CONVERTIBLE NOTE PURCHASE AGREEMENT
Execution
Copy
This
Convertible Note Purchase Agreement (the “Agreement”)
is
made as of April 3, 2007 between Big Dog Holdings, Inc., a Delaware
corporation (the “Company”),
and
the purchasers set forth on Exhibit
B
hereto
(individually, a “Purchaser”
and
collectively, the “Purchasers”).
WITNESSETH:
WHEREAS,
the Company desires to sell to the Purchasers, and the Purchasers desire to
purchase from the Company, $18,500,000 aggregate principal amount of
8.375% Convertible Notes due 2012, initially convertible into an
aggregate of 1,027,777 shares (the “Shares”)
of the
Company’s common stock, par value $0.01 per share (the “Common
Stock”),
pursuant to promissory notes in the form attached hereto as Exhibit
A
(the
“Notes”)
in a
private placement pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the “Securities
Act”),
and
Rule 506 promulgated thereunder, and pursuant to the terms of this Agreement;
the private placement described in this recital is referred to herein as the
“Offering”.
This
Agreement and the Notes, and any other documents or agreements executed in
connection with the transactions contemplated hereunder, are referred to herein
as the “Transaction
Documents”.
WHEREAS,
the Company desires to sell to each Purchaser, and each Purchaser desires to
purchase from the Company, the principal amount of Notes set forth on
Exhibit
B
opposite
the name of each Purchaser; and
WHEREAS,
the parties hereto desire to enter into this Agreement for the purpose of
setting forth certain representations, warranties and covenants made by each
to
the other as an inducement to the execution and delivery of this Agreement
and
the conditions precedent to the consummation of the transactions set forth
in
this Agreement.
NOW,
THEREFORE, in consideration of the premises and of the mutual provisions,
agreements and covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the
parties hereto agree as follows:
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Section
1.
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Authorization
and Sale of the Notes.
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(a) Subject
to the terms and conditions set forth in this Agreement, the Company has
authorized the sale of the Notes to accredited investors (as defined in the
Securities Act) in accordance with Rule 506 under the Securities
Act.
(b) The
completion of the purchase and sale of the Notes (the “Closing”)
shall
occur on the date of this Agreement (the “Closing
Date”).
At
the Closing, the Company shall deliver to each Purchaser one or more Notes
representing the aggregate principal amount set forth such Purchaser’s name on
Exhibit
B
hereto,
each such Note to be recorded in the name of the applicable Purchaser or, if
so
indicated on the signature page hereto, in the name of a nominee designated
by
each Purchaser.
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Section
2.
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Conditions
to Closing.
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(a) Condition
to Company’s Obligations.
The
Company’s obligation to issue the Notes to the Purchasers shall be subject to
the following conditions, any one or more of which may be waived by the
Company:
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1.
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receipt
by the Company of a wire transfer of funds to an account designated
by the
Company in the full amount of the purchase price for all of the
Notes
being purchased hereunder as set forth on Exhibit
B;
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2.
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the
representations and warranties of the Purchasers set forth herein
shall be
true and correct as of the Closing Date in all respects (except
for
representations and warranties that speak as of a specific date,
which
representations and warranties shall be true and correct as of
such date);
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3.
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receipt
by the Company of a subordination agreement in favor of Xxxxx Fargo
in
substantially the form of Exhibit
E;
and
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4.
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the
satisfaction of the undertakings of the Purchasers to be fulfilled
prior
to the Closing.
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(b) Conditions
to Purchasers’ Obligations.
The
Purchasers’ obligations to purchase the Notes shall be subject to the following
conditions:
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1.
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the
representations and warranties of the Company set forth herein
shall be
true and correct as of the Closing Date in all respects (except
for
representations and warranties that speak as of a specific date,
which
representations and warranties shall be true and correct as of
such
date);
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2.
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the
Company shall have satisfied the undertakings to be fulfilled by
the
Company prior to Closing;
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3.
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payment
for the costs, expenses and filing fees identified in Section 24;
and
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4.
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each
Purchaser shall have received such documents as each Purchaser
shall
reasonably have requested, including without limitation a standard
opinion
of Company counsel as to the matters set forth in the form attached
as
Exhibit
C
hereto, including without limitation as to exemption from the registration
requirements of the Securities Act of the sale of the Notes and
the
conversion of the Notes into
Shares.
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Section
3. Representations,
Warranties and Covenants of the Company.
The
Company hereby represents and warrants to, and covenants with, each Purchaser,
as follows:
(a) Organization.
The
Company and each of its “Subsidiaries”
(as
defined in Rule 405 under the Securities Act) is duly organized and validly
existing in good standing under the laws of the jurisdiction of its
organization. Each of the Company and its Subsidiaries has full corporate
power
and authority to own, operate and occupy its properties and to conduct its
business as presently conducted and as described in the documents filed by
the
Company under the Securities Exchange Act of 1934, as amended, and the rules
and
regulations promulgated thereunder (the “Exchange
Act”),
since
the end of its most recently completed fiscal year through the date hereof,
including, without limitation, its most recent report on Form 10-K (the
“Exchange
Act Documents”)
and is
registered or qualified to do business and in good standing in each jurisdiction
in which the nature of the business conducted by it or the location of the
properties owned or leased by it requires such qualification and where the
failure to be so qualified would have a material adverse effect upon the
condition (financial or otherwise), earnings, business, properties or operations
of the Company and its Subsidiaries, taken as a whole (a “Material
Adverse Effect”),
and
no proceeding has been instituted in any such jurisdiction, revoking, limiting
or curtailing, or seeking to revoke, limit or curtail, such power and authority
or qualification.
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(b) Due
Authorization and Valid Issuance.
The
Company has all corporate power and authority to execute, deliver and perform
its obligations under the Transaction
Documents,
and the
Transaction Documents have been duly authorized and validly executed and
delivered by the Company and constitute legal, valid and binding agreements
of
the Company enforceable against the Company in accordance with their terms,
except as rights to indemnity and contribution may be limited by state or
federal securities laws or the public policy underlying such laws, except
as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered
in
a proceeding in equity or at law). The Notes being purchased by each Purchaser
hereunder and the Shares issuable upon conversion of, or in satisfaction
of the
obligation to make certain interest payments on, the Notes are duly authorized
and will, upon issuance and payment therefor pursuant to the terms hereof
and
thereof, be validly issued, fully-paid and nonassessable.
(c) Non-Contravention.
The
execution and delivery of the Transaction Documents, the issuance and sale
of
the Notes under this Agreement, the issuance of the Shares under the Notes,
the
fulfillment of the terms of the Transaction Documents, and the consummation
of
the transactions contemplated thereby will not (A) conflict with or
constitute a violation of, or default (with the passage of time or otherwise)
under, (i) any bond, debenture, note or other evidence of indebtedness,
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any Subsidiary
is a party or by which it or any of its Subsidiaries or their respective
properties are bound, (ii) the charter or by-laws of the Company or any
Subsidiary, or (iii) any law, administrative regulation, ordinance or order
of any court or governmental agency, arbitration panel or authority applicable
to the Company or any Subsidiary or their respective properties, except in
the
case of clauses (i) and (iii) for any such conflicts, violations or
defaults which are not reasonably likely to have a Material Adverse Effect
or
(B) result in the creation or imposition of any lien, encumbrance, claim,
security interest or restriction whatsoever upon any of the material properties
or assets of the Company or any Subsidiary or an acceleration of indebtedness
pursuant to any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or any material indenture,
mortgage, deed of trust or any other agreement or instrument to which the
Company or any Subsidiary is a party or by which any of them is bound or
to
which any of the material property or assets of the Company or any Subsidiary
is
subject except for any such creation or imposition which is not reasonably
likely to have a Material Adverse Effect. No consent, approval, authorization
or
other order of, or registration, qualification or filing with, any regulatory
body, administrative agency, or other governmental body in the United States
or
any other person (including, without limitation, the stockholders of the
Company) is required for the execution and delivery of the Transaction
Documents, the valid issuance and sale of the Notes to be sold pursuant to
the
Agreements and the valid issuance of the Shares under the Notes, other than
such
as have been made or obtained, and except for post-closing securities filings
or
notifications required to be made under federal or state securities
laws.
