the amount that the participant
is required to include in ordinary income at the time of such inclusion.

Incentive Stock Options. An individual granted an incentive stock option
will not generally recognize taxable income at the time of grant or, subject to
certain conditions, at the time of exercise, although he or she may be subject
to alternative minimum tax. In general, if a disqualifying disposition should
occur (i.e., the shares acquired upon exercise of the option are disposed of
within the later of two years from the date of grant or one year from the date
of exercise), a participant will generally recognize ordinary compensation
income in the year of disposition in an amount equal to the excess, if any, of
the fair market value of the option shares at the time of exercise (or, if less,
the amount realized on disposition), over the exercise price thereof. We are not
entitled to any deduction on account of the grant of the incentive stock options
or the participant's exercise of the option to acquire common stock. However, in
the event of a subsequent disqualifying disposition of such shares of common
stock acquired pursuant to the exercise of an incentive stock option under
circumstances resulting in taxable compensation to the participant, subject to
the limitations set forth in Section 162(m) and discussed above, in general, we
should be entitled to a tax deduction equal to the amount treated as taxable
compensation to the participant.

Q: Will the Plan be registered with the SEC?

A: If this Proposal 2 is adopted, we intend to file a registration statement
covering the offering of the shares under the Plan with the SEC pursuant to the
Securities Act of 1933, as amended.

Q: What would the new Plan benefits have been if the Plan had been in effect for
the fiscal 2003 year?

A: The amounts payable under the Plan for 2004 which may be received by each of
(a) our executive officers named in the Summary Compensation Table herein; (b)
our executive officers as a group; and (c) our employees who are not executive
officers as a group, is not currently determinable.

PROPOSAL 3

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

Our Board of Directors has appointed Ernst & Young LLP, or E&Y, as our
independent auditors for the fiscal year ending November 27, 2004, subject to
ratification by common stockholders at our 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 will be available to respond to appropriate
questions.

Q: What is the vote required to approve Proposal 3?

A: The affirmative vote of a majority of the shares present in person or
represented by proxy at the annual meeting is required to ratify the selection
of E&Y as our independent auditors for the year ending November 27, 2004. Unless
otherwise instructed on the proxy, properly executed proxies will be voted in
favor of ratifying the appointment of E&Y.

Q: How does the Board of Directors recommend I vote?

A: Our Board of Directors unanimously recommends a vote "FOR" the ratification
and approval of the selection of E&Y to serve as our independent auditors for
the fiscal year ending November 27, 2004.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides information as of April 13, 2004 concerning
beneficial ownership of common stock held by (1) each person or entity known by
us to beneficially own more than 5% of our outstanding common stock, (2) each of
our directors and nominees for election as a director, (3) each of our named
executive officers, and (4) all of our directors and executive officers as a
group. The information as to beneficial ownership has been furnished by our
respective common stockholders, directors and executive officers, and, unless
otherwise indicated, each of our common stockholders has sole voting and
investment power with respect to the shares beneficially owned. Beneficial
ownership is determined under the rules of the SEC and generally includes voting
or investment power with respect to securities.

Unless indicated below, to our knowledge, the persons and entities named
in the table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where applicable.
Pursuant to the rules of the SEC, certain shares of our 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
29,082,593 shares outstanding as of April 11, 2004. The address for the officers
and directors is our corporate office located at 5804 East Slauson Avenue,
Commerce, California, 90040.

Number of Shares Percentage of
Beneficial Owner Beneficially Owned Common Stock
---------------- ------------------ ------------

Samuel J. (Jay) Furrow, Jr. 1,369,104(1) 4.71%
Chief Executive Officer and Director
Nominee for Director

Patricia Anderson 683,146(2) 2.35%
President and Director
Nominee for Director

Marc B. Crossman 650,348(3) 2.24%
Chief Financial Officer and Director
Nominee for Director
50,000(4) *%
Shane Whalen
Chief Operating Officer

Samuel J. (Sam) Furrow 3,134,805(5) 10.78%
Chairman of Board of Directors
Nominee for Director

John G. Looney, MD 196,207(6) *%
Director

Daniel A. Page 368,340(7) 1.27%
Director
Nominee for Director

Number of Shares Percentage of
Beneficial Owner Beneficially Owned Common Stock
---------------- ------------------ ------------

Suhail R. Rizvi 7,692(8) *%
Director
Nominee for Director

Vincent Sanfilippo 0 0%
Director
Nominee for Director

Kent Savage 0 0%
Director
Nominee for Director

Dean Factor 10,000 *%
Nominee for Director

Kelly Hoffman 0 0%
Nominee for Director

Azteca Production International, Inc. 3,825,000(9) 13.15%
Over 5% Stockholder
5804 East Slauson Avenue
Commerce, California 90040

Commerce Investment Group LLC 2,069,690(10) 7.12%
Over 5% Stockholder
5804 East Slauson Avenue
Commerce, California 90040

Hubert Guez 5,218,590(11) 17.94%
Over 5% Stockholder
5804 East Slauson Avenue
Commerce, California 90040

Paul Guez 5,560,714(12) 19.12%
Over 5% Stockholder
5804 East Slauson Avenue
Commerce, California 90040

Seymour Braun, Innavation LLC, 2,547,820(13) 8.76%
Yardworth Mortgage Corp., and Praha Trust
Over 5% Stockholder
Braun & Goldberg
110 East 59th Street, Suite 3201
New York, New York 10022

All directors and executive officers, as a 6,459,642 22.21%
group (10 persons) --------- -----
(1)(2)(3)(4)(5)(6)(7)(8)

----------

* Represents beneficial ownership of less than 1%.

(1) Includes (i) 1,119,104 shares held for the personal account of Jay
Furrow; and (ii) 250,000 shares issuable upon the exercise of
currently exercisable (or exercisable within 60 days) options held
for Mr. Furrow's personal account.

(2) Includes (i) 283,146 shares held for Ms. Anderson's personal
account; and (ii) 400,000 shares issuable upon the exercise of
currently exercisable (or exercisable within 60 days) options held
for Ms. Anderson's personal account.

(3) Includes (i) 23,500 shares held for Mr. Crossman's personal account;
and (ii) 626,848 shares issuable upon the exercise of currently
exercisable (or exercisable within 60 days) options held for Mr.
Crossman's personal account.

(4) Includes 50,000 shares issuable upon the exercise of currently
exercisable (or exercisable within 60 days) options held for Mr.
Whalen's personal account.

(5) Includes (i) 3,083,598 shares held for the personal account of Sam
Furrow; and (ii) 51,207 shares issuable upon the exercise of
currently exercisable (or exercisable within 60 days) options held
for Mr. Furrow's personal account.

(6) Includes (i) 145,000 shares held for Dr. Looney's personal account;
and (ii) 51,207 shares issuable upon the exercise of currently
exercisable (or exercisable within 60 days) options held for Dr.
Looney's personal account.

(7) Includes (i) 317,133 shares held for Mr. Page's personal account;
and (ii) 51,207 shares issuable upon the exercise of currently
exercisable (or exercisable within 60 days) options held for Mr.
Page's personal account.

(8) Includes 7,692 shares issuable upon the exercise of currently
exercisable (or exercisable within 60 days) options held for Mr.
Rizvi's personal account.

(9) Includes (i) 3,125,000 shares held for the account of Azteca
Production International, Inc., or Azteca, an entity jointly owned
by Mr. Hubert Guez and Mr. Paul Guez, as to which such shares Mr.
Hubert Guez and Mr. Paul Guez exercise shared voting and investment
control; and (ii) 700,000 shares held for the account of Azteca, an
entity jointly owned by Mr. Hubert Guez and Mr. Paul Guez, as to
which such shares Mr. Paul Guez exercises sole voting and investment
control. This information is based upon a Schedule 13D/A filed with
the SEC on March 9, 2004.

(10) Includes (i) 1,769,690 shares held for the account of Commerce
Investment Group, LLC, a California limited liability company, or
CIG, an entity jointly owned by Mr. Hubert Guez and Mr. Paul Guez,
as to which such shares Mr. Hubert Guez exercises sole voting and
investment control; and (ii) 300,000 shares issuable upon exercise
of currently exercisable warrants held for CIG's account, as to
which such shares Mr. Hubert Guez exercises sole voting and
investment control. This information is based upon a Schedule 13D/A
filed with the SEC on March 9, 2004.

(11) Includes (i) 23,900 shares held for the personal account of Hubert
Guez; (ii) 1,769,690 shares held for the account of CIG, an entity
jointly owned by Mr. Hubert Guez and Mr. Paul Guez, as to which such
shares Mr. Hubert Guez exercises sole voting and investment control;
(iii) 300,000 shares issuable upon exercise of currently exercisable
warrants held for the account of CIG, as to which such shares Mr.
Hubert Guez exercises sole voting and investment control; and (iv)
3,125,000 shares offered hereby and held for the account of Azteca,
an entity jointly owned by Mr. Hubert Guez and Mr. Paul Guez, as to
which such shares Mr. Hubert Guez exercises shared voting and
investment control. This information is based upon a Schedule 13D/A
filed with the SEC on March 9, 2004.

(12) Includes (i) 3,125,000 shares held for the account of Azteca, an
entity jointly owned by Mr. Hubert Guez and Mr. Paul Guez, as to
which such shares Mr. Paul Guez exercises shared voting and
investment control; (ii) 700,000 shares held for the account of
Azteca, an entity jointly owned by Mr. Hubert Guez and Mr. Paul Guez
and as to which such shares Mr. Paul Guez exercises sole voting and
investment control; (iii) 285,714 shares held for the account of
S.H.D. Investments, LLC, a California limited liability company for
which Mr. Paul Guez serves as President and as to which such shares
Mr. Paul Guez exercises sole voting and investment control; and (iv)
1,450,000 shares held for the account of Integrated Apparel
Resources, LLC, a California limited liability company jointly owned
by Mr. Hubert Guez and Mr. Paul Guez, as to which such shares Mr.
Paul Guez exercises sole voting and investment control. This
information is based upon a Schedule 13D/A filed with the SEC on
March 9, 2004.

(13) Innavation, LLC, a Delaware limited liability company, is owned 85%
by Yardworth Mortgage Corp., or Yardworth, a corporation organized
under the laws of Aruba. The beneficial owner of Yardworth is Praha
Trust, a trust organized under the laws of Canada. As sole trustee
of Praha Trust, Mr. Seymour Braun has the right to vote all shares
owned by Innavation, LLC. This information is based upon a Form 4
filed with the SEC on February 9, 2004.

EXECUTIVE OFFICERS

Executive Officers

Our executive officers and their ages and positions as of April 13, 2004
are as follows:

Name Age Position
---- --- --------

Samuel J. (Jay) Furrow, Jr............... 30 Chief Executive Officer and Director
Patricia Anderson........................ 43 President and Director
Marc B. Crossman......................... 32 Chief Financial Officer and Director
Shane Whalen............................. 33 Chief Operating Officer

Samuel J. (Jay) Furrow, Jr. has served as our Chief Executive Officer
since July 2002 and a member of our Board of Directors since January 1999. Prior
to that, Mr. Furrow served as our President from December 2000 until July 2002,
served as our Chief Operating Officer from April 1999 until March 2003, our
Acting Chief Financial Officer from August 2000 until March 2003, and our
Vice-President for Corporate Development and In-House Counsel from August 1998
until April 1999. Mr. Furrow currently serves on the Board of Directors of
Northgate Innovations, Inc. (NGTE.OB), a publicly traded manufacturer and
distributor of personal computers. Mr. Furrow received his J.D. degree from
Southern Methodist University School of Law and his B.S. degree in Political
Science from Vanderbilt University. Jay Furrow is the son of the Chairman of our
Board of Directors, Samuel J. (Sam) Furrow.

Shane Whalen has served as our Chief Operating Officer since April 2003.
Prior to that, Mr. Whalen served as our Vice President of Corporate Development
from October 2002 until April 2003. Prior to joining our company, Mr. Whalen was
an independent business consultant from November 2000 until September

2002. Prior to that, Mr. Whalen served as Chief Operating Officer for Next
Generation, LLC, an entertainment production company, from August 1998 until
November 2000. Prior to that, Mr. Whalen served as Manager of Financial Services
& Transportation for Accenture Consulting from January 1994 until August 1998.
Mr. Whalen received his B.A. degree in Economics from Vanderbilt University.

Other Significant Employees

Joe Dahan has served as the President and head designer for our Joe's
Jeans, Inc. subsidiary, or Joe's, since its formation in February 2001. Mr.
Dahan is responsible for the design, development and marketing of Joe's
products. Prior to Joe's, Mr. Dahan was the head designer for Azteca Production
International, Inc., or Azteca, where he was responsible for the design,
development and merchandising of product lines developed by Azteca from 1996
until 2001. Azteca, which is owned by two of our significant common
stockholders, is one of the world's largest manufacturers of denim related
products. Prior to his employment with Azteca, Mr. Dahan was engaged in the
design and development of apparel products for a company of which he was an
owner and operator from 1989 until 1996.

