<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
BIG DOG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
-------------------
<TABLE>
<S> <C> <C>
DELAWARE 5651 52-1868665
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
-------------------
121 GRAY AVENUE
SANTA BARBARA, CALIFORNIA 93101
(805) 963-8727
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------
ANTHONY J. WALL
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
BIG DOG HOLDINGS, INC.
121 GRAY AVENUE
SANTA BARBARA, CALIFORNIA 93101
(805) 963-8727
FAX: (805) 962-9460
(Name and address, including zip code and telephone and fax number, of agent for
service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY M. WEINER, ESQ. THOMAS A. BEVILACQUA, ESQ.
Kimball & Weiner LLP Brobeck, Phleger & Harrison LLP
555 S. Flower Street Two Embarcadero Place
Suite 4540 2200 Geng Road
Los Angeles, CA 90071 Palo Alto, CA 94303-0913
(213) 538-3800 (415) 424-0160
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
-------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE PRICE(1)(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value................ 4,025,000 $14.00 $56,350,000 $17,075.76
</TABLE>
(1) Includes 525,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 7, 1997
BIG DOGS
[INSERT LOGO]
3,500,000 SHARES
COMMON STOCK
Of the 3,500,000 shares of Common Stock offered hereby, 2,800,000 shares are
being sold by Big Dog Holdings, Inc. ("Big Dogs" or the "Company") and 700,000
shares are being sold by certain stockholders of the Company ("Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders. Prior
to this offering, there has been no public market for the Common Stock of the
Company. It is currently estimated that the initial public offering price will
be between $12.00 and $14.00 per share. See "Underwriting" for information
relating to the method of determining the initial public offering price.
----------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS(2)
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total.......................... $ $ $ $
</TABLE>
(1) Before deducting expenses, all of which are payable by the Company,
estimated at $ .
(2) Certain of the Selling Stockholders have granted the Underwriters a 30-day
option to purchase an aggregate of up to an additional 525,000 shares of
Common Stock solely to cover over-allotments, if any. See "Underwriting." If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Selling Stockholders will be
$ , $ and $ , respectively.
----------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that the delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson Stephens &
Company"), San Francisco, California, on or about , 1997.
ROBERTSON, STEPHENS & COMPANY
HAMBRECHT & QUIST
NEEDHAM & COMPANY, INC.
The date of this Prospectus is , 1997
<PAGE>
DESCRIPTION OF PICTURES AND CAPTIONS:
FRONT COVER: "Ghost" image of Big Dog character.
INSIDE FRONT COVER: Photos of store interiors and catalog covers.
INSIDE FRONT GATE-FOLD: Product graphics and slogans.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
TRANSACTIONS, SEE "UNDERWRITING."
2
<PAGE>
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR ANY OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Summary........................................................................................ 4
Risk Factors................................................................................... 6
Use of Proceeds................................................................................ 13
Dividend Policy................................................................................ 13
Capitalization................................................................................. 14
Dilution....................................................................................... 15
Selected Consolidated Financial and Operating Data............................................. 16
Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 17
Business....................................................................................... 24
Management..................................................................................... 36
Certain Relationships and Related Transactions................................................. 42
Principal and Selling Stockholders............................................................. 44
Description of Capital Stock................................................................... 45
Shares Eligible for Future Sale................................................................ 50
Underwriting................................................................................... 52
Legal Matters.................................................................................. 54
Experts........................................................................................ 54
Additional Information......................................................................... 54
Index to Consolidated Financial Statements..................................................... F-1
</TABLE>
-----------------
BIG DOGS-Registered Trademark-, the dog logo and BIG DOG
SPORTSWEAR-Registered Trademark- are registered trademarks of the Company and
LITTLE BIG DOGS-TM- and BIG BIG DOGS-TM- are trademarks of the Company.
Tradenames and trademarks of other companies appearing in this Prospectus are
the property of their respective owners.
The Company intends to mail to all of its stockholders annual reports
containing financial statements audited by independent auditors for each fiscal
year and quarterly reports containing unaudited financial data for each of the
first three quarters of each fiscal year.
The Company was incorporated in Delaware in December 1993. The Company's
principal executive offices are located at 121 Gray Avenue, Santa Barbara, CA
93101, and its telephone number is (805) 963-8727. Unless otherwise indicated,
all references to "Big Dogs," "Big Dog," "Big Dog Sportswear" or the "Company"
refer to Big Dog Holdings, Inc., a Delaware corporation, and its subsidiaries
(including subsidiaries of subsidiaries).
3
<PAGE>
SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER FROM THE RESULTS
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS"
AND ELSEWHERE IN THIS PROSPECTUS. NOTWITHSTANDING THE COMPANY'S DRAMATIC GROWTH
IN SALES AND PROFITABILITY DURING RECENT PERIODS, THE COMPANY FACES SIGNIFICANT
RISKS AND, AS A RESULT, THERE CAN BE NO ASSURANCE THAT THE COMPANY'S HISTORICAL
GROWTH IS INDICATIVE OF FUTURE PERFORMANCE. UNLESS OTHERWISE INDICATED, ALL
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS," AND
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS.
[INSERT DOG LOGO] [INSERT QVF LOGO]
THE COMPANY
Big Dogs develops, markets and retails a branded, lifestyle collection of
unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. BIG DOGS-Registered Trademark- is an
All-American, family-oriented brand that the Company believes has established a
unique niche in its dedication to providing quality, value and fun. Big Dogs
products were first sold in 1983, and operations remained limited through 1992
when the current controlling stockholders acquired the BIG DOGS-Registered
Trademark- brand and related assets. Following the acquisition, Big Dogs
initiated a strategy of leveraging the brand through dramatic expansion of its
product line and rapid growth in its retail stores. The Company's net sales have
grown from $11.4 million in 1993 (the Company's first full year of operation) to
$68.7 million in 1996, a compound annual growth rate of 82%. The number of
Company stores has grown from 5 in 1993 to 134 as of July 31, 1997, and over the
last three years, the Company recruited a team of key executives and invested in
management information systems and other infrastructure improvements that the
Company believes have been critical in achieving this growth and positioning it
to manage its anticipated future growth. The Company attained this dramatic
growth during a competitive retail environment and, despite substantial
infrastructure investments, the Company achieved growing operating income in
each full year of operation.
The Company's collection is centered around its signature BIG
DOGS-Registered Trademark- name, logo and "Big Dog" characters and is designed
to appeal to a broad range of customers when they are in the "Big Dog state of
mind." The BIG DOGS-Registered Trademark- brand conveys a sense of fun, humor
and a "Big Dog attitude" whereby each customer can feel that he or she is a "Big
Dog." The Big Dog attitude and sense of fun are brought to life through the
Company's graphic capabilities that portray the Big Dog characters in a number
of engaging, positive and inspiring situations and activities. The Big Dog
attitude is further defined by a number of slogans such as "If You Can't Run
with the Big Dogs Stay on the Porch"-Registered Trademark-, "Unless You're the
Lead Dog, the Scenery Never Changes," and "Lead, Follow or Get Out of the Way."
These graphics and slogans combine a bold, spirited attitude with wry,
lighthearted humor. The appeal of the brand is further strengthened through the
customer's personal identification with particular sports and other activities
depicted in these graphics. In addition to its focus on fun, Big Dogs develops
customer loyalty and enhances its brand image by providing a consistently high
level of quality at moderate price points. Big Dogs accomplishes this primarily
through (i) selling its own brand directly to the consumer, (ii) low product
development costs, and (iii) sourcing high-volume/low-cost basic apparel with
limited fashion risk.
The BIG DOGS-Registered Trademark- brand is designed to appeal to men, women
and children of all ages, particularly baby boomers and their kids, when they
are engaged in leisure or recreational activities. Furthermore, the Company
believes that the millions of dog and other pet owners in the United States, as
well as children, have a strong natural affinity toward the dog-related images
and themes in Big Dogs graphics. In addition, the Company believes that the
positive image the brand brings to being a "Big Dog" has a special appeal to
large-size customers. The Company's apparel products, which include a wide
variety of basic apparel and related products, are developed with an emphasis on
being functional rather than fashion-forward or trendy. These apparel products
include graphic T-shirts, shorts, knit and woven shirts, fleece items,
loungewear and boxer shorts. In addition to its BIG DOGS-Registered Trademark-
line of activewear and casual sportswear for men and women, the Company has
successfully introduced and expanded its LITTLE BIG DOGS-TM- line of infants'
and children's apparel and its BIG BIG DOGS-TM- line of Big and Tall apparel.
The Company has also successfully expanded its non-apparel products, including
plush animals, stationery and pet products, which feature Big Dog graphics and
are developed to complement its apparel.
The Company reinforces its brand image by distributing BIG DOGS-Registered
Trademark- products primarily through its own retail stores. This distribution
strategy enables the Company to present a complete selection of its merchandise
in a creative and fun environment. In addition, this strategy enables it to more
effectively reach its targeted customers by locating stores in tourist-oriented
and other casual environments where it believes consumers are in the "Big Dog
state of mind." The Company operates its retail stores in both outlet and
full-price formats, depending on the location. Big Dogs' traditional emphasis
has been on outlet malls because those malls are often located in tourist areas
and therefore attract significant numbers of Big Dogs' targeted customers. More
recently, the Company has increased its focus on opening full-price, stand-alone
stores in locations frequented by tourist and leisure shoppers. The Company
plans to open 30 net new stores during 1997, 13 of which were open as of July
31, 1997, and at least 30 stores in 1998. In addition to its retail stores, Big
Dogs markets its products through other channels, including its catalog and
better wholesale accounts.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C> <C>
Common Stock Offered by the Company............. 2,800,000 shares
Common Stock Offered by the Selling 700,000 shares
Stockholders....................................
Common Stock Outstanding after the Offering..... 12,960,550 shares (1)
</TABLE>
<TABLE>
<S> <C>
Use of Proceeds................................. To reduce indebtedness and for working
capital and other general corporate
purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market Symbol.......... BDOG
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
--------------- ------------------------------------------ --------------------
1992 1993 1994 1995 1996 1996 1997
--------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 3,000 $ 11,413 $ 28,408 $ 51,541 $ 68,683 $ 24,351 $ 31,143
Gross profit....................... 1,211 5,467 15,547 29,970 38,963 13,734 17,935
Operating income (loss)............ (517) 253 808 1,989 2,717 (1,927) (1,940)
Net income (loss).................. (544) (54) 392 638 635 (1,540) (1,803)
Net income (loss) per common
share............................. $ (0.06) $ (0.01) $ 0.04 $ 0.07 $ 0.06 $ (0.15) $ (0.17)
Weighted average common and common
share equivalents outstanding..... 9,225 9,225 9,225 9,728 10,230 10,038 10,491
OPERATING DATA:
Number of stores:
Open at beginning of period...... 4 5 16 51 91 91 121
Stores added (net of closures)... 1 11 35 40 30 14 11
Open at end of period............ 5 16 51 91 121 105 132
Comparable store sales increase
(decrease)........................ N/A 31.8% (1.5)% 9.0% 3.2% (4.6)% 9.6%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED (2)
--------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash........................................................................ $ 1,650 $ 12,779
Working capital............................................................. 10,730 29,268
Total assets................................................................ 32,976 44,105
Total indebtedness.......................................................... 22,323 --
Stockholders' equity........................................................ 4,339 37,791
</TABLE>
- ---------
(1) Based on the number of shares of Common Stock outstanding at June 30, 1997.
Excludes (i) 147,500 shares of Common Stock issuable upon the exercise of
options outstanding at June 30, 1997 at a weighted average exercise price of
$4.93 per share; (ii) 282,500 shares of Common Stock issuable upon the
exercise of options granted after June 30, 1997 at an exercise price of
$12.00 per share; (iii) 240,000 shares of Common Stock issuable upon the
exercise of warrants outstanding at June 30, 1997 at a weighted average
exercise price of $3.50 per share; and (iv) 717,500 shares of Common Stock
available for future grant under the Company's 1997 Performance Award Plan.
See "Management--Stock and Incentive Plans" and "Description of Capital
Stock."
(2) Adjusted to reflect the sale of the 2,800,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $13.00
per share and the application of the estimated net proceeds therefrom.
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 (the "Securities Act"), including without limitation,
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. All forward-looking statements in this document
are based upon information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus. In
evaluating the Company's business, prospective investors should consider
carefully the following factors in addition to the other information set forth
in this Prospectus.
CHANGES IN CONSUMER PREFERENCES
The Company believes its merchandise appeals to men, women and children of
all ages, particularly baby boomers and their kids, when they are in the "Big
Dog state of mind." In addition, the Company believes that its merchandise has a
special appeal to children because of its dog-related themes and to customers
who wear large sizes because of the positive image the brand brings to being a
"Big Dog." However, the consumer products industry in general, and the apparel
industry in particular, are subject to changing consumer demands and
preferences. While the Company believes that its products historically have not
been significantly affected by fashion trends, the Company's products are
subject to changing consumer preferences. The Company's long-term success will
depend significantly on its ability to continue to produce appealing and popular
graphics and products that anticipate, gauge and respond in a timely manner to
changing consumer demands and preferences. Failure to anticipate and respond to
changes in consumer preferences could lead to, among other things, lower sales,
excess inventories, diminished customer loyalty and lower margins, which would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, consumer preferences could shift away
from the Company's traditional graphic and logo-oriented merchandise, and any
such shift could have a material adverse effect on the Company's business,
financial condition and results of operations. Failure of the Company's new
products or graphics to gain sufficient market acceptance may not only have the
short-term effect of low sales levels for such products, but in the long-term
may also adversely affect the image and value of the BIG DOGS-Registered
Trademark- brand name and trademarks. See "Business--Merchandising" and
"Business--Competition."
ABILITY TO ACHIEVE FUTURE GROWTH
The Company's growth strategies include opening new stores, increasing sales
in existing stores, expanding other channels of distribution, pursuit of
international sales, and selective brand leveraging through, among other things,
licensing and media activities. The Company believes that its growth has been
attributable in part to the Company's ability to open and operate new stores
successfully. The Company's continued growth will depend to a significant degree
on its ability to open and operate new stores, to increase net sales and
profitability from the Company's existing stores, and to expand its other
sources of revenue. The Company plans to open 30 net new stores during 1997, 13
of which were open as of July 31, 1997, bringing the total number of stores to
134 as of that date. The Company plans to open at least 30 stores in 1998. The
Company's recent and planned expansion includes the opening of stores in new
geographic markets. In addition, the Company's traditional emphasis has been on
opening stores in outlet malls, though the Company plans to expand the number of
its stores in other venues. These new markets and venues have in the past
presented, and will continue to present, competitive and merchandising
challenges that are different from those faced by the Company in its existing
markets and venues. There can be no assurance that new stores will achieve sales
and profitability levels consistent with existing stores. The Company's retail
expansion is dependent on a number of factors, including the Company's ability
to locate and obtain favorable store sites, and to negotiate acceptable lease
terms. In addition, the Company's comparable store sales results are affected by
a variety of factors, including, among
6
<PAGE>
others, prevailing retail market conditions, merchandising strategies, timing of
promotions, weather conditions, shifts in the timing of certain holidays, and
the Company's ability to efficiently source and distribute merchandise. The
Company's comparable store sales have fluctuated in the past and the Company
believes fluctuations may continue in the future. For example, in the last ten
quarters, the Company's comparable store sales results were (2.0)%, 14.6%,
16.5%, 3.3%, (6.2)%, (3.8)%, (2.8)%, 16.1%, 16.4% and 5.5%, respectively. Past
comparable store sales results may not be indicative of future results, and
there can be no assurance that the Company's comparable store sales results will
increase or not decrease in the future. In addition, there can be no assurance
that the Company's strategies to increase other sources of revenue, which may
include expansion of its catalog business, wholesale business, corporate sales,
international sales, licensing, co-branding and media and entertainment
activities will be successful or that the Company's overall sales or
profitability will increase or not be adversely affected as a result of any such
expansion. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ABILITY TO MANAGE FUTURE GROWTH
The Company's growth has resulted in an increased demand on the Company's
managerial, operational and administrative resources. The Company has recently
invested significant resources in, among other things, its management
information systems and distribution center and has hired additional key
executives. However, in order to manage currently anticipated levels of future
demand, the Company may be required to, among other things, expand its
distribution facilities, establish relationships with new manufacturers to
produce its products, and continue to expand and improve its financial,
management and operating systems. There can be no assurance that the Company
will be able to manage future growth effectively and a failure to do so could
have a material adverse effect on the Company's business, financial condition
and results of operations.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is significantly dependent on the personal
efforts, performance and abilities of its key management, particularly Andrew
Feshbach, the Company's President and Chief Executive Officer, and Douglas
Nilsen, Executive Vice President--Merchandising. The loss of the services of Mr.
Feshbach, Mr. Nilsen or the other key members of the management team, could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company does not have an employment contract with Mr.
Feshbach, Mr. Nilsen or other key members of the management team. The Company
currently maintains $5 million of keyman insurance on the life of Mr. Feshbach
payable to the Company, which may be significantly reduced following this
offering. The inability to attract and retain qualified personnel in the future
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management."
CONFLICTS OF INTEREST; CERTAIN RELATED TRANSACTIONS
Fred Kayne, the Chairman and majority stockholder of the Company, is the
Chairman, President and beneficial owner of 60% of the capital stock of Fortune
Fashions Inc. ("Fortune Fashions"). In addition, Mr. Feshbach, the President,
Chief Executive Officer and a director of the Company, is a director and
beneficial owner of approximately 10% of the capital stock of Fortune Fashions.
See "Management" and "Principal and Selling Stockholders." Fortune Fashions
manufactured approximately 23% of the Company's products (by dollar value of
purchases) in 1996, including over 90% of the Company's graphic T-shirts.
Fortune Fashions also produces products for other customers who compete with the
Company. While the Company believes its transactions with Fortune Fashions have
generally been on terms at least as favorable to the Company as could be
obtained from unaffiliated parties, such transactions could pose conflicts of
interest, especially if any disputes were to arise between the parties. See
"Certain Relationships and Related Transactions." The Audit Committee of the
Board of Directors of the Company will monitor transactions with Fortune
Fashions and any other related parties to ensure that the Company's overall
transactions with each such party are on terms no less favorable to the Company
than could be obtained from unaffiliated parties.
7
<PAGE>
DEPENDENCE ON THIRD-PARTY AND FOREIGN MANUFACTURERS
The Company does not own or operate any manufacturing facilities and is
therefore dependent on third parties for the manufacture of its products. The
Company currently relies on over 100 vendors to produce its products, with one
affiliated vendor, Fortune Fashions, producing approximately 23% of the
Company's products (by dollar value of purchases) in 1996, including over 90% of
the Company's graphic T-shirts. See
"--Conflicts of Interest; Certain Related Transactions," and "Certain
Relationships and Related Transactions." The Company has no supply contracts
with its manufacturing sources and it competes with other companies for
production facilities. In the event Fortune Fashions or any of the Company's
other manufacturers are unable or unwilling to ship the Company's products in a
timely manner or continue to manufacture the Company's products, the Company
would have to rely on other current manufacturing sources or identify and
qualify new manufacturers. In such event, there can be no assurance that the
Company would be able to qualify such manufacturers for existing or new products
in a timely manner or that such manufacturers would allocate sufficient capacity
to the Company in order to meet its requirements. Although the loss of major
suppliers could have a significant effect on the Company's immediate operating
results, the Company believes alternate sources of merchandise for most product
categories are available at comparable prices and that it could replace these
suppliers without any long-term adverse effect on the Company. Although the
Company believes it maintains good controls with respect to product
specifications and quality, there can be no assurance that its manufacturers
will continue to produce products that are consistent with the Company's
standards. The Company has occasionally received, and may from time-to-time in
the future receive, shipments of product from manufacturers that fail to conform
to the Company's quality control standards. In such event, unless the Company is
able to obtain replacement products in a timely manner, the Company risks the
loss of revenue resulting from the sale of such products and related increased
administrative and shipping costs. The failure of any key manufacturer to supply
products that conform to the Company's standards could materially and adversely
affect the Company's results of operations and its reputation in the
marketplace. Although the Company believes that it has good relationships with
its principal manufacturing sources, the Company's future success is
substantially dependent upon its ability to maintain such relationships. Should
the Company experience significant unanticipated demand, the Company will be
required to significantly expand its access to manufacturing, both from current
and new manufacturing sources. There can be no assurance that such additional
manufacturing capacity will be available on terms as favorable as those obtained
from current sources. See "Business--Sourcing."
In 1996, approximately 61% of the Company's products (by dollar value of
purchases) was manufactured outside of the United States, primarily in Asia. The
Company's operations could be adversely affected by events that result in
disruption of trade from foreign countries in which the Company's suppliers are
located. A significant portion of the Company's foreign-supplied products is
produced by contractors with manufacturing facilities in China. There have been
a number of recent trade disputes between China and the United States during
which the United States has threatened to impose punitive tariffs and duties on
products imported from China and to withdraw China's "most favored nation" trade
status. The loss of most favored nation status for China, changes in current
tariff or duty structures or the adoption by the United States of other trade
policies or sanctions adverse to China could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's internal and vendor operating guidelines promote ethical and
legal business practices. The Company's staff or agents periodically visit and
observe the operations of its foreign and domestic manufacturers, but the
Company does not control such manufacturers or their labor practices. The
violation of labor or other laws by any manufacturer used by the Company or the
divergence of an independent manufacturer's labor practices from those generally
accepted as ethical in the United States, could have a material adverse effect
on the Company's business, financial condition and results of operations.
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
Because a significant portion of the Company's products are designed for
warm weather use and a significant number of the Company's retail stores are
located in tourist areas and outdoor malls, the Company's
8
<PAGE>
business is seasonal by nature. In addition, the Company believes that because
it locates its stores largely in tourist areas and outdoor malls, which have
different visitation patterns than urban and suburban retail centers, the
Company's seasonality is somewhat different than that of many apparel retailers.
The third and fourth quarters (consisting of the summer vacation,
back-to-school, and Christmas seasons) have historically accounted for the
largest percentage of the Company's annual net sales and profits. In 1996,
excluding sales generated by stores not open for all of 1996, substantially all
the Company's operating income and approximately 28% and 33% of the Company's
net sales were generated during the third and fourth quarters, respectively. In
addition, the Company has historically incurred operating losses in its first
quarter and anticipates that it will continue to do so during the first quarter
of each year for the foreseeable future.
The Company has experienced, and may continue to experience, year-over-year
fluctuations in its net sales and net income (loss) on a quarterly basis, which
is typical of many apparel and retail businesses. The Company's quarterly
results of operations may fluctuate significantly as a result of a variety of
factors, including the timing of store openings, the amount of revenue
contributed by new stores, changes in comparable store sales, changes in the mix
of products sold, customer acceptance of new products, the timing and level of
markdowns, competitive factors and general economic conditions, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Because of these quarterly and seasonal
fluctuations, the results of operations for any quarter are not necessarily
indicative of the results that may be achieved for a full year or for any future
quarter. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Seasonality and Quarterly Results."
DEPENDENCE ON TRADEMARKS AND COPYRIGHTS
The Company uses a number of trademarks, certain of which the Company has
registered with the United States Patent and Trademark Office and in certain
foreign countries. The Company believes that its registered and common law
trademarks have significant value and that its trademarks, copyrights and other
intellectual property are instrumental in its ability to create and sustain
demand for and market its products. Accordingly, the Company devotes substantial
resources to the establishment and protection of its trademarks on a worldwide
basis. The Company believes that there are no currently pending material
challenges to the use or registration of any of the Company's trademarks. There
can be no assurance, however, that the Company's current or future use of its
primary trademarks in new, non-apparel product categories or the use of more
newly developed trademarks in all categories do not or will not violate the
proprietary rights of others, that they would be upheld if challenged or that
the Company would, in such an event, not be prevented from using its trademarks
in those categories. See "Business--Trademarks."
From time to time the Company discovers products in the marketplace that
infringe upon trademark rights held by the Company. Although the Company
aggressively pursues such infringements, it may determine that it is not cost
effective to pursue smaller infringements in all instances. In addition,
enforcement actions against infringements may be expensive and there can be no
assurance that the Company's claims will prevail. Continued sales of infringing
products could adversely impact the BIG DOGS-Registered Trademark- brand and
image, result in loss of sales and a shift of consumer preferences away from the
Company and generally have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Trademarks."
ECONOMIC CONDITIONS AND CONSUMER SPENDING
The Company's apparel and related products are sold in an industry that has
been, and will likely continue to be, subject to substantial cyclical
variations. By its focus on basic apparel, the Company believes that it is less
affected by such cycles than many fashion apparel companies. However, purchases
of the Company's apparel and related products are nevertheless discretionary for
consumers and, as a result, may be affected by adverse trends in the national
economy or one or more regional economies. The success of the Company's
operations therefore depends upon a number of factors relating to discretionary
consumer spending, including economic conditions affecting disposable consumer
income, such as employment, business conditions, future economic prospects,
interest rates and taxation. In addition, substantially all of the Company's
stores are located in tourist
9
<PAGE>
areas and outlet malls and the Company's sales depend on a high level of traffic
in these locations. The Company, therefore, depends on the ability of these
tourist destinations and malls to continue to generate a high volume of consumer
traffic in the vicinity of the Company's stores. Tourism and outlet mall traffic
may be adversely affected by economic downturns, adverse weather, political
conditions, natural disasters, changing consumer preferences, highway or surface
street traffic, the closing of high profile stores near the Company's stores and
declines in the desirability of the shopping environment in a particular tourist
destination or mall. Any of the factors set forth above could adversely affect
the Company's business, financial condition and results of operations.
SUBSTANTIAL COMPETITION
The Company competes primarily on the basis of its brand image, offering a
unique combination of quality, value and fun, and on other factors including
product assortment, price, store location and layout, and customer service. The
markets for each of the Company's products are highly competitive. Although the
level and nature of competition differ among the Company's product categories,
the Company believes that its long-term competitive position will depend upon
its ability to anticipate and respond effectively to changing consumer demands
and to offer customers a wide variety of high-quality, fun products at
competitive prices. Although the Company believes it does not compete directly
with any single company with respect to its entire range of merchandise, within
each merchandise category, the Company competes with well-known apparel and
specialty retail companies such as The GAP, Eddie Bauer, Warner Brothers Stores
and The Disney Stores, as well as a large number of national and regional
department stores, specialty retailers and apparel designers and manufacturers.
In addition, in recent years, the amount of casual sportswear and activewear
manufactured specifically for department stores and sold under their own labels
has significantly increased. Many of Big Dogs' competitors are significantly
larger and more diversified and have substantially greater financial,
distribution, marketing and other resources and have achieved greater
recognition for their brand names than the Company. Although the level and
nature of competition differ among the Company's product categories, the Company
believes that it competes primarily on the basis of a brand image offering a
relatively unique combination of quality, value and fun, and on other factors
including product assortment, store location and layout and customer service.
There can be no assurance that the Company will be able to compete successfully
with its competitors in the future. Any failure to successfully compete could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Competition."
CONTROL BY EXISTING STOCKHOLDERS AND ANTITAKEOVER PROVISIONS
Upon completion of this offering, Fred Kayne will beneficially own
approximately 49.2% of the Company's outstanding Common Stock (45.8% if the
Underwriters' over-allotment option is exercised in full) and the Company's
current directors and executive officers, including Mr. Kayne, will collectively
beneficially own approximately 63.5% of the Common Stock (59.5% if the
over-allotment option is exercised in full). As a result, Mr. Kayne, acting
either individually or in concert with the Company's current directors and
executive officers, will be able to control the election of directors and, in
general, to determine the outcome of any matter submitted to a vote of the
Company's stockholders for approval. This concentration of ownership, together
with the anti-takeover effects of certain provisions of the Delaware General
Corporation Law and the Company's Certificate of Incorporation and Bylaws, may
have the effect of delaying or preventing a change in control of the Company,
may discourage bids for the Company's Common Stock at a premium over the market
price of the Common Stock and may adversely affect the prevailing market price
of the Common Stock.
The Company has authorized 3,000,000 shares of Preferred Stock having such
designations, rights and preferences as may be determined from time to time by
the Board of Directors, without any vote or further action by the stockholders
of the Company. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of Preferred Stock
that may be issued in the future. In addition, under the Company's 1997
Performance Award Plan (the "1997 Plan"), upon a "Change in Control Event" (as
defined in the 1997 Plan) each option and stock appreciation right issued under
the 1997 Plan will
10
<PAGE>
become immediately exercisable; restricted stock issued under the 1997 Plan will
immediately vest free of restrictions; and the number of shares, cash or other
property covered by each "performance share award" issued under the 1997 Plan
will be issued to the grantee of such award, unless the Board of Directors (or
the Committee thereof appointed to administer the 1997 Plan) determines to the
contrary. The issuance of Preferred Stock and the acceleration of rights under
the 1997 Plan could make it more difficult for a third party to acquire the
Company. The Company has no present plan to issue any of its Preferred Stock.
See "Management", "Principal and Selling Stockholders," and "Description of
Capital Stock."