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(d)
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Capitalization.
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1.
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The
capitalization of the Company as of September 30, 2006 is
as set forth in the most recent applicable Exchange Act Documents,
increased as set forth in the next sentence. The Company has not
issued
any capital stock since that date other than pursuant to (i) employee
benefit plans disclosed in the Exchange Act Documents, or (ii)
outstanding
warrants, options or other securities disclosed in the Exchange
Act
Documents. The Notes to be sold pursuant to the Transaction Documents
have
been duly authorized, and when issued and paid for in accordance
with the
terms of the Transaction Documents, will be duly and validly issued,
fully
paid and nonassessable. The Shares have been duly authorized and,
when
issued pursuant to the terms of the Notes, the Shares will be duly
and
validly issued, fully paid and nonassessable. The outstanding shares
of
capital stock of the Company have been duly and validly issued
and are
fully paid and nonassessable, have been issued in compliance with
all
federal and state securities laws, and were not issued in violation
of any
preemptive rights or similar rights to subscribe for or purchase
securities.
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2.
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Except
as set forth on Schedule
3(d)2,
there are no outstanding rights (including, without limitation,
preemptive
rights), warrants or options to acquire, or instruments convertible
into
or exchangeable for, any unissued shares of capital stock or other
equity
interest in the Company or any Subsidiary, or any contract, commitment,
agreement, understanding or arrangement of any kind to which the
Company
is a party or of which the Company has knowledge and relating to
the
issuance or sale of any capital stock of the Company or any Subsidiary,
any such convertible or exchangeable securities or any such rights,
warrants or options.
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3.
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Other
than with respect to the registration procedures set forth in Section
7
hereof, and without limiting the foregoing, no preemptive right,
co-sale
right, right of first refusal, registration right, or other similar
right
exists with respect to the Notes and Shares or the issuance and
sale
thereof. No further approval or authorization of any stockholder,
the
Board of Directors of the Company or others is required for the
issuance
and sale of the Notes and the Shares, including under Nasdaq rules.
The
Company owns the entire equity interest in each of its Subsidiaries,
free
and clear of any pledge, lien, security interest, encumbrance,
claim or
equitable interest, other than as described in Schedule
3(d)3.
Except as set forth on Schedule
3(d)3,
there are no stockholders agreements, voting agreements or other
similar
agreements with respect to the Company’s Common Stock to which the Company
is a party or, to the knowledge of the Company, between or among
any of
the Company’s stockholders.
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(e) Legal
Proceedings.
There
is no material legal or governmental proceeding pending or, to the knowledge
of
the Company, threatened to which the Company or any Subsidiary is or may
be a
party or of which the business or property of the Company or any Subsidiary
is
subject that is required to be disclosed in an Exchange Act Documents and
not so
disclosed.
(f) No
Violations.
Except
as disclosed in the Exchange Act Documents, neither the Company nor any
Subsidiary is (i) in violation of its charter, bylaws, or other organizational
document, or (ii) in violation of any law, administrative regulation, ordinance
or order of any court or governmental agency, arbitration panel or authority
applicable to the Company or any Subsidiary, which violation, individually
or in
the aggregate, would be reasonably likely to have a Material Adverse Effect,
or
(iii) in default (and there exists no condition which, with the passage of
time
or otherwise, would constitute a default) in the performance of any bond,
debenture, note or any other evidence of indebtedness in any indenture,
mortgage, deed of trust or any other material agreement or instrument to
which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or by which the properties of the Company or any Subsidiary
are bound, which would be reasonably likely to have a Material Adverse
Effect.
(g) Environmental
Matters.
To the
Company’s knowledge, the Company and its Subsidiaries are and have been in
compliance in all material respects with all Environmental Laws; (b) there
has
been no release or threatened release of any pollutant, contaminant or toxic
or
hazardous material, substance or waste, or petroleum or any fraction thereof,
(each a “Hazardous
Substance”)
on,
upon, into or from any site currently or heretofore owned, leased or otherwise
used by the Company or its Subsidiaries in violation of any Environmental
Laws;
(c) there have been no Hazardous Substances generated by the Company or its
Subsidiaries that have been disposed of or come to rest at any site that
has
been included in any published U.S. federal, state or local “superfund” site
list or any other similar list of hazardous or toxic waste sites published
by
any governmental authority in the United States; and (d) there are no
underground storage tanks located on, no polychlorinated biphenyls
(“PCBs”)
or
PCB-containing equipment used or stored on, and no hazardous waste as defined
by
the Resource Conservation and Recovery Act, as amended, stored on, any site
owned or operated by the Company or its Subsidiaries, except for the storage
of
hazardous waste in compliance with Environmental Laws. The Company has made
available to the Purchasers true and complete copies of all material
environmental records, reports, notifications, certificates of need, permits,
pending permit applications, correspondence, engineering studies, and
environmental studies or assessments. For purposes of this Section 3(g),
“Environmental
Laws”
means
any law, regulation, or other applicable requirement relating to (a) releases
or
threatened release of Hazardous Substance; (b) pollution or protection of
employee health or safety, public health or the environment; or (c) the
manufacture, handling, transport, use, treatment, storage, or disposal of
Hazardous Substances.
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(h) Governmental
Permits, Etc.
With
the exception of the matters which are disclosed in the Exchange Act Documents
or described in Sections 3(a), 3(n), 3(o) and 3(p) hereof, each of the Company
and its Subsidiaries has all necessary franchises, licenses, certificates
and
other authorizations from any foreign, federal, state or local government
or
governmental agency, department, or body that are currently necessary for
the
operation of the business of the Company and its Subsidiaries as currently
conducted as described in the Exchange Act Documents except where the failure
to
currently possess could not reasonably be expected to have a Material Adverse
Effect.
(i) Intellectual
Property.
Except
as specifically set forth on Schedule
3(i),
(i) each of the Company and its Subsidiaries owns or possesses sufficient
rights to conduct its business as currently conducted in the ordinary course,
including, without limitation, rights to use all material patents, patent
rights, industry standards, trademarks, copyrights, licenses, inventions,
trade
secrets, trade names and know-how described or referred to in Schedule
3(i)
as owned
or possessed by it or that are necessary for the conduct of its business
as now
conducted (collectively, “Intellectual
Property”)
except
where the failure to currently own or possess would not have a Material Adverse
Effect, (ii) neither the Company nor any of its Subsidiaries is infringing,
or
has received any notice of, or has any knowledge of, any asserted infringement
by the Company or any of its Subsidiaries of, any rights of a third party
with
respect to any Intellectual Property that, individually or in the aggregate,
would have a Material Adverse Effect and (iii) neither the Company nor any
of its Subsidiaries has received any notice of, or has any knowledge of,
infringement by a third party with respect to any Intellectual Property rights
of the Company or of any Subsidiary that, individually or in the aggregate,
would have a Material Adverse Effect.
(j) Financial
Statements.
The
financial statements of the Company and the related notes contained in the
Exchange Act Documents present fairly, in accordance with generally accepted
accounting principles, the financial position of the Company and its
Subsidiaries as of the dates indicated, and the results of its operations
and
cash flows for the periods therein specified except that the unaudited interim
financial statements were or are subject to normal year-end adjustments.
Such
financial statements (including the related notes) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods therein specified, except as may be disclosed
in
the notes to such financial statements, or in the case of unaudited statements,
as may be permitted by the Securities and Exchange Commission (“SEC”)
on
Form 10-Q under the Exchange Act and except as disclosed in the Exchange
Act Documents. The other financial information contained in the Exchange
Act
Documents has been prepared on a basis consistent with the financial statements
of the Company.
(k) No
Material Adverse Change.
Except
as disclosed in the Exchange Act Documents, since September 30, 2006, there
has
not been (i) any event which has had, or would be reasonably expected to
have, a Material Adverse Effect; (ii) any obligation, direct or contingent,
that
is material to the Company and its Subsidiaries considered as one enterprise,
incurred by the Company, except obligations incurred in the ordinary course
of
business, (iii) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company or any of its Subsidiaries, or
(iv) any loss or damage (whether or not insured) to the physical property
of the Company or any of its Subsidiaries which has been sustained which
has had
a Material Adverse Effect.