Pierre Levy has served as our General Manager of Apparel Operations since
February 2003. Prior to that, Mr. Levy was our Head of Product Sourcing from
July 2003 until February 2003. Mr. Levy initially joined our company in
connection with our acquisition of the Blue Concept division from Azteca, as
discussed in "Related Party Transactions" in this proxy statement. While at
Azteca, Mr. Levy served as the Chief Operating Officer with the primary
responsibility of managing thousands of employees in the United States and
Mexico and ensuring the manufacturing of millions of garments per month for
brands such as Tommy Hilfiger, Calvin Klein, J. Crew, American Eagle Outfitters
and Bongo. Prior to joining Azteca, Mr. Levy was the owner and President of
Olive, a Los Angeles based manufacturing company focusing on the design,
marketing and distribution of apparel products worldwide.

Compensation Committee Interlocks and Insider Participation

During 2003, the Compensation and Stock Option Committee of our Board of
Directors was comprised of Dr. Looney and Mr. Rizvi. The Compensation and Stock
Option Committee is responsible for determining the salaries and incentive
compensation of our executive officers and for providing recommendations for the
salaries and incentive compensation of all other employees and consultants. The
Compensation and Stock Option Committee also administers our benefit plans,
including the 2000 Employee Stock Incentive Plan. Mr. Rizvi serves as Chairman
of the Compensation and Stock Option Committee. Neither Mr. Rizvi nor Dr. Looney
has served as an executive officer or employee of Innovo Group. However,
beginning in December 2003, Messrs. Furrow and Crossman, two of our executive
officers and members of our Board of Directors, became members of the Board of
Directors for Northgate Innovations, Inc. (NGTE.OB), of which Mr. Savage
currently serves as Chief Executive Officer. Furthermore, one additional member
of our Board of Directors, Mr. Rizvi, also serves as a member of the Board of
Directors for Northgate Innovations, Inc. (NGTE.OB). Neither Mr. Furrow nor Mr.
Crossman is a member of the Compensation Committee of the Board of Directors for
Northgate Innovations, Inc. (NGTE.OB).

Executive Compensation

The following table sets forth certain information with respect to
compensation for the years ended November 29, 2003, November 30, 2002 and
December 1, 2001, respectively, paid to our chief executive officer and our
other most highly compensated executive officers as of November 29, 2003. In
this proxy statement, we refer to these individuals as our Named Executive
Officers.

Summary Compensation Table

Long Term
Compensation
Annual Compensation Awards
-----------------------------------------------------------
Other Annual Securities All Other
Name and Compensation Underlying Compensation
Principal Position Year Salary Bonus ($) Options (#) ($)
------------------------------------------------------------------------------------------------------------------------

Samuel J. Furrow, Jr 2003 $275,000 -- -- 100,000 --
Chief Executive Officer 2002 160,000 -- -- -- --
2001 143,000 -- -- 150,000 --

Patricia Anderson 2003 $275,000 -- -- 100,000 --
President 2002 206,000 -- -- -- --
2001 200,000 -- -- 300,000 --

Marc B. Crossman 2003 $275,000 -- $ 12,000(2) 1,000,000 --
Chief Financial Officer 2002 -- -- -- 17,874(3) --
2001 -- -- -- -- --

Shane Whalen 2003 $125,000 -- $ 1,000(2) 50,000 --
Chief Operating Officer 2002 9,170(4) -- -- -- --
2001 -- -- -- -- --

(1) No executive officer received restricted stock awards or option
grants during the fiscal year ending November 30, 2002.

(2) This amount represents payments made in connection with relocation
expenses.

(3) These options were issued in fiscal 2002 in connection with Mr.
Crossman's service during fiscal 2001 and fiscal 2002 as a
non-employee member of our Board of Directors.

(4) Mr. Whalen commenced employment with us in October 2002 as our Vice
President of Corporate Development.

Employment Contracts, Termination of Employment and Change in Control

We have not entered into any employment or severance agreements with any
of our Named Executive Officers. However, in connection with Mr. Crossman's
option agreement, in the event of a change in control of the company, all of Mr.
Crossman's options, to the extent not otherwise exercisable, will immediately
become exercisable.

Stock Option Grants

The following table sets forth the stock options we granted during the
fiscal year ended November 29, 2003 to each of our named executive officers. We
have never granted any stock appreciation rights.

Amounts shown as potential realizable values are based on compounded
annual rates of share price appreciation of five and ten percent over the
10-year term of the options, as mandated by rules of the SEC, and are not
indicative of expected share price performance. Actual gains, if any, on share
option exercises are dependent on future performance of the overall market
conditions, as well as the option holders' continued employment through the
vesting period. The amounts reflected in this table may not necessarily be
achieved or may be exceeded. The indicated amounts are net of the option
exercise price but before taxes that may be payable upon exercise.

Option Grants in the Fiscal Year Ended November 29, 2003

Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
---------------------------------------------------------------------------------------------------------------------------------
(1) (2)
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- ----------- ----------- ------ ---- ------ -------

Samuel J. Furrow, Jr. 100,000 8% $2.40 12/02/07 $ 66,000 $ 147,000
Patricia Anderson 100,000 8% $2.40 12/02/07 $ 66,000 $ 147,000
Marc B. Crossman 1,000,000 77% $2.86 3/25/13 $ 1,800,000 $ 4,560,000
Shane Whalen 50,000 4% $2.60 5/22/13 $ 82,000 $ 207,000

Fiscal Year End Option Values

The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during the fiscal year ended
November 29, 2003. In addition, the table sets forth the number of shares
covered by unexercised stock options held by the Named Executive Officers as
November 29, 2003, and the value of "in-the-money" stock options, which
represents the positive spread between the exercise price of a stock and the
market price of the shares subject to such option as of November 29, 2003.

Aggregated Option Exercises in Fiscal Year Ended November 29, 2003
and Fiscal Year End Option Values

Number of Securities Value of Unexercised
Underlying Unexercised In- the-Money Options
Options at FY-End (#) at FY-End ($)(1)
----------------------- ----------------------

Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
--------------------- ---------------- -------------- ----------------------- ----------------------

Samuel J. Furrow, Jr. 0 $ 0 350,000(2)/0 $ 597,500/$ 0

Patricia Anderson 0 $ 0 400,000/0 $ 1,025,000/$ 0

Marc B. Crossman 0 $ 0 476,848(2)/666,667 $ 561,745/$ 826,667

Shane Whalen 0 $ 0 25,000/25,000 $ 37,500/$ 37,500

----------
(1) Based on a closing price per share of $4.10 for the Common Stock on
Friday, November 28, 2003, as reported by the NASDAQ SmallCap
Market.

(2) Includes 100,000 shares that expired unexercised on February 24,
2004 at an exercise price of $4.75.

Option Repricing

The following table sets forth information concerning the repricing of
options held by Marc Crossman, our Chief Financial Officer, with respect to
options that were originally granted in connection with commencement of his
employment as our Chief Financial Officer. However, on the original date of the
grant of the options to Mr. Crossman, there were not enough shares authorized
under the 2000 Employee Stock Incentive Plan to grant Mr. Crossman the options.
As a result, Mr. Crossman's options were cancelled and reissued upon stockholder
approval of an increase in shares authorized and available for grant under the
2000 Employee Stock Incentive Plan. The term of the reissued option was 10 years
rather than the 20 year term of the original option.

Ten Year Option Repricings

Length of
Original
Number of Option Term
Securities Market Price of Remaining at
Underlying Stock at Time of Exercise Price at New Date of
Options Repriced Repricing or Time of Repricing Exercise Repricing or
Name and Position Date or Amended (#) Amendment ($) or Amendment ($) Price ($) Amendment
----------------- ---- -------------- ------------- ---------------- --------- ---------

Marc B. Crossman
Chief Financial 5/22/03 1,000,000 $2.60 $2.86 $2.86 19.8 years
Officer and Director

401(k) Plan

On December 1, 2002, we established a tax qualified defined contribution
401(k) Profit Sharing Plan . All employees who have worked for us for 30
consecutive days may participate in the 401(k) Profit Sharing Plan and may
contribute up to 100% of their salary to the plan. Our elective matching
contributions may be made on a discretionary basis. All employees who have
worked 500 hours qualify for profit sharing in the event at the end of each year
we decide to do so. Costs of the plan charged to operations were $20,000 for the
year ended November 29, 2003.

Equity Compensation Plan Information

The following table sets forth certain information about our common stock
that may be issued upon the exercise of options, warrants and rights under all
of the our compensation plans (including individual compensation arrangements)
under which our equity securities are authorized for issuance, which includes
our 2000 Employee Stock Incentive Plan and 2000 Director Stock Incentive Plan.
As discussed previously in Proposal 2, in the event of approval and adoption of
the 2004 Stock Incentive Plan, we will not make any further grants under the
2000 Employee Stock Incentive Plan and 2000 Director Stock Incentive Plan on or
after the date of approval and adoption of Proposal 2. Notwithstanding anything
to the contrary, any outstanding award granted under the 2000 Employee Stock
Incentive Plan and 2000 Director Stock Incentive Plan will remain outstanding in
accordance with the terms and conditions of those prior plans and the award
agreements evidencing such grants.

Number of Securities
Remaining Available for
Number of Securities to Weighted Average Issuance Under Equity
be Issued Upon Exercise Exercise Price of Compensation Plan
of Outstanding Options, Outstanding Options, (excluding securities
Plan Category Warrants and Rights Warrants and Rights reflected in column (a))
------------- ------------------- ------------------- ------------------------
(a) (b) (c)

Equity Compensation Plans
approved by security holders
(1):
2000 Employee Plan 2,030,000 $2.19 970,000
2000 Director Plan 204,828 $0.78 295,172
Equity Compensation Plans not
approved by security holders:
Samuel J. Furrow, Jr. (2) 100,000 $4.75 0
Marc B. Crossman (2) 100,000 $4.75 0
--------- ---------
TOTAL 2,434,828 1,265,172
========= =========

(1) See "2000 Employee Stock Incentive Plan" and "2000 Director Stock
Incentive Plan" described herein.

(2) Includes 100,000 shares subject to currently exercisable options
pursuant to an option grant made in February 1999 with an exercise
price of $4.75 per share that expired unexercised in February 2004.
The option grant was made in connection with the initial appointment
as a member of our Board of Directors.

STOCK PLANS

2000 Employee Stock Incentive Plan

The 2000 Employee Stock Incentive Plan, or the 2000 Employee Plan,
provides for the grant of options to our officers, employees and consultants and
to our affiliates. The 2000 Employee Plan continues in effect until March 2010
unless terminated earlier, as discussed herein. The 2000 Employee Plan was
amended at the annual meeting of stockholders held on May 22, 2003 to increase
the number of shares available for issuance under the 2000 Employee Plan from
1,000,000 to 3,000,000, as well as to increase the number of shares that may be
issued to any one individual under the 2000 Employee Plan in any calendar year
from 500,000 to 1,250,000. Options granted under the 2000 Employee Plan may be
either "incentive stock options", or ISOs, within the meaning of Section 422 of
the Code or nonqualified stock options, or NQSOs. As discussed previously in
Proposal 2, in the event of approval and adoption of the 2004 Stock Incentive
Plan, we will not make any further grants under the 2000 Employee Plan on or
after the date of approval and adoption of Proposal 2. Notwithstanding anything
to the contrary, any outstanding awards granted under the 2000 Employee Plan
will remain outstanding in accordance with the terms and conditions of the prior
plan and the award agreements evidencing such grants.

The 2000 Employee Plan is administered by the Compensation and Stock
Option Committee of our Board of Directors. The Compensation and Stock Option
Committee of our Board of Directors has been delegated the full authority in its
discretion to determine which of our officers, key employees, consultants or
affiliates will be granted stock options and to determine the terms and
provisions of such stock incentive options, subject to the requirements and
limitations of the 2000 Employee Plan. Subject to the provisions of the 2000
Employee Plan, the Compensation and Stock Option Committee of our Board of
Directors has full and conclusive authority to interpret the 2000 Employee Plan,
to prescribe, amend and rescind rules and regulations relating to the 2000
Employee Plan, to determine the terms and provisions of the respective stock
incentive agreements and to make all other determinations necessary or advisable
for the proper administration of the 2000 Employee Plan.

The 2000 Employee Plan is intended to: (a) provide incentive to our
officers and key employees and our affiliates to stimulate their efforts toward
our continued success and to operate and manage the business in a manner that
will provide for our long-term growth and profitability; (b) encourage stock
ownership by officers and key employees by providing them with a means to
acquire a proprietary interest in us, acquire shares of stock, or to receive
compensation which is based upon appreciation in the value of the stock; and (c)
provide means of obtaining, rewarding and retaining key personnel and
consultants.

The number of shares of stock as to which a stock incentive may be granted
will be determined by the Compensation and Stock Option Committee of our Board
of Directors, in its sole discretion, subject to the limitations of the 2000
Employee Plan. To the extent required under Section 162(m) of the Code and the
regulations thereunder for compensation to be treated as qualified performance
based compensation, the maximum number of shares of stock with respect to which
options may be granted during any one year period to any employee may not exceed
1,250,000.