NO PRIOR MARKET AND VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop
subsequent to this offering or, if developed, that it will be sustained. The
initial public offering price of the Common Stock offered hereby will be
determined by negotiations among the Company, the Selling Stockholders and the
Representatives and may not be indicative of the market price for the Common
Stock after the offering. See "Underwriting." Upon commencement of this
offering, the Common Stock will be quoted on The Nasdaq National Market, which
has experienced, and is likely to continue to experience, significant price and
volume fluctuations which could adversely affect the market price of the Common
Stock without regard to the operating performance of the Company. In addition,
the market prices for shares of common stock issued in an initial public
offering are often volatile, as are shares of companies in the apparel business,
and the price of the shares offered hereby may in particular fluctuate based
upon a number of factors, including, without limitation, quarter-to-quarter
variations in the Company's results of operations, fluctuations in the Company's
comparable store sales, announcements by other apparel, accessory and gift item
manufacturers and retailers, the condition of the overall economy and those
other factors listed in this "Risk Factors" section. Due to the foregoing and
other factors in this "Risk Factors" section, it is possible that the Company's
actual results of operations may be below investors' and research analysts'
expectations, and, as a result, research analysts may change their earnings per
share projections, both of which could have a material adverse effect on the
market price of the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 12,960,550 shares of
Common Stock outstanding (based upon shares of Common Stock outstanding as of
July 31, 1997 and assuming no exercise of outstanding options or warrants). Of
these shares, the 2,800,000 shares sold by the Company and the 700,000 sold by
the Selling Stockholders in this offering, plus any additional shares sold upon
exercise of the Underwriters' over-allotment option, will be freely tradable
without restriction or further registration under the Securities Act, except
that any shares purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act ("Affiliates"), may generally only
be sold in compliance with the limitations of Rule 144 described below. The
remaining 9,460,550 shares of Common Stock (the "Restricted Shares") held by
existing stockholders upon completion of this offering will be "restricted"
securities within the meaning of Rule 144 and may not be sold except in
compliance with the registration requirements of the Securities Act or an
applicable exemption under the Securities Act, including an exemption pursuant
to Rule 144 or Rule 701.
All stockholders of the Company (who in the aggregate hold 10,160,550 shares
of Common Stock), all warrantholders of the Company (who in the aggregate have
the right to purchase 240,000 shares of Common Stock), and all holders of
options exercisable within 180 days after this offering (who in the aggregate
have the right to purchase 73,333 shares of Common Stock within that period),
have agreed, pursuant to Lock-Up Agreements, that they will not, without the
prior written consent of Robertson, Stephens & Company, offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock beneficially owned by
them (except for shares sold in this offering) for a period of 180 days after
the date of this Prospectus. Robertson, Stephens & Company may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to the Lock-Up Agreements. See "Underwriting."
11
<PAGE>
Upon the expiration of the 180-day lock-up period, approximately 8,528,500
Restricted Shares will become eligible for sale in the public market pursuant to
Rule 144 or Rule 701.
As of August 1, 1997, there were warrants outstanding for the purchase of
240,000 shares of Common Stock. The underlying shares may be resold under Rule
144 upon the expiration of either the one or two-year holding periods, which
commence upon exercise of the warrants.
As of August 1, 1997, options to purchase 92,500 shares were outstanding
under the 1997 Stock Option Plan and options to purchase 55,000 shares were
outstanding under non-plan option agreements with the Company's Chairman. Upon
expiration of the 180-day lock-up period and subject to vesting and
exercisability restrictions, all shares issued pursuant to the exercise of these
stock options may be resold pursuant to Rule 701. 73,333 of such options will be
exercisable at the end of the 180-day lock-up period. In addition, options to
purchase 282,500 shares of Common Stock were granted under the 1997 Performance
Award Plan (the "1997 Plan") as of August 1, 1997 and 717,500 shares of Common
Stock are available for future grant under the 1997 Plan. The Company intends to
file a registration statement on Form S-8 under the Securities Act 90 days after
the date of this Prospectus to register the shares issuable under the 1997 Plan.
Such registration statement is expected to become effective upon filing. After
the effective date of such registration statement, shares of Common Stock issued
under the 1997 Plan will be immediately eligible for sale in the public market,
subject to vesting and exercisability restrictions. No options granted under the
1997 Plan will become exercisable prior to January 1, 1999. See "Shares Eligible
for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
The amount by which the initial public offering price per share of Common
Stock exceeds the adjusted net tangible book value per share of the Common Stock
after this offering constitutes dilution to investors in this offering.
Investors purchasing shares of Common Stock in this offering will incur
immediate and substantial dilution of $10.10 per share at an assumed initial
public offering price of $13.00. See "Dilution." The Company has never paid
dividends on its outstanding shares of capital stock and does not anticipate
paying any dividends in the foreseeable future. See "Dividend Policy."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,800,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $13.00 per share, after deducting estimated underwriting discounts and
commissions and offering expenses, are estimated to be approximately $33.5
million. The Company will not receive any proceeds from the sale of Common Stock
by the Selling Stockholders.
The net proceeds will be used as follows: (i) approximately $8.0 million to
repay certain promissory notes due through November 4, 2003 that bear interest
at 10% per annum, (ii) to repay outstanding advances under the Company's
revolving credit facility (which were in the principal amount of $6.9 million as
of July 31, 1997) that mature May 2, 1998 and that bear interest at the prime
rate of its bank lender (8.5% per annum as of July 31, 1997), (iii)
approximately $6.4 million to repay certain promissory notes issued to the
Company's Chairman and majority stockholder due June 30, 1999 and November 4,
2003 that bear interest at 10% per annum, and (iv) approximately $1.0 million to
repay capital lease obligations. The Company intends to use the remaining net
proceeds of this offering for working capital and other general corporate
purposes. Pending such uses, the net proceeds will be invested in short-term,
investment-grade, interest-bearing securities. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends on its capital stock in the
foreseeable future. Any future declaration and payment of dividends will be
subject to the discretion of the Company's Board of Directors, will be subject
to applicable law and will depend upon the Company's results of operations,
earnings, financial condition, cash requirements, future prospects and other
factors deemed relevant by the Board of Directors. In addition, the Company's
revolving credit facility prohibits the payment of dividends by the Company.
13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997, on an actual basis and as adjusted to give effect
to the sale of the 2,800,000 shares of Common Stock offered by the Company
hereby based upon an assumed initial public offering price of $13.00 per share
and the application of the estimated net proceeds therefrom. This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED(2)
--------- ---------------
(in thousands, except
share and per share
amounts)
<S> <C> <C>
Total short-term debt................................................................. $ 7,409 $ --
--------- -------
--------- -------
Obligations under capital leases, net of current portion.............................. $ 514 $ --
Subordinated debt..................................................................... 14,400 --
--------- -------
Total long-term debt.............................................................. 14,914 --
--------- -------
Stockholders' equity:
Preferred stock, $.01 par value per share; 3,000,000 shares authorized; no shares
issued or outstanding actual or as adjusted.......................................
Common stock, $.01 par value per share; 30,000,000 shares authorized; 10,160,550
issued and outstanding, actual; 12,960,550 issued and outstanding, as adjusted
(1)............................................................................... 102 130
Additional paid-in capital.......................................................... 5,705 39,129
Retained earnings (deficit)......................................................... (736) (736)
Notes receivable on common stock.................................................... (732) (732)
--------- -------
Total stockholders' equity........................................................ 4,339 37,791
--------- -------
Total capitalization............................................................ $ 19,253 $ 37,791
--------- -------
--------- -------
</TABLE>
- -------
(1) Based on the number of shares of Common Stock outstanding at June 30, 1997.
Excludes (i) 147,500 shares of Common Stock issuable upon the exercise of
options outstanding at June 30, 1997 at a weighted average exercise price of
$4.93 per share; (ii) 282,500 shares of Common Stock issuable upon the
exercise of options granted after June 30, 1997 at an exercise price of
$12.00 per share; (iii) 240,000 shares of Common Stock issuable upon the
exercise of warrants outstanding at June 30, 1997 at a weighted average
exercise price of $3.50 per share; and (iv) 717,500 shares available for
future grant under the 1997 Plan. See "Management--Stock and Incentive
Plans" and "Description of Capital Stock."
(2) Adjusted to reflect the sale of 2,800,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $13.00 per
share and the application of the estimated net proceeds therefrom.
14
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1997 was
approximately $4.1 million, or $0.41 per share of Common Stock. Net tangible
book value per share is equal to the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding.
After giving effect to the sale by the Company of 2,800,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $13.00 per
share and after deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company, the adjusted net
tangible book value of the Company as of June 30, 1997 would have been $37.6
million, or $2.90 per share. This represents an immediate increase in net
tangible book value of $2.49 per share to existing stockholders and an immediate
dilution in net tangible book value of $10.10 per share to investors purchasing
shares of Common Stock in this offering. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................ $ 13.00
Net tangible book value at June 30, 1997................... $ 0.41
Increase attributable to new investors..................... 2.49
---------
Adjusted net tangible book value after the offering.......... 2.90
---------
Dilution to new investors.................................... $ 10.10
---------
---------
</TABLE>
The following table summarizes, as of June 30, 1997, the difference between
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and by the new investors at the assumed initial public offering price of $13.00
per share.
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 10,160,550 78.4% $ 5,807,000 13.8% $ 0.57
New investors............... 2,800,000 21.6 36,400,000 86.2 $ 13.00
---------- ----- ----------- -----
Total................... 12,960,550 100.0% $42,207,000 100.0%
---------- ----- ----------- -----
---------- ----- ----------- -----
</TABLE>
- -------
(1) Sales by the Selling Stockholders in this offering will cause the number of
shares held by existing stockholders to be reduced to 9,460,550 shares, or
73.0% (8,935,550 shares, or 68.9%, if the Underwriters' over-allotment
option is exercised in full), of the total number of shares of Common Stock
to be outstanding after this offering, and will increase the number of
shares held by new investors to 3,500,000 shares, or 27.0% (4,025,000
shares, or 31.1%, if the Underwriters' over-allotment option is exercised in
full) of the total number of shares of Common Stock to be outstanding after
this offering. See "Principal and Selling Stockholders."
The calculation of net tangible book value and the other computations above
assume no exercise of outstanding options or warrants. As of June 30, 1997,
387,500 shares of Common Stock were issuable upon exercise of outstanding stock
options and warrants at a weighted average exercise price of $4.04 per share, of
which options and warrants to purchase 295,000 shares were then exercisable at a
weighted average exercise price of $3.43 per share. On August 1, 1997, the
Company granted options for the purchase of 282,500 shares of Common Stock to
over 60 employees under the 1997 Plan at an exercise price of $12.00 per share.
To the extent the outstanding options are exercised and any shares of Common
Stock reserved for issuance are issued with exercise prices below the initial
public offering price, there will be further dilution to new investors. See
"Management--Stock and Incentive Plans" and "Shares Eligible for Future Sale."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The consolidated statement of operations data set forth below for each of
the years ended December 31, 1994, 1995 and 1996 and the consolidated balance
sheet data as of December 31, 1995 and 1996 have been derived from the Company's
consolidated financial statements, which statements have been audited by
Deloitte & Touche LLP, independent auditors, and are included elsewhere in this
Prospectus. The consolidated statement of operations data presented for the
seven months ended December 31, 1992 and the year ended December 31, 1993 and
the consolidated balance sheet data as of December 31, 1992, 1993 and 1994 are
derived from the Company's audited consolidated financial statements, which are
not included in this Prospectus. The data presented as of June 30, 1996 and 1997
and for the six months ended June 30, 1996 and 1997 are derived from unaudited
consolidated financial statements included elsewhere in this Prospectus. In the
opinion of management, all unaudited financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the data for such periods. The results of operations for the six
months ended June 30, 1997 are not necessarily indicative of the results to be
expected for the full year or for any future period, particularly due to the
seasonality of the Company's business. The selected consolidated financial data
set forth below should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX
MONTHS
SEVEN MONTHS ENDED
ENDED DECEMBER YEAR ENDED DECEMBER 31, JUNE 30,
31, ------------------------------------------ ---------
1992 (1) 1993 1994 1995 1996 1996
--------------- --------- --------- --------- --------- ---------
(in thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 3,000 $ 11,413 $ 28,404 $ 51,541 $ 68,683 $ 24,351
Cost of goods sold................................... 1,789 5,946 12,857 21,571 29,720 10,617
------ --------- --------- --------- --------- ---------
Gross profit......................................... 1,211 5,467 15,547 29,970 38,963 13,734
------ --------- --------- --------- --------- ---------
Selling, marketing and distribution expenses......... 1,166 3,873 12,993 24,814 32,309 13,685
General and administrative expenses.................. 562 1,341 1,746 3,167 3,937 1,976
------ --------- --------- --------- --------- ---------
Total operating expenses............................. 1,728 5,214 14,739 27,981 36,246 15,661
------ --------- --------- --------- --------- ---------
Operating income (loss).............................. (517) 253 808 1,989 2,717 (1,927)
Interest expense..................................... 26 306 397 1,189 1,647 667
------ --------- --------- --------- --------- ---------
Income (loss) before provision (benefit) for income
taxes.............................................. (543) (53) 411 800 1,070 (2,594)
Provision (benefit) for income taxes................. 1 1 19 162 435 (1,054)
------ --------- --------- --------- --------- ---------
Net income (loss).................................... $ (544) $ (54) $ 392 $ 638 $ 635 $ (1,540)
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Net income (loss) per common share................... $ (0.06) $ (0.01) $ 0.04 $ 0.07 $ 0.06 $ (0.15)
Weighted average common and common share equivalents
outstanding........................................ 9,225 9,225 9,225 9,728 10,230 10,038
OPERATING DATA:
Number of stores: (2)
Open at beginning of period........................ 4 5 16 51 91 91
Stores added (net of closures)..................... 1 11 35 40 30 14
------ --------- --------- --------- --------- ---------
Open at end of period.............................. 5 16 51 91 121 105
Comparable store sales increase (decrease) (3)....... N/A 31.8% (1.5)% 9.0% 3.2% (4.6)%
<CAPTION>
1997
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 31,143
Cost of goods sold................................... 13,208
-----------
Gross profit......................................... 17,935
-----------
Selling, marketing and distribution expenses......... 17,764
General and administrative expenses.................. 2,111
-----------
Total operating expenses............................. 19,875
-----------
Operating income (loss).............................. (1,940)
Interest expense..................................... 967
-----------
Income (loss) before provision (benefit) for income
taxes.............................................. (2,907)
Provision (benefit) for income taxes................. (1,104)
-----------
Net income (loss).................................... $ (1,803)
-----------
-----------
Net income (loss) per common share................... $ (0.17)
Weighted average common and common share equivalents
outstanding........................................ 10,491
OPERATING DATA:
Number of stores: (2)
Open at beginning of period........................ 121
Stores added (net of closures)..................... 11
-----------
Open at end of period.............................. 132
Comparable store sales increase (decrease) (3)....... 9.6%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $ 1,141 $ 1,506 $ 3,072 $ 8,030 $ 13,742 $ 8,565 $ 10,730
Total assets.................................... 3,623 5,756 13,647 19,011 25,773 26,477 32,976
Total indebtedness (4).......................... 1,530 2,272 6,141 10,732 15,697 17,791 22,323
Stockholders' equity............................ 556 2,502 3,094 4,737 6,142 3,623 4,339
</TABLE>
- ---------
(1) The Company acquired the BIG DOGS-Registered Trademark- trademark and
related assets as of May 29, 1992 and the statement of operations reflects
results since that date. See "Business--General."
(2) Excludes two temporary stores open for a portion of 1995 and four temporary
stores open for a portion of 1996.
(3) Comparable store sales represent net sales of stores open at least one full
year. Stores are considered comparable beginning on the first day of the
first month following the one-year anniversary of their opening. Stores that
are relocated but remain in the same shopping area remain in the comparable
store base.
(4) Includes subordinated debt, obligations under the bank line of credit and
obligations under capital leases.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The statements contained in this Prospectus that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act, including without limitation statements regarding the
Company's expectations, beliefs, intentions or strategies regarding the future.
All forward-looking statements in this document are based upon information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. Notwithstanding the
Company's dramatic growth in sales and profitability during recent periods, the
Company faces significant risks and, as a result, there can be no assurance that
the Company's historical growth is indicative of future performance. The
following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto contained elsewhere in this
Prospectus. Certain minor differences in rounding and additions in the tables
and text of Management's Discussion and Analysis of Financial Condition and
Results of Operations result from basing the calculations on amounts as shown in
Selected Consolidated Financial and Operating Data.
GENERAL
Big Dogs develops, markets and retails a branded, lifestyle collection of
unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. Big Dogs products were first sold in
1983, and operations remained limited through 1992 when the current controlling
stockholders acquired the BIG DOGS-Registered Trademark- brand and related
assets. Following the acquisition, Big Dogs initiated a strategy of leveraging
the brand through dramatic expansion of its product lines and rapid growth in
its retail stores. The Company's net sales have grown from $11.4 million in 1993
(the Company's first full year of operation) to $68.7 million in 1996, a
compound annual growth rate of 82%. The number of Company stores has grown from
5 in 1993 to 134 as of July 31, 1997, and over the last three years, the Company
recruited a team of key executives and invested in management information
systems and other infrastructure improvements that the Company believes have
been critical in achieving this growth and positioning it to manage its
anticipated future growth. The Company attained this dramatic growth during a
competitive retail environment and, despite substantial infrastructure
investments for growth, the Company achieved growing operating income in each
full year of operation.
As of July 31, 1997, the Company operated 133 stores in 39 states and one
store in England. The Company expects its primary growth in the next few years
to come from the opening of new stores. After opening 35 and 40 stores (net of
closures) in 1994 and 1995, respectively, beginning in 1996, the Company
moderated its planned annual store openings to 30 in order to implement a new
merchandising information system, integrate new executive management, develop
and validate its smaller store format, test-market additional venues in which to
open Big Dog stores and, beginning in March 1997, implement its store
retrofitting program. The Company plans to open 30 net new stores during 1997,
13 of which were open as of July 31, 1997 and at least 30 stores in 1998. In
1997, the Company began a store retrofitting program, under which it is
installing more flexible and higher capacity wall and floor fixtures, which are
designed to better display products and improve in-stock positions on the
selling floor. As of July 31, 1997, the Company has retrofitted 32 stores and
plans to retrofit approximately 20 additional stores in the remainder of 1997.
The Company believes that much of the corporate infrastructure to absorb and
manage its anticipated growth over the next few years is in place. During the
last three years, several key executives with substantial industry experience
were recruited and joined the Big Dogs team. The Company has also strengthened
its merchandising, product development and store operations staff and, in late
1995 and early 1996, implemented a more advanced management information system
to facilitate planning and execution of its merchandising strategies. The
Company expects to leverage certain of these infrastructure investments through
the opening of new stores, as well as by selling BIG DOGS-Registered Trademark-
products through other distribution channels.
17
<PAGE>
While the Company believes the primary source of future growth will be from
new store openings, it expects to increase sales by (A) continued comparable
store sales increases as a result of, among other things, (i) continued new
product development across all product lines; (ii) further penetration of
existing products, themes and categories, particularly in its recently
introduced children's, Big and Tall and non-apparel lines; (iii) fuller
utilization of its merchandising information systems to capitalize on regional
and seasonal trends and build sales by category; (iv) the impact of recent
additions to the Company's merchandising and store operations staff, as well as
higher productivity associated with the maturation of its existing
merchandising, product development and store management staff, and (v) the
current retrofitting program for existing stores; (B) expansion of existing
channels of distribution through a new and more focused strategy of growth; (C)
pursuit of international sales through various channels; and (D) selective brand
leveraging through licensing and media activities.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
statement of operations data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.................................. 45.3 41.9 43.3 43.6 42.4
--------- --------- --------- --------- ---------
Gross profit........................................ 54.7 58.1 56.7 56.4 57.6
--------- --------- --------- --------- ---------
Selling, marketing and distribution expenses........ 45.7 48.1 47.0 56.2 57.0
General and administrative expenses................. 6.1 6.1 5.7 8.1 6.8
--------- --------- --------- --------- ---------
Total operating expenses............................ 51.9 54.3 52.8 64.3 63.8
--------- --------- --------- --------- ---------
Income (loss) from operations....................... 2.8% 3.9% 4.0% (7.9)% (6.2)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NET SALES. Net sales consist of sales from the Company's stores, catalog,
and wholesale accounts, all net of returns and allowances. Net sales increased
to $31.1 million in the first six months of 1997 from $24.4 million for the same
period in 1996, an increase of $6.8 million, or 27.9%. Of the $6.8 million
increase, $5.7 million was attributable to stores not yet qualifying as
comparable stores and $1.8 million came from the 9.6% comparable store sales
increase for the period. These increases were partially offset by a $0.7 million
decline in non-retail sales. Management believes comparable store sales
increased because of continued improvements in Company operations. These
improvements include (i) the addition and maturation of key executives in store
operations, merchandising and distribution and (ii) the better merchandising
associated with the Company's utilization of its management information system
as a result of the availability of detailed data on which to base planning and
allocation decisions. In particular, continued strong growth in the Company's
recently introduced categories of children's, Big and Tall and non-apparel
products contributed to the increase. The Company also benefited from easier
comparisons to sales in the first half of 1996.
GROSS PROFIT. Gross profit increased to $17.9 million in the first six
months of 1997 from $13.7 million for the same period in 1996, an increase of
$4.2 million, or 30.6%. As a percentage of net sales, gross profit increased to
57.6% in the first six months of 1997 from 56.4% in the same period in 1996.
This increase as a percentage of net sales was primarily attributable to better
purchasing of certain key products. Also contributing to the percentage increase
were continued improvements in merchandising, planning and allocation which led
to better product sell-throughs.
18
<PAGE>
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses consist of expenses associated with creating,
distributing, and selling products through all channels of distribution,
including occupancy, payroll and catalog costs. Selling, marketing and
distribution expenses increased to $17.8 million in the first six months of 1997
from $13.7 million for the same period in 1996, an increase of $4.1 million, or
29.8%. As a percentage of net sales, these expenses increased to 57.0% in the
first six months from 56.2% in the same period in 1996, primarily as a result of
infrastructure investments.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of administrative salaries, corporate occupancy costs and other
corporate expenses. General and administrative expenses increased to $2.1
million in the first six months of 1997 from $2.0 million in the same period in
1996. As a percentage of net sales, these expenses decreased to 6.8% in the
first six months of 1997 from 8.1% in the comparable 1996 period, reflecting the
leverage of spreading them over a larger revenue base.
INTEREST EXPENSE. Interest expense increased to $1.0 million in the first
six months of 1997 from $0.7 million in the same period in 1996, an increase of
$0.3 million, primarily as a result of an increase in amounts due under
outstanding subordinated notes and increased borrowings under of the Company's
bank line of credit.
YEARS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales increased to $68.7 million in 1996 from $51.5 million
in 1995, an increase of $17.1 million, or 33.3%. Of the $17.1 million increase,
$19.6 million was attributable to stores not yet qualifying as comparable stores
and $1.2 million was attributable to the 3.2% comparable store sales increase
for the period. These increases were partially offset by a decline of $3.7
million in non-retail sales as a result of the Company's streamlining of its
catalog and wholesale operations which it initiated with the objectives of
improving their profitability and positioning them for future growth. Comparable
store sales increased in the fall and Holiday periods, which management believes
was primarily a result of fundamental improvements in store operations. These
improvements include integration of newly recruited executive management in
merchandising, store operations and distribution, utilization of the new
computer system to improve merchandising decisions and product allocation and
improvements in warehouse operations. Comparable store sales also increased as a
result of the continued growth of the three relatively new product lines
(children's, Big and Tall and non-apparel products) and new promotional
techniques.
GROSS PROFIT. Gross profit increased to $39.0 million in 1996 from $30.0
million in 1995, an increase of $9.0 million, or 30.0%. However, as a percentage
of net sales, gross profit decreased to 56.7% in 1996 from 58.1% in 1995. This
decline in gross profit as a percentage of net sales is primarily attributable
to certain inefficiencies throughout the year related to the integration of the
new merchandising information system. In addition, the Company experienced lower
than expected retail gross profit margins in the fourth quarter of 1996 due to
product mix and out-of-stock issues in December related to better than expected
sell-throughs in October and November.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses increased to $32.3 million in 1996 from $24.8 million in
1995, an increase of $7.5 million, or 30.2%. As a percentage of net sales, these
expenses decreased to 47.0% in 1996 from 48.1% in 1995. This decrease in
operating expenses as a percentage of net sales was primarily attributable to
the Company's decision to streamline its catalog operations. This decrease was
offset in part by higher occupancy costs and payroll costs as a percentage of
net sales related primarily to the timing of new store openings.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $3.9 million in 1996 from $3.2 million in 1995, an increase of $0.7
million or 24.3%. As a percentage of net sales, these expenses decreased to 5.7%
in 1996 from 6.1% in 1995, reflecting the leverage of spreading these expenses
over a larger revenue base.
19
<PAGE>
INTEREST EXPENSE. Interest expense increased to $1.6 million in 1996 from
$1.2 million in 1995, an increase of $0.4 million, as a result of a $6.1 million
increase in the amount of subordinated notes outstanding during the year and
increased borrowings under the Company's revolving credit facility.
PROVISION FOR INCOME TAXES. The effective tax rate in 1996 was 40.7% as
compared to 20.3% in 1995. The lower effective tax rate in 1995 was primarily
attributable to the utilization of net operating loss carryforwards. As of
December 31, 1995, the Company had fully utilized its net operating loss
carryforwards.
YEARS ENDED DECEMBER 31, 1995 AND 1994
NET SALES. Net sales increased to $51.5 million in 1995 from $28.4 million
in 1994, an increase of $23.1 million, or 81.5%. Of the $23.1 million increase,
$21.2 million was attributable to stores not yet qualifying as comparable
stores, $1.4 million was attributable to the 9.0% comparable store sales
increase for the period, and $0.5 million was attributable to increases in
non-retail sales. The increase in comparable store sales in 1995 was based on
strong sales in a few high-volume stores within a relatively small comparable
store base.
GROSS PROFIT. Gross profit increased to $29.9 million in 1995 from $15.5
million in 1994, an increase of $14.4 million, or 92.8%. As a percentage of net
sales, gross profit increased to 58.1% in 1995 from 54.7% in 1994. Factors
contributing to the higher gross profit as a percentage of net sales include the
continued shift of the Company's business away from wholesale to higher margin
retail and catalog sales.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses increased to $24.8 million in 1995 from $13.0 million in
1994, an increase of $11.8 million, or 91.0%. As a percentage of net sales,
these expenses increased to 48.1% in 1995 from 45.7% in 1994. These expenses
increased primarily because of a reduction in the level of wholesale operations,
which have lower selling, marketing and distribution expenses than the Company's
other operations. In addition, catalog expenses increased as a percentage of net
sales to 9.5% in 1995 from 7.7% in 1994 due to higher paper and postage costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $3.1 million in 1995 from $1.7 million in 1994, an increase of $1.4
million or 81.4%. As a percentage of net sales, these expenses remained constant
at 6.1% in both periods.
INTEREST EXPENSE. Interest expense increased to $1.2 million in 1995 from
$0.4 million in 1994, an increase of $0.8 million, as a result of a $4.8 million
increase in the amount of subordinated notes outstanding during the year and
increased borrowings under the Company's revolving credit facility.
PROVISION FOR INCOME TAXES. The effective tax rate was 20.3% in 1995 as
compared to 4.6% in 1994. The tax rate for both periods was lower than the
statutory rate due primarily to the utilization of net operating loss
carryforwards.
SEASONALITY AND QUARTERLY RESULTS
The Company believes its seasonality is somewhat different than many apparel
retailers since a significant number of the Company's stores are located in
tourist areas and outdoor malls that have different visitation patterns than
urban and suburban retail centers. The third and fourth quarters (consisting of
the summer vacation, back-to-school and Christmas seasons) have historically
accounted for the largest percentage of the Company's annual net sales and
profits. In 1996, excluding sales generated by stores not open for all of 1996,
substantially all the Company's operating income and approximately 28% and 33%
of the Company's net sales were generated during the third and fourth quarters,
respectively. In addition, the Company has historically incurred operating
losses in its first quarter and anticipates that it will continue to do so
during the first quarter of each year for the foreseeable future.
The Company's quarterly results of operations may also fluctuate as a result
of a variety of factors, including the timing of store openings, the amount of
revenue contributed by new stores, changes in comparable store
20
<PAGE>
sales, changes in the mix of products sold, customer acceptance of new products,
the timing and level of markdowns, competitive factors and general economic
conditions.
The following table sets forth certain data for each of the Company's last
six fiscal quarters. The quarterly data set forth below were derived from
unaudited consolidated financial statements of the Company, which in the opinion
of management of the Company contain all adjustments (consisting only of normal
adjustments) necessary for a fair presentation of such data.
<TABLE>
<CAPTION>
1996 1997
-------------------------------------------------- ------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ----------- ----------- -----------
(in thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 9,131 $ 15,220 $ 19,652 $ 24,680 $ 12,265 $ 18,878
Gross profit.............................. 4,812 8,922 11,311 13,918 6,670 11,265
Selling, marketing and distribution
expenses................................ 6,091 7,594 8,631 9,993 8,454 9,310
General and administrative expenses....... 979 997 976 985 1,035 1,076
Total operating expenses.................. 7,070 8,591 9,607 10,978 9,489 10,386
Income (loss) from operations............. (2,258) 331 1,704 2,940 (2,819) 879
Net income (loss)......................... (1,522) (18) 755 1,420 (2,031) 228
Net income (loss) per common share........ $ (0.15) $ (0.00) $ 0.07 $ 0.14 $ (0.19) $ 0.02
Weighted average common and common
equivalent shares outstanding........... 9,971 10,123 10,252 10,491 10,491 10,491
AS A PERCENTAGE OF NET SALES:
Gross profit.............................. 52.7% 58.6% 57.6% 56.4% 54.4% 59.7%
Selling, marketing and distribution
expenses................................ 66.7 49.9 43.9 40.5 68.9 49.3
General and administrative expenses....... 10.7 6.6 5.0 4.0 8.4 5.7
Total operating expenses.................. 77.4 56.4 48.9 44.5 77.4 55.0
Income (loss) from operations............. (24.7) (2.2) 8.7 11.9 (22.9) 4.7
Net income (loss)......................... (16.7) (0.1) 3.8 5.8 (16.6) 1.2
OPERATING DATA:
Comparable store sales increase
(decrease).............................. (6.2)% (3.8)% (2.8)% 16.1% 16.4% 5.5%
Stores open at end of period.............. 95 105 113 121 121 132
</TABLE>
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES [BIG DOG BUCK LOGO]
During the last three years and the first six months of 1997, the Company's
primary uses of cash have been to finance store openings and purchase
merchandise inventories. The Company has satisfied its cash requirements
principally from the sale of debt and equity securities and a revolving line of
credit with its bank.