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(l) Disclosure.
The
representations and warranties of the Company contained in this Section 3
as of the date hereof and as of the Closing Date, do not contain any untrue
statement of a material fact or omit to state a material fact required to
be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except with respect
to
the material terms and conditions of the transaction contemplated by the
Transaction Documents, which shall be publicly disclosed by the Company pursuant
to Section 21 hereof, the Company confirms that neither it nor any person
acting on its behalf has provided each Purchaser with any information that
the
Company believes constitutes material, non-public information. The Company
understands and confirms that each Purchaser will rely on the foregoing
representations in effecting transactions in securities of the
Company.
(m) NASDAQ
Compliance.
The
Company’s Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is listed on The Nasdaq Stock Market, Inc. Global Market
(the
“Nasdaq
National Market”),
and
the Company has taken no action designed to, or likely to have the effect
of,
terminating the registration of the Common Stock under the Exchange Act or
de-listing the Common Stock from the Nasdaq National Market, nor has the
Company
received any notification that the SEC or the National Association of Securities
Dealers, Inc. (“NASD”)
is
contemplating terminating such registration or listing. The Company is in
compliance with all applicable Nasdaq maintenance requirements and corporate
governance requirements for continuing listing on Nasdaq National Market.
The
issuance by the Company of the Notes and the Shares shall not have the effect
of
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the Nasdaq National Market.
(n) Reporting
Status.
The
Company is eligible to use Form S-3 to register the Shares to be offered
for the
account of each Purchaser, subject to SEC interpretation and limitation as
to
the number of Shares which may be included in a re-sale registration statement
on Form S-3. The Exchange Act Documents, as of their respective dates and
as of
the Closing Date, do not and will not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
or
will be made, not misleading. The following documents complied as to form
in all
material respects with the SEC’s requirements as of their respective filing
dates:
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1.
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the
Annual Report on Form 10-K for the fiscal year ended December 31,
2005;
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2.
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all
other documents, if any, filed by the Company with the SEC during
the
one-year period preceding the date of this Agreement pursuant to
the
reporting requirements of the Exchange
Act.
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(o) NASDAQ
Listing.
The
Company shall comply with all requirements of the NASD and SEC with respect
to
the issuance of the Notes and the Shares, and the listing of the Shares on
the
Nasdaq National Market. The Company will promptly seek to list all of the
Shares
on the Nasdaq National Market.
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(p) No
Manipulation of Stock.
The
Company has not taken and will not, in violation of applicable law, take,
any
action designed to or that might reasonably be expected to cause or result
in
stabilization or manipulation of the price of the Common Stock to facilitate
the
sale or resale of the Notes or the Shares.
(q) Company
not an “Investment Company”.
The
Company has been advised of the rules and requirements under the Investment
Company Act of 1940, as amended (the “Investment
Company Act”).
To
the knowledge of the Company, the Company is not, and immediately after receipt
of payment for the Notes will not be, an “investment company” or an entity
“controlled” by an “investment company” within the meaning of the Investment
Company Act and shall conduct its business in a manner so that it will not
become subject to the Investment Company Act.
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(r)
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Foreign
Corrupt Practices; Embargoed Person.
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1.
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Neither
the Company, nor to the knowledge of the Company, any agent or
other
person acting on behalf of the Company, has (i) directly or indirectly,
used any corrupt funds for unlawful contributions, gifts, entertainment
or
other unlawful expenses related to foreign or domestic political
activity,
(ii) made any unlawful payment to foreign or domestic government
officials
or employees or to any foreign or domestic political parties or
campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made
by the Company (or made by any person acting on its behalf of which
the
Company is aware) which is in violation of law, or (iv) violated
in any
material respect any provision of the Foreign Corrupt Practices
Act of
1977, as amended.
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2.
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None
of the funds or other assets of the Company constitute or shall
constitute
property of, or shall be beneficially owned, directly or indirectly,
by
any person with whom U.S. persons are restricted from engaging
in
financial or other transactions under United States law, including,
but
not limited to, the International Emergency Economic Powers Act,
50 U.S.C.
§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1
et seq.,
and any executive orders or regulations promulgated under any such
United
States laws (each, an “Embargoed
Person”),
with the result that the investments evidenced by the Shares are
or would
be in violation of law; (ii) no Embargoed Person has or shall have
any
interest of any nature whatsoever in the Company with the result
that the
investments evidenced by the Shares are or would be in violation
of law;
and (iii) none of the funds of the Company are or shall be derived
from
any unlawful activity with the result that the investments evidenced
by
the Notes are or would be in violation of law; provided, that with
respect
to the covenants contained in this Section 3(s)2, the Company may
assume
that the Purchasers are not Embargoed Persons. The Company certifies
that,
to the Company’s knowledge, the Company has not been designated, and is
not owned or controlled, by an Embargoed
Person.
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(s) Accountants.
To the
Company’s knowledge, Singer Lewak Xxxxxxxxx & Xxxxxxxxx LLP are independent
accountants as required by the Securities Act and the rules and regulations
promulgated thereunder.
(t) Contracts.
The
contracts described in the Exchange Act Documents that are material to the
Company are in full force and effect on the date hereof, and neither the
Company
nor, to the Company's knowledge, any other party to such contracts is in
breach
of or default under any of such contracts which breach or default would have
a
Material Adverse Effect. The Company has filed with the SEC all contracts
and
agreements required to be filed by the Exchange Act.
(u) Taxes.
Except
as such would not have a Material Adverse Effect, the Company has filed all
necessary federal, state and foreign income and franchise tax returns when
due
(or obtained appropriate extensions for filing) and has paid or accrued all
taxes shown as due thereon, and the Company has no knowledge of a tax deficiency
which has been or might be asserted or threatened against it which would
have a
Material Adverse Effect.
(v) Transfer
Taxes.
On the
Closing Date, all stock transfer or other taxes (other than income taxes)
which
are required to be paid in connection with the sale and transfer of the Notes
to
be sold to each Purchaser hereunder will be, or will have been, fully paid
or
provided for by the Company and all laws imposing such taxes will be or will
have been fully complied with. Upon the issuance of the Shares pursuant to
the
Notes, all stock transfer or other taxes (other than income taxes) which
are
required to be paid in connection therewith will be, or will have been, fully
paid or provided for by the Company and all laws imposing such taxes will
be or
will have been fully complied with.
(w) Private
Offering; No General Solicitation.
Assuming the correctness of the representations and warranties of each
Purchaser, set forth in Section 4 hereof, and of the Placement Agent, set
forth in a certificate to the Company and its counsel in connection herewith,
the offer and sale of Notes hereunder is, and the issuance of the Shares
under
the Notes will be, exempt from registration under the Securities Act. The
Company has not distributed and will not distribute prior to the Closing
Date
any offering material in connection with this Offering and sale of the Notes
other than the Transaction Documents. The Company has not in the past nor
will
it hereafter take any action independent of the placement agent to sell,
offer
for sale or solicit offers to buy any securities of the Company which would
bring the offer, issuance or sale of the Notes as contemplated by this
Agreement, or the issuance of the Shares pursuant to the Notes, within the
provisions of Section 5 of the Securities Act, unless such offer, issuance
or
sale was or shall be within the exemptions of Section 4 of the Securities
Act.
Neither the Company nor any person acting on behalf of the Company (other
than
the Placement Agent, as to whom the Company makes no representation or warranty)
has offered or sold any of the Notes by any form of general solicitation
or
general advertising. The Company has offered the Notes for sale only to each
Purchaser and certain other accredited investors within the meaning of Rule
501
under the Securities Act. The Company has no intention of making, and will
not
make, an offer or sale of any securities, for a period of six months after
the
date of this Agreement, which would be required to be integrated into this
Offering in a manner that would require the registration under the Securities
Act of any of the Notes or the Shares, except for the offering of Notes as
contemplated by the Agreements.
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(x) Controls
and Procedures.