Stock option grants issued under the 2000 Employee Plan may be granted
only to our officers, key employees, consultants or to any of our affiliates.
The aggregate fair market value (determined as of the date an ISO is granted) of
stock with respect to which stock options intended to meet the requirements of
Section 422 of the Code become exercisable for the first time by an individual
during any calendar year under all of our

plans and our subsidiaries may not exceed $100,000; provided further, that if
the limitation is exceeded, the ISOs which cause the limitation to be exceeded
will be treated as NQSOs.

The 2000 Employee Plan was adopted by our Board of Directors on March 12,
2000 and approved by our common stockholders at the 2000 annual meeting of
stockholders and amended at the at the annual meeting of stockholders held on
May 22, 2003. Up to 3,000,000 shares of our common stock, subject to adjustment
as provided in the 2000 Employee Plan, may be issued under the 2000 Employee
Plan. As of April 13, 2004, 2,030,000 shares have been issued under our 2000
Employee Plan. Awards under the 2000 Employee Plan are discretionary. Therefore,
it is not possible to determine the benefits that will be received in the future
by participants in the 2000 Employee Plan. As discussed previously in Proposal
2, in the event of approval and adoption of the 2004 Stock Incentive Plan, we
will not make any further grants under the 2000 Employee Stock Incentive Plan on
or after the date of approval and adoption of Proposal 2.

2000 Director Stock Incentive Plan

The purpose of the 2000 Director Stock Incentive Plan, or 2000 Director
Plan, is to permit the granting of stock options to our Board of Directors who
are not our employees at an exercise price less than market value at the date of
grant in lieu of paying Board of Directors' fees in cash, thereby advancing our
interests by encouraging and enabling the acquisition of our common stock by our
Board of Directors whose judgment and ability we rely upon for the attainment of
our long-term growth and development. However, beginning in fiscal 2003, we
commenced paying all non-employee directors a cash fee in addition to this grant
of stock options. The 2000 Director Plan is intended to promote a close identity
of interest among us, our Board of Directors, and our common stockholders, as
well as to provide a means to attract and attain well-qualified members of our
Board of Directors. The 2000 Director Plan was adopted by our Board of Directors
on September 13, 2000 and approved by our common stockholders at the 1999 annual
meeting of stockholders. As discussed previously in Proposal 2, in the event of
the approval and adoption of the 2004 Stock Incentive Plan, we will not make any
further grants under the 2000 Director Plan on or after the date of approval and
adoption of Proposal 2. Notwithstanding anything to the contrary, any
outstanding awards granted under the 2000 Director Plan will remain outstanding
in accordance with the terms and conditions of the prior plan and the award
agreements evidencing such grants.

There are authorized for issuance or delivery upon the exercise of options
to be granted from time to time under the 2000 Director Plan an aggregate of
500,000 shares of our common stock, subject to adjustment as provided in the
2000 Director Plan. As of April 13, 2004, 204,828 shares have been issued under
the 2000 Director Plan. The 2000 Director Plan is administered by the
Compensation and Stock Option Committee of our Board of Directors, which will
consist of not less than three members, all of whom will be deemed to be
independent, and appointed by our Board of Directors.

Pursuant to our 2000 Director Plan, each non-employee director receives
annual compensation at the first annual meeting of stockholders following his or
her appointment and annually thereafter a grant in the form of options to buy
common stock with an aggregate fair market value of $10,000. These options are
exercisable beginning one year from the date of grant and expire ten years from
the date of grant. The exercise price is set at 50% of the fair market value of
the common stock on the date of grant. This discount was originally proposed in
lieu of directors' fees. A member of our Board of Directors who is also an
employee of ours receives no additional compensation for his or her service as
member of our Board of Directors. Members of our Board of Directors who also
serve on one or more committees of the Board of Directors do not receive any
additional compensation for such service. In addition to this stock option
compensation, at the annual meeting of stockholders on May 22, 2003, our Board
of Directors voted to compensate in cash each non-

employee director at an annual rate of $12,500 for service as a member of our
Board of Directors. After the annual meeting of stockholders on June 3, 2004,
our Board of Directors will meet to discuss compensation arrangements for
members of the Board of Directors for service in fiscal 2004.

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 by the
exercise price per share. The market price is determined as of the close of
business on the day of our Board meeting immediately following our annual
shareholder meeting. The 2000 Director Plan will continue in effect until
September 2010, unless terminated earlier, as discussed above. Options granted
under the 2000 Director Plan are nonqualified stock options. During fiscal 2003,
each of our non-employee directors received an option to purchase up to 7,692
shares of our common stock with an exercise price of $1.30 per share vesting on
a monthly basis beginning May 22, 2003 under our 2000 Director Plan in addition
to cash fees. These options have a ten year term and expire on May 22, 2013.

REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE

As our business grows, our Compensation and Stock Option Committee expects
to work closely with management to design an executive compensation program to
assist us 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 our or a division's
financial performance by rewarding the achievement of our short-term and
long-term objectives.

The three principal components of the executive compensation program are
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 and other equity awards. In fiscal 2003, we needed to
attract additional executive management through our compensation arrangement,
including our Chief Financial Officer and our Chief Operating Officer. Our
executive officers are elected on an annual basis and serve at the discretion of
our Board of Directors.

Mr. Jay Furrow became Chief Executive Officer in July 2002, succeeding Ms.
Patricia Anderson, who currently serves as our President. Prior to December
2002, the annual base salary for Mr. Furrow and Ms. Anderson was $150,000 and
$200,000, respectively. In December of 2002, the annual compensation for both
Mr. Furrow and Ms. Anderson was increased to $275,000 in base salary and each
person received a stock option to purchase up to 100,000 shares of common stock
with an exercise price of $2.40 per share expiring in December 2007.

During fiscal 2003, the Compensation and Stock Option Committee met a
total of four times. At the November 27, 2002 meeting, the compensation
arrangement discussed above for Mr. Furrow and Ms. Anderson was approved. Upon
the appointment of Marc Crossman as Chief Financial Officer, Mr. Crossman was
hired at the same base salary as Mr. Furrow and Ms. Anderson and was granted an
option to purchase up to 1,000,000 shares of our common stock, as discussed
elsewhere in this proxy statement. The original compensation arrangement, as
well as Mr. Crossman's compensation arrangement, was recommend by the
Compensation and Stock Option Committee and approved by the full Board of
Directors and was based on individual performance and analysis of compensation
for the positions at comparative companies.

Neither Ms. Anderson, Mr. Furrow nor Mr. Crossman has an employment
agreement with us, but Mr. Crossman does have a change in control provision in
his stock option grant which provides for immediate

vesting of all options to the extent not otherwise exercisable will immediately
become exercisable in the event of a change in control of the company, as
discussed elsewhere in this proxy statement.

The SEC requires that this report of the Compensation and Stock
Option Committee comment on our policy with respect to Section 162(m) of the
Code which limits the deductibility of our tax return of nonperformance-based
compensation in excess of $1 million dollars paid to any of our named executive
officers. The Compensation and Stock Option Committee is monitoring the effects
of our compensation program with respect to Section 162(m) of the Code. To date,
we have not suffered a loss of compensation as a result of the $1 million dollar
limitation. The Compensation and Stock Option Committee reserves the right to
design programs that recognize a full range of performance criteria critical to
our success, even where the compensation paid under such programs may not be
deductible.

REPORT ON CEO COMPENSATION

Mr. Furrow's 2003 annual base salary and grant of stock options were
based on the overall principles of executive compensation described above. The
Compensation and Stock Option Committee reviewed Mr. Furrow's compensation and
overall assessment of his performance during its November 2002 meeting. As
discussed above, we made adjustments to Mr. Furrow's base salary to be effective
in December 2002 at the beginning of our first fiscal 2003 quarter and granted
him additional stock options in order to realign his compensation with market
and organizational considerations. Upon the hiring of Mr. Crossman in March
2003, the Compensation and Stock Option Committee again reviewed Mr. Furrow's
2003 annual base salary and grant of stock options and concluded that his annual
base salary and grant of stock options were consistent with the overall
performance of the company and industry standards for executives with similar
responsibilities in similar companies.

The Compensation and Stock Option Committee:

Suhail R. Rizvi, Chairman of the Compensation and Stock Option
Committee
John G. Looney, MD

REPORT OF THE AUDIT COMMITTEE

In accordance with the written charter of the Audit Committee, which was
adopted by our Board of Directors on May 22, 2003, the Audit Committee assists
the Board in oversight of the quality and integrity of our accounting, auditing,
and financial reporting practices. In addition, the Audit Committee recommends
to the full Board of Directors the selection of the independent auditors.

Currently, all Audit Committee members are "independent" under NASDAQ
listing standards and as such term is defined in the rules and regulations of
the SEC and Mr. Rizvi has also been designated to be an "audit committee
financial expert" as such term is defined in the rules and regulations of the
SEC.

In performing its oversight function, the Audit Committee reviewed and
discussed our audited consolidated financial statements as of and for the year
ended November 29, 2003 with management and our independent auditors. The Audit
Committee also discussed with our independent auditors all matters required by
generally accepted auditing standards, including those described in Statement on
Auditing Standards No. 61, "Communication with Audit Committees" as amended by
the Auditing Standards Board of the American

Institute of Certified Public Accountants, and, with and without management
present, discussed and reviewed the results of the independent auditors'
examination of the financial statements.

The Audit Committee obtained from the independent auditors a formal
written statement describing all relationships between the independent auditors
and us that might bear on the independent auditors' independence consistent with
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees." The Audit Committee discussed with the independent auditors
any relationships that may have an impact on their objectivity and independence
and satisfied itself that the non-audit services provided by the independent
accountants are compatible with maintaining their independence.

Based on the above-mentioned review and discussions with management and
the independent auditors, the Audit Committee recommended to the Board of
Directors that our audited consolidated financial statements be included in our
Annual Report on Form 10-K for the fiscal year ended November 29, 2003 for
filing with the SEC.

The Audit Committee:

Suhail R. Rizvi, Chairman of the Audit Committee
John G. Looney, MD
Daniel A. Page

Stock Performance Graph

The following graph compares the cumulative total stockholder return for
Innovo Group, the NASDAQ Stock Market (U.S. companies) Index, or the NASDAQ
Market Index, and the Standard and Poor's 600 SmallCap Index, or S&P 600
SmallCap. Measurement points are the last trading day of each of our fiscal
years ended November 30, 1997, November 30, 1998, November 30, 1999, November
30, 2000, December 1, 2001, November 30, 2002, and November 29, 2003. The graph
assumes that $100 was invested on November 30, 1997 in our common stock, the
NASDAQ Market Index and the S&P 600 SmallCap 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
S&P 600 SMALLCAP INDEX
(PERFORMANCE GRAPH)

[LINE GRAPH OMITTED]

1997 1998 1999 2000 2001 2002 2003

Innovo Group Inc. $100 $ 21.91 $ 24.29 $ 12.39 $ 29.86 $ 39.60 $ 62.45
NASDAQ Stock Market (US) $100 $122.59 $210.61 $163.33 $121.68 $ 93.92 $124.50
S&P 600 SmallCap Market $100 $ 93.88 $102.91 $110.09 $122.45 $114.60 $149.64

Notwithstanding anything to the contrary set forth in any of our previous
or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate this proxy
statement or our future filings under those statutes, the Compensation and Stock
Option Committee Report, the Audit Committee Report and the Stock Performance
Graph are not deemed filed with the SEC and will not be deemed incorporated by
reference into any of those prior filings or into any future filings made by us
under those statutes.

RELATED PARTY TRANSACTIONS

We have adopted a policy requiring that any material transaction between
us and persons or entities affiliated with officers, directors or principal
common stockholders of our company be on terms no less favorable to us than
reasonably could have been obtained in arms' length transactions with
independent third parties and all transactions between us and related parties
must be approved by our Audit Committee.

Anderson Stock Purchase Agreement

Pursuant to a Stock Purchase Right Award granted in February 1997, our
President, Pat Anderson, purchased 250,000 shares of common stock, or the Award
Shares, with payment made by the execution of a non-recourse note, or the
Anderson Note, for the exercise price of $2.81 per share, or $703,125 in the
aggregate. The Anderson Note was due, without interest, on April 30, 2002, and
was collateralized by the 1997 Award Shares. The Anderson Note may be paid or
prepaid (without penalty) by (i) cash, or (ii) the delivery of our common stock
(other than the Award Shares) held for a period of at least six months, which
shares would be credited against the Anderson Note on the basis of the closing
bid price for the common stock on the date of delivery.

On July 18, 2002, our Board of Directors voted in favor of extending the
term of the Anderson Note until April 30, 2005. The remaining provisions of the
Anderson Note remained the same. As of November 29, 2003, $703,125 remains
outstanding under the Anderson Note.