Cash used in operating activities were $2.2 million and $1.8 million in 1995
and 1996, respectively, and $6.8 and $3.4 million for the first six months of
1996 and 1997, respectively. Working capital was $10.7 million at June 30, 1997
compared to $8.6 million at June 30, 1996, an increase of $2.1 million.
Inventories at June 30, 1997 were $18.8 million compared to $17.2 million at
June 30, 1996, an increase of $1.6 million. The Company's average inventories
vary throughout the year and increase in advance of its peak selling periods
during the summer, back-to-school and Christmas seasons. The Company maintains
substantially all of its inventories in finished goods rather than fabrics or
work-in-process. In addition, the Company believes that it has generally
negotiated favorable terms with its overseas vendors, who in many instances
allow the Company to pay for goods when received rather than post letters of
credit in advance.
Cash used in investment activities in 1995 and 1996 were $2.4 million and
$3.5 million, respectively, and for the six months ended June 30, 1996 and 1997
were $1.2 and $2.2 million, respectively. Cash flows used in investing
activities relate primarily to new store openings, and in 1995 and 1996, also
the acquisition and implementation of a new computer system.
Cash provided by financing activities in 1995 and 1996 were $4.5 million and
$5.2 million, respectively, and $7.3 million and $6.6 million for the first six
months of 1996 and 1997, respectively. In April 1995, the Company received net
proceeds of $5.0 million from the sale of 10% subordinated notes and Common
Stock. In February 1996, the Company received net proceeds of $2.5 million from
the sale of 10% subordinated notes and Common Stock. In November 1996, the
Company received net proceeds of $4.2 million from the sale of 10% subordinated
notes and warrants to purchase Common Stock. In addition, from time to time, the
Company's majority stockholder and Chairman advanced the Company funds in
exchange for subordinated notes, of which approximately $6.4 million was
outstanding at June 30, 1997, all of which will be repaid with proceeds of this
offering.
The Company has a revolving credit facility with a bank that expires in May
1998. The revolving credit facility provides for a $10.5 million revolving line
of credit that can be used for cash advances and letters of credit. Interest on
advances under the revolving credit facility is payable monthly at the bank's
prime rate (8.5% at June 30, 1997). As of June 30, 1997, the Company had $6.9
million in advances and $1.5 million of letters of credit outstanding. This
facility is collateralized by substantially all assets of the Company and
subjects it to various restrictive covenants, including maintenance of minimum
working capital and tangible net worth level, limitations on indebtedness and a
prohibition on the payment of dividends. Amounts outstanding under this credit
facility will be repaid with the proceeds of this offering.
The Company plans to open approximately 30 net new stores in 1997, 13 of
which were open as of July 31, 1997, and at least 30 stores in 1998. The
Company's average cost to open a store in 1996, including leasehold improvements
and furniture and fixtures, was approximately $50,000 (net of tenant improvement
allowances). The average per store initial inventory (partially financed by
trade payables) for the new 1996 stores was approximately $78,000 and
pre-opening expenses averaged approximately $13,000 per store. The average total
cost to build new stores will vary in the future, depending on various factors,
including local construction expenses, changes in store format and design and
tenant improvement allowances. In addition to new store openings, the Company
had retrofitted 32 stores through July 31, 1997 at an average cost of $11,000.
The Company plans to retrofit approximately 20 stores in the second half of
1997. Capital expenditures in 1997 are estimated to be approximately $5.0
million for 1997, of which approximately $2.7 million had been expended as of
July 31, 1997, and approximately $5.0 million in 1998.
The Company believes that cash provided by operations together with funds
available under its revolving credit facility and the net proceeds from this
offering will be sufficient to fund its operations and planned
22
<PAGE>
expansion at least through the end of 1998. The Company may be required to seek
additional sources of funds for accelerated growth after that point, and there
can be no assurance that such funds will be available on satisfactory terms.
Failure to obtain such financing could delay or prevent the Company's planned
growth, which could adversely affect the Company's business, financial condition
and results of operations.
INFLATION
The Company does not believe that inflation has had a material effect on
operations in the past year. However, there can be no assurance that the
Company's business will not be affected by inflation in the future.
23
<PAGE>
BUSINESS
The following discussion contains forward-looking statements that involve
risks and uncertainties. The statements contained in this Prospectus that are
not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act, including without limitation statements
regarding the Company's expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements in this document are based
upon information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward-looking statements.
Notwithstanding the Company's dramatic growth in sales and profitability during
recent periods, the Company faces significant risks and, as a result, there can
be no assurance that the Company's historical growth is indicative of future
performance.
GENERAL
Big Dogs develops, markets and retails a branded, lifestyle collection of
unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. BIG DOGS-Registered Trademark- is an
All-American, family-oriented brand that the Company believes has established a
unique niche in its dedication to providing quality, value and fun. Big Dogs
products were first sold in 1983, and operations remained limited through 1992
when the current controlling stockholders acquired the BIG DOGS-Registered
Trademark- brand and related assets. Following the acquisition, Big Dogs
initiated a strategy of leveraging the brand through dramatic expansion of its
product line and rapid growth in its retail stores. The Company's net sales have
grown from $11.4 million in 1993 (the Company's first full year of operation) to
$68.7 million in 1996, a compound annual growth rate of 82%. The number of the
Company's stores has grown from 5 in 1993 to 134 as of July 31, 1997, and over
the last three years, the Company recruited a team of key executives and
invested in management information systems and other infrastructure improvements
that the Company believes have been critical in achieving this growth and
positioning it to manage its anticipated future growth. The Company attained
this dramatic growth during a competitive retail environment and, despite its
substantial infrastructure investments for growth, the Company has achieved
growing operating income in each full year of operation.
The Company's collection is centered around its signature BIG
DOGS-Registered Trademark- name, logo and "Big Dog" characters and is designed
to appeal to a broad range of customers when they are in the "Big Dog state of
mind." The BIG DOGS-Registered Trademark- brand conveys a sense of fun, humor
and a "Big Dog attitude," whereby each customer can feel that he or she is a
"Big Dog." The Big Dog attitude and sense of fun are brought to life through the
Company's graphic capabilities that portray the Big Dog characters in a number
of engaging, positive and inspiring situations and activities. The Big Dog
attitude is further defined by a number of slogans such as "If You Can't Run
with the Big Dogs Stay on the Porch"-Registered Trademark-, "Unless You're the
Lead Dog, the Scenery Never Changes," and "Lead, Follow or Get Out of the Way."
These graphics and slogans combine a bold, spirited attitude with wry,
lighthearted humor. The appeal of the brand is further strengthened through a
customer's personal identification with particular sports and other activities
depicted in these graphics. In addition to its focus on fun, Big Dogs develops
customer loyalty and enhances its brand image by providing a consistently high
level of quality at moderate price points. Big Dogs accomplishes this primarily
through (i) selling its own brand directly to the consumer, (ii) low-cost
product development, and (iii) sourcing high-volume/low-cost basic apparel with
limited fashion risk.
The BIG DOGS-Registered Trademark- brand is designed to appeal to men, women
and children of all ages, particularly baby boomers and their kids, when they
are engaged in leisure or recreational activities. Furthermore, the Company
believes that the millions of dog and other pet owners in the United States, as
well as children, have a strong natural affinity toward the dog-related images
and themes in Big Dogs graphics. In addition, the Company believes that the
positive image the brand brings to being a "Big Dog" has a special appeal to
large-size customers. The Company's apparel products, which include a wide
variety of basic apparel and related products, are developed with an emphasis on
being functional rather than fashion-forward or trendy. These apparel products
include graphic T-shirts, shorts, knit and woven shirts, fleece items,
loungewear and boxer shorts. In addition to its BIG DOGS-Registered Trademark-
line of activewear and casual sportswear for men and women, the Company has
successfully introduced and expanded its LITTLE BIG DOGS-TM- line of infants'
and children's
24
<PAGE>
apparel and its BIG BIG DOGS-TM- line of Big and Tall apparel. The Company has
also successfully expanded its non-apparel products, including plush animals,
stationery and pet products, which feature Big Dog graphics and are developed to
complement its apparel.
The Company reinforces its brand image by distributing BIG
DOGS-Registered Trademark- products primarily through its own retail stores.
This distribution strategy enables the Company to present a complete selection
of its merchandise in a creative and fun environment. In addition, this strategy
enables it to more effectively reach its targeted customers by locating stores
in tourist-oriented and other casual environments where it believes consumers
are more likely to be in the "Big Dog state of mind." The Company operates its
retail stores in both outlet and full-price formats, depending on the location.
Big Dogs' traditional emphasis has been on outlet malls because those malls are
often located in tourist areas and therefore attract significant numbers of Big
Dogs' targeted customers. More recently, the Company has increased its focus on
opening full-price, stand-alone stores in locations frequented by tourist and
leisure shoppers. The Company plans to open 30 net new stores during 1997, 13 of
which were open as of July 31, 1997, and at least 30 stores in 1998. In addition
to its retail stores, Big Dogs markets its products through other channels,
including its catalog and better wholesale accounts.
INDUSTRY OVERVIEW
APPAREL. The BIG DOGS-Registered Trademark- brand is designed to appeal to
men, women and children of all ages, particularly baby boomers and their kids,
when they are engaged in leisure or recreational activities. According to the
United States Department of Commerce, Bureau of the Census, in 1996 there were
approximately 86 million men and women ages 30 to 50, and 39 million children
ages 0 to 9 in the United States, together representing nearly half of the total
266 million U.S. population. The Company believes that, particularly within this
baby boomer market, there is an increased demand for family-oriented products,
services and activities as families seek to spend time together, including
taking vacations together and shopping together for entertainment. The Company
also believes there has been a trend toward greater "casualization" in dress and
in lifestyles generally that has led to an increased demand for more casual
apparel.
A majority of the Company's products is comprised of apparel in the adult,
children and Big and Tall categories. According to the NPD Group, a national
statistical research agency, $161 billion was spent on apparel at retail in
1996, of which women's apparel comprised approximately $85 billion, men's
approximately $49 billion, boys' approximately $12 billion, girls' approximately
$9 billion, and infants' and toddlers' approximately $6 billion. Furthermore,
the Company believes the demand for large-size apparel will continue to increase
as the population, particularly baby boomers, continues to age and increase in
weight. The Company believes that as a result of having developed a large and
loyal customer base and its recent investments in infrastructure, it is well-
positioned to take advantage of market and distribution opportunities.
OUTLET MALLS. Increases in sales per square foot of apparel at outlet malls
have recently outpaced sales per square foot at traditional malls. Although the
growth in sales per square foot for the full year in 1996 was higher in
traditional malls than in outlet malls, beginning in the fourth quarter of 1996,
apparel sales per square foot in outlet malls increased 4.8% over the same
period in the prior year as compared to 2.2% in traditional malls. This trend
continued in the first quarter of 1997, with apparel sales per square foot in
outlet malls increasing 9.7%, compared to 1.1% in traditional malls. The Company
believes that this increase in sales per square foot in outlet malls is due in
part to the increased presence of upscale brands in outlet malls, the continued
consumer trend toward value shopping and increased development of large, upscale
outlet malls which have become "destination" shopping locations. In addition,
the Company believes that outlet mall customers have a greater representation of
the Company's target customers, particularly baby boomers and tourist and
leisure-oriented customers, than traditional malls. Due to these purchasing
trends and customer demographics at outlet malls, outlet malls are an important
part of the Company's location strategy, as are other locations attracting
similar customer traffic.
NON-APPAREL. In addition to apparel, the Company offers an assortment of
toys, pet products, stationery and other paper goods, gift items and other
products all bearing Big Dog graphics. The Company believes that the markets in
these product categories are very substantial and present significant
opportunities for growth.
25
<PAGE>
BUSINESS STRATEGY [INSERT QVF LOGO]
Big Dogs' mission is to build a brand that is recognized throughout the
world for providing high quality, good value and fun and functional products. To
achieve this goal, the Company has adopted the following operating and growth
strategies:
OPERATING STRATEGIES
PROMOTE THE BIG DOG SPIRIT OF FUN. A key and unique element in the
Company's brand image is its focus on fun. This spirit of fun revolves around
the Company's Big Dog character that has broad appeal to men, women and children
of all ages. The Company fosters this spirit by creating positive, humorous,
topical and inspiring graphics and slogans which it applies to its merchandise.
More than just a logo, the Big Dog represents the leader, athlete, child,
comedian, musician, boss, traveler, parent and dog lover in everyone. Big Dog
products are fun, not only because of their graphics and slogans, but also
because they are designed for recreational, sports and leisure activities and
make ideal gifts. Big Dogs' focus on fun is further enhanced by the lively,
enjoyable atmosphere in its retail stores and is also reflected in its catalog
and marketing promotions and activities.
DELIVER HIGH QUALITY AT A GOOD VALUE. Big Dogs' products are constructed
using high-quality fabrics and other materials. Many of its products feature
unique graphics characterized by advanced print techniques, as well as unique
appliques and embroideries on many of its apparel products. The Company believes
that this combination of quality fabrics and graphics in its apparel products
provides the customer with a product that has an exceptional look and feel. Big
Dogs is able to deliver this level of quality at reasonable prices primarily as
a result of its (i) selling its own brand direct to the consumer, (ii) low-cost
product development, (iii) sourcing of basic apparel, and (iv) low marketing
costs. The Company believes that delivering quality and value is instrumental in
generating customer appeal and brand loyalty for its products, particularly
those that do not prominently feature Big Dog graphics.
ENHANCE FUNCTIONAL PRODUCTS WITH GRAPHICS. Big Dog develops functional
rather than fashion-forward products. The Company believes it has a special
competency in creating distinctive, popular graphics which it uses to
differentiate its products from those of its competitors. Big Dogs has developed
a broad assortment of classic, functional clothing ("basics") in traditional,
less fashion-forward colors. The Company's focus on basics and its ability to
leverage its graphics across multiple product categories has allowed the Company
to eliminate the need for a traditional buyer or design staff, and thereby lower
its product development costs compared to most fashion apparel companies.
Furthermore, since its graphics are added in the last stage of production, the
Company is able to be more responsive to customer preferences while also
lowering its inventory risk.
TARGET A BROAD, DIVERSE CUSTOMER BASE. Big Dogs believes it has established
an All-American, family-oriented brand featuring products, graphic themes,
slogans and promotions that appeal to a broad range of consumers. Although its
marketing focus is on baby boomers and their kids, Big Dogs' customers include
men, women and children of all ages, and span a wide range of geographic areas
and income levels. Furthermore, the Company believes that the millions of dog
and other pet owners in the United States, as well as children, have a strong
natural affinity for the dog-related images and themes in Big Dogs graphics. In
addition, the Company believes that the positive image the brand brings to being
a "Big Dog" has a special appeal to large-size customers.
MAINTAIN CONTROLLED DISTRIBUTION. Big Dogs' sells its products primarily
through its own stores and, to a lesser extent, through its catalog. By selling
direct to its customers, Big Dogs is able to present its complete line of
merchandise in a creative and fun environment. This also allows it to target its
customers more precisely by locating its stores in tourist-oriented and other
high-traffic areas, where the Company believes customers are more likely to be
in the "Big Dog state of mind." Selling direct to the consumer also allows the
Company (i) to enhance its margins while still providing customer value, (ii) to
be more responsive to customer feedback, especially with regard to new product
development, (iii) to reduce its need to build brand awareness through
large-scale media advertising, and (iv) to collect customer names for its
catalog through in-store sign-ups.
26
<PAGE>
CREATE AN ENTERTAINING SHOPPING EXPERIENCE. Big Dogs seeks to create a
distinctive and fun shopping environment in its stores through an innovative
display of its graphic art and humor, including in-store "T-shirt walls" and
other displays that are designed to immediately put the customer in the "Big Dog
state of mind." By showcasing the Company's complete product line, Big Dogs
stores offer something for everyone in the family. Effective cross-merchandising
in the stores is designed to add excitement and prompt add-on purchases. The
Company believes the customer's shopping experience is further enhanced by the
Company's knowledgeable and enthusiastic sales staff.
EMPHASIZE GRASSROOTS MARKETING. The Company believes its most effective
marketing is its products themselves and their presentation in the Company's
retail stores and catalog. As a result, the Company has spent relatively little
on advertising. Also important to Big Dogs' marketing strategy is its targeted
"grassroots" marketing activities. These activities include local and charity
sponsorships (such as high school sports teams), community-oriented promotional
events (such as the Company's annual dog parade in Santa Barbara), and corporate
cross-promotions with leading consumer product companies (such as Nabisco and
IAMS).
GROWTH STRATEGIES [INSERT RUNNING DOG LOGO AND RUN WITH THE BIG DOGS]
The Company seeks to expand its business in a controlled manner that
enhances the BIG DOGS-Registered Trademark- brand. The Company believes much of
the corporate infrastructure required to absorb and manage its anticipated
growth over the next few years is in place, including (i) recent additions of
key executives with substantial industry experience to enhance the depth and
breadth of its management team, and (ii) the implementation of an advanced
management information system. In addition, the Company believes that it has
established relationships with product vendors capable of meeting its
anticipated growth requirements for the foreseeable future. Big Dogs' primary
growth strategies are:
CONTINUE STORE EXPANSION. Big Dogs' primary growth strategy is the
continued expansion of its retail stores. The Company plans to open 30 net new
stores during 1997, 13 of which were open as of July 31, 1997, and at least 30
stores in 1998. The Company opens stores in locations and venues that management
believes best target its customers and can be obtained on terms that meet its
unit profitability requirements. Depending on the location, the Company will
open new stores in either an outlet or full-price format. Although Big Dogs'
traditional emphasis has been on outlet malls, the Company has more recently
increased its focus on opening full-price, stand-alone stores in tourist and
leisure locations. Accordingly, the Company anticipates that the stores it opens
in the near future will be located in a variety of venues, including outlet
malls, stand-alone stores in tourist areas, tourist-oriented malls and, to a
lesser extent, regional malls and metropolitan locations.
INCREASE SALES IN EXISTING STORES. The Company expects to increase sales in
its existing stores through, among other things, (i) continued new product
development across all categories; (ii) further penetration of existing
products, themes and categories, particularly in its recently introduced
children's, Big and Tall and non-apparel categories; (iii) fuller utilization of
merchandising information systems to capitalize on regional and seasonal trends
and build sales by category; (iv) the impact of recent additions to the
Company's merchandising and store operations staff, as well as higher
productivity associated with the maturation of its existing merchandising,
product development and store management teams; and (v) the current retrofitting
program for existing stores, which includes the introduction of more flexible
and higher capacity wall and floor fixtures that better display product and
improve in-stock positions on the selling floor. The Company plans to retrofit
approximately 52 stores during 1997, 32 of which were completed as of July 31,
1997, and over 40 stores in 1998.
EXPAND NON-RETAIL CHANNELS OF DISTRIBUTION. Big Dogs continues to focus on
the expansion of its catalog and traditional wholesale channels, as well as
other existing and potential channels of distribution, including corporate
sales, premium programs, internet sales and strategic relationships with
non-apparel wholesale accounts. Although after streamlining its catalog and
wholesale operations in late 1996 the revenues of those operations declined in
the first half of 1997, the Company believes that these and other channels of
distribution present significant opportunities for profitable expansion.
27
<PAGE>
PURSUE INTERNATIONAL OPPORTUNITIES. Big Dogs products are not currently
sold outside the United States, with the exception of one store in England and
incidental other sales. The Company plans to expand the worldwide sale of its
products through a variety of means, which may vary by country, and may include
retail stores, exporting to resellers, licensing and catalog sales. The Company
believes that there is a significant potential international market for Big Dog
products due to their unique brand image, strong American association and
tourist orientation.
EXPLORE SELECTIVE BRAND LEVERAGING. Big Dogs intends to carefully evaluate
and pursue opportunities to leverage the power of the BIG
DOGS-Registered Trademark- brand through various activities that are consistent
with its brand image, which may include selective product licensing, co-branding
and entertainment and media activities.
MERCHANDISING [INSERT QVF LOGO]
Big Dogs' product line features a branded, lifestyle collection of unique,
high-quality, popular-priced consumer products, including activewear, casual
sportswear, accessories and gifts. Big Dogs' apparel lines include full
collections of classic unisex casual sportswear and activewear for adults, as
well as recently introduced collections for infants and children and the Big and
Tall market. Big Dogs has also in recent years further expanded its product
lines to include not only a wide variety of apparel accessories, but also a
collection of gift and consumer products. The Company continuously explores
opportunities to further leverage its brand and graphics into new product lines.
The Company's apparel products are manufactured from premium cotton, or, in
some instances, cotton/ synthetic blends. Big Dogs' apparel is characterized by
quality fabrics, construction and embellishments, and is distinguished from
other apparel lines by the BIG DOGS-Registered Trademark- name, dog logo,
graphics and slogans. In addition to its distinctive graphics, the Company
believes it has achieved recognition for the quality and performance of its
products. For example, the Company's solid nylon volley shorts and madras plaid
shorts were selected by the Atlanta Committee for the Olympic Games to be
officially licensed shorts for the 1996 Atlanta Olympics.
Prices for most of the Company's products range from $1 to $100, with the
large majority of products selling for between $5 and $30. The following table
sets forth the approximate contribution that each of the Company's product
categories made to total net sales in the Company's retail stores for the year
ended December 31, 1996:
<TABLE>
<CAPTION>
% OF TOTAL RETAIL
STORE
NET SALES
---------------------
<S> <C>
Adult Apparel and Accessories................................ 66.4%
Infants' and Children's Apparel and Accessories.............. 16.4
Big and Tall Apparel......................................... 8.8
Adult and Children's Non-Apparel Products (1)................ 8.4
------
Total.................................................... 100.0%
------
------
</TABLE>
- -------
(1) Approximately one-half of non-apparel product sales are of products that are
primarily child-related, such as toys.
ADULT APPAREL AND ACCESSORIES. Big Dogs has a complete line of adult unisex
activewear and casual sportswear. The Company offers screen-printed and
embroidered T-shirts and sweatshirts, in a variety of styles and colors, that
generally prominently display the Big Dogs graphics and slogans. In addition,
the Company offers shorts, knit and woven casual and sport shirts, fleece tops
and bottoms, loungewear, boxer shorts, swimwear and sleepwear, all of which
feature print designs or simply the BIG DOGS-Registered Trademark- name and/or
dog logo. The Company's adult apparel line primarily focuses on basic items that
recur with relatively minor variation from season-to-season and year-to-year.
Although the Company introduces new apparel and other products throughout the
year, certain classic, popular items and graphics have been in the Big Dogs line
with very little change for over ten years.
28
<PAGE>
Big Dogs leverages its trademarks, characters and more popular graphics by
carefully translating them to a wide variety of apparel accessories, including
caps, ties, socks, sunglasses, belts, bags, watches and wallets. These products
are developed and introduced based on their consistency with Big Dog's brand
image and whether they complement the Company's other products. The Company's
introduction of accessories not only provides an opportunity to create add-on
purchases, but also minimizes product development costs and inventory risk by
utilizing graphics and slogans that have first proven popular on the Company's
graphic T-shirts. See "--Managing the Creative Process."
INFANTS' AND CHILDREN'S APPAREL AND ACCESSORIES. [Insert Puppy Logo] Based
on the natural appeal of dog themes to children and the sell-throughs of certain
test items, in the fall of 1995 the Company successfully introduced a line of
infants' and children's apparel and accessories under its LITTLE BIG
DOGS-Registered Trademark- brand. In 1996, sales of the Company's LITTLE BIG
DOGS-Registered Trademark- line grew to approximately 16.4% of its total retail
store net sales and the Company believes that the children's market presents a
significant opportunity. In addition to the appeal of dogs to children, the
Company believes that the black and white image of its dog character makes it
easily recognizable and appealing to very young children. Moreover, the Company
believes the recurring need to purchase new clothes for children increases the
potential for growth in this category. The Company believes these factors
provide an opportunity to increase comparable store sales.
The LITTLE BIG DOGS-Registered Trademark- line includes infants, toddlers,
kids and youth sizes. Products in this line include graphic T-shirts, shirts,
fleece items, infant and toddler one-pieces, boxer shorts, dresses and shorts,
virtually all of which feature distinctive graphics. The graphics and fabrics of
this line are designed to mirror many of the more popular graphics and fabrics
in the BIG DOGS adult line in order to encourage family purchases and leverage
overall product development costs. The Company sells its LITTLE BIG
DOGS-Registered Trademark- line primarily through its retail stores and catalog,
and wholesales it to certain specialty and better department stores, such as
Nordstrom. The Company believes there is a void in the wholesale market for
moderately priced, branded children's apparel, and therefore is exploring the
expansion of the wholesale distribution of this line on a limited basis. Based
on the initial success of LITTLE BIG DOGS-Registered Trademark- apparel, and to
enable customers to assemble complete outfits for their children, the Company
has recently expanded its children's category to include accessories such as
caps, socks and sunglasses. In addition, the Company has expanded its assortment
of non-apparel items for children such as plush dogs, stickers, sportballs and
other toys (see "Adult and Children's Non-Apparel Products" below). The Company
believes that customers' ability to assemble complete outfits and the relatively
low price of the children's items provide the Company with an opportunity to
increase add-on sales.
BIG AND TALL APPAREL. The Company believes that the BIG
DOGS-Registered Trademark- image and the positive emphasis the brand gives to
being a "Big Dog" has a unique appeal to consumers who wear large sizes. In the
spring of 1996, the Company significantly expanded its BIG BIG
DOGS-Registered Trademark- category targeting Big and Tall customers. In 1996,
sales of the Company's BIG BIG DOGS-Registered Trademark- line grew to
approximately 8.8% of its total retail store net sales and the Company believes
that the Big and Tall market presents a significant opportunity for expansion.
The Company believes that this market is generally underserved and presents an
opportunity to develop strong customer loyalty due to the relatively limited
availability of large-size casual sportswear.
The Company's BIG BIG DOGS-TM- category offers a line of unisex activewear
and casual sportswear. As with the regular adult sizes, this category features
screen-printed and embroidered T-shirts and sweatshirts, in a variety of styles
and colors, that generally prominently display the Big Dogs graphic themes and
slogans. In addition, the Company offers shorts, knit and woven casual and
sports shirts, fleece tops and bottoms, loungewear, boxer shorts, swimwear and
sleepwear, which may feature print designs or simply the BIG DOGS-Registered
Trademark-name and/or dog logo. Products in this line are offered from size 1X
to 5X and MT to XLT. The Company sells its BIG BIG DOGS-TM- line primarily
through its retail stores, catalog and also through selected wholesale accounts,
such as Casual Male.
29
<PAGE>
ADULT'S AND CHILDREN'S NON-APPAREL PRODUCTS. Big Dogs further leverages its
trademarks, characters and more popular graphics by applying them to a wide
variety of adult's and children's non-apparel items, including pet products,
plush animals and other toys, sporting goods, stationery, calendars, mousepads
and screen savers. As with apparel accessories, new non-apparel products are
developed and introduced based on whether they are consistent with Big Dogs'
brand image and complement the Company's other products. As with apparel
accessories, the graphics applied to these products have first proven popular on
the Company's T-shirts, resulting in lower product development costs and
inventory risk. In general, non-apparel items have higher gross margins than
many of the Company's other products. The Company believes that the relatively
low price of non-apparel items and their particular appeal to children provide
the opportunity to increase comparable store sales through add-on purchases.
MARKETING [INSERT COMPANY SLOGAN: "IF YOU ARE NOT THE LEAD DOG THE SCENERY NEVER
CHANGES."]
The Company strives to maintain a consistent brand image through the
coordination of its merchandising, marketing and sales efforts. The goal of the
Company's marketing efforts is to present a distinctive image of quality, value
and fun that consumers will associate with the Company's products and thereby
enhance the BIG DOGS-Registered Trademark- brand image. The BIG DOGS brand image
has been developed with relatively little advertising, as the Company believes
its most effective marketing is its products themselves and their presentation
in the Company's retail stores and catalog. The Company's catalog serves not
only as a means of product distribution, but also as the key marketing piece for
the Company's retail stores.
Also important to the Company's marketing strategy is its targeted
"grassroots" marketing activities. These activities include local and charity
sponsorships (such as high school sports teams), community-oriented promotional
events (such as the Company's annual dog parade in Santa Barbara), and corporate
cross-promotions with leading consumer product companies (such as Nabisco and
IAMS). The Company trains and incentivizes its store managers to actively
involve their stores in local, grassroots activities. In addition, the Company
utilizes billboard advertising designed to direct customers to local Big Dogs
retail stores.
MANAGING THE CREATIVE PROCESS
The Company's product development begins with the creation of distinctive,
often topical, graphics and slogans that embody the Big Dogs image of a fun and
active lifestyle. Ideas are generated and developed by the Company's Graphics
Committee that includes the Company's President and the heads of the art,
merchandising and marketing departments. In creating new graphic themes and
ideas, this Committee closely monitors current consumer interests in various
activities such as recreational and spectator sports, hit movies and other
hobbies and leisure pursuits. Big Dogs also closely monitors sales of the
Company's existing graphics and slogans to identify trends and generate new
ideas. Once a concept is conceived, the Company's ten-person art department
develops a preliminary graphic, which is then further reviewed and refined.