The
Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
Act
of 2002 which are applicable to it as of the Closing Date. The Company has
established and maintains an effective system of internal control over financial
reporting (as such term is defined in the Exchange Act ) regarding the
reliability of financial reporting and preparation of financial statements
for
external purposes in accordance with GAAP and includes policies and procedures
that (i) pertain to maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
issuer; (ii) provide reasonable assurance that transactions are recorded
as
necessary to permit preparation of financial statements in accordance with
GAAP,
and that receipts and expenditures of the issuer are being made only in
accordance with authorizations of management and directors of the issuer;
and
(iii) provide reasonable assurance regarding prevention or timely detection
of
unauthorized acquisition, use, or disposition of the issuer’s assets that could
have a material adverse effect on the financial statements. The Company has
established and maintains disclosure controls and procedures (as defined
in
Exchange Act) that are effective in ensuring that information required to
be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the
time
periods specified in the SEC’s rules and forms, including, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Act
is accumulated and communicated to the Company’s management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure. The Company’s certifying officers have evaluated the effectiveness
of the Company’s disclosure controls and procedures and presented in the
applicable Exchange Act Documents their conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the periods covered
by
such Exchange Act Documents based on such evaluation. Since the last such
evaluation date, there has been no change in the Company’s internal control over
financial reporting that has materially affected, or is reasonably likely
to
materially affect, the Company’s internal control over financial reporting, and
no significant deficiencies or material weaknesses in internal controls over
financial reporting, or other factors that could significantly affect the
Company’s internal control over financial reporting, have been
identified.
(y) Transactions
With Affiliates.
Except
as set forth on Schedule
3(y)
or as
contemplated in this Agreement, there are no obligations of the Company to
officers, directors, stockholders or employees of the Company other than
(i) for
payment of salary for services rendered and for bonus payments; (ii)
reimbursements for reasonable expenses incurred on behalf of the Company;
(iii)
for other standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company); and (iv) obligations
listed
in the Company’s financial statements. Except as described above or on
Schedule
3(y),
none of
the officers, directors or, to the best of the Company’s knowledge, key
employees or stockholders of the Company or any members of their immediate
families, are indebted to the Company, individually or in the aggregate,
in
excess of $120,000 or have any direct or indirect ownership interest in any
firm
or corporation with which the Company is affiliated or with which Company
has a
business relationship, or any firm or corporation which competes with the
Company, other than passive investments in publicly traded companies
(representing less than one percent (1%) of such company) which may compete
with
the Company. Except as described above, no officer, director or stockholder,
or
any member of their immediate families, is, directly or indirectly, interested
in any material contract with the Company and no agreements, understandings
or
proposed transactions are contemplated between the Company and any such person.
Except as set forth in any Exchange Act Documents, the Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
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10 -
(z) No
Registration Rights.
Except
as set forth on Schedule
3(z),
no
person has the right, which right has not been waived, to require the Company
or
any Subsidiary to register any securities for sale under the Securities Act
by
reason of the filing of the Registration Statement with the SEC or the issuance
and sale of the Notes or the Shares.
(aa) Margin
Securities.
Neither
the Company nor any of the Subsidiaries owns any “margin securities” as that
term is defined in Regulation U of the Board of Governors of the Federal
Reserve System (the “Federal
Reserve Board”),
and
none of the proceeds of the sale of the Notes will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security,
for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose
which
might cause any of the Notes to be considered a “purpose credit” within the
meanings of Regulation T, U or X of the Federal Reserve Board.
(bb) Assets;
Solvency.
The
Company and its Subsidiaries have good and marketable title in fee simple
to all
items of real property and marketable title to all personal property owned
by
each of them, free and clear of any pledge, lien, encumbrance, security interest
or other defect or claim of any third party, and any real property and buildings
leased by the Company or such Subsidiaries are held under valid, subsisting
and
enforceable leases, in each case, with such exceptions as are not material
and
do not interfere with the use made or proposed to be made of such property
and
buildings by the Company or such Subsidiaries. The fair saleable value of
the
assets of the Company exceeds the amount that will be required to be paid
on or
in respect of its existing debts and other known liabilities (including known
contingent liabilities) as they mature; the Company does not intend to, and
does
not believe that it will, incur debts beyond its ability to pay such debts
as
they mature; and upon the issuance of the Notes, the fair salable value of
the
assets of the Company will exceed the amount that will be required to be
paid on
or in respect of its existing debts and other liabilities (including known
contingent liabilities) as they mature.
Section
4. Representations,
Warranties and Covenants of each Purchaser.
Each
Purchaser, severally and not jointly, represents and warrants to, and covenants
with, the Company that:
(a) Such
Purchaser is an accredited investor as defined in Rule 501 under the Securities
Act.
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11 -
(b) The
Purchaser has all requisite power and authority to execute, deliver and perform
its obligations under this Agreement. The execution of this Agreement and
the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of such Purchaser and this Agreement
has
been duly executed and delivered and constitutes the valid and binding
obligation of the Purchaser enforceable in accordance with its terms, except
as
rights to indemnity and contribution may be limited by state or federal
securities laws or the public policy underlying such laws, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered
in
a proceeding in equity or at law).
(c) The
Notes
and Shares to be purchased by the Purchaser will be acquired for investment
for
the Purchaser’s own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof in violation of the Securities
Act, and such Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. Such Purchaser does
not
have any contract, undertaking, agreement, or arrangement with any person
to
sell, transfer, or grant participation to any person with respect to any
of the
Notes or Shares. Nothing contained herein shall be deemed a representation
or
warranty by such Purchaser to hold the Notes or Shares for any period of
time.
(d) Purchaser
acknowledges that it has received all the information that it has requested
relating to the Company and the purchase of the Notes and Shares. The Purchaser
further represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the Offering.
The
foregoing, however, does not limit or modify the representations and warranties
of the Company in this Agreement or the right of the Purchaser to rely
thereon.
(e) Purchaser
understands that the Notes and Shares that it is purchasing are characterized
as
“restricted securities” under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public
offering, and that under such laws and applicable regulations such securities
may be resold without registration under the Act, only in certain limited
circumstances. In this connection, the Purchaser represents that it understands
the resale limitations imposed by the Act.
(f) Legends.
It is
understood that the Notes and certificate or certificates for the Shares
shall
bear a legend reading substantially as follows:
THIS
SECURITY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER
THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES
ACT”),
AND
THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, EXCEPT: (I) PURSUANT TO
AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO; OR (II) IN ACCORDANCE WITH
AN
OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT.
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(g) The
Company acknowledges and agrees that such Purchaser does not make or has
not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth herein or in
the
Accredited Investor Questionnaire.
(h) It
shall
be a condition to any transfer of any Note that the proposed transferee shall
have completed and delivered to the Company an “Accredited Investor
Questionnaire” representing that such transferee is an accredited investor, and
that each such transferee shall make each of the representations and warranties
and shall comply with the Purchaser’s covenants set forth in this Section
4.
(i) Short
Sales and Confidentiality after the date hereof.
Each
Purchaser, severally and not jointly, covenants that neither it nor any
affiliate acting on its behalf or pursuant to any understanding with it has
engaged or will engage, directly or indirectly, in any transactions in the
securities of the Company (including, without limitation, any short sales
involving the Company’s securities) until 2 days after the date the transactions
contemplated by this Agreement are first publicly announced as described
in
Section 21. Each Purchaser, severally and not jointly, covenants that until
such
time as the transactions contemplated by this Agreement are publicly disclosed
by the Company as described in Section 21, such Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). Each
Purchaser acknowledges the SEC's position set forth in Item 65, Section A,
of
the Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance,
and
such Purchaser will adhere to such position. Notwithstanding the foregoing,
in
the case of a Purchaser that is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such Purchaser's
assets
and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser's
assets, the covenant set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement.
(j) The
Purchaser understands that nothing in the Exchange Act Documents, this
Agreement, the Note or any other materials presented to the Purchaser in
connection with the purchase and sale of the Note and the Shares constitutes
legal, tax or investment advice. The Purchaser has consulted such legal,
tax and
investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Note and the
Shares.