Crossman Loan

On February 7, 2003 and on February 13, 2003, we entered into two
promissory note loan agreements with Marc Crossman, then a member of our Board
of Directors and now also our Chief Financial Officer, whereby Mr. Crossman
loaned to us an aggregate of $500,000. The loan was funded in two phases of
$250,000 each on February 7, 2003 and February 13, 2003. In the event of
default, each loan is collateralized by 125,000 shares of our common stock as
well as a general unsecured claim on our assets, subordinate to existing
lenders. Each loan matures six months and one day from the date of its
respective funding, at which point the principal amount loaned and any unpaid
accrued interest is due and payable in full without demand. The loan carries an
8% annualized interest rate with interest payable in equal monthly installments.
The loan may be repaid by us at any time during the term of the loan without
penalty. Further, prior to the maturity of the loan and the original due dates,
we elected, at our sole option, to extend the term of the loan for an additional
period of six months and one day. A majority of our disinterested directors
approved the loan from Mr. Crossman. Subsequent to the year ended November 29,
2003 and prior to the maturity of the loans in February 2004, the parties agreed
to extend the term of the loan for an additional period of ninety days. Further,
pursuant to the extension of the loan, the loan was amended to provide Mr.
Crossman with the sole and exclusive option to continue to extend the term of
the loan for three additional ninety day periods by giving notice of such
extension on or before the due date of the loan.

Purchases of Goods and Services

As required under the terms of the investment by Commerce Group LLC, or
Commerce, and its affiliates, our Innovo, Inc., or Innovo, Joe's Jeans Inc., or
Joe's, and Innovo Azteca Apparel, Inc., or IAA, subsidiaries each purchased its
craft goods and distribution and operational services from Commerce and its
affiliates in fiscal 2003, fiscal 2002 and fiscal 2001. The services purchased
included but were not limited to accounts receivable collections, certain
general accounting functions, inventory management and distribution logistics.

The following schedule represents Innovo's, Joe's and IAA's purchases from
Commerce and its affiliates during fiscal 2003, fiscal 2002 and fiscal 2001 (in
thousands):

Innovo
-------------------------------------
Year Ended
(in thousands)
-------------------------------------
2003 2002 2001
-------------------------------------

Goods $ 2,898 $ 3,317 $ 2,320
Distribution Services 615 644 362
Operational Services 228 203 112
-------------------------------------
Total $ 3,741 $ 4,164 $ 2,794
=====================================

Joe's IAA
------------------------------------- -------------------------------------
Year Ended Year Ended
(in thousands) (in thousands)
------------------------------------- -------------------------------------
2003 2002 2001 2003 2002 2001
------------------------------------- -------------------------------------

Goods $ 2,195 $ 6,102 $ 1,102 $ 41,798 $ 6,171 $ 1,794
Distribution Services 127 107 20 -- -- --
------------------------------------- -------------------------------------
Total $ 2,322 $ 6,209 $ 1,122 $ 41,798 $ 6,171 $ 1,794
===================================== =====================================

Additionally, we are charged an allocation expense from Commerce and its
affiliates for expenses associated with us occupying space in Commerce's
Commerce, California facility and the use of general business machines and
communication services. These expenses totaled approximately $343,000 for fiscal
2003 and $25,000 for fiscal 2002 and fiscal 2001. We also utilize office space
and office equipment under a cost sharing arrangement with Commerce and its
affiliates.

We believe that all the transactions conducted between us and Commerce and
its affiliates were completed on terms that were competitive and at market
rates. Included in due to related parties on our balance sheet is $390,000 and
$4,159,000 at November 29, 2003 and November 30, 2002, respectively, relating to
amounts due to Commerce and affiliated entities for goods and services described
above.

Azteca Production International, Inc.

In the third quarter of fiscal 2001, we acquired Azteca Production
International, Inc.'s Knit Division and formed our IAA subsidiary. Pursuant to
equity transactions completed in fiscal 2000, the principals of Azteca
Production International, Inc., or Azteca, became our affiliates. We purchased
the Knit Division's customer list, the right to manufacture and market all of
the Knit Division's current products and entered into certain non-compete and
nonsolicitation agreements and other intangible assets associated with the Knit
Division. As consideration, we issued to Azteca, 700,000 shares of our common
stock valued at $1.27 per share based upon the closing price of the common stock
on August 24, 2001, and promissory notes in the amount of $3.6 million.

Blue Concept Division Acquisition

On July 17, 2003, IAA entered into an asset purchase agreement, or APA,
with Azteca, Hubert Guez and Paul Guez, whereby IAA acquired the division known
as the Blue Concept division, or the Blue Concept Division, of Azteca. The Blue
Concept Division primarily sells denim jeans to American Eagle Outfitters, Inc,

or AEO, a national retailer. Hubert Guez and Paul Guez, two of our substantial
common stockholders and parties to the APA, together have a controlling interest
in Azteca. Based upon the Schedule 13D/A filed with the SEC on March 9, 2004,
Hubert Guez, Paul Guez and their affiliates beneficially owned in the aggregate
approximately 26.47% of our common stock on a fully diluted basis.

Pursuant to the terms of the APA, IAA paid $21.8 million for the Blue
Concept Division, subject to adjustment as noted below. IAA issued a seven-year
convertible promissory note for $21.8 million, or the Blue Concept Note. The
Blue Concept Note bears interest at a rate of 6% per annum and requires payment
of interest only during the first 24 months and then is fully amortized over the
remaining five-year period. On March 5, 2004, upon shareholder approval and
pursuant to the terms of the APA, we converted a portion of the Blue Concept
Note into equity through the issuance of 3,125,000 shares of our common stock
valued at $4.00 per share, or the Conversion Price. As a result, on March 5,
2004, the Blue Concept Note was reduced by $12.5 million to $9.3 million. The
reduction in price was determined by the product of the Conversion Price and
3,125,000, and the shares issued pursuant to the conversion are subject to
certain lock-up periods. Up to 1,041,667 additional shares may be issued upon
the occurrence of certain future contingencies relating to our stock price for
the 30 day period ending March 6, 2005. Pursuant to the APA, IAA employed all of
the existing employees of the Blue Concept Division but did not assume any of
the Blue Concept Division's or Azteca's existing liabilities.

In the event that sales of the Blue Concept Division fall below $70
million during the first 17-month period, or Period I, following the closing of
the acquisition, or $65 million during the 12-month period, or Period II
following Period I, certain terms of the APA allow for a reduction in the
purchase price through a decrease in the principal balance of the Blue Concept
Note and/or the return of certain locked-up shares of our common stock. In the
event the Blue Concept Note is reduced during Period I and the sales of the Blue
Concept Division in Period II are greater than $65 million, the Blue Concept
Note will be increased by half of the amount greater than $65 million, but in no
event will the Blue Concept Note be increased by an amount greater than the
decrease in Period I.

In the event the principal amount of the Blue Concept Note needs to be
reduced beyond the outstanding principal balance of such Blue Concept Note, then
an amount of the locked-up shares equal to the balance of the required reduction
will be returned to us. For these purposes, the locked-up shares will be valued
at $4.00 per share. Additionally, if during the 12-month period following the
closing, AEO is no longer a customer of IAA, the locked-up shares will be
returned to us, and any amount remaining on the balance of the Blue Concept Note
will be forgiven.

In the event the revenues of the Blue Concept Division decrease to $35
million or less during Period I or Period II, IAA will have the right to sell
the purchased assets back to Azteca, and Azteca will have the right to buy back
the purchased assets for the remaining balance of the Blue Concept Note and any
and all locked -up shares will be returned to us.

As part of the transaction, IAA and AZT International SA de CV, a Mexico
corporation and wholly-owned subsidiary of Azteca, or AZT, entered into a
two-year, renewable, non-exclusive Supply Agreement for products to be sold by
the Blue Concept Division. In addition to customary obligations, the Supply
Agreement requires that AZT will receive payment immediately upon receipt of
invoices for our purchase orders and that AZT will charge a per unit price such
that IAA will have a guaranteed profit margin of 15 percent on a "per unit"
basis. In addition, AZT is responsible for all quality defects in merchandise
manufactured.

IAA also utilizes AZT to distribute goods manufactured under the Supply
Agreement and until such time that we can establish a Mexican subsidiary to
invoice and collect payments from AEO, temporarily has AZT invoice and collect
payments from AEO for goods manufactured in Mexico.

JD Design, LLC

Pursuant to the license agreement entered into with JD Design, LLC under
which we obtained the license rights to Joe's Jeans, Joe's is obligated to pay a
3% royalty on the net sales of all products bearing the Joe's Jeans or JD
trademark or logo to JD Design, LLC. For fiscal 2003, fiscal 2002 and fiscal
2001, this amount totaled $339,000, $277,000 and $46,000, respectively. Included
in due to related parties on our balance sheet are accrued royalties of $189,000
and $91,000 for fiscal 2003 and fiscal 2002, respectively.

Facility Lease Arrangements

We currently lease our Knoxville, Tennessee office and storage space from
a company owned by Sam Furrow, Chairman of our Board of Directors. 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 us to store our
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 Securities Exchange Act of 1934, as amended, requires
our directors, officers and persons who beneficially own more than ten percent
of a registered class of our equity securities, to file reports of ownership and
changes in ownership with the SEC on a timely basis. Directors, officers and
greater than ten percent beneficial owners are required by the SEC's regulations
to furnish us with copies of all Section 16(a) forms they file.

Based solely on a review of copies of such forms furnished to us and
certain of our internal records, or upon written representations that no Form 5s
were required, we believe that during the year ended December 31, 2003, all
Section 16(a) filing requirements applicable to our directors, officers and
greater than ten percent beneficial owners were satisfied on a timely basis
except as follows: the Form 3s to be filed upon election to our Board of
Directors for Vincent Sanfilippo, Kent Savage and Suhail R. Rizvi were
inadvertently not timely filed upon their election to our Board of Directors, a
Form 3 for Shane Whalen filed upon his appointment as an officer subject to
Section 16 and a Form 4 relating to one grant of stock options were
inadvertently not timely filed, two Form 4s for Seymour Braun relating to
thirteen individual sale transactions were inadvertently not timely filed, one
Form 4 for Samuel J. Furrow relating to four individual grants of stock options
was inadvertently not timely filed, two Form 4s for Marc B. Crossman relating to
three individual grants of stock options were inadvertently not timely filed,
one Form 4 for John G. Looney relating to four individual grants of stock
options was inadvertently not timely filed, one Form 4 for Daniel A. Page
relating to four individual grants of stock options and one sale transaction was
inadvertently not timely filed, one Form 4 for Suhail R. Rizvi relating to one
grant of stock options was inadvertently not timely filed, and one Form 4 for
Hubert Guez relating to three individual sale transactions was inadvertently not
timely filed.

FEES PAID TO THE INDEPENDENT AUDITORS

For the fiscal years ended November 29, 2003 and November 30, 2002, E&Y
billed the approximate fees as further described below.

Audit Fees

Fees for audit services totaled approximately $528,000 for the year ended
November 29, 2003 and approximately $222,000 for the year ended November 30,
2002, including fees associated with the annual audit, reviews of our quarterly
reports on Form 10-Q, and assistance with and review of registration statements
filed with the SEC including consents related to registration statements for
equity issuances.

Audit-Related Fees

Fees for audit-related services totaled approximately $63,000 for the year
ended November 29, 2003 and approximately $52,000 for the year ended November
30, 2002. Audit related services principally included consultation on
transactions and acquisitions and assistance with internal control requirements
under Section 404 of the Sarbanes-Oxley Act of 2002.

Tax Fees

Fees for tax services, including tax compliance, tax advice, and tax
planning, totaled approximately $123,000 for the year ended November 29, 2003
and approximately $83,000 for the year ended November 30, 2002.

All Other Fees

There were no other fees for the year ended November 29, 2003 or for the
year ended November 30, 2002.

The Audit Committee has adopted a policy which requires the Audit
Committee's pre-approval of audit and non-audit services performed by the
independent auditor to assure that the provision of such services does not
impair the auditor's independence. The Audit Committee approves such services on
an on going basis prior to the incurrence of any such audit and non-audit
services. The Audit Committee pre-approved all of the audit and non-audit
services rendered by E&Y listed above.

The Audit Committee has determined that the services provided by E&Y were
compatible with maintaining E&Y's independence.

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.

AMENDED AND RESTATED
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF INNOVO GROUP INC.

This Charter identifies the purpose, composition, meeting requirements,
committee responsibilities, annual evaluation procedures and investigations and
studies of the Audit Committee (the "Committee") of the Board of Directors (the
"Board") of Innovo Group Inc.., a Delaware corporation (the "Company").

I. PURPOSE

The Committee has been established to: (a) assist the Board in its
oversight responsibilities regarding (1) the integrity of the Company's
financial statements, (2) the Company's compliance with legal and regulatory
requirements, (3) the independent accountant's qualifications and independence
and (4) the performance of the Company's internal audit function; (b) prepare
the report required by the U.S. Securities and Exchange Commission (the "SEC")
for inclusion in the Company's annual proxy statement; (c) retain and terminate
the Company's independent accountant; (d) approve audit and non-audit services
to be performed by the independent accountant; and (e) perform such other
functions as the Board may from time to time assign to the Committee. In
performing its duties, the Committee shall seek to maintain an effective working
relationship with the Board, the independent accountant, the internal auditors
and management of the Company.