Approved designs are initially applied to screen-printed T-shirts. Due to
the ready availability of blank T-shirts, the Company is able to quickly and
inexpensively respond to customer preferences and the current popularity of
particular sports, movies and other events, in some instances getting product
into its stores in as little as two weeks. In addition, since the graphics are
applied to T-shirts in the last stage of production, the Company is able to test
the popularity of new graphics before making large inventory commitments. Big
Dogs' merchandising staff closely monitors the sales of new T-shirt graphics and
evaluates the opportunity to rapidly expand their production and also profitably
leverage them onto other products. Big Dogs believes that this product
development strategy enables it to create distinctive products while limiting
its inventory risk. The Company's focus on basics and its ability to leverage
its graphics across multiple product categories has allowed the Company to
eliminate the need for a traditional buyer or design staff and thereby lower its
product development costs compared to most fashion apparel companies. In
addition to its graphics-oriented clothing and other products, the Company also
develops apparel products that simply feature the BIG DOGS name and logo,
particularly where the Company has developed strong brand identity for quality
and value and fun and
30
<PAGE>
functional products, such as for its Classic Shorts-TM-. The Company's
merchandising staff identifies popular, established apparel and other products
that it believes will make effective "Big Dog" products.
RETAIL STORES
Big Dogs seeks to create a distinctive and fun shopping environment in its
stores through the innovative display of its graphic art and humor, including
in-store "T-shirt walls" and other displays designed to immediately put the
customer in the "Big Dog state of mind." In addition, the Company's
cross-merchandising and colorful signage are designed to add excitement in the
stores and prompt add-on purchases. While maintaining a consistent Big Dog
"look" throughout the chain, many stores incorporate graphics and props which
are consistent with the store's local environment (for example, a car racing
theme in Indianapolis and an Old Spanish Days theme in Santa Barbara). By
showcasing the Company's complete product line and broad assortment, Big Dogs
stores offer something for everyone in the family and are particularly appealing
to the dedicated Big Dogs customer.
In 1996, the Company's retail stores contributed approximately 88% of total
net sales. As of July 31, 1997, the Company operated 133 stores in 39 states and
one store in England. Big Dogs stores are typically located in tourist and
recreation-oriented shopping locations and other casual environments where the
Company believes consumers are more likely to be in the "Big Dog state of mind."
In making site selections, the Company also considers a variety of other
factors, including proximity to large population centers, area income, the
prestige and potential customer-draw of the other tenants in the center or area,
projected profitability, store location and visibility within the center, and
the accessibility and visibility of the center from nearby thoroughfares.
Following is a map of the Company's store locations as of July 31, 1997:
[INSERT DOG LOGO]
[MAP]
31
<PAGE>
The Company operates its retail stores in both outlet and full-price
formats, depending on the location. Big Dogs' traditional emphasis has been on
outlet malls because those malls are often located in tourist areas and attract
significant numbers of Big Dogs' targeted customers. More recently, the Company
has increased its focus on opening full-price, stand-alone stores in tourist and
leisure locations. As of July 31, 1997, 122 of the Company's stores were in
outlet malls, with the balance in locations with large tourist traffic such as
the Mall of America (Minnesota), South Hampton (New York), and Laguna Beach and
Carmel (California).
The Company's outlet mall stores average approximately 3,000 square feet.
The Company's outlet stores offer a complete and current line of the Company's
products priced approximately 25% less than the same items are sold for in the
Company's catalog, the Company's full-price stores and by other retailers. In
addition, the Company has tested a smaller format store which it intends to open
in certain circumstances. This smaller format will carry substantially all of
the Company's product categories, but will be more densely merchandised to
accommodate the smaller square footage. The Company plans to open 30 net new
stores during 1997, 13 of which were open as of July 31, 1997, and at least 30
stores in 1998. The Company's average cost to open a store in 1996, including
leasehold improvements and furniture and fixtures, was approximately $50,000
(net of tenant improvement allowances). The average per store initial inventory
(partially financed by trade payables) for the new 1996 stores was approximately
$78,000 and pre-opening expenses averaged approximately $13,000 per store. The
average total cost to build new stores will vary in the future, depending on
various factors, including local construction costs, changes in store format and
design and tenant improvement allowances. The Company anticipates that the
stores it opens in the near future will be in a variety of venues, including
outlet malls, stand-alone stores in tourist areas, tourist-oriented malls and,
to a lesser extent, regional malls and metropolitan locations.
Big Dogs store operations are managed by a Senior Vice President--Retail,
three regional managers and 20 district and area managers. Each of the stores is
managed and operated by a store manager, an assistant manager and full-time and
part-time sales associates. The Company seeks to further enhance its customers'
shopping experience by developing a knowledgeable and enthusiastic sales staff
to distinguish Big Dogs from its competition. In this regard, the Company has
implemented employee training and incentive programs and encourages its sales
associates to be friendly and courteous and to guide customers to graphics and
products that tie into their individual interests. The Company believes its
commitment to customer service enhances its ability to generate repeat business
and to attract new customers. The Company also believes that the fun nature of
its products and the growth of the Company create employee enthusiasm and
positive morale that in turn enhance customer service and contribute to the fun
shopping experience.
NON-RETAIL DISTRIBUTION
Non-retail channels of distribution, including catalog, wholesale and, to a
lesser extent, corporate sales, premium programs, international and internet
sales, contributed approximately 12% of the Company's total net sales in 1996.
In the second half of 1996, the Company streamlined its catalog and wholesale
operations to focus the scope of their operations and improve their
profitability. Although in the first half of 1997 revenues for these operations
have declined, management believes that these and other channels of distribution
present significant opportunities for profitable expansion.
CATALOG. Introduced in late 1992, the Company's catalog is a key marketing
piece for its products and stores, and enables it to reach customers who are not
located near a Big Dogs store. The Company's proprietary mailing list has been
developed largely through sign-ups by customers in its retail stores rather than
through active prospecting. Big Dogs' proprietary mailing list has over 600,000
active customer names, including a 24-month buyer file of over 100,000 names.
The Company's catalog sales in 1996 were approximately $4.2 million, or
approximately 6% of total net sales, and it believes that significant
opportunities exist to expand the sales and profitability of this business.
WHOLESALE. Although the Company does not actively solicit wholesale
accounts through a sales force, it does participate in trade shows and
distributes its products to better department stores and specialty shops such
32
<PAGE>
as Nordstrom and Mercantile Stores. During 1996, the Company sold to over 600
wholesale accounts throughout the United States. In addition, the Company is
exploring distribution through a range of non-traditional apparel retailers such
as theme parks and pet product retailers. The Company's wholesale sales in 1996
were approximately $2.9 million, or approximately 4% of total net sales.
INTERNATIONAL. Big Dogs products are not currently sold outside of the
United States, with the exception of one store in England and incidental other
sales. The Company plans to expand the sale of its products worldwide through
efficient, profitable and brand-enhancing means, which may vary by country and
may include retail stores, exporting to resellers, licensing and catalog sales.
The Company believes that there is a significant potential international market
for Big Dog products due to their unique brand image, strong American
association and tourist orientation.
OTHER BRAND LEVERAGING. Big Dogs intends to carefully evaluate and pursue
opportunities to leverage the power of the BIG DOGS-Registered Trademark- brand
through various activities that are consistent with the brand image, which may
include selective product licensing, co-branding (such as a current co-branding
program for ski jackets with Columbia Sportswear) and entertainment and media
activities.
SOURCING
DOMESTIC AND INTERNATIONAL SOURCING. The Company does not own or operate
any manufacturing facilities and sources its products through third-party
contractors with manufacturing facilities that are primarily overseas. The
Company believes that outsourcing allows it to enhance production flexibility
and capacity, while substantially reducing capital expenditures and avoiding the
costs of managing a large production workforce. In addition, outsourcing allows
the Company to leverage working capital, transfer risk and focus its energy and
resources on merchandising, marketing and sales.
Big Dogs' domestic sourcing is primarily limited to graphic T-shirts.
Substantially all of its graphic T-shirts are purchased from a commonly
controlled company, Fortune Fashions, based near Los Angeles, California.
Fortune Fashions purchases blank T-shirts and other products and provides screen
printing and embroidery services to the Company for these products. In 1996, the
Company purchased over 90% of its graphic T-shirts and certain other products
from Fortune Fashions, constituting 23% of the Company's total 1996 product
purchases (in dollar volume of purchases). The Company believes that the
services provided by Fortune Fashions are readily available elsewhere and that
it could replace Fortune Fashions as a vendor without significant disruption to
the Company's operations. See "Certain Relationships and Related Transactions."
The majority of Big Dogs' other products are manufactured overseas. Big Dogs
sources product from over 100 unaffiliated vendors, including over 35 foreign
vendors in 18 countries. The Company believes that utilizing a diverse group of
vendors reduces the Company's exposure to production risks and delays relating
to any one vendor or country. In order to enhance its sourcing flexibility, the
Company uses purchasing agents rather than operating its own foreign sourcing
office. These agents assist the Company in selecting and overseeing third-party
vendors, sourcing fabric and monitoring quotas and other trade regulations. The
Company does not have supply contracts with any of its suppliers. Although the
loss of major suppliers could have a significant effect on the Company's
immediate operating results, the Company believes alternate sources of
merchandise for most product categories are available at comparable prices and
that it could replace these suppliers without any long-term adverse effect on
the Company.
The Company forecasts production requirements to secure necessary
manufacturing capacity and quota. Since the Company's foreign manufacturers are
located at greater geographic distances from the Company than its domestic
manufacturers, the Company generally allows greater lead-times for foreign
orders. However, due to the Company's focus on widely available basics rather
than fashion items, the Company believes these lead times do not present
significant risks.
QUALITY CONTROL. The Company's quality control program is designed to
ensure that all goods bearing BIG DOGS-Registered Trademark- trademarks meet the
Company's standards. With respect to its products, the Company, through its
33
<PAGE>
employees and sourcing agents, develops and inspects prototypes of each product
prior to manufacture. For apparel products, the Company, through its employees
and sourcing agents, inspects the prototypes and fabrics prior to cutting by the
contractors, establishes fittings based on the prototype and inspects samples.
The Company or its sourcing agents inspect the final product prior to shipment
to the Company's warehouse or at the warehouse prior to payment. During 1996,
less than 1.5% of the Company's products were returned by its customers due to
defects.
MANAGEMENT INFORMATION SYSTEMS
The Company is committed to utilizing technology to enhance its competitive
position. The Company has put in place computer hardware, systems applications
and networks that are the same as those used by a number of large retailers.
These systems support the sales and distribution of products to its stores and
customers and improve the integration and efficiency of its domestic and foreign
sourcing operations. Big Dogs' MIS system provides integration of store,
merchandising, distribution and financial systems. These systems include stock
keeping unit ("SKU") and classification inventory tracking, purchase order
management, open-to-buy, merchandise distribution, automated ticket making,
general ledger, sales audit, accounts payable, fixed asset management, payroll
and integrated financials. These systems operate on an IBM AS 400 platform, and
a Novell server network and utilize Island Pacific software. The Company's
point-of-sale ("POS") system consists of registers providing price look-up,
e-mail and credit card and check authorization. Through automated two-way
communication with each store, sales information and e-mail are uploaded to the
host system, and receiving, price changes and systems maintenance are
down-loaded through the POS devices. Sales are updated daily in the
merchandising report systems by polling sales from each store's POS terminals.
The Company evaluates information obtained through daily polling, including a
daily tracking of gross margin, to implement merchandising decisions regarding
reorders, markdowns and allocation of merchandise. Wholesale and catalog
operations are also supported by MIS applications from established vendors,
designed specifically to meet the unique requirements of these segments of the
business. These applications include customer service phone center, order
processing and mailing list maintenance.
ALLOCATION AND DISTRIBUTION OF MERCHANDISE
Allocation and distribution of the Company's inventory is performed
centrally at the store, merchandise classification and SKU levels using
integrated third-party software. Utilizing its MIS capabilities, the Company's
planning and allocation group works closely with the merchandising and retail
departments to monitor and respond to customer purchasing trends and meet the
seasonal and locale-specific merchandising requirements of the Company's retail
stores. The Company is currently implementing fuller utilization of its
merchandising information systems to capitalize on regional and seasonal trends
and on individual store characteristics.
Big Dogs maintains two distribution facilities: a main facility of
approximately 67,000 square feet located in Commerce, California and a mail
order warehouse and fulfillment facility of approximately 21,000 square feet in
Ventura, California. All merchandise is delivered by vendors to these
facilities, where it is inspected, entered into the Company's allocation
software system, picked and boxed for shipment to the stores or customers. The
Company ships merchandise to its stores at least weekly, providing a steady flow
of merchandise.
TRADEMARKS[INSERT DOG LOGO]
The Company utilizes a variety of trademarks which it owns, including the
registered trademarks BIG DOGS-Registered Trademark-, BIG DOG
SPORTSWEAR-Registered Trademark- and dog logo and the trademarks BIG DOG-TM-,
LITTLE BIG DOGS-TM- and BIG BIG DOGS-TM-. The Company has 30 registered
trademarks and 15 pending registration applications in a wide variety of product
categories for these and other trademarks in the United States. In addition, the
Company has 21 registered trademarks and 14 pending registration applications in
14 other countries. The Company regards its trademarks and other proprietary
rights as valuable assets and believes that they have significant value in the
marketing of its products. The Company vigorously protects its trademarks
against infringement, including through the use of cease and desist letters,
administrative proceedings and lawsuits.
34
<PAGE>
COMPETITION
The Company competes primarily on the basis of its brand image, offering a
unique combination of quality, value and fun, and on other factors including
product assortment, price, store location and layout, and customer service. The
markets for each of the Company's products are highly competitive. Although the
level and nature of competition differ among the Company's product categories,
the Company believes that its long-term competitive position will depend upon
its ability to anticipate and respond effectively to changing consumer demands
and to offer customers a wide variety of high-quality, fun products at
competitive prices. Although the Company believes it does not compete directly
with any single company with respect to its entire range of merchandise, within
each merchandise category, the Company competes with well-known apparel and
specialty retail companies such as The GAP, Eddie Bauer, Warner Brothers Stores
and The Disney Stores, as well as a large number of national and regional
department stores, specialty retailers and apparel designers and manufacturers.
In addition, in recent years, the amount of casual sportswear and activewear
manufactured specifically for department stores and sold under their own labels
has significantly increased. Many of Big Dogs' competitors are significantly
larger and more diversified and have substantially greater financial,
distribution, marketing and other resources and have achieved greater
recognition for their brand names than the Company. There can be no assurance
that the Company will be able to compete successfully with its competitors in
the future. Any failure to successfully compete could have a material adverse
effect on the Company's business, financial condition and results of operations.
EMPLOYEES
At June 30, 1997, the Company had approximately 470 full-time and 550
part-time employees. The number of part-time employees fluctuates significantly
based on seasonal needs. None of the Company's employees are covered by
collective bargaining agreements and the Company considers its relations with
its employees to be good.
PROPERTIES
The Company's corporate headquarters are located in Santa Barbara,
California in two leased buildings comprising approximately 23,000 square feet
under leases that expire in December 1997 and July 1999, respectively. The
Company has options to extend these leases for six years and five years,
respectively. The Company's distribution facilities are located in Ventura and
Commerce, California in two leased buildings comprising approximately 88,000
square feet under leases that expire in April 1999 and August 1998,
respectively. The Company has options to extend these leases for five years and
four years, respectively. The Company believes that its currently occupied space
adequately meets it needs in the near term and it does not expect difficulties
in obtaining additional space on reasonable terms as the need arises.
The Company leases all of its store locations. Store leases are typically
for a term of 5 years with a 5-year option and provide for base rent plus
contingent rent based upon a percentage of sales in excess of agreed-upon sales
levels.
LITIGATION
The Company is not involved in any legal proceedings other than certain
actions arising in the ordinary course of its business. While the outcome of
such proceedings and threatened proceedings cannot be predicted with certainty,
in the opinion of management, the ultimate resolution of these matters
individually or in the aggregate will not have a material adverse effect on the
Company's business, financial condition or results of operations.
35
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and certain other key employees of the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Fred Kayne........................ 59 Chairman of the Board
Andrew D. Feshbach................ 36 President, Chief Executive Officer and Director
Douglas N. Nilsen................. 49 Executive Vice President--Merchandising
Anthony J. Wall................... 41 Executive Vice President--Business Affairs, General Counsel,
Secretary and Director
Andrew W. Wadhams................. 36 Senior Vice President--Retail
Jeffrey Cowen..................... 44 Senior Vice President--Production
Jonathan S. Howe.................. 44 Chief Financial Officer and Treasurer
Roberta J. Morris................. 37 Senior Vice President--Finance and Assistant Treasurer
Steven C. Good (1)................ 55 Director
Robert H. Schnell (1)............. 57 Director
David J. Walsh (1)................ 37 Director
</TABLE>
- -------
(1) Messrs. Good, Schnell and Walsh have agreed to become directors immediately
after the completion of this offering.
FRED KAYNE co-founded the Company in June 1992 and has served as Chairman of
the Company since that time. Mr. Kayne co-founded Fortune Fashions, a custom
manufacturer of embellished apparel for the tourist industry, in 1991 and has
served as Chairman and President since that time. Mr. Kayne also founded Fortune
Financial, a private merchant banking firm, in 1986 and has served as its
Chairman and President since that time. Mr. Kayne founded Cottonsmith
Incorporated, an international fabric and apparel sourcing company, in 1993 and
has served as its Chairman and President since that time. From 1985 to 1986, Mr.
Kayne served as a managing director and a member of the Board of Directors of
Bear Stearns & Co. Inc., and from 1978 until 1985 was a partner of its
predecessor partnership, Bear Stearns & Co. Mr. Kayne co-founded First Los
Angeles Bank in 1973 and served as a director of the bank until 1984. Mr. Kayne
serves as a director of The Right Start, Inc. ("The Right Start"), an infant
products retailer and catalog company. Mr. Kayne has a bachelor of science
degree in engineering from the Massachusetts Institute of Technology.
ANDREW D. FESHBACH co-founded the Company in June 1992 and has served as
President, Chief Executive Officer and as a director since that time. From June
1992 until May 1997, Mr. Feshbach also served as Chief Financial Officer of the
Company. Mr. Feshbach co-founded Fortune Fashions in 1991 and has served as a
director since that time, and, from 1991 until June 1992, served as its Chief
Financial Officer. From 1988 until 1990, Mr. Feshbach was a partner in Maiden
Lane Associates, Ltd., a merchant banking subsidiary of AmBase Corporation
specializing in leveraged buy-outs ("Maiden Lane"). From 1984 until 1988, Mr.
Feshbach served as Vice President of Corporate Finance with Bear Stearns & Co.
Inc. From 1990 until the present, he has served as a Vice President of Fortune
Financial. Mr. Feshbach serves as a director of The Right Start. Mr. Feshbach
has an M.B.A. from Harvard University.
DOUGLAS N. NILSEN joined the Company in October 1995 and has served as
Executive Vice President-- Merchandising since December 1995. From October 1995
until December 1995, he served as Senior Vice President of the Company. From
1990 to September 1995, he served as Director of Merchandise at Walt Disney
Attractions, Inc. for its U.S. theme parks and resorts, and in such capacity was
responsible for merchandising all apparel and accessories. From 1976 to 1990,
Mr. Nilsen was employed by Macy's California in various capacities,
36
<PAGE>
most recently as Vice President of Merchandising in both the Accessories and
Men's Divisions. Mr. Nilsen has an M.B.A. from New York University.
ANTHONY J. WALL joined the Company in September 1994 and has served as
Executive Vice President since March 1996. He has served as General Counsel and
Secretary of the Company since September 1994 and as a director of the Company
since November 1995. From September 1994 until March 1996, he served as Senior
Vice President of the Company. From 1981 until 1994, Mr. Wall practiced as an
attorney with Gibson, Dunn & Crutcher and, from 1990 until 1994, was a partner
in the corporate department of that firm. Mr. Wall also serves as Vice President
and General Counsel of Fortune Fashions and Vice President of Fortune Financial.
Mr. Wall has a J.D. from the University of Southern California.
ANDREW W. WADHAMS joined the Company in August 1996 as Senior Vice
President--Retail. From January 1994 to June 1996, Mr. Wadhams served as Vice
President of Retail Operations of Imaginarium, Inc., a retailer of children's
games and educational items. From 1986 to November 1993, Mr. Wadhams was
employed in various capacities by The Gap Inc. in its Gap, GapKids, Gap
International and Banana Republic divisions, and most recently as Regional
Manager--Retail Operations of Banana Republic from 1991 to 1994.
JEFFREY COWEN joined the Company in November 1994 as Senior Vice
President--Production. From May 1994 to September 1994, Mr. Cowen served as Vice
President-Sales and Production for Global Vision, an apparel sourcing company.
From May 1992 to May 1994, he served as Vice President of Production and Global
Sourcing for B.U.M. Equipment, an apparel company. From 1991 to 1992, he served
as general merchandising manager for Stage II, a large group of retail stores in
South Africa. From 1988 to 1991, he was the owner/operator of a clothing company
in South Africa. From 1985 to 1988, he served as Director of Merchandising for
Gotcha Sportswear.
JONATHAN S. HOWE joined the Company in May 1997 as Chief Financial Officer
and Treasurer. From May 1997 to the present, Mr. Howe has served as Chief
Financial Officer of Fortune Fashions. From March 1996 to the present, Mr. Howe
has served as Senior Vice President of Fortune Financial. From August 1994 until
March 1996, Mr. Howe was a Vice President of SSI Investment Management Inc., an
investment advisory firm. From 1992 to August 1994, Mr. Howe was an independent
financial consultant. Mr. Howe has an M.B.A. from the University of Southern
California.
ROBERTA J. MORRIS joined the Company in August 1993 and has served as Senior
Vice President--Finance since January 1995. She served as Vice
President--Finance of the Company from August 1993 to January 1995. From 1988 to
August 1993, Ms. Morris was employed by Deloitte & Touche LLP, a national
accounting firm, serving as a Senior Manager from August 1992 until August 1993.
Ms. Morris is a certified public accountant.
STEVEN C. GOOD has agreed to become a director immediately after the
completion of this offering. Mr. Good founded Good, Swartz & Berns, an
accountancy corporation, in 1993 and is the senior partner of that firm. From
1976 to 1993, Mr. Good was a partner in the firm of Block, Good and Gagerman, an
accounting firm that he co-founded in 1976. Mr. Good co-founded CU Bancorp in
1982 and served as its Chairman from 1982 through 1989. Mr. Good serves as a
director of Opto Sensors, Incorporated and of Arden Realty Company.
ROBERT H. SCHNELL has agreed to become a director immediately after the
completion of this offering. From October 1986 until its sale in August 1994,
Mr. Schnell served as Chairman of the Board of Cosmar Corporation, a designer
and, through an affiliated company, manufacturer of artificial nail and nail
care products. Since September 1994, Mr. Schnell has been a private investor.
From 1978 to 1985, Mr. Schnell served as Group Vice President and General
Manager of the Health and Beauty Aids Division of Charles of the Ritz, a
division of Squibb, which manufactured and marketed fragrances and other
consumer products. From 1970 to 1977, Mr. Schnell served as Vice President of
Sales for Prince Matchiabelli, a division of Chesebrough Ponds.
DAVID J. WALSH has agreed to become a director immediately after the
completion of this offering. Since January 1994, Mr. Walsh has served as Senior
Vice President-Strategic Planning of Transaction Network Services, Inc., a
provider of data communications services. From 1991 through January 1994, Mr.
Walsh served as President of Fortune Telecommunications, Inc., a provider of
validation and fraud control computer services
37
<PAGE>
to the telecommunications industry. From 1988 to 1991, Mr. Walsh served as a
Managing Director of Maiden Lane. From 1984 to 1988, Mr. Walsh was a Principal
in the Mergers and Acquisitions Group of Ernst & Young, a national accounting
and consulting firm. Mr. Walsh has an M.B.A. from Harvard University.
No executive officer or director of the Company bears any relation by blood,
marriage or adoption to any other executive officer or director.
BOARD OF DIRECTORS
The Company's Board of Directors is currently comprised of Messrs. Kayne,
Feshbach and Wall. Immediately after completion of this offering, Mr. Wall
intends to resign from the board and the Company intends to appoint not less
than three directors, including Messrs. Good, Schnell and Walsh, who are neither
officers nor employees of the Company. The Company's Certificate of
Incorporation divides the Company's Board of Directors into three classes, with
the members of each class serving for terms of office expiring at the third
annual meeting of stockholders following their election and until successors are
duly qualified. The initial terms of the Class I, Class II and Class III
directors expire at the annual meetings of stockholders in 1998, 1999 and 2000,
respectively.
Upon the appointment of the additional directors, the Board of Directors
will establish an Audit Committee and a Compensation Committee, comprised of
non-employee directors. The Audit Committee will be responsible for recommending
to the Board of Directors the engagement of the independent auditors, the scope
and results of the audits, the internal accounting controls of the Company,
audit practices and the professional services furnished by the independent
auditors. The Compensation Committee will be responsible for reviewing and
approving all compensation arrangements for officers of the Company, including
the administration of the Company stock option and other employee benefit plans.
DIRECTOR COMPENSATION
Directors of the Company currently receive no compensation for serving on
the Board of Directors, except that in March 1996 the Company granted Mr. Kayne
a stock option for the purchase of 35,000 shares of Common Stock exercisable at
$2.59 per share and in August 1996 granted him a stock option for the purchase
of 20,000 shares of Common Stock exercisable at $4.00 per share for serving as
Chairman. Following the completion of this offering, Mr. Kayne will be paid
$120,000 per year for serving as Chairman, and the other non-employee directors
who join the Board will receive a fee of $10,000 per year for their services.
All non-employee directors will be reimbursed for expenses incurred in
connection with their attendance at board or committee meetings. In addition,
each non-employee director joining the Board of Directors after this offering,
other than Mr. Kayne, will receive stock options under the Company's 1997 Plan.
See "--Stock and Incentive Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during 1996. Mr. Kayne and
Mr. Feshbach, the Company's Chairman and Chief Executive Officer, respectively,
determined executive compensation during 1996. Mr. Feshbach also serves as a
director and Executive Vice President of Fortune Fashions and Mr. Kayne also
serves as Chairman and President of Fortune Fashions. See "Certain Relationships
and Related Transactions."
38
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation, earned by the Company's
Chief Executive Officer and each of the Company's three other most highly
compensated executive officers or employees whose salary and bonus exceeded
$100,000 for the fiscal year ended December 31, 1996. The persons named in the
table are sometimes referred to herein as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION (1) AWARDS
--------------------------------------------- -----------------
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK ALL OTHER
POSITION SALARY ($) BONUS ($) COMPENSATION ($)(2) (#) COMPENSATION ($)
- ------------------------- ----------- ----------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Andrew D. Feshbach ...... $ 200,000 -- $ 26,011 -- --
President and Chief
Executive Officer
Douglas N. Nilsen ....... $ 147,000 $ 10,000 -- 20,000 --
Executive Vice
President
Jeffrey Cowen ........... $ 150,000 $ 4,000 -- -- --
Senior Vice President
Anthony J. Wall ......... $ 104,000 -- -- 20,000 --
Executive Vice
President, General
Counsel and Secretary
</TABLE>
- -------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits received by the Named
Executive Officers which are available generally to all salaried employees
of the Company, and certain perquisites and other personal benefits received
by the Named Executive Officers which do not exceed the lesser of $50,000 or
10% of any such officer's salary and bonus disclosed in this table.
(2) Other annual compensation for Mr. Feshbach includes a car allowance in the
amount of $21,955 for the fiscal year ended December 31, 1996.
STOCK AND INCENTIVE PLANS
1996 STOCK INCENTIVE PLAN. The 1996 Stock Incentive Plan (the "1996 Plan")
was adopted by the Board of Directors and approved by the stockholders on June
1, 1996. In July 1996, the Company sold 347,500 shares of restricted Common
Stock (the "Restricted Stock") to 18 executives, officers, senior managers and
consultants (the "Participants"). Participants paid for 95% of the purchase
price by delivering a promissory note bearing interest at 7% per annum to the
Company. One-third of the Restricted Stock was vested upon the date of sale and
the remaining two-thirds vest in two equal annual installments on the first and
second anniversary of the date of sale. Non-vested shares may not be sold or
otherwise transferred. Prior to this offering, vested shares of Restricted Stock
may only be sold or otherwise transferred with the consent of the Board. As of
the completion of this offering, vested shares become freely transferable,
subject to restriction under (i) applicable securities laws, (ii) an escrow
agreement which provides that even after the offering no vested shares may be
transferred without first repaying the interest and principal due under the
promissory note the stockholder delivered to finance the purchase, and (iii) the
Lock-Up Agreements with the Underwriters in this offering. See "Shares Eligible
for Future Sale."
39
<PAGE>
The Company has the right to repurchase the Restricted Stock (the "Purchase
Option") upon the termination of employment, whether voluntary or involuntary,
with or without cause. All of the Restricted Stock is subject to the Purchase
Option until the completion of this offering. After completion of this offering,
the Purchase Option expires as to vested shares.
Whether Restricted Stock has become vested also determines the repurchase
price that must be paid for the Restricted Stock if the Purchase Option is
exercised. If the Company exercises the Purchase Option upon termination of a
Participant's employment, the Participant's non-vested shares may be purchased
at his or her original purchase price. Vested shares subject to the Purchase
Option must be purchased at their then fair market value as determined in the
discretion of the Board of Directors, which determination is binding on the
stockholder.
No further grants will be made under the 1996 Plan but any non-vested
Restricted Stock will continue to be governed by its terms after this offering.
1997 STOCK OPTION PLAN. The 1997 Stock Option Plan (the "Old Plan") was
adopted by the Board of Directors and approved by the stockholders on January
31, 1997. The Old Plan provides for the grant of options that are characterized
as "nonqualified" for federal income tax purposes.
The Board of Directors has granted options for the purchase of 92,500 shares
of Common Stock to 8 officers, key employees and other eligible persons under
the Old Plan. The exercise price of such options is either $5.00 or $7.50 per
share. Such options become exercisable in equal annual installments over a
period of three years and expire ten years from the date of grant.