(k) Change
of Control.
The
Purchaser covenants and agrees with the Company that it shall not sell the
Shares to any Person, if as a result of such sale such Person would
beneficially own on an as-converted basis more than twenty percent (20%)
of the
issued and outstanding Common Stock.
(l) California
Disclosure.
The
Purchaser acknowledges the following disclosure, which is set forth herein
pursuant to Section 25102(a) of the California Corporate Securities Law of
1968
(provided that, subject to the accuracy of the Purchasers' representations
and
warranties to the Company, the Company represents that the sale of the Shares
is
so exempt):
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13 -
THE
SALE
OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE
SALE
OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR
25105
OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE
SALE
IS SO EXEMPT.
Section
5. Affirmative
and Negative Covenants.
The
covenants and agreements set forth in Section 3 of each Note are hereby
incorporated by reference into this Agreement.
Section
6. Survival
of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company
and
each Purchaser herein shall survive the execution of this Agreement, the
delivery to each Purchaser of the Notes being purchased and the payment therefor
until the expiration date of the Company’s obligation to keep the Registration
Statement effective pursuant to Section 7(a)(3).
Section
7. Registration
of the Shares; Compliance with the Securities Act.
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(a)
|
Registration
Procedures and Other Matters.
The Company shall:
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1.
|
subject
to Section 7(b), and subject to receipt of necessary information
from the
Purchaser after request from the Company to the Purchaser to provide
such
information, which request shall be mailed in accordance with Section
13
hereof no later than 5 business days after the Closing Date, prepare
and
file with the SEC, within 90 days after the Closing Date (the
“Filing
Date”),
a registration statement on Form S-3 (the “Registration
Statement”)
to enable the resale of the Shares by each Purchaser from time
to time
through the automated quotation system of the Nasdaq National Market
or in
privately-negotiated transactions;
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2.
|
subject
to receipt of necessary information from the Purchaser after request
from
the Company to the Purchaser to provide such information, use its
commercially reasonable efforts to cause the Registration Statement
to
become effective on or prior to the 180th
day after the Closing Date (the “Required
Effective Date”);
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3.
|
use
its commercially reasonable efforts to prepare and file with the
SEC such
amendments and supplements to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to
keep the
Registration Statement current, effective and free from any material
misstatement or omission to state a material fact for a period
not
exceeding, with respect to each Purchaser’s Shares, the earlier of
(i) the date on which each Purchaser may sell all Shares then held
by
each Purchaser without restriction by the volume limitations of
Rule 144 of the Securities Act, (ii) such time as all Shares
issuable pursuant to the Notes have been sold pursuant to a registration
statement, or (iii) such time as all Shares and Notes cease to
be
outstanding;
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4.
|
furnish
to each Purchaser with respect to the Shares registered under the
Registration Statement such number of copies of the Registration
Statement, Prospectuses, preliminary Prospectuses and free writing
prospectuses (as defined in Rule 405 under the Securities Act)
in
conformity with the requirements of the Securities Act and such
other
documents as each Purchaser may reasonably request, in order to
facilitate
the public sale or other disposition of all or any of the Shares
by each
Purchaser; provided, however, that the obligation of the Company
to
deliver copies of Prospectuses, preliminary Prospectuses or free
writing
prospectuses to each Purchaser shall be subject to the receipt
by the
Company of reasonable assurances from each Purchaser that each
Purchaser
will comply with the applicable provisions of the Securities Act
and of
such other securities or blue sky laws as may be applicable in
connection
with any use of such Prospectuses, preliminary Prospectuses or
free
writing prospectuses;
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5.
|
file
documents required of the Company for normal blue sky clearance
in states
specified in writing by each Purchaser and use its reasonable best
efforts
to maintain such blue sky qualifications during the period the
Company is
required to maintain the effectiveness of the Registration Statement
pursuant to Section 7(a)(3); provided, however, that the Company
shall not be required to qualify to do business or consent to service
of
process in any jurisdiction in which it is not now so qualified
or has not
so consented;
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|
6.
|
bear
all expenses in connection with the procedures in paragraph (1)
through
(5) of this Section 7(a) (other than underwriting discounts or
commissions, brokers’ fees and similar selling expenses, and any other
fees or expenses incurred by each Purchaser, including attorney
fees of
each Purchaser) and the registration of the Shares pursuant to
the
Registration Statement;
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7.
|
advise
each Purchaser, promptly after it shall receive notice or obtain
knowledge
of the issuance of any stop order by the SEC delaying or suspending
the
effectiveness of the Registration Statement or of the initiation
or threat
of any proceeding for that purpose; and it will promptly use its
reasonable best efforts to prevent the issuance of any stop order
or to
obtain its withdrawal at the earliest possible moment if such stop
order
should be issued; and
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8.
|
provide
a “Plan
of Distribution”
section of the Registration Statement substantially in the form
attached
hereto as Exhibit
D.
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15 -
(b) Notwithstanding
anything herein to the contrary, if the SEC prevents the Company from including
any or all of the Shares on the Registration Statement due to limitations
on the
use of Rule 415 of the Securities Act for the resale of the Shares by the
Purchasers (a “Rule
415 Limitation”),
the
Registration Statement shall register the resale of a number of Shares which
is
equal to the maximum number of shares as is permitted by the SEC (the
“Registration
Cap”).
In
such event, the number of Shares to be registered for each Purchaser in the
Registration Statement shall be reduced pro rata
among
all Purchasers. The failure to include any or all of the Shares in such
Registration Statement shall not be a breach or default by the Company under
this Agreement and shall not be deemed a failure by the Company to use
"commercially reasonable efforts" or "reasonable best efforts" as set forth
above or elsewhere in this Agreement. With respect to Shares not included
in the
Registration Statement, the Company shall continue to use commercially
reasonable efforts to register all such remaining Shares as promptly as
possible, but if the SEC, by written or oral comment or otherwise, limits
the
Company’s ability to file, or prohibits or delays the filing of, a Registration
Statement with respect to any or all the Shares which were not included in
the
initial Registration Statement (a “Subsequent
Shelf Limitation”),
it
shall not be a breach or default by the Company under this Agreement and
shall
not be deemed a failure by the Company to use “commercially reasonable efforts”
or “reasonable best efforts” as set forth above or elsewhere in this
Agreement.
Section
8. Transfer
of Shares After Registration; Suspension.
(a) The
Purchaser agrees that it will not effect any disposition of the Shares or
its
right to purchase the Shares that would constitute a sale within the meaning
of
the Securities Act except as contemplated in the Registration Statement referred
to in Section 7 and as described below or as otherwise permitted by law,
and that it will promptly notify the Company of any changes in the information
set forth in the Registration Statement regarding each Purchaser or its plan
of
distribution.
(b) Except
in
the event that paragraph (c) below applies, the Company shall (i) if deemed
necessary by the Company, prepare and file from time to time with the SEC
a
post-effective amendment to the Registration Statement or a supplement to
the
related Prospectus or a supplement or amendment to any document incorporated
therein by reference or file any other required document so that such
Registration Statement will not contain an untrue statement of a material
fact
or omit to state a material fact required to be stated therein or necessary
to
make the statements therein not misleading, and so that, as thereafter delivered
to purchasers of the Shares being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements therein,
in
light of the circumstances under which they were made, not misleading;
(ii) provide each Purchaser copies of any documents filed pursuant to
Section 7(a) as each Purchaser may reasonably request; and
(iii) inform each Purchaser that the Company has complied with its
obligations in Section 7(a) (or that, if the Company has filed a
post-effective amendment to the Registration Statement which has not yet
been
declared effective, the Company will notify each Purchaser to that effect,
will
use its reasonable best efforts to secure the effectiveness of such
post-effective amendment as promptly as possible and will promptly notify
each
Purchaser pursuant to Section 7(a) hereof when the amendment has
become effective).