II. COMPOSITION

The Committee shall be composed of at least three, but not more than six,
members (including a Chairperson), all of whom shall be "independent directors,"
as such term is defined in the rules and regulations of the SEC and The Nasdaq
Stock Market ("Nasdaq"). The members of the Committee and the Chairperson shall
be selected annually by the Board and serve at the pleasure of the Board. A
Committee member (including the Chairperson) may be removed at any time, with or
without cause, by the Board. The Board may designate one or more independent
directors as alternate members of the Committee, who may replace any absent or
disqualified member or members at any meetings of the Committee. No person may
be made a member of the Committee if his or her service on the Committee would
violate any restriction on service imposed by any rule or regulation of the SEC
or any securities exchange or market on which shares of the common stock of the
Company are traded. All members of the Committee shall have a working
familiarity with basic finance and accounting practices, and at least one member
of the Committee shall have accounting or related financial management expertise
and be designated an "audit committee financial expert," as such term is defined
in the rules and regulations of the SEC. Committee members may enhance their
familiarity with finance and accounting by participating in educational programs
conducted by the Company or an outside consultant. The Chairperson shall
maintain regular communication with the chief executive officer, chief financial
officer, the lead partner of the independent accountant and the manager of the
internal audit.

A-1

Except for Board and Committee fees, a member of the Committee shall not
be permitted to accept any fees paid directly or indirectly for services as a
consultant, legal advisor or financial advisor or any other fees prohibited by
the rules of the SEC and the Nasdaq. In addition, no member of the Committee may
be an affiliated person of the Company or any of its subsidiaries. Members of
the Committee may receive their Board and Committee fees in cash, Company stock
or options or other in-kind consideration as determined by the Board or the
Compensation and Stock Option Committee, as applicable, in addition to all other
benefits that other directors of the Company receive. No director may serve on
the Committee, without the approval of the Board, if such director
simultaneously serves on the audit committee of more than three public
companies.

III. MEETING REQUIREMENTS

The Committee shall meet as necessary, but at least four times each year,
to enable it to fulfill its responsibilities. The Committee shall meet at the
call of its Chairperson, preferably in conjunction with regular Board meetings.
The Committee may meet by telephone conference call or by any other means
permitted by law or the Company's bylaws. A majority of the members of the
Committee shall constitute a quorum. The Committee shall act on the affirmative
vote of a majority of members present at a meeting at which a quorum is present.
Without a meeting, the Committee may act by unanimous written consent of all
members. The Committee shall determine its own rules and procedures, including
designation of a chairperson pro tempore, in the absence of the Chairperson, and
designation of a secretary. The secretary need not be a member of the Committee
and shall attend Committee meetings and prepare minutes. The Committee shall
keep written minutes of its meetings, which shall be recorded or filed with the
books and records of the Company. Any member of the Board shall be provided with
copies of such Committee minutes if requested.

The Committee may ask members of management, employees, outside counsel,
the independent accountant or others whose advice and counsel are relevant to
the issues then being considered by the Committee, to attend any meetings and to
provide such pertinent information as the Committee may request.

The Chairperson of the Committee shall be responsible for leadership of
the Committee, including preparing the agenda, presiding over Committee
meetings, making Committee assignments and reporting the Committee's actions to
the Board from time to time (but at least once each year) as requested by the
Board.

As part of its responsibility to foster free and open communication, the
Committee should meet periodically with management, the internal auditors and
the independent accountant in separate executive sessions to discuss any matters
that the Committee or any of these groups believe should be discussed privately.
In addition, the Committee or at least its Chairperson should meet with the
independent accountant and management quarterly to review the Company's
financial statements prior to their public release consistent with the
provisions set forth below in Section IV. The Committee may also meet from time
to time with the Company's investment bankers, investor relations professionals
and financial analysts who follow the Company.

A-2

IV. COMMITTEE RESPONSIBILITIES

In carrying out its responsibilities, the Committee's policies and
procedures should remain flexible to enable the Committee to react to changes in
circumstances and conditions so as to ensure the Company remains in compliance
with applicable legal and regulatory requirements. In addition to such other
duties as the Board may from time to time assign, the Committee shall have the
following responsibilities:

A. Oversight of the Financial Reporting Processes

1. In consultation with the independent accountant and the
internal auditors, review the integrity of the organization's
financial reporting processes, both internal and external.

2. Review and approve all related-party transactions.

3. Consider the independent accountant's judgments about the
quality and appropriateness of the Company's accounting
principles as applied in its financial reporting. Consider
alternative accounting principles and estimates.

4. Annually review major issues regarding the Company's auditing
and accounting principles and practices and its presentation
of financial statements, including the adequacy of internal
controls and special audit steps adopted in light of material
internal control deficiencies.

5. Discuss with management and legal counsel the status of
pending litigation, taxation matters, compliance policies and
other areas of oversight applicable to the legal and
compliance area as may be appropriate.

6. Meet at least quarterly with the chief financial officer, the
internal auditors and the independent accountant in separate
executive sessions.

7. Review all analyst reports and press articles about the
Company's accounting and disclosure practices and principles.

8. Review all analyses prepared by management and the independent
accountant of significant financial reporting issues and
judgments made in connection with the preparation of the
Company's financial statements, including any analysis of the
effect of alternative generally accepted accounting principle
("GAAP") methods on the Company's financial statements and a
description of any transactions as to which management
obtained Statement on Auditing Standards No. 50 letters.

9. Review with management and the independent accountant the
effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on the Company's financial
statements.

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B. Review of Documents and Reports

1. Review and discuss with management and the independent
accountant the Company's annual audited financial statements
and quarterly financial statements (including disclosures
under the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operation") and
any reports or other financial information submitted to any
governmental body, or the public, including any certification,
report, opinion or review rendered by the independent
accountant, considering, as appropriate, whether the
information contained in these documents is consistent with
the information contained in the financial statements and
whether the independent accountant and legal counsel are
satisfied with the disclosure and content of such documents.
These discussions shall include consideration of the quality
of the Company's accounting principles as applied in its
financial reporting, including review of audit adjustments
(whether or not recorded) and any such other inquires as may
be appropriate. Based on the review, the Committee shall make
its recommendation to the Board as to the inclusion of the
Company's audited consolidated financial statements in the
Company's annual report on Form 10-K.

2. Review and discuss with management and the independent
accountant earnings press releases, as well as financial
information and earnings guidance provided to analysts and
rating agencies. The Committee need not discuss in advance
each earnings release but should generally discuss the types
of information to be disclosed and the type of presentation to
be made in any earnings release or guidance.

3. Review the regular internal reports to management prepared by
the internal auditors and management's response thereto.

4. Review reports from management, the internal auditors and the
independent accountant on the Company's subsidiaries and
affiliates, compliance with the Company's code(s) of conduct,
applicable law and insider and related party transactions.

5. Review with management and the independent accountant any
correspondence with regulators or government agencies, any
employee complaints and any published reports that raise
material issues regarding the Company's financial statements
or accounting policies.

6. Prepare the report required by the rules of the SEC to be
included in the Company's annual proxy statement.

7. Submit the minutes of all meetings of the Committee to, or
discuss the matters discussed at each Committee meeting with,
the Board.

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8. Review any restatements of financial statements that have
occurred or were recommended. Review the restatements made by
other clients of the independent accountant.

C. Independent Accountant Matters

1. Interview and retain the Company's independent accountant,
considering the accounting firm's independence and
effectiveness and approve the engagement fees and other
compensation to be paid to the independent accountant.

2. On an annual basis, the Committee shall evaluate the
independent accountant's qualifications, performance and
independence. To assist in this undertaking, the Committee
shall require the independent accountant to submit a report
(which report shall be reviewed by the Committee) describing
(a) the independent accountant's internal quality-control
procedures, (b) any material issues raised by the most recent
internal quality-control review, or peer review, of the
accounting firm or by any inquiry or investigations by
governmental or professional authorities (within the preceding
five years) respecting one or more independent audits carried
out by the independent accountant, and any steps taken to deal
with any such issues and (c) all relationships the independent
accountant has with the Company and relevant third parties to
determine the independent accountant's independence. In making
its determination, the Committee shall consider not only
auditing and other traditional accounting functions performed
by the independent accountant, but also consulting, legal,
information technology services and other professional
services rendered by the independent accountant and its
affiliates. The Committee shall also consider whether the
provision of any of these non-audit services is compatible
with the independence standards under the guidelines of the
SEC and of the Independence Standards Board and shall approve
in advance any non-audit services to be provided by the
independent accountant.

3. Review on an annual basis the experience and qualifications of
the senior members of the audit team. Discuss the knowledge
and experience of the independent accountant and the senior
members of the audit team with respect to the Company's
industry. The Committee shall ensure the regular rotation of
the lead audit partner and audit review partner as required by
law and consider whether there should be a periodic rotation
of the Company's independent accountant.

4. Review the performance of the independent accountant and
terminate the independent accountant when circumstances
warrant.

5. Establish and periodically review the Company's hiring
policies for employees or former employees of the independent
accountant.

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6. Review with the independent accountant any problems or
difficulties the auditor may have encountered and any
"management" or "internal control" letter provided by the
independent accountant and the Company's response to that
letter. Such review should include:

(a) any difficulties encountered in the course of the audit
work, including any restrictions on the scope of activities or
access to required information and any disagreements with
management;

(b) any accounting adjustments that were proposed by the
independent accountant that were not agreed to by the Company;

(c) communications between the independent accountant and its
national office regarding any issues on which it was consulted
by the audit team and matters of audit quality and
consistency;

(d) any changes required in the planned scope of the internal
audit; and

(e) the responsibilities, budget and staffing of the Company's
internal audit function.

7. Communicate with the independent accountant regarding (a)
alternative treatments of financial information within the
parameters of GAAP, (b) critical accounting policies and
practices to be used in preparing the audit report and (c)
such other matters as the SEC and the Nasdaq may direct by
rule or regulation.

8. Periodically consult with the independent accountant out of
the presence of management about internal controls and the
fullness and accuracy of the organization's financial
statements.

9. Oversee the independent accountant relationship by discussing
with the independent accountant the nature and rigor of the
audit process, receiving and reviewing audit reports and
ensuring that the independent accountant has full access to
the Committee (and the Board) to report on any and all
appropriate matters.

10. Discuss with the independent accountant prior to the audit the
general planning and staffing of the audit.

11. Obtain a representation from the independent accountant that
Section 10A (Audit Requirements) of the Securities Exchange
Act of 1934 has been followed.

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D. Internal Audit Control Matters

1. Discuss with management policies with respect to risk
assessment and risk management. Although it is management's
duty to assess and manage the Company's exposure to risk, the
Committee should discuss guidelines and policies to govern the
process by which risk assessment and management is handled and
review the steps management has taken to monitor and control
the Company's risk exposure.

2. Establish regular and separate systems of reporting to the
Committee by each of management, the independent accountant
and the internal auditors regarding any significant judgments
made in management's preparation of the financial statements
and the view of each as to appropriateness of such judgments.

3. Following completion of the annual audit, review separately
with each of management, the independent accountant and the
internal auditors any significant difficulties encountered
during the course of the audit, including any restrictions on
the scope of work or access to required information.

4. Review with the independent accountant, the internal auditors
and management the extent to which changes or improvements in
financial or accounting practices have been implemented. This
review should be conducted at an appropriate time subsequent
to implementation of changes or improvements, as decided by
the Committee.

5. Advise the Board about the Company's policies and procedures
for compliance with applicable laws and regulations and the
Company's code(s) of conduct.

6. Establish procedures for receiving accounting complaints and
concerns and anonymous submissions from employees and others
regarding questionable accounting matters.

7. Periodically discuss with the chief executive officer and
chief financial officer (a) significant deficiencies in the
design or operation of the internal controls that could
adversely affect the Company's ability to record, process,
summarize and report financial data and (b) any fraud that
involves management or other employees who have a significant
role in the Company's internal controls.

8. Ensure that no officer, director or any person acting under
their direction fraudulently influences, coerces, manipulates
or misleads the independent accountant for purposes of
rendering the Company's financial statements materially
misleading.

9. Take appropriate action in response to reports by counsel of
any material violation of securities laws or breach of
fiduciary duty or similar violation by the Company, as
required by the rules and regulations of the SEC.

A-7

E. Evaluation of Internal Auditors

1. Review activities, organizational structure and qualifications
of the internal auditors.

2. Review and concur in the appointment, replacement,
reassignment or dismissal of the manager of internal auditing.

3. Consider and review with management and the manager of
internal auditing:

(a) significant findings during the year and management's
responses thereto;

(b) any difficulties encountered in the course of internal
audits, including any restrictions on the scope of the
internal auditors' work or access to required information;

(d) the internal auditors' budget and staffing; and

(e) the internal auditors' compliance with The Institute of
Internal Auditors' Standards for the Professional Practice of
Internal Auditing.

While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountant.

V. ANNUAL EVALUATION PROCEDURES

The Committee shall annually assess its performance to confirm that it is
meeting its responsibilities under this Charter. In this review, the Committee
shall consider, among other things, (a) the appropriateness of the scope and
content of this Charter, (b) the appropriateness of matters presented for review
and approval, including information provided therewith, (c) the sufficiency of
time for consideration of agenda items, (d) frequency and length of meetings and
(e) the quality of written materials and presentations. The Committee may
recommend to the Board such changes to this Charter as the Committee deems
appropriate.