No further grants will be made under the Old Plan, but it will continue to
govern outstanding options.
1997 PERFORMANCE AWARD PLAN. The 1997 Performance Award Plan (the "1997
Plan") was adopted by the Board of Directors and approved by the stockholders on
August 1, 1997, to attract, reward and retain talented and experienced officers,
other key employees and certain other eligible persons (collectively, "Eligible
Persons") who may be granted awards from time to time by the Company's Board of
Directors or a committee appointed by the Board of Directors (the "Compensation
Committee"). The maximum number of shares reserved for issuance is 1,000,000,
subject to adjustment for certain changes in the Company's capital structure.
Awards under the 1997 Plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights ("SAR's"), restricted stock,
performance shares, stock bonuses, or cash bonuses based on performance. Awards
may be granted singly or in combination with other awards. Any cash bonuses will
be paid to the extent performance goals set by the Board of Directors or the
Compensation Committee are met during the performance period. Awards under the
1997 Plan generally will be nontransferable by the holder of the award (a
"Holder") (other than by will or the laws of descent and distribution) and
rights thereunder generally will be exercisable, during the Holder's lifetime,
only by the Holder, subject to such exceptions as may be authorized by the
Compensation Committee. No incentive stock option may be granted at a price that
is less than the fair market value of the Common Stock (less than 110% of fair
market value of the Common Stock on the date of grant for certain participants)
on the date of grant.
ADMINISTRATION. The 1997 Plan will initially be administered by the Board
of Directors. After the completion of this offering, the Board of Directors
intends to appoint the Compensation Committee to administer the 1997 Plan. The
Compensation Committee will have the authority to (i) designate recipients of
awards, (ii) determine or modify the provisions of awards, including vesting
provisions, terms of exercise of an award and expiration dates, (iii) approve
the form of award agreements, and (iv) construe and interpret the 1997 Plan. The
Compensation Committee will have the discretion to accelerate and extend the
exercisability or term and establish the events of termination or reversion of
outstanding awards.
CHANGE IN CONTROL. Upon a Change in Control Event, each option and SAR will
become immediately exercisable, restricted stock will immediately vest free of
restrictions and the number of shares, cash or other property covered by each
performance share award will be issued to the Holder, unless the Compensation
Committee determines to the contrary. A "Change in Control Event" is defined
generally to include (i) the
40
<PAGE>
acquisition of 50% or more of the outstanding voting securities of the Company
by any person other than Fred Kayne, the Company's principal stockholder or one
of his affiliates, successors, heirs or relatives, or a transfer of
substantially all of the Company's assets, (ii) the dissolution or liquidation
of the Company, or (iii) a merger, consolidation or reorganization whereby
stockholders immediately prior to such event own less than 50% of the
outstanding voting securities of the surviving entity after such event.
PLAN AMENDMENT; TERMINATION AND TERM. The Company's Board of Directors will
have the authority to amend, suspend or discontinue the 1997 Plan at any time,
but no such action will affect any outstanding award in any manner adverse to a
participant without the consent of the participant. The 1997 Plan may be amended
by the Board of Directors without stockholder approval unless such approval is
required by applicable law.
The 1997 Plan will remain in existence as to all outstanding awards until
such awards are exercised or terminated. The maximum term of unvested or
unexercised options, SAR's and other rights to acquire Common Stock under the
1997 Plan is 10 years after the initial date of award. No award can be made
after the tenth anniversary of the date on which the Board of Directors approved
the 1997 Plan.
AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS. Under the 1997 Plan, each
director who is not an employee, other than Mr. Kayne (each a "Non-Employee
Director"), will be granted a non-statutory stock option to purchase 10,000
shares of Common Stock upon becoming a Non-Employee Director at an exercise
price equal to the market price of the Common Stock at the close of trading on
that date. In addition, on the day of the annual stockholders meeting in each
calendar year beginning in 1998 and continuing for each subsequent year during
the term of the 1997 Plan, each Non-Employee Director will be granted a
non-statutory option to purchase 5,000 shares of Common Stock at an exercise
price equal to the market price of the Common Stock at the close of trading on
that date. No Non-Employee Director may receive options to purchase more than
10,000 shares of Common Stock under the 1997 Plan in any one year. All
Non-Employee Director stock options will have a 10-year term and will become
exercisable in equal annual installments over a five-year period commencing on
the first anniversary of the grant date. If a Non-Employee Director's services
are terminated for any reason other than the Non-Employee Director's death,
disability or retirement, any stock options held by such Non-Employee Director
that are exercisable will remain exercisable for six months after such
termination of service or until the expiration of the option term, whichever
occurs first. If the Non-Employee Director dies, becomes disabled or retires,
stock options held by such Non-Employee Director will, as of the date of such
death, disability or retirement, become fully exercisable for all or any portion
of the shares of Common Stock at the time subject to the option and will remain
exercisable for two years after the date of such termination of services. Upon a
Change in Control Event, each automatic option grant to a Non-Employee Director
will become immediately exercisable for all or any portion of the shares at the
time subject to that option and may be exercised for fully-vested shares of
Common Stock, provided the option has been outstanding for at least six (6)
months. Any outstanding automatic option grant that is not exercised prior to a
Change in Control Event in which the Company is not to survive will terminate,
unless such option is assumed or replaced by the surviving corporation.
GRANT OF OPTIONS. On August 1, 1997, the Board of Directors of the Company
granted options under the 1997 Plan for the purchase of 282,500 shares of Common
Stock to certain Eligible Persons, at an exercise price of $12.00 per share.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company currently does not have any employment contracts with its Chief
Executive Officer or any other executive officers. Under the 1997 Plan, upon a
"Change in Control Event" (as defined in the 1997 Plan) each option and stock
appreciation right issued under the 1997 Plan will become immediately
exercisable, restricted stock issued under the 1997 Plan will immediately vest
free of restrictions, and the number of shares, cash or other property covered
by each "performance share award" issued under the 1997 Plan will be issued to
the grantee of such award, unless the Board of Directors (or the Committee
thereof appointed to administer the 1997 Plan) determines to the contrary.
41
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Fred Kayne, the Company's majority stockholder and Chairman of its Board of
Directors, owns 60% of the outstanding stock of Fortune Fashions. Andrew
Feshbach, the President, Chief Executive Officer and a director of the Company,
owns approximately 10% of the outstanding stock of Fortune Fashions. Fortune
Fashions is a custom manufacturer of embellished apparel for the tourist
industry. Fortune Fashions manufactured approximately 23% of the Company's
products (by dollar value of purchases) in 1996, including over 90% of the
Company's graphic T-shirts. Fortune Fashions sold approximately $8.0 million and
$4.1 million of goods, primarily graphic T-shirts, to Big Dogs during 1996 and
the first six months of 1997, respectively. The Company believes that the
overall terms of the purchases from Fortune Fashions are comparable to what
could have been obtained from an unaffiliated third party. The Company intends
to continue purchasing graphic T-shirts from Fortune Fashions in the near
future, but is exploring the economic feasibility of building or purchasing its
own screen-printing facilities or entering into other arrangements. In addition,
certain directors and executive officers of the Company are also directors
and/or executive officers of Fortune Fashions: Mr. Kayne is Chairman and
President of Fortune Fashions; Mr. Feshbach is a director of Fortune Fashions;
Jonathan Howe, Chief Financial Officer and Treasurer of Big Dogs, is also Chief
Financial Officer of Fortune Fashions; and Anthony Wall, Executive Vice
President, General Counsel, Secretary and a director of Big Dogs, is also a Vice
President and General Counsel of Fortune Fashions. See "Management." None of
these officers, other than Mr. Kayne, is significantly involved in the
day-to-day operations or management of Fortune Fashions.
In September 1996, the Company refinanced certain outstanding notes to Mr.
Kayne by issuing a promissory note in the amount of $4,380,000 due June 30, 1998
and borrowed an additional $2,000,000 from Mr. Kayne pursuant to a second
promissory note due September 30, 1998. In addition, on October 15, 1996, the
Company borrowed an additional $2,000,000 from Mr. Kayne pursuant to a
promissory note due October 15, 1998. Such promissory notes bear interest at 10%
per annum. The aggregate unpaid principal balance of such promissory notes as of
June 30, 1997 was $6,380,000, all of which will be repaid with the proceeds of
this offering. Mr. Kayne has also guaranteed 20% of the Company's obligations
under its revolving credit facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
In November 1996, Mr. Kayne purchased 10 B Units from the Company for
$212,000 per Unit, for an aggregate purchase price of $2,120,000. Each B Unit is
comprised of a $200,000 promissory note due November 2003 bearing interest at
10% per annum and a warrant for the purchase of 12,000 shares of the Company's
Common Stock for $5.00 per share (which pursuant to the terms of the warrants,
was automatically reduced to $4.00 as of June 30, 1997). In November 1996, Mr.
Kayne also purchased one-half of an A Unit for $106,000. Each full A Unit is
comprised of a $200,000 promissory note due November 2003 bearing interest at
10% per annum and a warrant for the purchase of 12,000 shares of Common Stock
for $4.00 per share (which, pursuant to the terms of the warrants, was
automatically reduced to $3.00 as of June 30, 1997). The remaining 9 1/2 A Units
were sold to independent investors. The purchase price paid by Mr. Kayne for the
B Units was the same as that paid by the independent investors for the A Units,
though the exercise price of the warrants associated with the B Units was one
dollar higher. All of the notes associated with the A and B Units will be repaid
with the proceeds of the offering.
Fred Kayne is the President, Chairman of the Board and majority stockholder
of Cottonsmith Incorporated, an international apparel and fabric sourcing
company. During 1996 and the first six months of 1997, Cottonsmith sold
approximately $64,000 and $107,000 of goods, respectively, to Big Dogs. Big Dogs
has no plans to do further business with Cottonsmith. The Company believes that
the terms negotiated with Cottonsmith for such purchases were comparable to
those that could have been obtained from an unaffiliated third party.
Mr. Kayne is also the sole stockholder, Chairman of the Board and President
of Fortune Financial, a private merchant banking firm. Big Dogs is party to a
one-year, renewable consulting agreement with Fortune Financial, pursuant to
which Fortune Financial provides business and financial consulting services to
the Company. During 1996, Fortune Financial was paid $160,000 under such
agreement, and currently is being paid $10,000 per month. It is expected that
upon the completion of this offering this consulting agreement will be
terminated
42
<PAGE>
and that Fortune Financial will not provide significant services to Big Dogs
thereafter. Messrs. Feshbach, Wall and Howe serve as unpaid officers of Fortune
Financial.
As of January 1, 1997, the Company, Mr. Kayne and Mr. Feshbach entered into
a Buy-Sell Agreement providing that, in the event of Mr. Feshbach's death, his
estate would have the right to sell his shares of Common Stock to the Company,
which agreement will expire upon the completion of this offering.
In connection with the purchase of Common Stock from the Company under its
1996 Plan, the Company accepted promissory notes with a ten-year term bearing
interest at a rate of seven percent (7%) per annum as partial payment from
participants in the 1996 Plan. Promissory notes evidencing 1996 Plan participant
indebtedness exceeding $60,000 were executed in favor of the Company by Jonathan
Howe, Chief Financial Officer, and Andrew Wadhams, Senior Vice
President--Retail. Mr. Howe executed a note on July 29, 1996 evidencing a loan
in the principal amount of $142,450 and secured by the pledge of 55,000 shares
of Common Stock. The maximum amount of indebtedness, including accrued interest,
outstanding under the loan during 1996 was $152,422. Mr. Wadhams executed a note
on July 29, 1996 evidencing a loan in the principal amount of $123,025 and
secured by the pledge of 50,000 shares of Common Stock. The maximum amount of
indebtedness, including accrued interest, outstanding under the loan during 1996
was $131,637.
43
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of July 31, 1997 and as adjusted to
reflect the sale of the shares offered hereby by (i) each person who is known by
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director and Named Executive Officer of the Company, (iii) each
Selling Stockholder and (iv) all directors and executive officers of the Company
as a group. Unless otherwise indicated below, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their shares of Common Stock, except to the extent authority is shared by
spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER OFFERING
OFFERING (1) SHARES TO BE (1)(2)
---------------------- SOLD IN ----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERING (2) NUMBER PERCENT
- ---------------------------------------------- --------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Fred Kayne (3) ............................... 6,801,110 65.8% 335,000 6,466,110 49.2%
c/o Fortune Financial
1800 Avenue of the Stars
Suite 1112
Los Angeles, CA 90067
Andrew D. Feshbach(4) ........................ 1,350,000 13.3% 135,000 1,215,000 9.4%
c/o Big Dog Sportswear
121 Gray Avenue
Santa Barbara, CA 93101
Robert H. Schnell(5).......................... 351,220 3.4% 50,000 301,220 2.3%
Richard Scott................................. 135,000 1.3% 35,000 100,000 *
Andrea and Jacob Kaufman...................... 125,000 1.2% 35,000 90,000 *
Stephen Kayne................................. 125,000 1.2% 35,000 90,000 *
Anthony J. Wall............................... 115,000 1.1% -- 115,000 *
Douglas N. Nilsen............................. 100,000 * -- 100,000 *
Jeffrey Cowen................................. 70,000 * -- 70,000 *
Jonathan Hirsh................................ 37,500 * 37,500 -- --
Lee Rosenblatt................................ 37,500 * 37,500 -- --
All directors and executive officers as a
group
(10 persons)................................ 8,846,110 85.6% 505,000 8,341,110 63.5%
</TABLE>
- -------
* Less than one (1) percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Except as otherwise stated herein and subject to community
property laws where applicable, the Company believes, based on information
furnished by such persons, that the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Percentage of beneficial ownership is
based on 10,160,550 shares of Common Stock outstanding as of July 31, 1997
and 12,960,550 shares of Common Stock outstanding after the completion of
this offering.
(2) Assumes no exercise of the Underwriters' over-allotment option. If such
option is exercised in full, Fred Kayne would sell an additional 450,000
shares and Andrew Feshbach would sell an additional 75,000 shares.
(3) Includes warrants to purchase 120,000 shares of Common Stock and options to
purchase 55,000 shares of Common Stock that are currently exercisable. Also
includes 38,610 shares of Common Stock held in a trust for the benefit of
certain relatives, to which Mr. Kayne disclaims beneficial ownership.
(4) Includes 11,000 shares held by custodians for certain relatives, to which
Mr. Feshbach disclaims beneficial ownership.
(5) Includes 327,220 shares owned by the Robert and Renee Schnell Living Trust,
of which Mr. Schnell is co-trustee. Also includes 24,000 shares of Common
Stock subject to immediately exercisable warrants.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company does not
purport to be complete and is subject in all respects to applicable Delaware law
and to the provisions of the Company's Certificate of Incorporation (the
"Certificate") and Bylaws ("Bylaws"), copies of which will be filed as exhibits
to the Registration Statement of which this Prospectus is a part. References
herein to the Company's Certificate and Bylaws refer to the Amended and Restated
Certificate of Incorporation, as filed with the Delaware Secretary of State on
August 4, 1997, and the Amended and Restated Bylaws, as adopted by the Board of
Directors of the Company on August 1, 1997, respectively. The Company was
originally incorporated on December 31, 1993.
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $0.01 par value per share, and 3,000,000 shares of Preferred
Stock, $0.01 par value per share. Immediately after the completion of this
offering, the Company estimates that there will be outstanding an aggregate of
12,960,550 shares of Common Stock, approximately 387,500 shares will be issuable
upon exercise of outstanding options and warrants and no shares of Preferred
Stock will be issued or outstanding.
COMMON STOCK
Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, holders of Common Stock are entitled to receive ratably
such dividends, if, as and when declared by the Company's Board of Directors out
of funds legally available therefor. See "Dividend Policy." Holders of Common
Stock are entitled to one vote per share on all matters to be voted upon by the
stockholders. There are no cumulative voting rights, the absence of which will,
in effect, allow the holders of a majority of the outstanding shares of Common
Stock to elect all the directors then standing for election. The absence of
cumulative voting rights could have the effect of delaying, deterring or
preventing a change of control of the Company. According to the Delaware General
Corporation Law ("DGCL"), in the event of any liquidation, dissolution or
winding up of the Company, holders of Common Stock will be entitled to share
ratably in all assets remaining after payment of the Company's liabilities and
the liquidation preference, if any, of any outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights and no rights to
convert their Common Stock into any other securities and there are no redemption
provisions with respect to such shares. All of the outstanding shares of Common
Stock are and all shares of Common Stock offered in this offering will be fully
paid and non-assessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
The provisions described above will result in Fred Kayne, the majority
stockholder of the Company, retaining substantial control over the Company. See
"Risk Factors--Control by Existing Stockholders and Anti-Takeover Provisions."
Application has been made for quotation of the Common Stock on The Nasdaq
National Market under the symbol "BDOG".
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is expressly authorized, in the resolution or resolutions
providing for the issuance of any wholly unissued series of Preferred Stock, to
fix, state and express the powers, rights, designations, preferences,
qualifications, limitations and restrictions thereof, including without
limitation, the rate of dividends upon which and the times at which dividends on
shares of such series shall be payable and the preference, if any, which such
dividends shall have relative to dividends on shares of any other class or
classes or any other series of stock of the Company; whether such dividends
shall be cumulative or noncumulative, and if cumulative, the date or dates from
which dividends on shares of such series shall be cumulative; the voting rights,
if any, to be provided for shares of such series; the rights, if any, which the
holders of shares of such series shall have in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Company; the rights, if any, which the holders of shares
45
<PAGE>
of such series shall have to convert such shares into or exchange such shares
for shares of stock of the Company, and the terms and conditions, including
price and rate of exchange of such conversion or exchange; the redemption rights
(including sinking fund provisions), if any, for shares of such series; and
other powers, rights, designations, preferences, qualifications, limitations and
restrictions as the Board of Directors may desire to so fix. The Board of
Directors is also expressly authorized to fix the number of shares constituting
such series and to increase or decrease the number of shares of any series prior
to the issuance of shares of that series and to increase or decrease the number
of shares of any series subsequent to the issuance of shares of that series, but
not to decrease such number below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series. The Board of Directors, without further stockholder approval,
can issue Preferred Stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock. No shares of
Preferred Stock presently are outstanding and the Company currently has no plans
to issue shares of Preferred Stock. The issuance of Preferred Stock in certain
circumstances may have the effect of delaying or preventing a change of control
of the Company without further action by the stockholders, may discourage bids
for the Company's Common Stock at a premium over the market price of the Common
Stock and may adversely affect the market price and the voting and other rights
of the holders of Common Stock.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger, or otherwise, and thereby protect the continuity of the Company's
management.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Certain provisions of the Certificate and Bylaws of the Company as
summarized in the following paragraphs, may be deemed to have an anti-takeover
effect and may delay, deter or prevent an attempt to obtain control of the
Company by means of a proxy contest, tender offer, merger or other transaction
that a stockholder might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
stockholders.
CLASSIFIED BOARD OF DIRECTORS. The Certificate provides for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, one-third of the Board of Directors will be
elected each year. In addition, the Certificate provides that any Director or
the entire Board of Directors may be removed by the affirmative vote of the
holders of at least a majority of the combined voting power of all shares of the
Company entitled to vote generally in the election of directors, voting together
as a single class. Under the DGCL, in the case of a corporation having a
classified board and not having a provision in its Certificate to the contrary
(as is the case with the Company), stockholders may remove a director only for
cause.
Under the Bylaws, any vacancy in the Board of Directors unless and until
filled by the stockholders, however occurring, may be filled by majority vote of
the remaining directors, except that a vacancy created by the removal of a
director by the vote of the stockholders or by court order may be filled only by
the affirmative vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present. These provisions, together with
the constraints placed on calling stockholder meetings as discussed below, may
preclude a stockholder from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
46
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS. The Certificate provides that special
meetings of stockholders of the Company may be called only by the Chairman of
the Board of Directors or the President, or by the Chairman, the President or
the Secretary at the written request of a majority of the total number of
directors the Company would have if there were no vacancies on the Board. The
request shall be sent to the Chairman, the President and the Secretary and shall
state the purposes of the proposed meeting. Special meetings of holders of the
outstanding Preferred Stock may be called in the manner and for the purposes
provided in the resolutions of the Board of Directors providing for the issue of
such stock. Business transacted at special meetings shall be confined to the
purpose or purposes stated in the notice of meeting. These provisions will make
it more difficult for stockholders to take actions opposed by the Board of
Directors.
ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS. The Bylaws
provide that stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at a meeting
of stockholders, must provide timely notice thereof in writing. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not later than the close of business
on the sixtieth (60th) day nor earlier than the close of business on the
ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event public announcement of the
date of such annual meeting is first made by the Company fewer than 70 days
prior to the date of such annual meeting, notice by the stockholder to be timely
must be received no later than the close of business on the tenth (10th) day
following the day on which such public announcement was made by the Company. The
Bylaws also specify certain requirements for a stockholder's notice to be in
proper written form. These provisions may preclude some stockholders from
bringing matters before the stockholders at an annual meeting or from making
nominations for directors at a stockholders meeting.
VOTING REQUIREMENTS REGARDING CERTAIN ACTIONS. Certain provisions of the
Certificate require the affirmative vote of the holders of at least two-thirds
of the combined voting power of all shares of the Company entitled to vote
generally in the election of directors, voting together as a single class, for
certain activities. Such an affirmative vote is required for any Business
Combination (as defined in the Certificate) (unless the Business Combination has
been approved by two-thirds of the whole Board of Directors) and for the
adoption of new Bylaws or the repeal or amendment of existing Bylaws by the
stockholders. Similarly, such a vote is required for alteration, change,
amendment, or repeal of, or adoption of any provision inconsistent with, the
provisions of the Certificate relating to classification, terms and removal of
directors, provisions relating to special meetings of stockholders, and
provisions defining certain key terms.
LIMITATION OF LIABILITY
The Certificate provides that to the fullest extent permitted by the DGCL,
as that law may be amended and supplemented from time to time, a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a Director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) under Section
174 of the DGCL, or (iv) for any transaction from which the director derived any
improper personal benefit. The effect of the provision of the Certificate is to
eliminate the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent behavior) except in the situations described
in clauses (i) through (iv) above. The Bylaws also set forth certain
indemnification provisions. The foregoing provision of the Certificate may
reduce the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breaches of their fiduciary duties, even though such an action, if
successful, otherwise might have benefited the Company and its stockholders.
47
<PAGE>
INDEMNIFICATION AGREEMENTS
In addition, the Company plans to enter into agreements (the
"Indemnification Agreements") with each of its directors and certain of its
officers pursuant to which the Company agrees to indemnify such director or
officer against expenses, judgments, fines or amounts paid in settlement
incurred by such director or officer and arising out of his capacity as a
director, officer, employee and/or agent of the Company or other enterprise of
which he is a director, officer, employee or agent acting at the request of the
Company to the maximum extent permitted by applicable law, subject to certain
limitations. In addition, such director or officer shall be entitled to an
advance of expenses, to the maximum extent authorized or permitted by law, to
meet the obligations indemnified against, subject to certain limitations.
Finally, under Delaware law, the Company may purchase and maintain insurance for
the benefit and on behalf of its directors and officers insuring against all
liabilities that may be incurred by such director or officer in or arising out
of his capacity as a director, officer, employee and/or agent of the Company.
DELAWARE LAW AND CERTAIN CORPORATE PROVISIONS
Upon the consummation of this offering, the Company will be subject to the
provisions of Section 203 of the DGCL. Section 203 of the DGCL contains certain
provisions that may make more difficult the acquisition of control of the
Company by means of a tender offer, open market purchase, proxy fight or
otherwise. These provisions are designed to encourage persons seeking to acquire
control of the Company to negotiate with the Board of Directors. However, these
provisions could have the effect of discouraging a prospective acquirer from
making a tender offer or otherwise attempting to obtain control of the Company.
To the extent that these provisions discourage takeover attempts, they could
deprive stockholders of opportunities to realize takeover premiums for their
shares or could depress the market price of shares. Set forth below is a
description of the relevant provisions of Section 203 of the DGCL. This
description is intended as summary only and is qualified in its entirety by
reference to Section 203 of the DGCL.
In general, this statute prohibits a publicly held Delaware corporation from
engaging under certain circumstances in a "business combination" with an
"interested stockholder," for a period of three years after the date on which
the stockholder became an interested stockholder (the "Time"), unless (i) prior
to the Time the board of directors approved either the business combination or
the transaction which resulted in the stockholder becoming an interested
stockholder, (ii) the stockholder owned at least 85% of the outstanding voting
stock of the corporation (excluding shares held by directors who are officers or
held in certain employee stock plans) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, or (iii) on or
subsequent to the Time, the business combination with the interested stockholder
is approved by the board of directors and also approved at a stockholders'
meeting by the affirmative vote of the holders of at least two-thirds of the
outstanding shares of the corporation's voting stock other than shares held by
the interested stockholder.
For purposes of Section 203, a "business combination" includes certain
mergers, asset sales or other transactions resulting in a financial benefit to
the interested stockholder. The Company, at its option, may exclude itself from
the coverage of Section 203 by amending its Certificate or Bylaws by action of
its stockholders to exempt itself from coverage, provided that such Bylaw or
Certificate amendment shall not become effective until 12 months after the date
it is adopted and shall not apply to any business combination between the
Company and any person who became an interested stockholder on or prior to such
adoption (unless the Company, among other things, does not have a class of
voting stock listed on a national securities exchange or on the NASDAQ Stock
Market). To date, the Company has not elected to opt out of Section 203 of the
DGCL pursuant to its terms.
In addition to the requirements of Section 203, under the Certificate, the
approval of the holders of two-thirds of the voting power in the Company is
required for certain business combinations involving the Company and "interested
stockholders," defined as persons who, together with affiliates and associates,
own (or within two years, did own) 10% or more of the Company's voting stock.
48
<PAGE>
The Certificate provides that the Company is subject to the provision of
Section 302 of the DGCL. In general, this statute allows any court of equitable
jurisdiction in the State of Delaware, upon proper application by the Company or
any of its creditors or stockholders, to order a meeting of creditors or
stockholders whenever a compromise or arrangement is proposed between the
Company and its creditors or the Company and its stockholders. Any compromise,
arrangement or reorganization of the Company that is approved by a majority in a
number representing three-fourths in value of the creditors or stockholders, as
the case may be, and sanctioned by the court to which the application was made
shall be binding on all of the creditors or stockholders, as the case may be,
and the Company.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is U.S. Stock Transfer
Corporation.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 12,960,550 shares of
Common Stock outstanding (based upon shares of Common Stock outstanding as of
July 31, 1997 and assuming no exercise of outstanding options, warrants or the
Underwriters' over-allotment option). Of these shares, the 2,800,000 shares sold
by the Company and the 700,000 sold by the Selling Stockholders in this
offering, plus any additional shares sold upon exercise of the Underwriters'
over-allotment option, will be freely tradable without restriction or further
registration under the Securities Act, except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Affiliates"), may generally only be sold in compliance with the
limitations of Rule 144 described below. The remaining 9,460,550 shares of
Common Stock (the "Restricted Shares") held by existing stockholders upon
completion of this offering will be "restricted" securities within the meaning
of Rule 144 and may not be sold except in compliance with the registration
requirements of the Securities Act or an applicable exemption under the
Securities Act, including an exemption pursuant to Rule 144 or Rule 701.
LOCK-UP AGREEMENTS
All stockholders of the Company (who in the aggregate hold 10,160,550 shares
of Common Stock), all warrantholders of the Company (who in the aggregate have
the right to purchase 240,000 shares of Common Stock), and all holders of
options exercisable within 180 days after this offering (who in the aggregate
have the right to purchase 73,333 shares of Common Stock), have agreed, pursuant
to Lock-Up Agreements, that they will not, without the prior written consent of
Robertson, Stephens & Company, offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock beneficially owned by them (except for
shares sold in this offering) for a period of 180 days after the date of this
Prospectus. Robertson, Stephens & Company may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to the
Lock-Up Agreements. See "Underwriting."
SALES OF RESTRICTED SHARES
Upon the expiration of the 180-day lock-up period, approximately 8,528,500
Restricted Shares will become eligible for sale in the public market pursuant to
Rule 144 or Rule 701.
In general, under Rule 144, a person (or persons whose shares are
aggregated) including an Affiliate, who has beneficially owned shares for at
least one year (including the holding period of certain prior owners), will be
entitled to sell in "brokers' transactions" or to market makers, within any
three-month period commencing 90 days after the Company becomes subject to the
reporting requirements of Section 13 or 15 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), a number of shares that does not exceed
the greater of (i) one percent (1%) of the then-outstanding shares of Common
Stock (approximately 129,606 shares immediately after this offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
immediately preceding such sale, subject, generally, to the filing of a Form 144
with the Commission with respect to such sales and certain other limitations and
restrictions relating to manner of sale and availability of public information.
In addition, a person (or person whose shares are aggregated), who is not deemed
to have been an Affiliate at any time during the 90 days immediately preceding
the sale and who has beneficially owned the shares proposed to be sold for at
least two years, is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above. Further, Rule 144A under the
Securities Act as currently in effect permits the immediate sale of restricted
shares to certain qualified institutional buyers without regard to the volume
restrictions described above.
In general, under Rule 701, any employee, consultant or advisor of the
Company who purchased shares from the Company in connection with a compensatory
stock or option plan or other written compensatory agreement is entitled to
resell such shares without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144, and Affiliates are
entitled to sell their Rule 701 shares
50
<PAGE>
without having to comply with Rule 144's holding period restrictions, in each
case commencing 90 days after the Company becomes subject to the reporting
requirements of Section 13 or 15 of the Exchange Act.