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16 -
(c) Subject
to paragraph (d) below, in the event (i) of any request by the SEC or any
other federal or state governmental authority during the period of effectiveness
of the Registration Statement for amendments or supplements to a Registration
Statement or related Prospectus or for additional information; (ii) of the
issuance by the SEC or any other federal or state governmental authority
of any
stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose; (iii) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; or (iv) of any event or circumstance which, upon the advice of its
counsel, necessitates the making of any changes in the Registration Statement
or
Prospectus, or any document incorporated or deemed to be incorporated therein
by
reference, so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or any omission to state
a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or any omission to state
a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; then the Company shall deliver a certificate in writing to each
Purchaser (the “Suspension
Notice”)
to the
effect of the foregoing and, upon receipt of such Suspension Notice, each
Purchaser will refrain from selling any Shares pursuant to the Registration
Statement (a “Suspension”)
until
each Purchaser’s receipt of copies of a supplemented or amended Prospectus
prepared and filed by the Company, or until it is advised in writing by the
Company that the current Prospectus may be used, and has received copies
of any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in any such Prospectus. In the event of any Suspension, the
Company
will use its reasonable best efforts to cause the use of the Prospectus so
suspended to be resumed as soon as reasonably practicable within 20 business
days after the delivery of a Suspension Notice to each Purchaser. In addition
to
and without limiting any other remedies (including, without limitation, at
law
or at equity) available to each Purchaser, each Purchaser shall be entitled
to
specific performance in the event that the Company fails to comply with the
provisions of this Section 8.
(d) Notwithstanding
the foregoing paragraphs of this Section 8, each Purchaser shall not be
prohibited from selling Shares under the Registration Statement as a result
of
Suspensions on more than two occasions of not more than 45 days each in any
twelve month period, unless, in the good faith judgment of the Company’s Board
of Directors, upon the advice of counsel of the Company and, subject to the
provisions of Section 9 below, the sale of Notes under the Registration
Statement in reliance on this paragraph 8(d) would be reasonably likely to
cause
a violation of the Securities Act or the Exchange Act and result in liability
to
the Company.
(e) Provided
that a Suspension is not then in effect, each Purchaser may sell Shares under
the Registration Statement, provided that it arranges for delivery of a current
Prospectus to the transferee of such Shares. Upon receipt of a request therefor,
the Company has agreed to provide an adequate number of current Prospectuses
to
each Purchaser and to supply copies to any other parties requiring such
Prospectuses.
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17 -
|
Section
9.
|
Indemnification.
|
(a) For
the
purpose of this Section 9: (i) the term “Selling
Stockholder”
means
each Purchaser and any affiliate of such Purchaser; (ii) the term “Registration
Statement”
shall
include the Prospectus in the form first filed with the SEC pursuant to
Rule 424(b) of the Securities Act or filed as part of the Registration
Statement at the time of effectiveness if no Rule 424(b) filing is
required, and any exhibit, supplement or amendment included in or relating
to
the Registration Statement referred to in Section 7; and (iii) the term
“Untrue
Statement”
means
any untrue statement or alleged untrue statement, or any omission or alleged
omission to state in, the Registration Statement a material fact required
to be
stated therein or necessary to make the statements therein not
misleading.
(b) The
Company agrees to indemnify and hold harmless each Selling Stockholder from
and
against any losses, claims, damages, liabilities, or expenses to which such
Selling Stockholder may become subject (under the Securities Act or otherwise)
insofar as such losses, claims, damages, liabilities or expenses (or actions
or
proceedings in respect thereof) arise out of, or are based upon (i) any
breach of the representations or warranties of the Company contained herein
or
failure to comply with the covenants and agreements of the Company contained
herein, (ii) any Untrue Statement, or (iii) any failure by the Company
to fulfill any undertaking included in the Registration Statement as amended
or
supplemented from time to time, and the Company will reimburse such Selling
Stockholder for any reasonable legal or other expenses reasonably incurred
in
investigating, defending or preparing to defend any such action, proceeding
or
claim, or preparing to defend any such action, proceeding or claim, provided,
however,
that
the Company shall not be liable in any such case to the extent that such
loss,
claim, damage or liability arises out of, or is based upon, an Untrue Statement
made in reliance upon and in conformity with written information furnished
to
the Company by or on behalf of such Selling Stockholder specifically for
use in
preparation of the Registration Statement, as amended or supplemented from
time
to time, or the failure of such Selling Stockholder to comply with its covenants
and agreements contained in Section 4 hereof
respecting the sale of the Shares or any statement or omission in any Prospectus
that is corrected in any subsequent Prospectus that was delivered to the
Selling
Stockholder prior to the pertinent sale or sales by the Selling Stockholder.
The
Company shall reimburse each Selling Stockholder for the indemnifiable amounts
provided for herein on demand as such expenses are incurred.
(c) The
Purchaser agrees to indemnify and hold harmless the Company (and each person,
if
any, who controls the Company within the meaning of Section 15 of the
Securities Act, each officer of the Company who signs the Registration Statement
and each director of the Company) from and against any losses, claims, damages
or liabilities to which the Company (or any such officer, director or
controlling person) may become subject (under the Securities Act or otherwise),
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, (i) any
failure of each Purchaser to comply with the covenants and agreements contained
in Section 4 hereof respecting the sale of the Notes or Shares, or
(ii) any Untrue Statement if such Untrue Statement was made in reliance
upon and in conformity with written information furnished by or on behalf
of
each Purchaser specifically for use in preparation of the Registration
Statement, as amended or supplemented from time to time, and each Purchaser
will
reimburse the Company (or such officer, director or controlling person),
as the
case may be, for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding
or
claim. The Purchaser shall reimburse the Company or such officer, director
or
controlling person, as the case may be, for the indemnifiable amounts provided
for herein on demand as such expenses are incurred. Notwithstanding the
foregoing, each Purchaser’s aggregate obligation to indemnify the Company and
such officers, directors and controlling persons shall be limited to the
net
amount received by each Purchaser from the sale of the Notes and
Shares.
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18 -
(d) Promptly
after receipt by any indemnified person of a notice of a claim or the beginning
of any action in respect of which indemnity is to be sought against an
indemnifying person pursuant to this Section 9, such indemnified person
shall notify the indemnifying person in writing of such claim or of the
commencement of such action, but the omission to so notify the indemnifying
person will not relieve it from any liability which it may have to any
indemnified person under this Section 9 (except to the extent that such
omission materially and adversely affects the indemnifying person’s ability to
defend such action) or from any liability otherwise than under this
Section 9. Subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person, the indemnifying person
shall be entitled to participate therein, and, to the extent that it shall
elect
by written notice delivered to the indemnified person promptly after receiving
the aforesaid notice from such indemnified person, shall be entitled to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
person. After notice from the indemnifying person to such indemnified person
of
its election to assume the defense thereof, such indemnifying person shall
not
be liable to such indemnified person for any legal expenses subsequently
incurred by such indemnified person in connection with the defense thereof,
provided,
however,
that if
there exists or shall exist a conflict of interest that would make it
inappropriate, in the opinion of counsel to the indemnified person, for the
same
counsel to represent both the indemnified person and such indemnifying person
or
any affiliate or associate thereof, the indemnified person shall be entitled
to
retain its own counsel at the expense of such indemnifying person; provided,
however, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel (together with appropriate local
counsel) for all indemnified parties. In no event shall any indemnifying
person
be liable in respect of any amounts paid in settlement of any action unless
the
indemnifying person shall have approved the terms of such settlement;
provided
that
such consent shall not be unreasonably withheld or delayed. No indemnifying
person shall, without the prior written consent of the indemnified person,
effect any settlement of any pending or threatened proceeding in respect
of
which any indemnified person is or could have been a party and indemnification
could have been sought hereunder by such indemnified person, unless such
settlement includes an unconditional release of such indemnified person from
all
liability on claims that are the subject matter of such proceeding.