VI. INVESTIGATIONS AND STUDIES

The Committee shall have the authority and sufficient funding to retain
special legal, accounting or other consultants (without seeking Board approval)
to advise the Committee. The Committee may conduct or authorize investigations
into or studies of matters within the Committee's scope of responsibilities as
described herein, and may retain, at the expense of the

A-8

Company, independent counsel or other consultants necessary to assist the
Committee in any such investigations or studies. The Committee shall have sole
authority to negotiate and approve the fees and retention terms of such
independent counsel or other consultants.

VII. MISCELLANEOUS

Nothing contained in this Charter is intended to expand applicable
standards of liability under statutory or regulatory requirements for the
directors of the Company or members of the Committee. The purposes and
responsibilities outlined in this Charter are meant to serve as guidelines
rather than as inflexible rules and the Committee is encouraged to adopt such
additional procedures and standards as it deems necessary from time to time to
fulfill its responsibilities. This Charter, and any amendments hereto, shall be
displayed on the Company's web site and a printed copy of such shall be made
available to any shareholder of the Company who requests it.

Approved by the Board of Directors on May 22, 2003.

A-9

INNOVO GROUP INC.
2004 STOCK INCENTIVE PLAN

1. Purpose. The purpose of the Innovo Group Inc. 2004 Stock
Incentive Plan (the "Plan") is to enhance the ability of Innovo Group Inc. (the
"Company") and its Subsidiaries to attract and retain officers, employees,
directors and consultants of outstanding ability and to provide selected
officers, employees, directors and consultants with an interest in the Company
parallel to that of the Company's shareholders. The term "Company" as used in
this Plan with reference to employment shall include the Company and its
Subsidiaries, as appropriate.

2. Definitions.

(a) "Award" shall mean an award determined in accordance with
the terms of the Plan.

(b) "Board" shall mean the Board of Directors of the Company.

(c) "Cause" shall mean (i) if a Participant is party to an
employment agreement or similar agreement with the Company and such agreement
includes a definition of Cause, the definition contained therein or (ii) if no
such employment or similar agreement exists, it shall mean (A) the Participant's
failure to perform the duties reasonably assigned to him or her by the Company,
(B) a good faith finding by the Company of the Participant's dishonesty, gross
negligence or misconduct, (C) a material breach by the Participant of any
written Company employment policies or rules or (D) the Participant's conviction
for, or his or her plea of guilty or nolo contendere to, a felony or for any
other crime which involves fraud, dishonesty or moral turpitude.

(d) "Change in Control" of the Company means the occurrence of
one of the following events:

(i) individuals who, on the Effective Date, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the Effective Date whose election or nomination for election was approved by
a vote of at least two-thirds of the Incumbent Directors then on the Board
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for director, without objection to
such nomination) shall be an Incumbent Director; provided, however, that no
individual initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with respect to directors or
as a result of any other actual or threatened solicitation of proxies by or on
behalf of any person other than the Board shall be an Incumbent Director;

(ii) any "person" (as such term is defined in Section 3(a)(9)
of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the
Effective Date, a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the

B-1

Company representing more than 50% of the combined voting power of the Company's
then outstanding securities eligible to vote for the election of the Board (the
"Company Voting Securities"); provided, however, that an event described in this
paragraph (ii) shall not be deemed to be a Change in Control if any of following
becomes such a beneficial owner: (A) the Company or any majority-owned
subsidiary (provided, that this exclusion applies solely to the ownership levels
of the Company or the majority-owned subsidiary), (B) any tax-qualified,
broad-based employee benefit plan sponsored or maintained by the Company or any
majority-owned subsidiary, (C) any underwriter temporarily holding securities
pursuant to an offering of such securities, or (D) any person pursuant to a
Non-Qualifying Transaction (as defined in paragraph (iii));

(iii) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction involving the Company or
any of its Subsidiaries that requires the approval of the Company's
stockholders, whether for such transaction or the issuance of securities in the
transaction (a "Business Combination"), unless immediately following such
Business Combination: (A) 60% or more of the total voting power of (x) the
corporation resulting from such Business Combination (the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting securities
eligible to elect directors of the Surviving Corporation (the "Parent
Corporation"), is represented by Company Voting Securities that were outstanding
immediately prior to such Business Combination (or, if applicable, is
represented by shares into which such Company Voting Securities were converted
pursuant to such Business Combination), and such voting power among the holders
thereof is in substantially the same proportion as the voting power of such
Company Voting Securities among the holders thereof immediately prior to the
Business Combination, (B) no person (other than any employee benefit plan (or
related trust) sponsored or maintained by the Surviving Corporation or the
Parent Corporation), is or becomes the beneficial owner, directly or indirectly,
of more than 50% of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) and (C) at least a majority of the
members of the board of directors of the Parent Corporation (or if there is no
Parent Corporation, the Surviving Corporation) following the consummation of the
Business Combination were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for such Business
Combination (any Business Combination which satisfies all of the criteria
specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or

(iv) Stockholder approval of a liquidation or dissolution of
the Company, unless the voting common equity interests of an ongoing entity
(other than a liquidating trust) are beneficially owned, directly or indirectly,
by the Company's shareholders in substantially the same proportions as such
shareholders owned the Company's outstanding voting common equity interests
immediately prior to such liquidation and such ongoing entity assumes all
existing obligations of the Company under this Plan.

Notwithstanding the foregoing, a Change in Control of the Company shall not be
deemed to occur solely because any person acquires beneficial ownership of more
than 50% of the Company Voting Securities as a result of the acquisition of
Company Voting Securities by the

B-2

Company which reduces the number of Company Voting Securities outstanding;
provided, that, if after such acquisition by the Company such person becomes the
beneficial owner of Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control of the Company shall then occur.

(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.

(f) "Committee" shall mean a committee of at least two members
of the Board appointed by the Board to administer the Plan and to perform the
functions set forth herein and who are "non-employee directors" within the
meaning of Rule 16b-3 as promulgated under Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and who are also "outside
directors" within the meaning of Section 162(m) of the Code.

(g) "Common Stock" shall mean the common stock of the Company.

(h) "Continuous Service" means that the Participant's service
as an employee, director or consultant with the Company or a Subsidiary which is
not interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or a Subsidiary as an employee,
director or consultant or a change in the entity for which the Participant
renders such service; provided, that, there is no interruption or termination of
the Participant's Continuous Service other than an approved leave of absence.
The Committee, in its sole discretion, may determine whether Continuous Service
shall be considered interrupted.

(i) "Covered Employee" shall have the meaning set forth in
Section 162(m)(3) of the Code.

(j) "Disability" shall have the same meaning as provided in
any long-term disability plan maintained by the Company or any Subsidiary in
which a Participant then participates (the "LTD Plans"); provided, that, if no
such plan exists, it shall have the meaning set forth in Section 22(e)(3) of the
Code.

(k) "Fair Market Value" shall mean, as of any date, the value
of the Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Committee deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date prior to the date of determination as reported in The Wall Street
Journal or such other source as the Committee deems reliable; or

B-3

(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Committee.

(l) "Immediate Family Member" shall mean, except as otherwise
determined by the Committee, a Participant's spouse, ancestors and descendants.

(m) "Incentive Stock Option" shall mean a stock option which
is intended to meet the requirements of Section 422 of the Code.

(n) "Nonqualified Stock Option" shall mean a stock option
which is not intended to be an Incentive Stock Option.

(o) "Option" shall mean either an Incentive Stock Option or a
Nonqualified Stock Option.

(p) "Participant" shall mean an officer, employee, director or
consultant of the Company or its Subsidiaries who is selected to participate in
the Plan in accordance with Section 5.

(q) "Performance Goals" shall mean or may be expressed in
terms of any of the following business criteria: revenue, earnings before
interest, taxes, depreciation and amortization ("EBITDA"), funds from
operations, funds from operations per share, operating income, pre or after tax
income, cash available for distribution, cash available for distribution per
share, net earnings, earnings per share, return on equity, return on assets,
share price performance, improvements in the Company's attainment of expense
levels, and implementing or completion of critical projects, or improvement in
cash-flow (before or after tax). A Performance Goal may be measured over a
Performance Period on a periodic, annual, cumulative or average basis and may be
established on a corporate-wide basis or established with respect to one or more
operating units, divisions, subsidiaries, acquired businesses, minority
investments, partnerships or joint ventures. Unless otherwise determined by the
Committee by no later than the earlier of the date that is ninety days after the
commencement of the Performance Period or the day prior to the date on which
twenty-five percent of the Performance Period has elapsed, the Performance Goals
will be determined by not accounting for a change in GAAP during a Performance
Period.

(r) "Performance Objective" shall mean the level or levels of
performance required to be attained with respect to specified Performance Goals
in order that a Participant shall become entitled to specified rights in
connection with an Award of performance shares.

(s) "Performance Period" shall mean the calendar year, or such
other shorter or longer period designated by the Committee, during which
performance will be measured in order to determine a Participant's entitlement
to receive payment of an Award.

(t) "Subsidiary" shall mean any affiliate of the Company
selected by the Board; provided, that, with respect to Incentive Stock Options,
it shall mean any subsidiary of the Company that is a corporation and which at
the time qualifies as a "subsidiary corporation" within the meaning of Section
424(f) of the Code.

B-4

3. Shares Subject to the Plan. Subject to adjustment in accordance
with Section 18, the total of the number of shares of Common Stock which shall
be available for the grant of Awards under the Plan shall not exceed 1,265,172
shares of Common Stock; provided, that, for purposes of this limitation, any
Common Stock subject to an Option which is canceled or expires without exercise
shall again become available for Award under the Plan. Upon forfeiture of Awards
in accordance with the provisions of the Plan and the terms and conditions of
the Award, such shares shall again be available for subsequent Awards under the
Plan. Subject to adjustment in accordance with Section 18, no employee shall be
granted, during any one (1) year period, Options to purchase more than 1,250,000
shares of Common Stock and, the number of shares of Common Stock subject to any
Awards other than Options or stock appreciation rights shall not exceed
1,250,000 shares of Common Stock. Common Stock available for issue or
distribution under the Plan shall be authorized and unissued shares or shares
reacquired by the Company in any manner.

4. Administration.

(a) The Plan shall be administered by the Committee. All
references to the Committee hereinafter shall mean the Board if no such
Committee has been appointed. Notwithstanding the foregoing, the Board or
Committee may (i) delegate to a committee of one or more members of the Board
who are not "outside directors" within the meaning of Section 162(m) of the Code
the authority to grant Awards to eligible persons who are either (A) not then
Covered Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Award or (B) not persons with respect
to whom the Company wishes to comply with Section 162(m) of the Code or (ii)
delegate to a committee of one or more members of the Board who are not
"non-employee directors" within the meaning of Rule 16b-3 the authority to grant
Awards to eligible persons who are not subject to Section 16 of the Exchange
Act.

(b) The Committee shall (i) approve the selection of
Participants, (ii) determine the type of Awards to be made to Participants,
(iii) determine the number of shares of Common Stock subject to Awards, (iv)
determine the terms and conditions of any Award granted hereunder (including,
but not limited to, any restriction and forfeiture conditions on such Award) and
(v) have the authority to interpret the Plan, to establish, amend, and rescind
any rules and regulations relating to the Plan, to determine the terms and
provisions of any agreements entered into hereunder, and to make all other
determinations necessary or advisable for the administration of the Plan. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any Award in the manner and to the extent it
shall deem desirable to carry it into effect.

(c) Any action of the Committee shall be final, conclusive and
binding on all persons, including the Company and its Subsidiaries and
shareholders, Participants and persons claiming rights from or through a
Participant.

(d) The Committee may delegate to officers or employees of the
Company or any Subsidiary, and to service providers, the authority, subject to
such terms as the Committee shall determine, to perform administrative functions
with respect to the Plan and Award agreements.

B-5

(e) Members of the Committee and any officer or employee of
the Company or any Subsidiary acting at the direction of, or on behalf of, the
Committee shall not be personally liable for any action or determination taken
or made in good faith with respect to the Plan, and shall, to the extent
permitted by law, be fully indemnified by the Company with respect to any such
action or determination.

5. Eligibility. Individuals eligible to receive Awards under the
Plan shall be the offices, employees, directors and consultants of the Company
and its Subsidiaries selected by the Committee; provided, that, only employees
of the Company and its Subsidiaries may be granted Incentive Stock Options.

6. Awards. Awards under the Plan may consist of Options, restricted
Common Stock, restricted Common Stock units, performance shares, performance
share units, purchases, share awards, stock appreciation rights or other awards
based on the value of the Common Stock. Incentive Stock Options may only be
granted to employees of the Company and its Subsidiaries. Awards shall be
subject to the terms and conditions of the Plan and shall be evidenced by an
agreement containing such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall deem desirable.

7. Options. Options may be granted under the Plan in such form as
the Committee may from time to time approve pursuant to terms set forth in an
Option agreement.