WARRANTS
As of August 1, 1997, there were warrants outstanding for the purchase of
240,000 shares of Common Stock. The underlying shares may be resold under Rule
144 upon the expiration of either the one or two-year holding periods described
above, which commence upon exercise of the warrant.
OPTIONS
As of August 1, 1997, options to purchase 92,500 shares were outstanding
under the Old Plan and options to purchase 55,000 shares were outstanding under
non-plan option agreements with the Company's Chairman. Upon expiration of the
180-day lock-up period and subject to vesting and exercisability restrictions,
all shares issued pursuant to the exercise of these stock options may be sold
pursuant to Rule 701. 73,333 of such options will be exercisable at the end of
the 180-day lock-up period. In addition, options to purchase 282,500 shares of
Common Stock were granted under the 1997 Plan as of August 1, 1997 and 717,500
shares of Common Stock are available for future grant under the 1997 Plan. The
Company intends to file a registration statement on Form S-8 under the
Securities Act 90 days after the date of this Prospectus to register the shares
issuable under the 1997 Plan. Such registration statement is expected to become
effective upon filing. After the effective date of such registration statement,
shares of Common Stock issued under the 1997 Plan will be immediately eligible
for sale in the public market, subject to vesting and exercisability
restrictions. No options granted under the 1997 Plan will become exercisable
prior to January 1, 1999.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
among the Company, the Selling Stockholders and each of the underwriters named
below (the "Underwriting Agreement"), the Company and the Selling Stockholders
have agreed to sell to each of the Underwriters, and each of the Underwriters,
for whom Robertson, Stephens & Company, Hambrecht & Quist LLC and Needham &
Company, Inc. are acting as the Representatives, severally have agreed to
purchase from the Company and the Selling Stockholders the number of shares of
Common Stock set forth opposite its name below. In the Underwriting Agreement,
the several underwriters have agreed, subject to the terms and conditions set
forth therein, to purchase all of the shares of Common Stock offered hereby, if
any are purchased. In the event of default by an Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
nondefaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------------------------------------------------------------- ----------------
<S> <C>
Robertson, Stephens & Company LLC................................
Hambrecht & Quist LLC............................................
Needham & Company, Inc...........................................
--------
Total........................................................
--------
--------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus, and to certain dealers at
such price less a concession not in excess of $. per share of Common Stock. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $. per share of Common Stock on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
Certain Selling Stockholders have granted to the Underwriters an option,
exercisable for 30 days after the date of this Prospectus, to purchase up to an
additional 525,000 shares of Common Stock to cover over-allotments, if any, at
the initial public offering price set forth on the cover page hereof, less the
underwriting discount. If the Underwriters exercise this option, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof that the number of shares of
Common Stock to be purchased by it shown in the foregoing table is of the
3,500,000 shares of Common Stock initially offered hereby.
The Company and all securities holders, including all officers and
directors, have agreed, subject to certain exceptions, not to, directly or
indirectly, (i) sell or grant any option to purchase or otherwise transfer or
dispose of any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock or file a registration statement
under the Securities Act with respect to the foregoing or (ii) enter into any
swap or other agreement or transaction that transfers, in whole or in part, the
economic consequence of ownership of the Common Stock, without the prior written
consent of Robertson Stephens & Company, for a period of 180 days after the date
of this Prospectus. The foregoing does not prohibit the Selling Stockholders
from selling shares of Common Stock in this offering including pursuant to the
Underwriters' over-allotment option.
52
<PAGE>
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of the Common Stock offered hereby to any accounts over
which they exercise discretionary authority.
Prior to this offering, there has been no market for the Common Stock of the
Company. The initial public offering price was determined through negotiations
among the Company, the Selling Stockholders and the Representatives. Among the
factors considered in determining the initial public offering price, in addition
to prevailing market conditions, were price/earnings ratios of publicly traded
companies that the Representatives believe to be comparable to the Company,
certain financial information of the Company, the history of, and the prospects
for, the Company and the industry in which it competes, an assessment of the
Company's management, its past and present operations, the prospects for, and
timing of, future revenues of the Company, the present state of the Company's
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to the
Company. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the offering at or above the initial public offering price.
Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when the shares of Common Stock sold by the syndicate member are
purchased in syndicate covering transactions. Such transactions may be effected
on The Nasdaq National Market, in the over-the-counter market, or otherwise.
Such stabilizing, if commenced, may be discontinued at any time.
Application has been made for quotation of the Common Stock on The Nasdaq
National Market under the symbol "BDOG."
53
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon for the
Company by Kimball & Weiner LLP, Los Angeles, California. Certain legal matters
will be passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP,
Palo Alto, California.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995 and
1996 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three year period ended December 31,
1996 included in this Prospectus and the registration statement of which this
Prospectus is a part have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and in the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, exhibits and schedules. Statements contained in
this Prospectus regarding the contents of any contract or any other document are
not necessarily complete and, in each such instance, reference is hereby made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. This Registration Statement, and the exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street N.W., Judiciary Plaza,
Washington, D.C., 20549, and at the regional offices of the Commission located
at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of all or any part thereof may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Judiciary plaza, Washington,
D.C. 20549 at the prescribed rates. Also, the Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Web site is http://www.sec.gov.
54
<PAGE>
BIG DOG HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997 (Unaudited)................ F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (Unaudited).......................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1994, 1995 and
1996, and for the six months ended June 30, 1997 (Unaudited)............................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (Unaudited).......................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Big Dog Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Big Dog
Holdings, Inc. and subsidiary (the "Company") as of December 31, 1995 and 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
January 31, 1997
F-2
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- ------------- JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 3)
CURRENT ASSETS:
Cash.............................................................. $ 769,000 $ 723,000 $ 1,650,000
Receivables:
Trade, net of allowance for doubtful accounts of $67,000,
$90,000 and $99,000 at December 31, 1995 and 1996, and June
30, 1997, respectively........................................ 567,000 353,000 636,000
Other........................................................... 190,000 617,000 249,000
Inventories (Notes 1 and 9)....................................... 10,826,000 15,403,000 18,763,000
Prepaid expenses and other current assets......................... 371,000 478,000 1,315,000
Deferred income taxes (Note 6).................................... 224,000 144,000 1,277,000
------------- ------------- -------------
Total current assets.......................................... 12,947,000 17,718,000 23,890,000
PROPERTY AND EQUIPMENT, Net (Notes 1, 2 and 5)...................... 5,434,000 7,445,000 8,540,000
INTANGIBLE ASSETS, Net (Note 1)..................................... 373,000 266,000 191,000
OTHER ASSETS (Note 1)............................................... 257,000 344,000 355,000
------------- ------------- -------------
TOTAL............................................................... $ 19,011,000 $ 25,773,000 $ 32,976,000
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 3).................................... $ 1,225,000 $ -- $ 6,892,000
Current portion of obligations under capital leases (Note 5)...... 380,000 530,000 517,000
Accounts payable (Note 9)......................................... 1,876,000 1,235,000 4,138,000
Income taxes payable (Note 6)..................................... 364,000 400,000 --
Accrued expenses and other current liabilities (Note 4)........... 1,072,000 1,811,000 1,613,000
------------- ------------- -------------
Total current liabilities..................................... 4,917,000 3,976,000 13,160,000
DEFERRED RENT (Note 7).............................................. 230,000 488,000 563,000
OBLIGATIONS UNDER CAPITAL LEASES, Net of current portion (Note 5)... 727,000 767,000 514,000
SUBORDINATED DEBT (Note 4).......................................... 8,400,000 14,400,000 14,400,000
------------- ------------- -------------
Total liabilities............................................. 14,274,000 19,631,000 28,637,000
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Notes 4 and 8):
Common stock $.01 par value, authorized 30,000,000 shares; issued
and outstanding 9,670,000 at December 31, 1995 and 10,160,550 at
December 31, 1996 and June 30, 1997............................. 97,000 102,000 102,000
Additional paid-in capital........................................ 4,208,000 5,705,000 5,705,000
Retained earnings (deficit)....................................... 432,000 1,067,000 (736,000)
Notes receivable from common stockholders......................... -- (732,000) (732,000)
------------- ------------- -------------
Total stockholders' equity.................................... 4,737,000 6,142,000 4,339,000
------------- ------------- -------------
TOTAL............................................................... $ 19,011,000 $ 25,773,000 $ 32,976,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES (Note 9)............... $28,404,000 $51,541,000 $68,683,000 $24,351,000 $31,143,000
COST OF GOODS SOLD (Note 9)...... 12,857,000 21,571,000 29,720,000 10,617,000 13,208,000
----------- ----------- ----------- ----------- -----------
GROSS PROFIT..................... 15,547,000 29,970,000 38,963,000 13,734,000 17,935,000
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, marketing and
distribution (Note 1)........ 12,993,000 24,814,000 32,309,000 13,685,000 17,764,000
General and administrative
(Note 9)..................... 1,746,000 3,167,000 3,937,000 1,976,000 2,111,000
----------- ----------- ----------- ----------- -----------
Total operating expenses..... 14,739,000 27,981,000 36,246,000 15,661,000 19,875,000
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS.... 808,000 1,989,000 2,717,000 (1,927,000) (1,940,000)
INTEREST EXPENSE (Notes 3, 4 and
5)............................. 397,000 1,189,000 1,647,000 667,000 967,000
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES..... 411,000 800,000 1,070,000 (2,594,000) (2,907,000)
PROVISION (BENEFIT) FOR INCOME
TAXES (Note 6)................. 19,000 162,000 435,000 (1,054,000) (1,104,000)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)................ $ 392,000 $ 638,000 $ 635,000 $(1,540,000) $(1,803,000)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON
SHARE (Note 1)................. $ 0.04 $ 0.07 $ 0.06 $ (0.15) $ (0.17)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES
AND COMMON SHARE EQUIVALENTS
OUTSTANDING (Note 1)........... 9,225,000 9,728,000 10,230,000 10,038,000 10,491,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RETAINED RECEIVABLE
--------------------- PAID-IN EARNINGS FROM COMMON
SHARES AMOUNT CAPITAL (DEFICIT) STOCKHOLDERS TOTAL
---------- --------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994......... 9,000,000 $ 90,000 $3,210,000 $ (598,000) -- $2,702,000
Net income..................... -- -- -- 392,000 -- 392,000
---------- --------- ---------- ----------- ------------- ----------
BALANCE, DECEMBER 31, 1994....... 9,000,000 90,000 3,210,000 (206,000) -- 3,094,000
Common stock issued
(Note 4)..................... 670,000 7,000 998,000 -- -- 1,005,000
Net income..................... -- -- -- 638,000 -- 638,000
---------- --------- ---------- ----------- ------------- ----------
BALANCE, DECEMBER 31, 1995....... 9,670,000 97,000 4,208,000 432,000 -- 4,737,000
Common stock issued
(Notes 4 and 8).............. 540,550 5,000 1,395,000 -- $ (855,000) 545,000
Warrants issued (Note 4)....... -- -- 240,000 -- -- 240,000
Shares reacquired (Note 8)..... (50,000) -- (138,000) -- 123,000 (15,000)
Net income..................... -- -- -- 635,000 -- 635,000
---------- --------- ---------- ----------- ------------- ----------
BALANCE, DECEMBER 31, 1996....... 10,160,550 102,000 5,705,000 1,067,000 (732,000) 6,142,000
Net loss (Unaudited)........... -- -- -- (1,803,000) -- (1,803,000)
---------- --------- ---------- ----------- ------------- ----------
BALANCE, JUNE 30, 1997
(Unaudited).................... 10,160,550 $ 102,000 $5,705,000 $ (736,000) $ (732,000) $4,339,000
---------- --------- ---------- ----------- ------------- ----------
---------- --------- ---------- ----------- ------------- ----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ 392,000 $ 638,000 $ 635,000 $(1,540,000) $(1,803,000)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization................... 460,000 1,059,000 1,931,000 824,000 1,183,000
Provision for losses on receivables............. 127,000 57,000 174,000 24,000 14,000
Loss on disposition of property and equipment... -- -- 35,000 -- 37,000
Deferred income taxes........................... (155,000) (224,000) 80,000 (1,172,000) (1,133,000)
Changes in operating assets and liabilities:
Receivables................................... (516,000) 327,000 (387,000) (410,000) 71,000
Inventories................................... (4,889,000) (2,980,000) (4,577,000) (6,303,000) (3,360,000)
Prepaid expenses and other assets............. 106,000 (225,000) (45,000) (1,059,000) (838,000)
Accounts payable.............................. 2,615,000 (1,463,000) (641,000) 3,054,000 2,903,000
Income taxes payable.......................... -- 360,000 35,000 (364,000) (400,000)
Accrued expenses and other current
liabilities................................. 971,000 2,000 740,000 (24,000) (198,000)
Deferred rent................................. -- 230,000 258,000 190,000 75,000
---------- ---------- ---------- ---------- ----------
Net cash used in operating activities....... (889,000) (2,219,000) (1,762,000) (6,780,000) (3,449,000)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (2,516,000) (2,346,000) (3,377,000) (1,188,000) (2,219,000)
Other............................................. 17,000 (18,000) (108,000) (21,000) (14,000)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities....... (2,499,000) (2,364,000) (3,485,000) (1,209,000) (2,233,000)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............ -- 1,005,000 545,000 500,000 --
Repurchase of common stock........................ -- -- (15,000) -- --
Proceeds from issuance of warrants................ -- -- 114,000 -- --
Proceeds from subordinated debt................... 3,250,000 8,270,000 7,900,000 2,000,000 --
Principal repayments of subordinated debt......... -- (3,500,000) (1,774,000) -- --
Principal repayments under capital lease
obligations..................................... -- -- (344,000) (299,000) (283,000)
Short-term borrowings, net........................ 789,000 (1,286,000) (1,225,000) 5,123,000 6,892,000
---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities... 4,039,000 4,489,000 5,201,000 7,324,000 6,609,000
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH..................... 651,000 (94,000) (46,000) (665,000) 927,000
CASH, BEGINNING OF PERIOD........................... 212,000 863,000 769,000 769,000 723,000
---------- ---------- ---------- ---------- ----------
CASH, END OF PERIOD................................. $ 863,000 $ 769,000 $ 723,000 $ 104,000 $1,650,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest........................................ $ 238,000 $1,225,000 $1,521,000 $ 631,000 $ 885,000
Income taxes.................................... $ 4,000 $ 42,000 $ 367,000 $ 475,000 $ 429,000
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company entered into capital lease obligations of $1,108,000,
$533,000, $235,000 and $18,000 for new equipment for the years ended
1995 and 1996, and the six months ended June 30, 1996 and 1997,
respectively (see Note 5).
In 1996, the Company refinanced $138,000 of capital lease obligations
(see Note 5).
In 1996, a stockholder converted $2,226,000 of short-term subordinated
debt to $2,100,000 of long-term subordinated debt and warrants valued
at $126,000.
In July 1996, certain key employees and other individuals issued
$855,000 of long-term notes receivable to the Company as payment for
common stock (see Note 8).
In December 1996, the Company repurchased 50,000 shares of common
stock for $138,000, $123,000 of which was by the retirement of a
related long-term notes receivable (see Note 8).
See notes to consolidated financial statements.
F-6
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
The consolidated financial statements include the accounts of Big Dog
Holdings, Inc. and its wholly owned subsidiary, Big Dog USA, Inc. (the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
The Company principally develops and markets apparel and other consumer
products through Company-operated retail stores, wholesale accounts and a
catalog.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited consolidated financial
statements for the six months ended June 30, 1996 and 1997 are presented on a
basis consistent with the audited consolidated financial statements and reflect
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the results thereof. The results of operation for interim
periods are not necessarily indicative of the results to be expected for the
entire year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company has cash on deposit with a high credit quality financial
institution which is at times in excess of the Federal Deposit Insurance
Corporation limit.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of receivables, accounts payable, and short-term
borrowings approximate their carrying values because of the short-term maturity
of these instruments or the stated interest rates are indicative of market
interest rates. A reasonable estimate of fair value is not practicable for
subordinated debt due to the limited availability of similar financing.
INVENTORIES
Inventories, consisting substantially of finished goods, are stated at the
lower of cost (first-in, first-out method) or market.
F-7
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives, ranging from two to
seven years. Amortization of leasehold improvements is computed using the
straight-line method based upon the life of the improvement or the term of the
lease, whichever is shorter.
INTANGIBLE ASSETS
Intangibles assets are stated at cost and are amortized using the
straight-line method over five years. Accumulated amortization was $256,000,
$393,000 and $471,000, at December 31, 1995 and 1996, and June 30, 1997,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of Statement of Financial and Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows (undiscounted and without interest charges) expected to
be generated by the asset. If the carrying value is less than the future net
cash flows, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Adoption
of this statement did not have an impact on the Company's consolidated financial
statements.
OTHER ASSETS
Other assets include long-term deposits of $210,000, $293,000 and $303,000
at December 31, 1995 and 1996 and June 30, 1997, respectively, which relate
primarily to leased retail stores.
SELLING, MARKETING AND DISTRIBUTION EXPENSES
Included in this classification are approximately $590,000, $640,000,
$439,000, $229,000 and $275,000 in 1994, 1995 and 1996 and the six months ended
June 30, 1996 and 1997, respectively, of store preopening expenses.
INCOME TAXES
Deferred income taxes reflect the income tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, (b) net
operating loss and tax credit carryforwards, and (c) valuation allowances, when
necessary, to reduce deferred income tax assets to the amount expected to be
realized (see Note 6).
INCOME (LOSS) PER SHARE
Income (loss) per share is based upon the weighted average number of common
shares and dilutive equivalent shares outstanding. Pursuant to the requirements
of the Securities and Exchange Commission,
F-8
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (CONTINUED)
common shares, stock options and warrants issued by the Company during the
twelve months immediately preceding an initial public offering have been
included in the calculation of the weighted average shares outstanding as if
they were outstanding for all periods using the treasury stock method.
RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 specifies new standards designed to
improve the earnings per share ("EPS") information provided in financial
statements by simplifying the existing computational guidelines, revising the
disclosure requirements and increasing the comparability of data on an
international basis. SFAS No. 128 also makes a number of changes to existing
disclosure requirements. SFAS No. 128 is effective for financial statements
issued for periods ending after December 31, 1997, including interim periods.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------- 1997
1995 1996 (UNAUDITED)
---------- ----------- -----------
<S> <C> <C> <C>
Leasehold improvements...................... $2,924,000 $ 3,926,000 $ 4,498,000
Equipment and fixtures (Note 5)............. 3,878,000 6,548,000 8,099,000
---------- ----------- -----------
6,802,000.. 10,474,000 12,597,000
Less accumulated depreciation and
amortization.............................. (1,368,000) (3,029,000) (4,057,000)
---------- ----------- -----------
Property and equipment, net................. $5,434,000 $ 7,445,000 $ 8,540,000
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
Depreciation and amortization expense on property and equipment totaled
$340,000, $932,000, $1,794,000, $752,000 and $1,105,000 in 1994, 1995 and 1996,
and the six months ended June 30, 1996 and 1997, respectively.
3. SHORT-TERM BORROWINGS
The Company has a line of credit arrangement with a bank whereby the Company
may borrow up to $10,500,000 as cash advances and letters of credit. Outstanding
balances on the line of credit totaled $1,028,000, $0 and $6,892,000 at December
31, 1995 and 1996 and June 30, 1997, respectively. The line of credit currently
bears interest at the bank's prime lending rate, expires on May 2, 1998, and is
collateralized by substantially all assets of the Company. The short-term
borrowings bore interest at the rate of 9.25%, 8.75% and 8.5% at December 31,
1995 and 1996 and June 30, 1997, respectively. Certain stockholders of the
Company guarantee 20% of the outstanding advances under the credit arrangement.
This credit arrangement contains various restrictive covenants, including
maintenance of minimum working capital and tangible net worth levels and
limitations on indebtness. The revolving credit agreement also prohibits the
payments of dividends by the Company. The Company was in compliance with all
debt covenants as of December 31, 1996 and June 30, 1997.
F-9
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SHORT-TERM BORROWINGS (CONTINUED)
The Company has commitments under letters of credit totaling $1,523,000 at
June 30, 1997. The letters of credit expire through December 31, 1997.
At December 31, 1995, the Company had a short-term note payable to the bank,
totaling $197,000, under the same terms as described above.
4. SUBORDINATED DEBT
In April 1995, the Company completed a private placement of 67 units to new
investors, each unit consisting of a $60,000 promissory note, which bears
interest at 10%, and 10,000 shares of common stock of Big Dog Holdings, Inc. at
$1.50 per share. Proceeds from the offering, totaling $5,025,000, consisted of
$1,005,000 from the issuance of 670,000 shares of common stock and $4,020,000
from the issuance of subordinated notes. Of the proceeds received, $3,500,000
was used to repay certain stockholder notes outstanding at December 31, 1994.
The notes are due at the earlier of April 3, 2002 or the consummation of an
initial public offering. During 1995, the Company also issued additional
subordinated debt to an existing stockholder totaling $4,250,000 which is due in
1998 and bears interest at the rate of 10% per annum.
In February 1996, the Company completed a private placement of 50 units to
investors, each unit consisting of a $40,000 promissory note which bears
interest at 10%, and 3,861 shares of common stock of Big Dog Holdings, Inc. at
$2.59 per share. Proceeds from the offering, totaling $2,500,000, consisted of
$500,000 from the issuance of 193,050 shares of common stock and $2,000,000 from
the issuance of subordinated notes. The notes are due the earlier of November 4,
2003 or the consummation of an initial public offering.
In November 1996, the Company completed a private placement of 10 "A" units
and 10 "B" units to investors. Each "A" unit consisted of a $200,000 promissory
note, which bears interest at 10%, and 12,000 redeemable "A" warrants. Each "B"
unit consisted of a $200,000 promissory note, which bears interest at 10%, and
12,000 redeemable "B" warrants. Each "A" warrant is exercisable at any time for
the purchase of one share of the Company's common stock at $3.00 per share. Each
"B" warrant is exercisable at any time for the purchase of one share of the
Company's common stock at $4.00 per share. All warrants expire in five years
from the date of grant. Proceeds from the offering, totaling $4,240,000,
consisted of $240,000 from the issuance of 120,000 "A" warrants and 120,000 "B"
warrants and $4,000,000 from the issuance of subordinated debt. The Company may
redeem all or part of any unexercised warrants at a price of $2.50 per warrant
in the event that the Company has effected a registered public offering of its
common stock and such stock trades at a price equal to or greater than 150% of
the public offering price for a period of 20 out of 30 consecutive trading days.
The notes are due the earlier of November 4, 2003 or the consummation of an
initial public offering.
At December 31, 1995 and 1996 and June 30, 1997, accrued interest on the
notes discussed above totaled $19,000, $174,000 and $209,000, respectively.
Interest expense on these notes for the years ended December 31, 1994, 1995 and
1996, and the six months ended June 30, 1996 and 1997 amounted to $208,000,
$766,000, $1,535,000, $487,000 and $714,000, respectively.
The following is the scheduled maturities of the subordinated debt:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------------
<S> <C>
1998......................................................... $ 4,380,000
2002......................................................... 4,020,000
2003......................................................... 6,000,000
-----------
$14,400,000
-----------
-----------
</TABLE>
F-10
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OBLIGATIONS UNDER CAPITAL LEASES
Capital lease assets included in property and equipment in the accompanying
consolidated balance sheets amounted to $1,409,000, $1,988,000 and $2,006,000 at
December 31, 1995 and 1996 and June 30, 1997, respectively. The related
accumulated amortization amounted to $20,000, $415,000 and $619,000, at December
31, 1995 and 1996 and June 30, 1997, respectively.
Capital leases have implicit interest rates ranging from 9.3% to 14.4% per
annum with current aggregate monthly payments of approximately $57,000,
including principal and interest, and mature in 2000. The following is a
schedule of future minimum lease payments under capital leases together with the
present value of the net minimum lease payments as of December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -----------------------------------------------------------------------
<S> <C>
1997................................................................... $ 637,000
1998................................................................... 580,000
1999................................................................... 170,000
2000................................................................... 106,000
----------
Total minimum lease payments........................................... 1,493,000
Less amount representing interest...................................... (196,000)
----------
Present value of minimum lease payments................................ $1,297,000
----------
----------
</TABLE>
6. INCOME TAXES
Significant components of the Company's net deferred income tax assets are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful receivables and sales returns....... $ 23,000 $ 36,000
Accrued vacation........................................... 11,000 34,000
Inventory uniform capitalization........................... 239,000 302,000
Intangible assets.......................................... 69,000 109,000
State income taxes......................................... 107,000 18,000
Alternative minimum tax credits............................ 125,000 88,000
Stockholders' accrued interest............................. -- 67,000
Other...................................................... 20,000 --
--------- ---------
Total deferred income tax assets............................. 594,000 654,000
--------- ---------
Deferred income tax liabilities:
Prepaid expenses........................................... (61,000) (59,000)
Depreciation............................................... (309,000) (451,000)
--------- ---------
Total deferred income tax liabilities........................ (370,000) (510,000)
--------- ---------
Deferred income tax asset.................................... $ 224,000 $ 144,000
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal......................................... $ 137,000 $ 324,000 $ 321,000
State........................................... 37,000 62,000 34,000
--------- --------- ---------
Total............................................. 174,000 386,000 355,000
--------- --------- ---------
Deferred:
Federal......................................... (134,000) (202,000) 102,000
State........................................... (21,000) (22,000) (22,000)
--------- --------- ---------
Total............................................. (155,000) (224,000) 80,000
--------- --------- ---------
Total income tax provision........................ $ 19,000 $ 162,000 $ 435,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's effective income tax rate differs from the federal statutory
income tax rate due to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory income tax rate....................... 34.0 % 34.0 % 34.0 %
State taxes, net of federal benefit..................... 3.7 4.7 2.4
Use of net operating loss carryforwards................. (36.7) (5.0) --
Alternative minimum credits............................. -- (15.6) --
Other, net.............................................. 3.6 2.2 4.3
----- ----- -----
Total................................................... 4.6 % 20.3 % 40.7 %
----- ----- -----
----- ----- -----
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases retail stores, office buildings and warehouse space under
lease agreements that expire through 2006. Future minimum lease payments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------------
<S> <C>
1997......................................................... $10,021,000
1998......................................................... 9,600,000
1999......................................................... 8,396,000
2000......................................................... 6,579,000
2001......................................................... 3,800,000
Thereafter................................................... 4,126,000
-----------
Total........................................................ $42,522,000
-----------
-----------
</TABLE>
F-12
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The above amounts do not include contingent rentals based on sales in excess
of the stipulated minimum that may be paid under certain leases on retail stores
and common area charges. Additionally, certain leases contain future adjustments
in rental payments based on changes in a specified inflation index. The
effective annual rent expense for the Company is the total rent paid over the
term of the lease, amortized on a straight-line basis. The difference between
the actual rent amount paid and the effective rent recognized for financial
statement purposes is reported as deferred rent.
Rent expense for the years ended December 31, 1994, 1995 and 1996 and the
six months ended June 30, 1996 and 1997 totaled $1,784,000, $4,774,000,
$8,431,000, $4,030,000 and $5,401,000, respectively, and includes contingent
rentals of $19,000, $49,000, $79,000, $41,000 and $44,000 for the years ended
December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996 and
1997, respectively.
LICENSE AGREEMENT
In 1994, the Company entered into a merchandise licensing agreement under
which it was obligated to make royalty payments based on sales of certain
products covered by the agreement. Under the terms of the agreement, the Company
paid $50,000 and $250,000 in royalty payments for 1995 and 1996, respectively.
No payments were made in 1994. The agreement expired on December 31, 1996.
LITIGATION
The Company is not involved in any legal proceedings other than certain
actions arising in the ordinary course of its business. While the outcome of
such proceedings and threatened proceedings cannot be predicted with certainty,
in the opinion of management, the ultimate resolution of these matters
individually or in the aggregate will not have a material adverse effect on the
Company's business, financial condition or results of operations.
8. STOCKHOLDERS' EQUITY
COMMON STOCK
The authorized capital stock of the Company is 30,000,000 shares of $.01 par
value common stock. In 1996, the Company declared a 2-for-1 stock split effected
in the form of a stock dividend as of December 31, 1995. All share amounts have
been retroactively restated to reflect this split.
1996 STOCK INCENTIVE PLAN
In July 1996, the Company issued 347,500 shares of common stock under the
1996 Stock Incentive Plan (the "Plan"). The Plan authorized the issuance of up
to 500,000 shares of the Company's common stock to key employees and other
persons. The Plan was terminated on December 31, 1996. The shares were sold at
$2.59 per share with proceeds to the Company consisting of $45,000 in cash and
the balance of $855,000 in full recourse notes receivable. The notes receivable
are due ten years from the date of issuance, bear interest at the rate of 7%
annum, and are secured by the common stock acquired.
The Company has the option to repurchase at fair market value some or all of
the shares sold upon the termination of the employee or certain involuntary
transfers of the stock. All of the shares sold are subject to these provisions
until the Company effects an initial public offering of its common stock, at
which time the vested shares become freely transferable, subject to securities
laws restrictions and the obligations to repay the
F-13
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
purchase notes. The stock becomes vested over a two-year period, with one-third
of the shares being vested at the purchase date. On December 31, 1996, the
Company reacquired 50,000 shares at an average of $2.76 per share.
STOCKHOLDER BUY-SELL AGREEMENT
The Company has a buy-sell agreement with its President, which provides, for
among other things, that in the event of the death of the President, his estate
or other representatives shall have the right to sell all or part of his stock
to the Company at the price of $5.00 per share. Such agreement expires upon the
Company's effecting an initial public offering.
STOCK OPTIONS
In March 1996, the Company issued a five-year option to its chairman to
acquire 35,000 shares of the Company's common stock at an exercise price of
$2.59 per share. In August 1996, the Company issued an additional five-year
option to the chairman to acquire an additional 20,000 shares at an exercise
price of $4.00. The exercise prices were determined by the board of directors to
be equal to or greater than the fair value of the Company's common stock at the
date of grant.