(e) If
the
indemnification provided for in this Section 9 is unavailable to or
insufficient to hold harmless an indemnified person under subsection (b)
or (c)
above in respect of any losses, claims, damages or liabilities (or actions
or
proceedings in respect thereof) referred to therein, then each indemnifying
person shall contribute to the amount paid or payable by such indemnified
person
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and each Purchaser, as well as any other
Selling Shareholders under such Registration Statement on the other in
connection with the statements or omissions or other matters which resulted
in
such losses, claims, damages or liabilities (or actions in respect thereof),
as
well as any other relevant equitable considerations. The relative fault shall
be
determined by reference to, among other things, in the case of an Untrue
Statement, whether the Untrue Statement relates to information supplied by
the
Company on the one hand or an Purchaser or other Selling Shareholder on the
other and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such Untrue Statement. The Company and
each
Purchaser agree that it would not be just and equitable if contribution pursuant
to this subsection (e) were determined by pro rata allocation (even if each
Purchaser and other Selling Shareholders were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to above in this subsection (e). The
amount paid or payable by an indemnified person as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above
in this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified person in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of
this
subsection (e), each Purchaser shall not be required to contribute any amount
in
excess of the amount by which the net amount received by each Purchaser from
the
sale of the Shares to which such loss relates exceeds the amount of any damages
which such Purchaser has otherwise been required to pay by reason of such
Untrue
Statement. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Purchaser’s obligations in this subsection to contribute shall be in proportion
to its sale of Shares to which such loss relates and shall not be joint with
any
other Selling Shareholders.
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19 -
(f) The
parties to this Agreement hereby acknowledge that they are sophisticated
business persons who were represented by counsel during the negotiations
regarding the provisions hereof including, without limitation, the provisions
of
this Section 9, and are fully informed regarding said provisions. They
further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company
and
its business in order to assure that adequate disclosure is made in the
Registration Statement as required by the Securities Act and the Exchange
Act.
The parties are advised that federal or state public policy as interpreted
by
the courts in certain jurisdictions may be contrary to certain of the provisions
of this Section 9, and the parties hereto hereby expressly waive and
relinquish any right or ability to assert such public policy as a defense
to a
claim under this Section 9 and further agree not to attempt to assert any
such defense.
(g) Notwithstanding
the other provisions of this Section 9, the Purchasers’ sole and exclusive
remedy with respect to a breach of Section 7(b) of this Agreement shall be
default interest under the Notes.
Section
10. Termination
of Conditions and Obligations.
The
conditions precedent imposed by Section 8 or this Section 10 upon the
transferability of the Shares shall cease and terminate as to any particular
Shares when such Shares are sold or otherwise disposed of in accordance with
the
intended method of disposition set forth in the Registration Statement covering
such Shares or at such time as an opinion of counsel reasonably satisfactory
to
the Company shall have been rendered to the effect that such conditions are
not
necessary in order to comply with the Securities Act.
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20 -
Section
11. Information
Available.
So long
as the Registration Statement is effective covering the resale of Shares
owned
by each Purchaser, upon the reasonable request of each Purchaser, the Company
will furnish to each Purchaser:
(a) as
soon
as practicable after it is available, one copy of (i) its Annual Report to
Stockholders (which Annual Report shall contain financial statements audited
in
accordance with generally accepted accounting principles by a national firm
of
certified public accountants), (ii) its Annual Report on Form 10-K and
(iii) its Quarterly Reports on Form 10-Q (the foregoing, in each case,
excluding exhibits);
(b) all
exhibits excluded by the parenthetical to subparagraph (a) of this
Section 11 as filed with the SEC and all other information that is made
available to shareholders; and
(c) an
adequate number of copies of the Prospectuses to supply to any other party
requiring such Prospectuses; and upon the reasonable request of each Purchaser,
the President or the principal financial officer of the Company (or an
appropriate designee thereof) will meet with each Purchaser or a representative
thereof at the Company’s headquarters to discuss all information relevant for
disclosure in the Registration Statement covering the Shares and will otherwise
cooperate with any Purchaser conducting an investigation for the purpose
of
reducing or eliminating such Purchaser’s exposure to liability under the
Securities Act, including the reasonable production of information at the
Company’s headquarters; provided, that the Company shall not be required to
disclose any confidential information to or meet at its headquarters with
any
Purchaser until and unless each Purchaser shall have entered into a
confidentiality agreement in form and substance reasonably satisfactory to
the
Company with the Company with respect thereto.
Section
12. Legend;
Restrictions on Transfer.
The
Notes and certificate or certificates for the Shares shall be subject to
a
legend or legends restricting transfer under the Securities Act and referring
to
restrictions on transfer herein, such legend to be substantially as
follows:
THIS
SECURITY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER
THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES
ACT”),
AND
THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, EXCEPT: (I) PURSUANT TO
AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO; OR (II) IN ACCORDANCE WITH
AN
OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT.
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21 -
The
Company and each Purchaser acknowledge and agree that each Purchaser may,
as
permitted by law, from time to time pledge pursuant to a bona fide margin
agreement or grant a security interest in some or all of the Notes or Shares
and, if required under the terms of such arrangement, each Purchaser may,
as
permitted by law, transfer pledged or secured Notes or Shares to the pledgees
or
secured parties. So long as each Purchaser is not an affiliate of the Company,
such a pledge or transfer would not be subject to approval or consent of
the
Company, provided that, upon the request of the Company, a legal opinion
of
legal counsel to the pledgee, secured party or pledgor shall be obtained.
At
each Purchaser’s expense, so long as the Notes or Shares are subject to the
legend required by this Section 12, the Company will use its reasonable
commercial efforts to execute and deliver such reasonable documentation as
a
pledgee or secured party of Notes may reasonably request in connection with
a
pledge or transfer of the Notes or Shares including such amendments or
supplements to the Registration Statement and Prospectus as may be reasonably
required. The foregoing does not affect each Purchaser’s obligations pursuant to
Section 4.
The
Purchaser expressly agrees that any sale by each Purchaser of Shares pursuant
to
the Registration Statement shall be sold in a manner described under the
caption
“Plan of Distribution” in such Registration Statement and each Purchaser will
deliver a copy of the Prospectus contained in the Registration Statement
to the
purchaser or purchasers, directly or through each Purchaser's broker, in
connection with such sale, in each case in compliance with the requirements
of
the Securities Act and Exchange Act applicable to such sale. The Purchaser
further agrees that the Shares will only be sold while the Registration
Statement is effective, unless another exemption from registration is available.
The Purchaser acknowledges that the removal of the restrictive legends from
the
Notes as provided in this Section 12 is predicated upon the Company’s
reliance on the Purchaser’s compliance with its covenants in this
Section 12.
Section
13. Notices.
All
notices, requests, consents and other communications hereunder shall be in
writing, shall be mailed (A) if within the United States by first-class
registered or certified airmail, or nationally recognized overnight express
courier, postage prepaid, or by facsimile or electronic mail, or (B) if
delivered from outside the United States, by International Federal Express
(or
other recognized international express courier) or facsimile, and shall be
deemed given (i) if delivered by first-class registered or certified mail,
three business days after so mailed, (ii) if delivered by nationally
recognized overnight carrier, one business day after so mailed, (iii) if
delivered by International Federal Express (or other recognized international
express courier), two business days after so mailed, or (iv) if delivered
by facsimile or electronic mail, upon electronic confirmation of receipt
and
shall be delivered as addressed as follows:
|
(a)
|
if
to the Company, to:
|
Big
Dog
Holdings, Inc.
000
Xxxx
Xxxxxx
Xxxxx
Xxxxxxx, XX 00000
Attention:
Xxxxxxx X. Xxxx
Facsimile:
(000) 000-0000 x0000
Email:
XxxxX@XxxXxxx.xxx
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22 -
|
(b)
|
with
a copy to:
|
Fulbright &
Xxxxxxxx L.L.P.
000
Xxxxx
Xxxxxx Xxxxxx
Xxxxx-Xxxxx
Xxxxx
Xxx
Xxxxxxx, XX 00000
Attention:
Xxxxxx Xxx
Facsimile:
(000) 000-0000
Email:
xxxx@xxxxxxxxx.xxx
|
(c)
|
if
to each Purchaser, at its address on the signature page hereto,
or at such
other address or addresses as may have been furnished to the Company
in
writing.
|
Notwithstanding
anything in this Agreement to the contrary, (a) the Company may deliver any
documents, information or notices required to be delivered to an Purchaser
under
this Agreement by email, in any recognized electronic format, including Portable
Document Format (PDF) or Microsoft Word document format, and (b) with respect
to
any documents, exhibits, filings, furnishings or other submissions (other
than
any Registration Statement, Prospectus, or Preliminary Prospectus pursuant
to
Section 7 of this Agreement) publicly available on the SEC’s XXXXX system (each,
an “XXXXX
Filing”),
such
XXXXX Filing shall be deemed furnished by the Company to such Purchaser,
in each
case as of the date first publicly available on the XXXXX system.