(a) Types of Options. Each Option agreement shall state
whether or not the Option will be treated as an Incentive Stock Option or
Nonqualified Stock Option. The aggregate Fair Market Value of the Common Stock
for which Incentive Stock Options granted to any one employee under this Plan or
any other incentive stock option plan of the Company or of any of its
Subsidiaries may by their terms first become exercisable during any calendar
year shall not exceed $100,000, determining Fair Market Value as of the date
each respective Option is granted. In the event such threshold is exceeded in
any calendar year, such excess Options shall be automatically deemed to be
Nonqualified Stock Options. To the extent that any Option granted under this
Plan which is intended to be an Incentive Stock Option fails for any reason to
qualify as such at any time, such Option shall be a Nonqualified Stock Option.

(b) Option Price. The purchase price per share of the Common
Stock purchasable under an Option shall be determined by the Committee;
provided, however, the exercise price for Incentive Stock Options will be not
less than 100% of the Fair Market Value of the Common Stock on the date of the
grant and in the case of Incentive Stock Options granted to an employee owning
stock possessing more than 10% of the total combined voting power of all classes
of shares of the Company and its Subsidiaries (a "10% Shareholder") the price
per share specified in the agreement relating to such Option shall not be less
than 110% of the Fair Market Value per share of the Common Stock on the date of
grant. Notwithstanding any other provision in this Plan to the contrary, the
Committee may reduce the option price of any outstanding Option either through a
direct amendment to such Option or through a cancellation of such Option and
immediate grant of a new Option with a lower option price or in any other manner
it deems appropriate.

B-6

(c) Option Period. The term of each Option shall be fixed by
the Committee, but no Option shall be exercisable after the expiration of ten
(10) years from the date the Option is granted; provided, that, in the case of
Incentive Stock Options granted to 10% Shareholders, the term of such Option
shall not exceed 5 years from the date of grant. Notwithstanding the foregoing,
unless otherwise provided in an Award agreement, upon the death of a
Participant, Options (other than Incentive Stock Options) that would otherwise
remain exercisable following such death, shall remain exercisible for one year
following such death, notwithstanding the term of such Option.

(d) Exercisability. Each Option shall vest and become
exercisable at a rate determined by the Committee on the date of grant.

(e) Method of Exercise. Options may be exercised, in whole or
in part, by giving written notice of exercise to the Company in a form approved
by the Company specifying the number shares of Common Stock to be purchased.
Such notice shall be accompanied by the payment in full of the Option exercise
price. The exercise price of the Option may be paid by (i) cash or certified or
bank check, (ii) surrender of Common Stock held by the Optionee for at least six
(6) months prior to exercise (or such longer or shorter period as may be
required to avoid a charge to earnings for financial accounting purposes) or the
attestation of ownership of such shares, in either case, if so permitted by the
Company, where such Common Stock has a Fair Market Value equal to the aggregate
exercise price of the Option at the time of exercise, (iii) if established by
the Company, through a "same day sale" commitment from optionee and a
broker-dealer that is acceptable to the Company that is a member of the National
Association of Securities Dealers (an "NASD Dealer") whereby the optionee
irrevocably elects to exercise the Option and to sell a portion of the shares so
purchased sufficient to pay for the total exercise price and whereby the NASD
Dealer irrevocably commits upon receipt of such shares to forward the total
exercise price directly to the Company, (iv) through additional methods
prescribed by the Committee, all under such terms and conditions as deemed
appropriate by the Committee in its discretion, or (v) by any combination of the
foregoing, and, in all instances, to the extent permitted by applicable law. A
Participant's subsequent transfer or disposition of any Common Stock acquired
upon exercise of an Option shall be subject to any Federal and state laws then
applicable, specifically securities law, and the terms and conditions of this
Plan.

8. Restricted Common Stock. The Committee may from time to time
award restricted Common Stock under the Plan to eligible Participants. Shares of
restricted Common Stock may not be sold, assigned, transferred or otherwise
disposed of, or pledged or hypothecated as collateral for a loan or as security
for the performance of any obligation or for any other purpose, for such period
(the "Restricted Period") as the Committee shall determine. The Committee may
define the Restricted Period in terms of the passage of time or in any other
manner it deems appropriate. The Committee may alter or waive at any time any
term or condition of restricted Common Stock that is not mandatory under the
Plan. Unless otherwise determined by the Committee, upon termination of a
Participant's Continuous Service with the Company for any reason prior to the
end of the Restricted Period, the restricted Common Stock shall be forfeited and
the Participant shall have no right with respect to the Award. Except as
restricted under the terms of the Plan and any Award agreement, any Participant
awarded restricted Common Stock shall have all the rights of a shareholder
including, without limitation, the right to vote restricted Common Stock. If a
share certificate is issued in respect of restricted

B-7

Common Stock, the certificate shall be registered in the name of the
Participant, but shall be held by the Company for the account of the Participant
until the end of the Restricted Period. The Committee may also award restricted
Common Stock in the form of restricted Common Stock units having a value equal
to an identical number of shares of Common Stock. Payment of restricted Common
Stock units shall be made in Common Stock or in cash or in a combination thereof
(based upon the Fair Market Value of the Common Stock on the day the Restricted
Period expires), all as determined by the Committee in its sole discretion.

9. Performance Shares.

(a) Type of Awards. Performance shares may be granted in the
form of actual shares of Common Stock or Common Stock units having a value equal
to an identical number of shares of Common Stock. In the event that a share
certificate is issued in respect of performance shares, such certificate shall
be registered in the name of the Participant, but shall be held by the Company
until the time the performance shares are earned. The Performance Objectives and
the length of the Performance Period shall be determined by the Committee. The
Committee shall determine in its sole discretion whether performance shares
granted in the form of Common Stock units shall be paid in cash, Common Stock,
or a combination of cash and Common Stock.

(b) Performance Objectives. The Committee shall establish the
Performance Objective for each Award of performance shares, consisting of one or
more business criteria permitted as Performance Goals hereunder, one or more
levels of performance with respect to each such criteria, and the amount or
amounts payable or other rights that the Participant will be entitled to upon
achievement of such levels of performance. The Performance Objective shall be
established by the Committee prior to, or reasonably promptly following the
inception of, a Performance Period but, to the extent required by Section 162(m)
of the Code, by no later than the earlier of the date that is ninety days after
the commencement of the Performance Period or the day prior to the date on which
twenty-five percent of the Performance Period has elapsed. More than one
Performance Goal may be incorporated in a Performance Objective, in which case
achievement with respect to each Performance Goal may be assessed individually
or in combination with each other. The Committee may, in connection with the
establishment of Performance Objectives for a Performance Period, establish a
matrix setting forth the relationship between performance on two or more
Performance Goals and the amount of the Award of performance shares payable for
that Performance Period. The level or levels of performance specified with
respect to a Performance Goal may be established in absolute terms, as
objectives relative to performance in prior periods, as an objective compared to
the performance of one or more comparable companies or an index covering
multiple companies, or otherwise as the Committee may determine. Performance
Objectives shall be objective and shall otherwise meet the requirements of
Section 162(m) of the Code. Performance Objectives may differ for performance
shares granted to any one Participant or to different Participants. An Award of
performance shares to a Participant who is a Covered Employee shall (unless the
Committee determines otherwise) provide that in the event of the Participant's
termination of Continuous Service prior to the end of the Performance Period for
any reason, such Award will be payable only (i) if the applicable Performance
Objectives are achieved and (ii) to the extent, if any, as the Committee shall
determine.

B-8

(c) Certification. Following the completion of each
Performance Period, the Committee shall certify in writing, in accordance with
the requirements of Section 162(m) of the Code, whether the Performance
Objectives and other material terms of an Award of performance shares have been
achieved or met. Unless the Committee determines otherwise, performance shares
shall not be settled until the Committee has made the certification specified
under this Section 9(c).

(d) Adjustment. The Committee may, in its discretion, reduce
or eliminate the amount of payment with respect to an Award of performance
shares to a Covered Employee, notwithstanding the achievement of a specified
Performance Objectives; provided, that, no such adjustment shall be made which
would adversely impact a Participant following a Change in Control.

(e) Maximum Amount Payable Subject to Section 18, the maximum
number of performance shares subject to any Award to a Covered Employee is
1,250,000 for each 12 months during the Performance Period (or, to the extent
the Award is paid in cash, the maximum dollar amount of any such Award is the
equivalent cash value, based on the Fair Market Value of the Common Stock, of
such number of shares of Common Stock on the last day of the Performance
Period).

10. Share Purchases. The Committee may authorize eligible
individuals to purchase Common Stock in the Company at a price equal to, below
or above the Fair Market Value of the Common Stock at the time of grant. Any
such offer may be subject to the conditions and terms the Committee may impose.

11. Stock Appreciation Rights. The Committee may in its discretion,
either alone or in connection with the grant of another Award, grant stock
appreciation rights in accordance with the Plan, the terms and conditions of
which shall be set forth in an agreement. If granted in connection with an
Option, a stock appreciation right shall cover the same number of shares of
Common Stock covered by the Option (or such lesser number of shares as the
Committee may determine) and shall, except as provided in this Section 11, be
subject to the same terms and conditions as the related Option.

(a) Time of Grant. A stock appreciation right may be granted
(i) at any time if unrelated to an Option, or (ii) if related to an Option,
either at the time of grant, or in the case of Nonqualified Stock Options, at
any time thereafter during the term of such Option.

(b) Stock Appreciation Right Related to an Option.

(i) A stock appreciation right granted in connection with an
Option shall be exercisable at such time or times and only to the extent that
the related Options are exercisable, and will not be transferable except to the
extent the related Option may be transferable. A stock appreciation right
granted in connection with an Incentive Stock Option shall be exercisable only
if the Fair Market Value of a share of Common Stock on the date of exercise
exceeds the purchase price specified in the related Incentive Stock Option
agreement.

B-9

(ii) Upon the exercise of a stock appreciation right related
to an Option, the Participant shall be entitled to receive an amount determined
by multiplying (A) the excess of the Fair Market Value of a share of Common
Stock on the date preceding the date of exercise of such stock appreciation
right over the per share purchase price under the related Option, by (B) the
number of shares of Common Stock as to which such stock appreciation right is
being exercised. Notwithstanding the foregoing, the Committee may limit in any
manner the amount payable with respect to any stock appreciation right by
including such a limit in the agreement evidencing the stock appreciation right
at the time it is granted.

(iii) Upon the exercise of a stock appreciation right granted
in connection with an Option, the Option shall be canceled to the extent of the
number of shares as to which the stock appreciation right is exercised, and upon
the exercise of an Option granted in connection with a stock appreciation right,
the stock appreciation right shall be canceled to the extent of the number of
shares of Common Stock as to which the Option is exercised or surrendered.

(c) Stock Appreciation Right Unrelated to an Option. The
Committee may grant to a Participant stock appreciation rights unrelated to
Options. Stock appreciation rights unrelated to Options shall contain such terms
and conditions as to exercisability, vesting and duration as the Committee shall
determine, but in no event shall they have a term of greater than ten (10)
years; provided, that, unless otherwise provided in an Award agreement, upon the
death of a Participant, stock appreciation rights that would otherwise remain
exercisable for a period of time following such death, shall remain exercisable
for one year following death notwithstanding the term of the Award. Upon
exercise of a stock appreciation right unrelated to an Option, the Participant
shall be entitled to receive an amount determined by multiplying (i) the excess
of the Fair Market Value of a share on the date preceding the date of exercise
of such stock appreciation right over the per share exercise price of the stock
appreciation right, by (ii) number of shares of Common Stock as to which the
stock appreciation right is being exercised. Notwithstanding the foregoing, the
Committee may limit in any manner the amount payable with respect to any stock
appreciation right by including such a limit in the agreement evidencing the
stock appreciation right at the time it is granted.

(d) Method of Exercise. Stock appreciation rights shall be
exercised by a Participant only by a written notice delivered in person or by
mail to the Company at the Company's principal executive office, specifying the
number of shares of Common Stock with respect to which the stock appreciation
right is being exercised. If requested by the Committee, the Participant shall
deliver the agreement evidencing the stock appreciation right being exercised
and the agreement evidencing any related Option to the Company who shall endorse
thereon a notation of such exercise and return such agreement to the
Participant.

(e) Form of Payment. Payment of the amount determined under
this Section 11 may be made in the discretion of the Committee solely in whole
shares of Common Stock in a number determined at their Fair Market Value on the
date preceding the date of exercise of the stock appreciation right, or solely
in cash, or in a combination of cash and shares. If the Committee decides to
make full payment in shares in Common Stock and the amount payable results in a
fractional share, payment for the fractional share will be made in cash.

B-10

12. Share Awards. Subject to such performance and employment
conditions as the Committee may determine, awards of Common Stock or awards
based on the value of the Common Stock may be granted either alone or in
addition to other Awards granted under the Plan. Any Awards under this Section
12 and any Common Stock covered by any such Award may be forfeited to the extent
so provided in the Award agreement, as determined by the Committee. Payment of
Common Stock awards made under this Section 12 which are based on the value of
Common Stock may be made in Common Stock or in cash or in a combination thereof
(based upon the Fair Market Value of the Common Stock on the date of payment),
all as determined by the Committee in its sole discretion.