In January 1997, the Company adopted the 1997 Stock Option Plan authorizing
the issuance of nonqualified stock options to directors, officers, employees,
consultants and others to purchase common stock at prices equal to the fair
value of the Company's shares at the grant dates. In 1997, options for 92,500
shares were granted at excercise prices from $5.00 to $7.50 per share. Such
options vest one-third each year, beginning one year after the grant date and
expire ten years from the date of grant. The 1997 Stock Option Plan was
terminated on August 1, 1997 (see Note 10).
The following summarizes stock option activity for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
-------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- --------------- --------- ---------------
(UNAUDITED)
--------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period....................... -- -- 55,000 $ 3.10
Granted................................................ 55,000 $ 3.10 92,500 6.01
--------- ----- --------- -----
Outstanding at end of period............................. 55,000 $ 3.10 147,500 $ 4.93
--------- ----- --------- -----
--------- ----- --------- -----
Options exercisable at period end........................ 55,000 85,333
Weighted-average fair value of options granted during the
period.................................................. $ 1.55 $ 1.82
</TABLE>
The following unaudited table summarizes information about stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------- ----------------------------------
NUMBER NUMBER
OUTSTANDING WEIGHTED-AVERAGE EXERCISABLE
AT REMAINING AT JUNE 30, WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES JUNE 30, 1997 CONTRACTUAL LIFE 1997 EXERCISE PRICE
- ------------------------------------- ------------- ---------------- ------------- -------------------
<S> <C> <C> <C> <C>
$2.59-$7.50 147,500 8.8--9.9 years 85,833 $ 4.93
------------- ------ -----
------------- ------ -----
</TABLE>
F-14
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
The Company accounts for its stock-based awards using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income (loss) and net income (loss) per share had
the Company adopted the fair value method as of the beginning of 1995. Under
SFAS No. 123, the fair value of stock-based awards to employees is calculated
through the use of option pricing models, even though such models were developed
to estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which significantly differ from the Company's
stock option awards. These models also require subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly
affect the calculated values. The Company's calculations were made using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 2 to 8 years following vesting, if applicable; no
stock price volatility; risk free interest rates of between 6.5% and 7.0%; and
no dividends during the expected term. Forfeitures are recognized as they occur.
If the computed fair values of the 1996 and 1997 awards had been amortized to
expense over the vesting period of the awards, pro forma net income (loss) would
have been reduced to the pro forma amounts indicated below. There were no stock
options granted prior to 1996.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, --------------------------
1996 1996 1997
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Net income (loss):
As reported..................................... $ 635,000 $ (1,540,000) $ (1,803,000)
Pro forma....................................... 584,000 (1,567,000) (1,844,000)
Net income (loss) per common share:
As reported..................................... $ 0.06 $ (0.15) $ (0.17)
Pro forma....................................... 0.06 (0.16) (0.18)
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company's stockholders have ownership interests in certain merchandise
vendors to the Company. Merchandise inventory purchased from these related
vendors totaled $7,084,000, $6,696,000, $8,030,000, $5,458,000 and $4,201,000
for the years ended December 31, 1994, 1995 and 1996 and the six months ended
June 30, 1996 and 1997, respectively. Included in the accounts payable balance
are $276,000, $62,000 and $1,449,000 due to these vendors at December 31, 1995
and 1996 and June 30, 1997, respectively. During 1996, the Company also
processed certain sales for one of these merchandise vendors and recorded
revenue of $71,000.
The Company also receives advisory, legal and consulting services from
related parties. Such expenses incurred for the years ended December 31, 1994,
1995 and 1996 and the six months ended June 30, 1996 and 1997 were $220,000,
$388,000, $208,000, $140,000 and $60,000, respectively.
10. SUBSEQUENT EVENTS (UNAUDITED)
On August 1, 1997, the Company adopted the 1997 Performance Award Plan to
attract, reward and retain officers and employees. The maximum number of shares
reserved for issuance under this plan is 1,000,000.
F-15
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
Awards under this plan may be in the form of unqualified stock options,
incentive stock options, stock appreciation rights, restricted stock,
performance shares, stock bonuses, or cash bonuses based upon performance. The
Company granted options under this plan relating to the purchase of 282,500
shares of Common Stock at an exercise price of $12.00 per share.
On August 1, 1997 the Board of Directors of the Company approved the
authorization of 3,000,000 shares of $0.01 par value Preferred Stock. To date,
no shares of Preferred Stock have been issued.
F-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses, other than underwriting
discounts, which the Company expects to incur in connection with the issuance
and distribution of the securities being registered under this registration
statement. All expenses are estimated except for the Securities and Exchange
Commission registration fee, the NASD filing fee and Nasdaq application fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 17,076
Nasdaq National Market Application Fee.................................... 49,000
NASD Filing Fee........................................................... 6,135
Blue Sky Qualification Fees and Expenses.................................. 25,000
Legal Fees and Expenses................................................... 75,000
Accounting Fees and Expenses.............................................. 100,000
Printing and Engraving Expenses........................................... 100,000
Transfer Agent's and Registrar Fees....................................... 2,000
Miscellaneous............................................................. 25,789
---------
Total................................................................. $ 400,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
("Section 145") permits a Delaware corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit, or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
In the case of an action by or in the right of the corporation, Section 145
permits the corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise against expenses (including attorney's
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation. No indemnification may be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
To the extent that a director, officer, employee, or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in the proceeding two paragraphs, Section 145
II-1
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS (CONTINUED)
requires that such person be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection therewith.
Section 145 provides that expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative, or
investigative action, suit, or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in Section 145.
Article Tenth of the Company's Amended and Restated Certificate of
Incorporation eliminates the personal liability of the directors of the Company
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as directors, with certain exceptions. In addition, the Company's Bylaws
require indemnification of directors and officers of the Company to the fullest
extent permitted by Section 145. The Company will enter into indemnification
agreements with its directors, a form of which is attached as Exhibit 10.14
hereto and incorporated herein by reference. The indemnification agreements
provide the Company's directors with further indemnification to the maximum
extent permitted by the DGCL. The Company will also obtain directors and
officers insurance to insure its directors and officers against certain
liabilities, including liabilities under the federal securities laws.
The Underwriting Agreement filed herewith as Exhibit 1.1 provides for
indemnification of the directors, certain officers, and controlling persons of
the Company by the Underwriters against certain civil liabilities, including
liabilities under the Securities Act.
See Item 17 below.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following are all securities sold by the Company since July 31, 1994:
1. On January 1, 1995, the Company issued and sold 1,800,000 shares of
its common stock (post-split) to its two then-existing stockholders for an
aggregate of $3.0 million.
2. On April 3, 1995, the Company issued and sold 67 Units to seven
investors for an aggregate purchase price of $5,025,000. Each Unit consisted
of a $60,000 unsecured promissory note of the Company and 10,000 shares of
Common Stock (post-split).
3. On February 27, 1996, the Company issued and sold 50 Units to three
investors for an aggregate purchase price of $2,500,000. Each Unit consisted
of a $40,000 unsecured promissory note of the registrant and 3,861 shares of
Common Stock.
4. On July 29, 1996, the Company issued and sold 347,500 shares of
Common Stock to 18 officers, key employees and consultants for an aggregate
purchase price of $900,025 5% of which was paid in cash and the balance of
which was paid by delivering promissory notes bearing interest at 7% per
annum and due in 2006. All such sales were made under the registrant's 1996
Stock Incentive Plan.
5. On November 4, 1996, the Company issued and sold 20 Units consisting
of ten A Units and ten B Units to nine investors for an aggregate purchase
price of $4,240,000. Each Unit consisted of a $200,000 unsecured promissory
note of the Company and a warrant to purchase 12,000 shares of Common Stock.
The terms of the A and B Units are the same except that the exercise price
for the warrants included in the A Units is $4.00 per share (which, pursuant
to the terms of the warrants, was automatically reduced to $3.00 as of June
30, 1997) and the exercise price for the warrants included in the B Units is
$5.00 per share (which, pursuant to the terms of the warrants, was
automatically reduced to $4.00 as of June 30, 1997).
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. (CONTINUED)
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2), or Regulation D
promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the
Securities Act, as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationship with the Company or otherwise, to
information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
4.1 Reference is hereby made to Exhibits 3.1 and 3.2
4.2 Specimen Stock Certificate*
5.1 Opinion of Kimball & Weiner LLP*
10.1 Amended and Restated Credit Agreement dated as of June 30, 1995 between Big Dog Holdings, Inc., Big
Dog USA, Inc. and Fortune Dogs, Inc., as amended by First Amendment, dated as of February 15, 1996,
Second Amendment dated as of April 30, 1996, and Third Amendment dated as of May 3, 1997
10.2 Form of Stockholder Agreement made as of January 2, 1996 between Big Dog Holdings, Inc. and certain
stockholders
10.3 Forms of Notes and Warrants issued November 4, 1996
10.4 Consulting Agreement between Big Dog Holdings, Inc. and Fortune Financial dated as of March 1, 1997
10.5 Buy-Sell Agreement among Big Dog Holdings, Inc., Fred Kayne and Andrew D. Feshbach dated as of January
1, 1997
10.6 1996 Stock Incentive Plan
10.7 Form of Purchase Agreement under the Big Dog Holdings, Inc. 1996 Stock Incentive Plan
10.8 1997 Stock Option Plan
10.9 Form of Stock Option Agreement under the 1997 Stock Option Plan
10.10 1997 Performance Award Plan
10.11 Lease Agreement between Big Dog Holdings, Inc. and State California Public retirement System dated
January 13, 1995
10.12 Lease Agreement between Big Dog Holdings, Inc. and S.V.B. Properties dated as of June 1, 1994, as
amended by Lease Agreement dated as of December 1, 1994, Second Lease Amendment dated as of March 1,
1996 and Third Lease Amendment dated as of July 22, 1996
10.13 Lease Agreement between Big Dog Holdings, Inc. and the Eldred Family Trust & Jason Eldred Trust dated
as of April 4, 1996
10.14 Form of Indemnification Agreement
11.1 Statement regarding computation of per share earnings (loss)
21.1 List of Subsidiaries of Big Dog Holdings, Inc.
23.1 Consent of Kimball & Weiner LLP (included in Opinion filed in Exhibit 5.1)*
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included in signature page)
27.1 Financial data schedule
</TABLE>
- -------
* To be filed by amendment
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement (filed herewith as
Exhibit 1.1), certificates in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described above in Item 14 or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted against the Registrant by such director,
officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of it counsel the matter
has been settled by controlling precedent, submit to the court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Barbara, State of
California, on August 7, 1997.
<TABLE>
<S> <C> <C>
BIG DOG HOLDINGS, INC.
By: /s/ ANDREW D. FESHBACH
-----------------------------------------
Andrew D. Feshbach
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
</TABLE>
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Andrew D. Feshbach and Anthony J. Wall and each
of them, as his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments and registration statements filed pursuant
to Rule 462) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ FRED KAYNE
- ------------------------------ Chairman of the Board August 7, 1997
Fred Kayne
President, Chief Executive
/s/ ANDREW D. FESHBACH Officer (Principal
- ------------------------------ Executive Officer) and August 7, 1997
Andrew D. Feshbach Director
/s/ ANTHONY J. WALL Executive Vice President,
- ------------------------------ General Counsel, Secretary August 7, 1997
Anthony J. Wall and Director
/s/ JONATHAN HOWE Chief Financial Officer
- ------------------------------ (Principal Financial August 7, 1997
Jonathan Howe Officer)
Senior Vice President,
/s/ ROBERTA MORRIS Finance
- ------------------------------ (Principal Accounting August 7, 1997
Roberta Morris Officer)
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
4.1 Reference is hereby made to Exhibits 3.1 and 3.2
4.2 Specimen Stock Certificate*
5.1 Opinion of Kimball & Weiner LLP*
10.1 Amended and Restated Credit Agreement dated as of June 30, 1995 between Big Dog Holdings, Inc., Big
Dog USA, Inc. and Fortune Dogs, Inc., as amended by First Amendment, dated as of February 15, 1996,
Second Amendment dated as of April 30, 1996, and Third Amendment dated as of May 3, 1997
10.2 Form of Stockholder Agreement made as of January 2, 1996 between Big Dog Holdings, Inc. and certain
stockholders
10.3 Forms of Notes and Warrants issued November 4, 1996
10.4 Consulting Agreement between Big Dog Holdings, Inc. and Fortune Financial dated as of March 1, 1997
10.5 Buy-Sell Agreement among Big Dog Holdings, Inc., Fred Kayne and Andrew D. Feshbach dated as of January
1, 1997
10.6 1996 Stock Incentive Plan
10.7 Form of Purchase Agreement under the Big Dog Holdings, Inc. 1996 Stock Incentive Plan
10.8 1997 Stock Option Plan
10.9 Form of Stock Option Agreement under the 1997 Stock Option Plan
10.10 1997 Performance Award Plan
10.11 Lease Agreement between Big Dog Holdings, Inc. and State California Public retirement System dated
January 13, 1995
10.12 Lease Agreement between Big Dog Holdings, Inc. and S.V.B. Properties dated as of June 1, 1994, as
amended by Lease Agreement dated as of December 1, 1994, Second Lease Amendment dated as of March 1,
1996 and Third Lease Amendment dated as of July 22, 1996
10.13 Lease Agreement between Big Dog Holdings, Inc. and the Eldred Family Trust & Jason Eldred Trust dated
as of April 4, 1996
10.14 Form of Indemnification Agreement
11.1 Statement regarding computation of per share earnings (loss)
21.1 List of Subsidiaries of Big Dog Holdings, Inc.
23.1 Consent of Kimball & Weiner LLP (included in Opinion filed in Exhibit 5.1)*
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included in signature page)
27.1 Financial data schedule
</TABLE>
- -------
* To be filed by amendment
<PAGE>
SHARES (1)
------------
BIG DOG HOLDINGS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
, 1997
------------
ROBERTSON, STEPHENS & COMPANY LLC
HAMBRECHT & QUIST LLC
NEEDHAM & COMPANY, INC.
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Big Dog Holdings, Inc., a Delaware corporation (the "Company"), and
certain stockholders of the Company named in Schedule B hereto (hereafter called
the "Selling Stockholders") address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein collectively
called the "Underwriters") and hereby confirm their respective agreements with
the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
_________ shares of its authorized and unissued Common Stock, $.01 par value per
share, to the several Underwriters. The Selling Stockholders, acting severally
and not jointly, propose to sell an aggregate of ________ shares of the
Company's authorized and outstanding Common Stock, $.01 par value per share, to
the several Underwriters. The _________ shares of Common Stock, $.01 par value
per share, of the Company to be sold by the Company are hereinafter called the
"Company Shares" and the _________ shares of Common Stock, $.01 par value per
share, to be sold by the Selling Stockholders are hereinafter called the
"Selling Stockholder Shares." The Company Shares and the Selling Stockholder
Shares are hereinafter collectively referred to as the "Firm Shares." Certain
Selling Stockholders also propose to grant, severally and not jointly, to the
Underwriters an option to purchase up to ________ additional shares of the
Company's Common Stock, $.01 par value per share (the "Option Shares"), as
provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common
Stock, $.01 par value per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby, including the Shares, are hereinafter
referred to as "Common Stock."
- ---------------------------------
(1) Plus an option to purchase up to _________ additional shares from certain
Selling Stockholders to cover over-allotments, if any.
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
MAJOR SELLING STOCKHOLDERS.
I. The Company and each of Fred Kayne and Andrew Feshbach (the
"Major Selling Stockholders"), jointly and severally, represents and warrants to
and agrees with each Underwriter that:
(a) A registration statement on Form S-1 (File No. 333-_____)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. Copies of
such registration statement and amendments, of each related prospectus subject
to completion (the "Preliminary Prospectuses"), and of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations have
been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a), (i) pursuant to subparagraph (1), (4) or (7)
of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus),
or (ii) if Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations. If
the registration statement relating to the Shares has not been declared
effective under the Act by the Commission, the Company will prepare and promptly
file an amendment to the registration statement, including a final form of
prospectus, or, if Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement, including financial statements, schedules and exhibits,
in the form in which it became or becomes, as the case may be, effective
(including, if the Company omitted information from the registration statement
pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the information deemed to be a part of the registration
statement at the time it became effective pursuant to Rule 430A(b) or Rule
434(d) of the Rules and Regulations) and, in the event of any amendment thereto
or the filing of any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations); PROVIDED, HOWEVER, that if in reliance on Rule 434 of the
Rules and Regulations and with the consent of Robertson, Stephens & Company LLC,
on behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by
2.
<PAGE>
the Company for use in connection with the offering of the Shares that differs
from the prospectus referred to in the immediately preceding sentence (whether
or not such revised prospectus is required to be filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations), the term "Prospectus"
shall refer to such revised prospectus from and after the time it is first
provided to the Underwriters for such use. If in reliance on Rule 434 of the
Rules and Regulations and with the consent of Robertson, Stephens & Company LLC,
on behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the Prospectus and the term sheet, together, will not be
materially different from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of the Registration Statement (including any Preliminary
Prospectus contained therein) or the Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased,
(i) the Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained and will contain all material information
required to be included therein by the Act and the Rules and Regulations
(including, without limitation, the inclusion of all exhibits required to be
filed therewith pursuant to Item 601 of Regulation S-K under the Act) and will
in all material respects conform to the requirements of the Act and the Rules
and Regulations, (ii) the Registration Statement, and any amendments or
supplements thereto, did not and will not include 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 not misleading, and (iii) the
Prospectus, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; PROVIDED, HOWEVER, that none of the
representations and warranties contained in this subparagraph (b) shall apply to
information contained in or omitted from the Registration Statement or
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter specifically for use in the preparation thereof.
(c) Each of the Company and its subsidiaries (the term
"subsidiaries" shall include for all purposes in this Agreement, any
subsidiaries of any of the Company's subsidiaries) has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation with full power and authority (corporate and
other) to own, lease and operate its properties and conduct its business as
described in the Prospectus; the Company owns all of the outstanding capital
stock of its subsidiaries (and each subsidiary owns all of the capital stock of
its subsidiaries) free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; each of the Company and its
subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; 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; each of the Company and its
subsidiaries is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal, foreign and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force and effect;
neither the Company nor any of its subsidiaries is in violation of its
respective charter or bylaws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, license, indenture, mortgage, deed of trust, loan
agreement, joint venture or other material agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective properties
3.
<PAGE>
may be bound; and neither the Company nor any of its subsidiaries is in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or over
their respective properties. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than Big Dog
U.S.A., Inc., a California corporation and Big Dog International, Inc., a
California corporation.
(d) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, license, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound, (ii) the charter or bylaws of the Company or
any of its subsidiaries, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties is
required for the execution and delivery of this Agreement and the consummation
by the Company or any of its subsidiaries of the transactions herein
contemplated, except such as may be required under the Act or under state or
other securities or Blue Sky laws, all of which requirements have been satisfied
in all material respects.
(e) There is not any pending or, to the best of the Company's
and each Major Selling Stockholder's knowledge, threatened action, suit, claim
or proceeding against the Company, any of its subsidiaries or any of their
respective officers or any of their respective properties, assets or rights
before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or over
their respective officers or properties or otherwise which (i) might reasonably
be expected to result in any material adverse change in the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise or might materially
and adversely affect their properties, assets or rights, (ii) might reasonably
be expected to prevent consummation of the transactions contemplated hereby or
(iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company or any of its subsidiaries of a character required to
be described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement by the Act or the Rules and
Regulations which have not been accurately described in all material respects in
the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(f) All outstanding shares of capital stock of the Company
(including the Selling Stockholder Shares) have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and the authorized and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" and conforms
to the statements relating thereto contained in the Registration Statement and
the Prospectus (and such statements correctly state the substance of the
instruments defining the capitalization of the Company); the Company Shares have
been duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal or
other
4.
<PAGE>
similar right of stockholders exists with respect to any of the Company Shares
or the issuance and sale thereof other than those that have been expressly
waived prior to the date hereof and those that will automatically expire upon
and will not apply to the consummation of the transactions contemplated on the
Closing Date. No further approval or authorization of any stockholder, the
Board of Directors of the Company or others is required for the issuance and
sale or transfer of the Shares except as may be required under the Act or under
state or other securities or Blue Sky laws. All issued and outstanding shares
of capital stock of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and were not issued in
violation of or subject to any preemptive right, or other rights to subscribe
for or purchase shares and are owned by the Company free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest.
Except as disclosed in the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus, neither the
Company nor any subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(g) Deloitte & Touche LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of June 30, 1997 and for each of the years in the three (3) years
ended December 31, 1996 filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent accountants
within the meaning of the Act and the Rules and Regulations; the audited
consolidated financial statements of the Company, together with the related
schedules and notes, and the unaudited consolidated financial information,
forming part of the Registration Statement and Prospectus, fairly present the
financial position and the results of operations of the Company and its
subsidiaries at the respective dates and for the respective periods to which
they apply; and all audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidated
financial information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as may be
otherwise stated therein. The selected and summary financial and statistical
data included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not been
(i) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (ii) any transaction that is material
to the Company and its subsidiaries considered as one enterprise, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
(other than indebtedness incurred under its credit facility with Israel Discount
Bank in the ordinary course of business) or any of its subsidiaries that is
material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which could
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its subsidiaries has good and marketable
title to all properties and assets described in the Registration Statement and
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as would not
have a material adverse effect on the condition (financial or
5.
<PAGE>
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise, (ii) the agreements to which
the Company or any of its subsidiaries is a party described in the Registration
Statement and Prospectus are valid agreements, enforceable by the Company and
its subsidiaries (as applicable), except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and neither the Company nor any of its subsidiaries
is in material breach of any such agreements and, to the best of the Company's
and each Major Selling Stockholder's knowledge, the other contracting party or
parties thereto are not in material breach or material default under any of such
agreements, and (iii) each of the Company and its subsidiaries has valid and
enforceable leases for all material properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed
(including extensions) all necessary federal, state and foreign income and
franchise tax returns and have paid all taxes shown thereon as due, and there is
no tax deficiency that has been or, to the best of the Company's and each Major
Selling Stockholder's knowledge, might be asserted against the Company or any of
its subsidiaries that might have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise; and all tax
liabilities are adequately provided for on the books of the Company and its
subsidiaries.
(k) The Company and its subsidiaries maintain insurance with
insurers of recognized financial responsibility of the types and in the amounts
generally deemed adequate for their respective businesses and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied for on
its general liability policy during the past five (5) years; and neither the
Company nor any such subsidiary nor any Major Selling Stockholder has any reason
to believe that the Company and its subsidiaries will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise.
(l) No labor disturbance by the employees of the Company or any
of its subsidiaries exists or is imminent; and neither the Company nor any Major
Selling Stockholder is aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, subcontractors, manufacturers,
or distributors that might be expected to result in a material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise. No collective bargaining agreement exists with any of the Company's
employees and, to the best of the Company's and each Major Selling Stockholder's
knowledge, no such agreement is imminent.
(m) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all inventions, trade secrets, know-how, trademarks,
trademark registrations, service marks, service mark registrations, tradenames,
copyrights, approvals and government authorizations, described in the
Registration Statement and Prospectus as being owned by it or useful in the
conduct of its businesses as now conducted or proposed to be conducted as
described in the Registration Statement and Prospectus. To the Company's
knowledge, all trademarks, trademark registrations, service marks and service
mark registrations are valid and enforceable and are not under imminent threat
of termination or expiration; the Company and its subsidiaries has not received
any notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company or its subsidiaries
6.
<PAGE>
by others with respect to any inventions, trade secrets, know-how, trademarks,
service marks, trade names or copyrights which might reasonably be expected to
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise; and the Company and its subsidiaries
and the Major Selling Stockholders have not received any notice of, and have no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise.
(n) The Company has filed a registration statement pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended, to register
the Common Stock and the Common Stock has been approved for quotation on The
Nasdaq National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor any of its subsidiaries has at any
time during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any foreign, federal or state
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, 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 Shares.
(s) Each officer and director of the Company, each Selling
Stockholder and each beneficial owner of securities of the Company has agreed in
writing that such person will not, for a period of 180 days from the date that
the Registration Statement is declared effective by the Commission (the "Lock-up
Period"), offer to sell, contract to sell (including, without limitation, in a
short sale), or otherwise sell, dispose of, loan, pledge or grant any rights
with respect to (collectively, a "Disposition") any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock (collectively,
"Securities") now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to limited partners or stockholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company LLC, provided that the foregoing shall not apply to any Shares sold to
the Underwriters under this Agreement. The foregoing restriction has been
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale
7.
<PAGE>
or grant of any right (including, without limitation, any put or call option)
with respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person has
also agreed and consented to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction. The Company has provided to
counsel for the Underwriters a complete and accurate list of all securityholders
of the Company and the number and type of securities held by each
securityholder. The Company has provided to counsel for the Underwriters true,
accurate and complete copies of all of the agreements pursuant to which its
officers, directors and stockholders have agreed to such or similar restrictions
(the "Lock-up Agreements") presently in effect or effected hereby. The Company
hereby represents and warrants that it will not release any of its officers,
directors or other stockholders from any Lock-up Agreements currently existing
or hereafter effected without the prior written consent of Robertson, Stephens &
Company LLC.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business and which might reasonably be expected to
have a material adverse effect on the Company's business, financial condition or
results of operations, (ii) the Company has received no notice from any
governmental authority or third party of an asserted claim under Environmental
Laws, which claim is required to be disclosed in the Registration Statement and
the Prospectus, (iii) the Company will not be required to make future material
capital expenditures to comply with Environmental Laws and (iv) no property
which is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Section 9601, ET SEQ.), or
otherwise designated as a contaminated site under applicable state or local law.
(u) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurances that
its and its subsidiaries' (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus and except
such as individually do not exceed $50,000 or, in aggregate, exceed $100,000.
The transactions, arrangements, agreements and understandings set forth in the
Registration Statement and the Prospectus under the caption "Certain
Relationships and Related Transactions" are the only transactions, arrangements,
agreements and understandings required to be therein disclosed.
(w) The Company has not had any disagreements, during its two
most recent fiscal years or any subsequent interim period, with an independent
accountant who was previously engaged as the principal accountant to audit the
Company's financial statements and on whom the principal accountant expressed
reliance in its report (either of whom resigned, indicated that it declined to
stand for re-election after the completion of the current audit, or was
dismissed), on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement(s)
would require disclosure in the Registration Statement.
(x) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the Government
of Cuba or with any person or affiliate located in Cuba.
8.
<PAGE>
II. In addition to those representations, warranties and
covenants set forth in Section 2.I above, each Selling Stockholder, severally
and not jointly, represents and warrants to and agrees with each Underwriter and
the Company that:
(a) Such Selling Stockholder now has and on the Closing Date,
and on any later date on which Option Shares are purchased, will have valid
marketable title to the Shares to be sold by such Selling Stockholder, free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest other than pursuant to this Agreement; and no preemptive right, co-sale
right, registration right, right of first refusal or other similar right exists
with respect to such Shares; and upon delivery of such Shares hereunder and
payment of the purchase price as herein contemplated, each of the Underwriters
will obtain valid marketable title to the Shares purchased by it from such
Selling Stockholder, free and clear of any pledge, lien, security interest
pertaining to such Selling Stockholder or such Selling Stockholder's property,
encumbrance, claim or equitable interest, including any liability for estate or
inheritance taxes, or any liability to or claims of any creditor, devisee,
legatee or beneficiary of such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized (if
applicable), executed and delivered, in the form heretofore furnished to the
Representatives, an irrevocable Power of Attorney (the "Power of Attorney")
appointing ___________ and ___________ as attorneys-in-fact (collectively, the
"Attorneys" and individually, an "Attorney") and a Letter of Transmittal and
Custody Agreement (the "Custody Agreement") with U.S. Stock Transfer
Corporation, as custodian (the "Custodian"); each of the Power of Attorney and
the Custody Agreement constitutes a valid and binding agreement on the part of
such Selling Stockholder, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each of such
Selling Stockholder's Attorneys, acting alone, is authorized to execute and
deliver this Agreement and the certificate referred to in Section 6(h) hereof on
behalf of such Selling Stockholder, to determine the purchase price to be paid
by the several Underwriters to such Selling Stockholder as provided in Section 3
hereof, to authorize the delivery of the Selling Stockholder Shares and any
Option Shares to be sold by such Selling Stockholder under this Agreement and to
duly endorse (in blank or otherwise) the certificate or certificates
representing such Shares or a stock power or powers with respect thereto, to
accept payment therefor, and otherwise to act on behalf of such Selling
Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required
for the execution and delivery by such Selling Stockholder of the Power of
Attorney and the Custody Agreement, the execution and delivery by or on behalf
of such Selling Stockholder of this Agreement and the sale and delivery of the
Selling Stockholder Shares and any Option Shares to be sold by such Selling
Stockholder under this Agreement (other than, at the time of the execution
hereof (if the Registration Statement has not yet been declared effective by the
Commission), the issuance of the order of the Commission declaring the
Registration Statement effective and such consents, approvals, authorizations or
orders as may be necessary under state or other securities or Blue Sky laws)
have been obtained and are in full force and effect; such Selling Stockholder,
if other than a natural person, has been duly organized and is validly existing
in good standing under the laws of the jurisdiction of its organization as the
type of entity that it purports to be; and such Selling Stockholder has full
legal right, power and authority to enter into and perform its obligations under
this Agreement and such Power of Attorney and Custody Agreement, and to sell,
assign, transfer and deliver the Shares to be sold by such Selling Stockholder
under this Agreement.