Section
14. Changes.
This
Agreement may be modified, amended or waived only pursuant to a written
instrument signed by the Company and (a) Purchasers holding a majority of
the
Notes issued and sold in the Offering, provided
that
such
modification, amendment or waiver is made with respect to all Agreements
and
does not adversely affect each Purchaser without adversely affecting all
Purchasers in a similar manner; or (b) each Purchaser.
Section
15. Headings.
The
headings of the various sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this
Agreement.
Section
16. Severability.
In case
any provision contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
Section
17. Governing
Law.
This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York, without giving effect to the principles of
conflicts of law.
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23 -
Section
18. Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts
have been signed by each party hereto and delivered to the other
parties.
Section
19. Entire
Agreement.
This
Agreement and the other Transaction Documents constitute the entire agreement
between the parties hereto and supersedes any prior understandings or agreements
concerning the purchase and sale of the Notes and the resale registration
of the
Shares.
Section
20. Rule
144.
The
Company covenants that it will timely file the reports required to be filed
by
it under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder (or, if the Company is not required to file
such
reports, it will, upon the request of any Purchaser holding Notes purchased
hereunder, or Shares issued under any Notes, made after the first anniversary
of
the Closing Date, make publicly available such information as necessary to
permit sales pursuant to Rule 144 under the Securities Act), and it will
take
such further action as any such Purchaser may reasonably request, all to
the
extent required from time to time to enable such Purchaser to sell such Notes
and Shares without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of any Purchaser, the Company
will deliver to such holder a written statement as to whether it has complied
with such information and requirements.
Section
21. Press
Release; 8-K.
On the
Closing Date, the Company shall issue a press release disclosing information
provided by the Company or any person acting on its behalf that the Company
believes constitutes material and non-public information, if any. The Company
shall, within two (2) business day of the Closing Date, file with the SEC
a Form
8-K disclosing the material terms of the transactions contemplated hereby
(including at least the number of Notes sold and proceeds therefrom). The
Company shall not publicly disclose the name of each Purchaser or any beneficial
owner of Notes held by each Purchaser, or include the name of each Purchaser
or
such beneficial owner in any filing with the SEC or any state and federal
regulatory agency or the Nasdaq (other than the filing of the Agreements
with
the SEC pursuant to the Exchange Act), without the prior written consent
of each
Purchaser, except to the extent such disclosure is required by law, regulation
or Nasdaq regulations.
Section
22. No
Third-Party Beneficiaries.
Other
than as set forth in Section 9, this Agreement is intended for the benefit
of
the parties hereto and their respective successors and permitted assigns
and is
not for the benefit of, nor may any provision hereof be enforced by, any
other
person.
Section
23. Debt
Obligation.
So long
as any portion of the Notes are outstanding, the Company shall cause its
books
and records to reflect the Notes as a debt of the Company in its unpaid
principal amount, shall cause its financial statements to reflect the Note
as a
debt of the Company in such amount as shall be the greatest amount permitted
in
accordance with GAAP and as a valid debt obligation of the Company for money
borrowed.
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24 -
Section
24. Costs
and Expenses.
The
Company agrees to pay the reasonable fees and expenses of
Xxxxxxx | Procter LLP, counsel for
Xxxxxx Xxxxxx Partners LLP, as Placement Agent, subject to the
agreement between the Company and the Placement Agent.
Section
25. Independent
Nature of Purchasers’ Obligations and Rights.
The
obligations of each Purchaser under this Agreement are several and not joint
with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under this Agreement. Nothing contained herein or in any other
document, and no action taken by any Purchaser pursuant thereto, shall be
deemed
to constitute each Purchaser as a partnership, an association, a joint venture
or any other kind of entity, or create a presumption that each Purchaser
are in
any way acting in concert or as a group with respect to such obligations
or the
transactions contemplated by this Agreement. Each Purchaser shall be entitled
to
independently protect and enforce its rights, including without limitation,
the
rights arising out of this Agreement or out of the other related documents,
and
it shall not be necessary for any other Purchaser to be joined as an additional
party in any proceeding for such purpose. Each Purchaser has been represented
by
its own separate legal counsel in their review and negotiation of this
Agreement. The Company has elected to provide all Purchasers with the same
terms
and documents for the convenience of the Company and not because it was required
or requested to do so by each Purchaser.
|
Section
26.
|
Dispute
Resolution.
|
(a) All
disputes, claims, or controversies arising out of or relating to (i) this
Agreement or any other agreement executed and delivered pursuant to this
Agreement or the negotiation, breach, termination, validity or performance
hereof or the transactions contemplated hereby or (ii) each Purchaser’s loan to
the Company, that are not resolved by mutual agreement shall be resolved
by
litigation, or if the Company and each Purchaser agree to resolve any particular
dispute by arbitration, then such arbitration shall be conducted in accordance
with the procedures set forth in Section 26(b) below.
(b) In
the
event the parties hereto agree to resolve a particular dispute by arbitration,
the following procedures will apply: Such dispute shall be submitted to
arbitration by one arbitrator mutually agreed upon by the parties, and if
no
agreement can be reached within thirty (30) days after names of potential
arbitrators have been proposed by J.A.M.S./Endispute, Inc. or its successor,
then by one arbitrator having reasonable experience in corporate finance
transactions of the type provided for in this Agreement and who is chosen
by
J.A.M.S./Endispute, Inc. or its successor. The arbitration shall take place
in
Los Angeles, California, in accordance with the J.A.M.S./Endispute, Inc.
rules
then in effect, and judgment upon any award rendered in such arbitration
will be
binding and may be entered in any court having jurisdiction thereof. There
shall
be limited discovery prior to the arbitration hearing as follows: (a) exchange
of witness lists and copies of documentary evidence and documents relating
to or
arising out of the issues to be arbitrated, (b) depositions of all party
witnesses and (c) such other depositions as may be allowed by the arbitrators
upon a showing of good cause. Depositions shall be conducted in accordance
with
the California Rules of Civil Procedure, the arbitrator shall be required
to
provide in writing to the parties the basis for the award or order of such
arbitrator, and a court reporter shall record all hearings, with such record
constituting the official transcript of such proceedings. The prevailing
party
shall be entitled to reasonable attorney’s fees, costs, and necessary
disbursements in addition to any other relief to which such party may be
entitled.
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25 -
Section
27. ACKNOWLEDGEMENTS.
THE
PURCHASER HEREBY ACKNOWLEDGES RECEIPT OF A DRAFT OF THE COMPANY’S FORM 10-K
ANTICIPATED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL
2,
2007. THE PURCHASER FURTHER ACKNOWLEDGES THAT WITH RESPECT TO NET SHARE
SETTLEMENT, THE COMPANY IS NOT OBLIGATED TO TREAT ALL HOLDERS THE SAME OR
ON A
PRO RATA BASIS WITH RESPECT TO THE COMPANY’S UTILIZING NET SHARE SETTLEMENT.
WITHOUT LIMITING THE FOREGOING, THE PURCHASER ACKNOWLEDGES THAT DIRECTORS,
OFFICERS, CONSULTANTS OR EMPLOYEES OF THE COMPANY MAY, SUBJECT TO ANY APPLICABLE
PRINCIPAL MARKET SHAREHOLDER APPROVAL RULES, BE AMONG HOLDERS SUBJECT TO
THE
COMPANY’S NET SHARE SETTLEMENT OPTION.
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26 -
AGREED
AND ACCEPTED:
BIG
DOG
HOLDINGS, INC.
|
By:
|
/s/
Xxxxxxx Xxxx
|
|
|
Print
Name:
|
Xxxxxxx
Xxxx
|
|
|
Title:
|
Executive
Vice President
|