13. Special Provisions.

(a) Change in Control. Unless otherwise provided in an Award
agreement, upon the occurrence of a Change in Control, all Options and stock
appreciation rights shall automatically become vested and exercisable in full
and all restrictions or performance conditions, if any, on any Common Stock
awards, restricted Common Stock, restricted Common Stock units, performance
shares or performance share units granted hereunder shall automatically lapse.
The Committee may, in its discretion, include such further provisions and
limitations in any agreement documenting such Awards as it may deem equitable
and in the best interests of the Company.

(b) Deferral. The Committee shall be authorized to establish
procedures pursuant to which the payment of any Award may be deferred. Subject
to the provisions of the Plan and any Award agreement, the recipient of an Award
(including, without limitation, any deferred Award) may, if so determined by the
Committee, be entitled to receive, currently or on a deferred basis, cash
dividends, or cash payments in amounts equivalent to cash dividends on shares
("dividend equivalents"), with respect to the number of shares of Common Stock
covered by the Award, as determined by the Committee, in its sole discretion,
and the Committee may provide that such amounts (if any) shall be deemed to have
been reinvested in additional shares or otherwise reinvested.

14. Withholding. Upon (a) disposition of shares of Common Stock
acquired pursuant to the exercise of an Incentive Stock Option granted pursuant
to the Plan within two years of the grant of the Incentive Stock Option or
within one year after exercise of the Incentive Stock Option, or (b) exercise of
a Nonqualified Stock Option (or an Incentive Stock Option treated as a
Nonqualified Stock Option), exercise of a stock appreciation right or the
vesting or payment of any other Award under the Plan, or (c) under any other
circumstances determined by the Committee in its sole discretion, the Company
shall have the right to require any Participant, and such Participant by
accepting the Awards granted under the Plan agrees, to pay to the Company the
amount of any taxes which the Company shall be required to withhold with respect
thereto. In the event of clauses (a), (b) or (c), with the consent of the
Committee, at its sole discretion, such Participant may elect to pay to the
Company an amount equal to the amount of the taxes which the Company shall be
required to withhold by delivering to the Company shares of Common Stock having
a Fair Market Value equal to the amount of the withholding tax obligation as
determined by the Company; provided, however, that no shares of Common Stock are
withheld with a value exceeding the minimum amount of tax required to be
withheld by law. Such shares so delivered to satisfy the minimum withholding
obligation may be either shares

B-11

withheld by the Company upon the exercise of the Option or other shares. At the
Committee's sole discretion, a Participant may elect to have additional taxes
withheld and satisfy such withholding with cash or shares of Common Stock held
for at least six (6) months prior to exercise, if, in the opinion of the
Company's outside accountants, doing so, would not result in a charge against
earnings.

15. Nontransferability, Beneficiaries. Unless otherwise determined
by the Committee with respect to the transferability of Nonqualified Stock
Options by a Participant to his Immediate Family Members (or to trusts or
partnerships or limited liability companies established for such family
members), no Award shall be assignable or transferable by the Participant,
otherwise than by will or the laws of descent and distribution or pursuant to a
beneficiary designation, and Options shall be exercisable, during the
Participant's lifetime, only by the Participant (or by the Participant's legal
representatives in the event of the Participant's incapacity). Each Participant
may designate a beneficiary to exercise any Option held by the Participant at
the time of the Participant's death or to be assigned any other Award
outstanding at the time of the Participant's death. If no beneficiary has been
named by a deceased Participant, any Award held by the Participant at the time
of death shall be transferred as provided in his will or by the laws of descent
and distribution. Except in the case of the holder's incapacity, an Option may
only be exercised by the holder thereof.

16. No Right to Continuous Service. Nothing contained in the Plan or
in any Award under the Plan shall confer upon any Participant any right with
respect to the continuation of service with the Company or any of its
Subsidiaries, or interfere in any way with the right of the Company or its
Subsidiaries to terminate his or her Continuous Service at any time. Nothing
contained in the Plan shall confer upon any Participant or other person any
claim or right to any Award under the Plan.

17. Governmental Compliance. Each Award under the Plan shall be
subject to the requirement that if at any time the Committee shall determine
that the listing, registration or qualification of any shares issuable or
deliverable thereunder upon any securities exchange or under any Federal or
state law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition thereof, or in connection therewith, no
such grant or award may be exercised or shares issued or delivered unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.

18. Adjustments; Corporate Events.

(a) In the event of any dividend or other distribution
(whether in the form of cash, Common Stock, other securities, or other
property), recapitalization, reclassification, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Company, or
exchange of Common Stock or other securities of the Company, issuance of
warrants or other rights to purchase Common Stock or other securities of the
Company, or other similar corporate transaction or event (an "Event"), and in
the Committee's opinion, such event affects the Common Stock such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the

B-12

benefits or potential benefits intended to be made available under the Plan or
with respect to an Award, then the Committee shall, in such manner as it may
deem equitable, including, without limitation, adjust any or all of the
following: (i) the number and kind of shares of Common Stock (or other
securities or property) with respect to which Awards may be granted or awarded;
(ii) the number and kind of shares of Common Stock (or other securities or
property) subject to outstanding Awards; and (iii) the grant or exercise price
with respect to any Award. The Committee determination under this Section 18(a)
shall be final, binding and conclusive. Any such adjustment made to an Incentive
Stock Option shall be made in accordance with Section 424(a) of the Code unless
otherwise determined by the Committee in its sole discretion. The Committee's
determination under this Section 18(a) shall be final, binding and conclusive.

(b) Upon the occurrence of an Event in which outstanding
Awards are not to be assumed or otherwise continued following such an Event, the
Committee may, in its discretion, terminate any outstanding Award without a
Participant's consent and (i) provide for either the purchase of any such Award
for an amount of cash equal to the amount that could have been attained upon the
exercise of such Award or realization of the Participant's rights had such Award
been currently exercisable or payable or fully vested or the replacement of such
Award with other rights or property selected by the Committee in its sole
discretion and/or (ii) provide that such Award shall be exercisable (whether or
not vested) as to all shares covered thereby for at least thirty (30) days prior
to such Event.

(c) The existence of the Plan, the Award agreement and the
Awards granted hereunder shall not affect or restrict in any way the right or
power of the Company or the shareholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the Company,
any issue of stock or of options, warrants or rights to purchase stock or of
bonds, debentures, preferred or prior preference stocks whose rights are
superior to or affect the Common Stock or the rights thereof or which are
convertible into or exchangeable for Common Stock, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.

19. Award Agreement. Each Award under the Plan shall be evidenced by
an agreement setting forth the terms and conditions, as determined by the
Committee, which shall apply to such Award, in addition to the terms and
conditions specified in the Plan.

20. Amendment. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time, provided that (a) no amendment shall be made
without shareholder approval if such approval is necessary to comply with any
applicable law, regulation or stock exchange rule and (b) except as provided in
Section 18, no amendment shall be made that would adversely affect the rights of
a Participant under an Award theretofore granted, without such Participant's
written consent.

21. General Provisions.

(a) The Committee may require each Participant purchasing or
acquiring shares pursuant to an Award under the Plan to represent to and agree
with the Company in

B-13

writing that such Participant is acquiring the shares for investment and without
a view to distribution thereof.

(b) All certificates for Common Stock delivered under the Plan
pursuant to any Award shall be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Common Stock is then listed, and any applicable Federal
or state securities law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
If the Committee determines that the issuance of Common Stock hereunder is not
in compliance with, or subject to an exemption from, any applicable Federal or
state securities laws, such shares shall not be issued until such time as the
Committee determines that the issuance is permissible.

(c) It is the intent of the Company that the Plan satisfy, and
be interpreted in a manner that satisfies, the applicable requirements of Rule
16b-3 as promulgated under Section 16 of the Exchange Act so that Participants
will be entitled to the benefit of Rule 16b-3, or any other rule promulgated
under Section 16 of the Exchange Act, and will not be subject to short-swing
liability under Section 16 of the Exchange Act. Accordingly, if the operation of
any provision of the Plan would conflict with the intent expressed in this
Section 21(c), such provision to the extent possible shall be interpreted and/or
deemed amended so as to avoid such conflict.

(d) Except as otherwise provided by the Committee in the
applicable grant or Award agreement, a Participant shall have no rights as a
shareholder with respect to any shares of Common Stocks subject to an Award
until a certificate or certificates evidencing shares of Common Stock shall have
been issued to the Participant and, subject to Section 18, no adjustment shall
be made for dividends or distributions or other rights in respect of any share
for which the record date is prior to the date on which Participant shall become
the holder of record thereof.

(e) The law of the State of Delaware shall apply to all Awards
and interpretations under the Plan regardless of the effect of such state's
conflict of laws principles.

(f) Where the context requires, words in any gender shall
include any other gender.

(g) Headings of Sections are inserted for convenience and
reference; they do not constitute any part of this Plan.

(h) The Committee shall have the power to accelerate the time
at which an Award shall be exercisable or vest notwithstanding the terms of any
Award agreement.

(i) No payment pursuant to the Plan shall be taken into
account in determining any benefits pursuant to any pension, retirement,
savings, profit sharing, group insurance, welfare or other benefit plan of the
Company or any Subsidiary except to the extent otherwise expressly provided in
writing in such other plan or an agreement thereunder.

B-14

(j) The expenses of administering the Plan shall be borne by
the Company and its Subsidiaries.

(k) No fractional shares of Common Stock shall be issued and
the Committee shall determine, in its discretion, whether cash shall be given in
lieu of fractional shares or whether such fractional shares shall be eliminated
by rounding up or down as appropriate.

(l) The Plan is intended to be an "unfunded" plan for
incentive compensation. With respect to any payments not yet made to a
Participant pursuant to an Award, nothing contained in the Plan or any Award
agreement shall give the Participant any rights that are greater than those of a
general creditor of the Company or any Subsidiary.

22. Expiration of the Plan. Subject to earlier termination pursuant
to Section 20, no Award may be granted following the 10-year anniversary of the
Effective Date and except with respect to outstanding Awards, this Plan shall
terminate.

23. Effective Date; Approval of Shareholders. The Plan is effective
as of the date it is approved by the affirmative vote of the holders of a
majority of the securities of the Company present, or represented, and entitled
to vote at a meeting of stockholders duly held in accordance with the applicable
laws of the State of Delaware (the "Effective Date"). If the Plan is approved,
no further grants shall be made under the terms of the Company's 2000 Employee
Stock Incentive Plan and the 2000 Director Stock Incentive Plan (collectively,
the "Prior Plans") on or after the Effective Date; provided, that, any
outstanding awards granted thereunder shall remain outstanding in accordance
with the terms and conditions of such Prior Plans and the award agreements
evidencing such awards. Unless the Company determines to submit Section 9 of the
Plan and the definition of Performance Goal to the Company's stockholders at the
first stockholder meeting that occurs in the fifth year following the year in
which the Plan was last approved by stockholders (or any earlier meeting
designated by the Board), in accordance with the requirements of Section 162(m)
of the Code, and such stockholder approval is obtained, then no further
performance shares shall be made to Covered Employees under Section 9 after the
date of such annual meeting, but the remainder of the Plan shall continue in
effect.

B-15

INNOVO GROUP INC.

PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 3, 2004

THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

The undersigned stockholder of Innovo Group Inc., or the Company, hereby
appoints Samuel J. Furrow, Jr., and Patricia Anderson 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 2004 annual meeting
of stockholders to be held on Thursday, June 3, 2004, at 10:00 a.m. (local time)
at The Wyndham Commerce Hotel, 5757 Telegraph Road, Commerce, California, 90040
upon the following matters and any other matter as may properly come before the
2004 annual meeting of stockholders or any adjournments thereof.

1. Election of ten directors to serve on the Board of Directors:

Samuel J. Furrow Samuel J. Furrow, Jr. Patricia Anderson
Marc B. Crossman Dean Factor Kelly Hoffman
Daniel A. Page Suhail R. Rizvi Kent Savage
Vincent Sanfilippo

|_| 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 approve and adopt the 2004 Stock Incentive Plan.

|_| FOR |_| AGAINST |_| ABSTAIN

3. Proposal to ratify the appointment of Ernst & Young LLP as the
independent auditors of the Company for the fiscal year ending
November 27, 2004.

|_| 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 "FOR" PROPOSAL 3 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, "FOR" PROPOSAL 2 AND "FOR" PROPOSAL 3.

The undersigned hereby acknowledges prior receipt of the notice of annual
meeting of stockholders and proxy statement dated April 13, 2004, the Annual
Report on Form 10-K and Amendment No. 1 to the Annual Report on Form 10-K for
the year ended November 29, 2003 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 2004
annual meeting of stockholders and voting in person.

If you receive more than one proxy card, please sign and return all cards
in the accompanying envelope.

Date: ______________________ , 2004.

_____________________________________________________
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 JUNE 3, 2004 ANNUAL MEETING OF STOCKHOLDERS.

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.