(d) Such Selling Stockholder will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Stockholder or with respect to which such Selling
Stockholder has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to limited
partners or stockholders of such Selling Stockholder, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company LLC, provided that the foregoing shall not apply to any Shares sold to
the Underwriters under this Agreement. The
9.
<PAGE>
foregoing restriction is expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than the Selling Stockholder. Such prohibited hedging or other
transactions would including, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Such Selling Stockholder also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the securities held by such Selling Stockholder except in compliance
with this restriction.
(e) Certificates in negotiable form for all Shares to be sold by
such Selling Stockholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Selling Stockholder, have been placed in
custody with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which such Selling Stockholder is a party or by which such Selling Stockholder,
or any Selling Stockholder Shares or any Option Shares to be sold by such
Selling Stockholder hereunder, may be bound or, to the best of such Selling
Stockholders' knowledge, result in any violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over such
Selling Stockholder or over the properties of such Selling Stockholder, or, if
such Selling Stockholder is other than a natural person, result in any violation
of any provisions of the charter, bylaws or other organizational documents of
such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, 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 Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Selling Stockholder
Shares that is contained in the representations and warranties of such Selling
Stockholder in such Selling Stockholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, and on any later date on which
Option Shares are to be purchased, was or will be, true, correct and complete,
and does not, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date (hereinafter defined), and on any later date on which Option Shares
are to be purchased, will 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 such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior
10.
<PAGE>
to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, and will advise one of its Attorneys and
Robertson, Stephens & Company LLC prior to the Closing Date or such later date
on which Option Shares are to be purchased, as the case may be, if any statement
to be made on behalf of such Selling Stockholder in the certificate contemplated
by Section 6(h) would be inaccurate if made as of the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be.
(k) Such Selling Stockholder does not have, or has waived prior
to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares that are to be sold
by the Company or any of the other Selling Stockholders to the Underwriters
pursuant to this Agreement; such Selling Stockholder does not have, or has
waived prior to the date hereof, any registration right or other similar right
to participate in the offering made by the Prospectus, other than such rights of
participation as have been satisfied by the participation of such Selling
Stockholder in the transactions to which this Agreement relates in accordance
with the terms of this Agreement; and such Selling Stockholder does not own any
warrants, options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, rights, warrants, options or other
securities from the Company, other than those described in the Registration
Statement and the Prospectus.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree to sell to the Underwriters, and each Underwriter agrees, severally and
not jointly, to purchase from the Company and the Selling Stockholders,
respectively, at a purchase price of $_____ per share [IPO PRICE LESS DISCOUNT],
the respective number of Company Shares and Selling Stockholder Shares set forth
opposite the names of the Company and the Selling Stockholders in Schedule B
hereto. The obligation of each Underwriter to the Company and to each Selling
Stockholder shall be to purchase from the Company or such Selling Stockholder
that number of Company Shares or Selling Stockholder Shares, as the case may be,
which (as nearly as practicable, as determined by you) is in the same proportion
to the number of Company Shares or Selling Stockholder Shares, as the case may
be, set forth opposite the name of the Company or such Selling Stockholder in
Schedule B hereto as the number of Firm Shares which is set forth opposite the
name of such Underwriter in Schedule A hereto (subject to adjustment as provided
in Section 10) is to the total number of Firm Shares to be purchased by all the
Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder Shares
have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Stockholder agrees that the certificates for
the Selling Stockholder Shares of such Selling Stockholder so held in custody
are subject to the interests of the Underwriters hereunder, that the
arrangements made by such Selling Stockholder for such custody, including the
Custody Agreement and the Power of Attorney is to that extent irrevocable and
that the obligations of such Selling Stockholder hereunder shall not be
terminated by the act of such Selling Stockholder or by operation of law,
whether by the death or incapacity of such Selling Stockholder or the occurrence
of any other event, except as specifically provided herein or in the Custody
Agreement or Power of Attorney. If any Selling Stockholder should die or be
incapacitated, or if any other such event should occur, before the delivery of
the certificates for the Selling Stockholder Shares hereunder, the Selling
Stockholder Shares to be sold by such Selling Stockholder shall, except as
specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by wire
transfer, certified or official bank check or checks drawn in next-day funds,
payable to the order of the Company with regard to the Shares being purchased
from the Company, and to the order of the Custodian for the respective accounts
of the Selling Stockholders with regard to the Shares being purchased from such
Selling Stockholders (and the Company and such Selling Stockholders agree not to
deposit and to cause the Custodian not to deposit any such check
11.
<PAGE>
in the bank on which it is drawn, and not to take any other action with the
purpose or effect of receiving immediately available funds, until the business
day following the date of its delivery to the Company or the Custodian, as the
case may be, and, in the event of any breach of the foregoing, the Company or
the Selling Stockholders, as the case may be, shall reimburse the Underwriters
for the interest lost and any other expenses borne by them by reason of such
breach), at the offices of [NAME AND ADDRESS OF COMPANY COUNSEL] (or at such
other place as may be agreed upon among the Representatives and the Company and
the Attorneys), at 7:00 A.M., San Francisco time (a) on the third (3rd) full
business day following the first day that Shares are traded, (b) if this
Agreement is executed and delivered after 1:30 P.M., San Francisco time, the
fourth (4th) full business day following the day that this Agreement is executed
and delivered or (c) at such other time and date not later than seven (7) full
business days following the first day that Shares are traded as the
Representatives and the Company and the Attorneys may determine (or at such time
and date to which payment and delivery shall have been postponed pursuant to
Section 10 hereof), such time and date of payment and delivery being herein
called the "Closing Date;" PROVIDED, HOWEVER, that if the Company has not made
available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in San
Francisco or New York City, as you may reasonably request for checking at least
one (1) full business day prior to the Closing Date and will be in such names
and denominations as you may request, such request to be made at least two (2)
full business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose wire transfer(s), check or checks shall not have been received by you
prior to the Closing Date for the Firm Shares to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), on the inside
front cover concerning stabilization and over-allotment by the Underwriters, and
under the _____ and _____ paragraphs under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement and you, on behalf of
the respective Underwriters, represent and warrant to the Company and the
Selling Stockholders that the statements made therein do not include 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 the light of the
circumstances under which they were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify
12.
<PAGE>
you, promptly after it shall receive notice thereof, of the time when the
Registration Statement, any subsequent amendment to the Registration Statement
or any abbreviated registration statement has become effective or any supplement
to the Prospectus has been filed; if the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if the Company files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the Company will provide evidence satisfactory to you that the
Prospectus and term sheet meeting the requirements of Rule 434(b) or (c), as
applicable, of the Rules and Regulations, have been filed, within the time
period prescribed, with the Commission pursuant to subparagraph (7) of Rule
424(b) of the Rules and Regulations; if for any reason the filing of the final
form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus which shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing, subject, however, to compliance
with the Act and the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
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 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.
(c) The Company will use its best efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and,
in the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or
13.
<PAGE>
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you may
from time to time reasonably request. Notwithstanding the foregoing, if
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, shall
agree to the utilization of Rule 434 of the Rules and Regulations, the Company
shall provide to you copies of a Preliminary Prospectus updated in all respects
through the date specified by you in such quantities as you may from time to
time reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request
(i) concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's stockholders, (ii) concurrently with furnishing to
its stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants,
(iii) as soon as they are available, copies of all reports (financial or other)
mailed to stockholders, (iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, any
securities exchange or the National Association of Securities Dealers, Inc.
("NASD"), (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released to
stockholders or prepared by the Company or any of its subsidiaries, and (vi) any
additional information of a public nature concerning the Company or its
subsidiaries, or its business which you may reasonably request. During such
five (5) year period, if the Company shall have active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and
shall be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company or any
Selling Stockholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to
Section 11(a) hereof, or if the Underwriters shall terminate this Agreement
pursuant to Section 11(b)(i), the Company will reimburse the several
Underwriters for all out-of-pocket expenses (including fees and disbursements of
Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares.
(k) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of
14.
<PAGE>
which in your opinion the market price of the Common Stock has been or is likely
to be materially affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(l) During the Lock-up Period, the Company will not, without the
prior written consent of Robertson Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Company Shares and the Option Shares to be sold by the Company hereunder and
the Company's issuance of options or Common Stock under the Company's presently
authorized 1997 Performance Award Plan (the "Option Plan").
(m) During a period of ninety (90) days from the effective date
of the Registration Statement, the Company will not file a registration
statement registering shares under the Option Plan or other employee benefit
plan.
5. EXPENSES.
(a) The Company and the Selling Stockholders agree with each
Underwriter that:
(i) The Company will pay and bear all costs and expenses
in connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
copying and/or printing of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental
Blue Sky Survey, the Underwriters' Questionnaire and the Custody Agreement and
Power of Attorney, and any instruments related to any of the foregoing; the
issuance and delivery of the Shares hereunder to the several Underwriters,
including transfer taxes, if any, the cost of all certificates representing the
Shares and transfer agents' and registrars' fees; the fees and disbursements of
counsel for the Company; all fees and other charges of the Company's independent
certified public accountants; the cost of furnishing to the several Underwriters
copies of the Registration Statement (including appropriate exhibits),
Preliminary Prospectus and the Prospectus, and any amendments or supplements to
any of the foregoing; NASD filing fees and the cost of qualifying the Shares
under the laws of such jurisdictions as you may designate (including filing fees
and fees and disbursements of Underwriters' Counsel in connection with such NASD
filings and Blue Sky qualifications); and all other expenses directly incurred
by the Company and the Selling Stockholders in connection with the performance
of their obligations hereunder. Any additional expenses incurred as a result of
the sale of the Shares by the Selling Stockholders will be borne collectively by
the Company or the Selling Stockholders. The provisions of this
Section 5(a)(i) are intended to relieve the Underwriters from the payment of the
expenses and costs which the Selling Stockholders and the Company hereby agree
to pay, but shall not affect any agreement which the Selling Stockholders and
the Company may make, or may have made, for the sharing of any of such expenses
and costs. Such agreements shall not impair the obligations of the Company and
the Selling Stockholders hereunder to the several Underwriters.
(ii) In addition to its other obligations under
Section 8(a) hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial
15.
<PAGE>
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(iii) In addition to their other obligations under
Section 8(b) hereof, each Selling Stockholder agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(b) hereof relating to such Selling
Stockholder, it will reimburse the Underwriters on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of such Selling Stockholder's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Selling
Stockholders, together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company and each Selling Stockholder on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Stockholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in
Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any
requested reimbursement payments, the method of determining such amounts and the
basis on which such amounts shall be apportioned among the reimbursing parties,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock Exchange,
Inc. or pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for arbitration or
a written notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof and will
not resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses which is created by the provisions of Sections 8(a), 8(b)
and 8(c) hereof or the obligation to contribute to expenses which is created by
the provisions of Section 8(e) hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
16.
<PAGE>
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date, or any later date on which Option Shares are to
be purchased, as the case may be,
(i) there shall not have been any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole judgment,
is material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus; and
(ii) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Act.
(d) The Company's Common Stock shall have been approved for
inclusion on The Nasdaq National Market and the Company's registration statement
pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended,
shall have been declared effective by the Commission.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of counsel for the Company and the Selling Stockholders, dated
the Closing Date or such later date on which Option Shares are to be purchased
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(i) The Company and each subsidiary (including all
subsidiaries of any Company subsidiary) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company and each subsidiary (including all
subsidiaries of any Company subsidiary) has the corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus;
(iii) The Company and each subsidiary (including all
subsidiaries of any Company subsidiary) is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction, if any, in
which the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or be
in good standing would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations or business of the Company and
its subsidiaries
17.
<PAGE>
considered as one enterprise. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than Big Dog
U.S.A., Inc. and Big Dog International, Inc.
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption "Capitalization"
as of the dates stated therein, the issued and outstanding shares of capital
stock of the Company (including the Selling Stockholder Shares) have been duly
and validly issued and are fully paid and nonassessable, and have not been
issued in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right and all
issued; and all outstanding securities of the Company were issued in compliance
with all applicable federal and state securities laws; and, except as disclosed
in or specifically contemplated by the Registration Statement and the
Prospectus, to the best of such counsel's knowledge, there are no outstanding
options, warrants or other rights calling for the issuance of, and no
commitments, plans or arrangements to issue, any shares of capital stock of the
Company or any security convertible into or exchangeable for capital stock of
the Company;
(v) All issued and outstanding shares of capital stock of
each subsidiary of the Company (including all subsidiaries of any Company
subsidiary) have been duly authorized and validly issued and are fully paid and
nonassessable, and to such counsel's knowledge have not been issued in violation
of or subject to any preemptive right, co-sale right, registration right, right
of first refusal or other similar right and are owned by the Company, or in the
case of Big Dog U.S.A., Inc. by Big Dog International, Inc., free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may
be, to be issued by the Company pursuant to the terms of this Agreement have
been duly authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully paid
and nonassessable, and will not have been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first refusal
or other similar right.
(vii) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(viii) This Agreement and the transactions herein contemplated
have been duly authorized by all necessary corporate action on the part of the
Company and this Agreement has been duly executed and delivered by the Company
and, assuming due authorization, execution and delivery by you, is a valid and
binding agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by applicable law
and except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally or by general equitable principles;
(ix) The Registration Statement has become effective under
the Act and no stop order suspending the effectiveness of the Registration
Statement or preventing the use of the Prospectus has been issued and no
proceedings for that purpose have been instituted or are pending or threatened
under the Act;
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements (including
supporting schedules) and financial data derived therefrom as to which such
counsel need express no opinion), as of the effective date of the Registration
Statement, complied as to form in all material respects with the requirements of
the Act and the applicable Rules and Regulations;
(xi) The information in the Prospectus under the captions
"Risk Factors - Conflicts of Interest and Certain Related Transactions," "Risk
Factors - Shares Eligible for Future Sale," "Certain Transactions," "Description
of Capital Stock," and "Shares Eligible for Future Sale," has been reviewed by
such counsel and is a fair and accurate summary of such matters and conclusions
and does not omit any information
18.
<PAGE>
required to be stated therein; and the forms of certificates evidencing the
Common Stock and filed as exhibits to the Registration Statement comply with
Delaware law;
(xii) The descriptions in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes are accurate
in all material respects and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there are no agreements,
contracts, licenses, leases or other documents to which the Company or any of
its subsidiaries (including any subsidiaries of Company subsidiaries) is a party
of a character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation
of the transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company or its subsidiaries
(including any subsidiary of a Company subsidiary), is a party or by which its
or their properties are bound, or any applicable statute, rule or regulation or
to such counsel's knowledge any order, writ or decree of any court, government
or governmental agency or body having jurisdiction over the Company or any of
its subsidiaries, or its subsidiaries (including any subsidiary of a Company
subsidiary) or over any of their properties or operations;
(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or its subsidiaries
(including any subsidiary of a Company subsidiary) or over any of their
properties or operations is necessary in connection with the consummation by the
Company of the transactions herein contemplated, except such as have been
obtained under the Act or such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the distribution
of the Shares by the Underwriters;
(xvi) There are no legal or governmental actions, suits or
proceedings pending or threatened against the Company or any of its subsidiaries
or its subsidiaries (including any subsidiary of a Company subsidiary) of a
character required to be disclosed in the Registration Statement or the
Prospectus by the Act or the Rules and Regulations, other than those described
therein;
(xvii) Neither the Company nor any of its subsidiaries
(including any subsidiary of a Company subsidiary) is presently (a) in material
violation of its respective charter or bylaws, (b) in material breach of any
applicable statute, rule or regulation or any order, writ or decree of any court
or governmental agency or body having jurisdiction over the Company or any of
its subsidiaries, (including any subsidiary of a Company subsidiary) or over any
of their properties or operations, or (c) in breach of or default with respect
to any provision of any agreement, mortgage, license, lease or other instrument
to which the Company or any subsidiary (including any subsidiary of a Company
subsidiary) is a party or by which any of its or their properties are bound,
except for such default or breach as would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations or business of the
Company or its subsidiaries (including any subsidiary of any Company subsidiary)
considered as one enterprise; and
(xviii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company or any subsidiary (including any subsidiary of a
Company subsidiary) have registration rights with respect to securities of the
Company
19.
<PAGE>
and, except as set forth in the Registration Statement and Prospectus, all
holders of securities of the Company having rights to registration of such
shares of Common Stock or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by reason
of lapse of time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration Statement
pursuant to the exercise of and in full satisfaction of such rights;
(xix) Each Selling Stockholder which is not a natural person
has full right, power and authority to enter into and to perform its obligations
under the Power of Attorney and Custody Agreement to be executed and delivered
by it in connection with the transactions contemplated herein; the Power of
Attorney and Custody Agreement of each Selling Stockholder that is not a natural
person has been duly authorized by such Selling Stockholder; the Power of
Attorney and Custody Agreement of each Selling Stockholder has been duly
executed and delivered by or on behalf of such Selling Stockholder; and the
Power of Attorney and Custody Agreement of each Selling Stockholder constitutes
the valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles;
(xx) Each of the Selling Stockholders has full right, power
and authority to enter into and to perform its obligations under this Agreement
and to sell, transfer, assign and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(xxi) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Stockholder; and
(xxii) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will receive valid
marketable title to the Shares purchased by it from such Selling Stockholder,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest. In rendering such opinion, such counsel may assume that the
Underwriters are without notice of any defect in the title of the Shares being
purchased from the Selling Stockholders.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and up to and on any later date
on which Option Shares are to be purchased, the Registration Statement and any
amendment or supplement thereto (other than the financial statements including
supporting schedules and other financial and statistical information derived
therefrom, as to which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading.
circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions
of law not involving the laws of the United States or the States of California
and Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying, that they have no knowledge
of any material misstatement or inaccuracy in any such opinion, representation
or certificate, and that the Underwriters are justified in relying on such
opinions or certificates. Copies of any opinion, representation or certificate
so relied upon shall be attached to the
20.
<PAGE>
foregoing opinion and shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Brobeck, Phleger & Harrison LLP, in form and substance satisfactory to you,
with respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from Deloitte & Touche LLP addressed to the Underwriters, dated the Closing Date
or such later date on which Option Shares are to be purchased, as the case may
be, confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in such
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
five (5) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter from Deloitte & Touche LLP shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of December 31, 1996 and
related consolidated statements of operations, stockholders' equity, and cash
flows for the twelve (12) months ended December 31, 1997, (iii) state that
Deloitte & Touche LLP has performed the procedures set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report of Deloitte & Touche LLP as described in
SAS 71 on the financial statements for each of the quarters in the two-quarter
period ended June 30, 1997 (the "Quarterly Financial Statements"), (iv) state
that in the course of such review, nothing came to their attention that leads
them to believe that any material modifications need to be made to any of the
Quarterly Financial Statements in order for them to be in compliance with
generally accepted accounting principles consistently applied across the periods
presented, and (v) address other matters agreed upon by Deloitte & Touche LLP
and you. In addition, you shall have received from Deloitte & Touche LLP a
letter addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of December 31, 1997, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the Closing Date or
any later date on which Option Shares are to be
21.
<PAGE>
purchased, as the case may be, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations and in all material respects conformed to
the requirements of the Act and the Rules and Regulations, the Registration
Statement, and any amendment or supplement thereto, did not and does not include
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 not
misleading, the Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries (including any subsidiary of a Company subsidiary) considered as
one enterprise, (b) any transaction that is material to the Company and its
subsidiaries (including any subsidiary of a Company subsidiary) considered as
one enterprise, except transactions entered into in the ordinary course of
business, (c) any obligation, direct or contingent, that is material to the
Company and its subsidiaries (including any subsidiary of a Company subsidiary)
considered as one enterprise, incurred by the Company or its subsidiaries
(including any subsidiary of a Company subsidiary), except obligations incurred
in the ordinary course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company or any of its subsidiaries, other than
indebtedness incurred under the Company's credit facility with Israel Discount
Bank in the ordinary course of business (including any subsidiary of a Company
subsidiary) that is material to the Company and its subsidiaries (including any
subsidiary of a Company subsidiary) considered as one enterprise, (e) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company or any of its subsidiaries (including any subsidiary of a Company
subsidiary), or (f) any loss or damage (whether or not insured) to the property
of the Company or any of its subsidiaries (including any subsidiary of a Company
subsidiary) which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
(including any subsidiary of a Company subsidiary) considered as one enterprise.
(i) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, from each Selling Stockholder to the
effect that, as of the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be:
(i) The representations and warranties made by such Selling
Stockholder herein are true and correct in all material respects on the Closing
Date or on any later date on which Option Shares are to be purchased, as the
case may be; and
(ii) Such Selling Stockholder has complied with all
obligations and satisfied all conditions which are required to be performed or
satisfied on the part of such Selling Stockholder at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be.
22.
<PAGE>
(j) The Company shall have obtained and delivered to you an agreement
from each officer and director of the Company, each Selling Stockholder and each
securityholder of the Company in writing prior to the date hereof that such
person will not, during the Lock-up Period, effect the Disposition of any
Securities now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to limited partners or stockholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company LLC, provided that the foregoing shall not apply to any Shares sold to
the Underwriters under this Agreement. The foregoing restriction shall have
been expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected to
lead to or result in a Disposition of Securities during the Lock-up Period, even
if such Securities would be disposed of by someone other than the such holder.
Such prohibited hedging or other transactions would including, without
limitation, any short sale (whether or not against the box) or any purchase,
sale or grant of any right (including, without limitation, any put or call
option) with respect to any Securities or with respect to any security (other
than a broad-based market basket or index) that includes, relates to or derives
any significant part of its value from Securities. Furthermore, such person will
have also agreed and consented to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction.
(k) The Company and the Selling Stockholders shall have furnished to
you such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Stockholders or
officers of the Selling Stockholders (when the Selling Stockholder is not a
natural person)) as to the accuracy of the representations and warranties of the
Company and the Selling Stockholders herein, as to the performance by the
Company and the Selling Stockholders of their respective obligations hereunder
and as to the other conditions concurrent and precedent to the obligations of
the Underwriters hereunder.
(l) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, the following
opinion of Anthony J. Wall, Executive Vice President and General Counsel of the
Company, dated the Closing Date or such later date on which Option Shares are to
be purchased addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) he has participated in the preparation of the Registration
Statement and the Prospectus and has participated in conferences with other
officials and representatives of the Company, the Representatives, Underwriters'
Counsel and the independent certified public accountants of the Company, at
which such conferences the contents of the Registration Statement and Prospectus
and related matters were discussed, and that at the time the Registration
Statement became effective and at all times subsequent thereto up to and on the
Closing Date and up to and on any later date on which Option Shares are to be
purchased, the Registration Statement, the Prospectus, and any amendments or
supplements thereto (other than financial statements including supporting
schedules and other financial and statistical information derived therefrom, as
to which he need express no opinion) did not contain any untrue statement of a
material fact nor omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading;
(ii) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements (including
supporting schedules) and financial data derived therefrom as to which he need
express no opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of the Act
and the applicable Rules and Regulations;
(iii) The information in the Prospectus under the captions
"Risk Factors - Conflicts of Interest and Certain Related Transactions," "Risk
Factors - Shares Eligible for Future Sale," "Certain Transactions," "Description
of Capital Stock," and "Shares Eligible for Future Sale," is a fair and accurate
summary of such matters
23.
<PAGE>
and conclusions and does not omit any information required to be stated therein;
and the forms of certificates evidencing the Common Stock and filed as exhibits
to the Registration Statement comply with Delaware law;
(iv) The descriptions in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes are accurate
in all material respects and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
(v) There are no agreements, contracts, licenses, leases or
other documents to which the Company or any of its subsidiaries (including any
subsidiaries of Company subsidiaries) is a party of a character required to be
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company and the Selling Stockholders hereby grant to the several
Underwriters, for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares only, a nontransferable option to
purchase up to an aggregate of ________ Option Shares at the purchase price per
share for the Firm Shares set forth in Section 3 hereof. Such option may be
exercised by the Representatives on behalf of the several Underwriters on one
(1) or more occasions in whole or in part during the period of thirty (30) days
after the date on which the Firm Shares are initially offered to the public, by
giving written notice to the Company. The number of Option Shares to be
purchased by each Underwriter upon the exercise of such option shall be the same
proportion of the total number of Option Shares to be purchased by the several
Underwriters pursuant to the exercise of such option as the number of Firm
Shares purchased by such Underwriter (set forth in Schedule A hereto) bears to
the total number of Firm Shares purchased by the several Underwriters (set forth
in Schedule A hereto), adjusted by the Representatives in such manner as to
avoid fractional shares and the number of Option Shares to be purchased from the
Company and each Selling Stockholder shall be determined in accordance with the
proportions set forth on Schedule B, as adjusted by the Representatives to avoid
fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by wire transfer, certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company or the Selling Stockholders, as applicable (and the Company and the
Selling Stockholders agree not to deposit any such check in the bank on which it
is drawn, and not to take any other action with the purpose or effect of
receiving immediately available funds, until the business day following the date
of its delivery to the Company or the Selling Stockholder, as applicable). In
the event of any breach of the foregoing, the Company or the Selling
Stockholder, as applicable, shall reimburse the Underwriters for the interest
lost and any other expenses borne by them by reason of such breach. Such
delivery and payment shall take place at the offices of Kimball & Weiner LLP 555
S. Flower Street, Suite 450, Los Angeles, CA 90071 or at such other place as may
be agreed upon among the Representatives and the Company (i) on the Closing
Date, if written notice of the exercise of such option is received by the
Company at least two (2) full business days prior to the Closing Date, or
(ii) on a date which shall not be later than the third (3rd) full business day
following the date the Company receives written notice of the exercise of such
option, if such notice is received by the Company less than two (2) full
business days prior to the Closing Date.
24.
<PAGE>
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in San Francisco or New York City, as you may reasonably request for
checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representatives so elect, delivery of the Option
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose wire transfer, check or checks shall not have been received by you prior
to the date of payment and delivery for the Option Shares to be purchased by
such Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in
Section 7(a) hereof, the obligations of the several Underwriters to purchase
such Option Shares will be subject (as of the date hereof and as of the date of
payment and delivery for such Option Shares) to the accuracy of and compliance
with the representations, warranties and agreements of the Company and the
Selling Stockholders herein, to the accuracy of the statements of the Company,
the Selling Stockholders and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder, to the conditions set
forth in Section 6 hereof, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may request in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants or agreements of the Company
and the Selling Stockholders or the satisfaction of any of the conditions herein
contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein 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, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, PROVIDED FURTHER, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue
25.
<PAGE>
statement of material fact or omission or alleged omission to state therein a
material fact purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected had not been sent or given to such person within the time required by
the Act and the Rules and Regulations, unless such failure is the result of
noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject (including, without limitation, in its capacity as an Underwriter
or as a "qualified independent underwriter" within the meaning of Schedule E or
the Bylaws of the NASD) under the Act, the Exchange Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of such Selling
Stockholder herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the indemnity agreement provided in this Section 8(b) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been sent
or given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and each Selling Stockholder against any
losses, claims, damages or liabilities, joint or several, to which the Company
or such Selling Stockholder may become subject under the Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(c) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company and each such Selling Stockholder
for any legal or other expenses reasonably incurred by
26.
<PAGE>
the Company and each such Selling Stockholder in connection with investigating
or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, each Selling Stockholder and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; PROVIDED,
HOWEVER, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a), 8(b) or 8(c) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; PROVIDED that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on all claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution
in any action in which a claim for indemnification is made pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company and the Selling Stockholders are responsible for the remaining portion,
PROVIDED, HOWEVER, that (i) no Underwriter shall be required to contribute any
amount in excess of the amount by which the underwriting discount applicable to
27.
<PAGE>
the Shares purchased by such Underwriter exceeds the amount of damages which
such Underwriter has otherwise been required to pay and (ii) no person guilty of
a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(e)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company or
any Selling Stockholder within the meaning of the Act or the Exchange Act and
each officer of the Company who signed the Registration Statement and each
director of the Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of the Selling
Stockholder Shares plus any Option Shares sold by such Selling Stockholder to
the Underwriters minus the amount of the underwriting discount paid thereon to
the Underwriters by such Selling Stockholder. The Company and such Selling
Stockholders may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
(g) 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 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
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 and Prospectus as required by the Act and the
Exchange Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder, or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the privilege
of finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so
28.
<PAGE>
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the defaulting Underwriter or Underwriters as provided in this
Section 10, (i) the Company shall have the right to postpone the time of
delivery for a period of not more than seven (7) full business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees promptly to file any amendments to the Registration Statement,
supplements to the Prospectus or other such documents which may thereby be made
necessary, and (ii) the respective number of Firm Shares to be purchased by the
remaining Underwriters and substituted underwriter or underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Shares so agreed to be
purchased by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or shall
not elect to seek another underwriter or underwriters for such Firm Shares as
aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of
(i) 6:30 A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be,
(i) if the Company or any Selling Stockholder shall have failed, refused or been
unable to perform any agreement on its part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such
29.
<PAGE>
loss shall have been insured, or (iv) if there shall have been a material
adverse change in the general political or economic conditions or financial
markets as in your reasonable judgment makes it inadvisable or impracticable to
proceed with the offering, sale and delivery of the Shares, or (v) if there
shall have been an outbreak or escalation of hostilities or of any other
insurrection or armed conflict or the declaration by the United States of a
national emergency which, in the reasonable opinion of the Representatives,
makes it impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. In the event of termination pursuant
to subparagraph (i) above, the Company shall remain obligated to pay costs and
expenses pursuant to Sections 4(j), 5 and 8 hereof. Any termination pursuant to
any of subparagraphs (ii) through (v) above shall be without liability of any
party to any other party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, facsimile, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone,
facsimile, telecopy or telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to Big Dog Holdings, Inc., telecopier
number (805) 962-9460, Attention: Andrew Feshbach, Chief Executive Officer; if
sent to one or more of the Selling Stockholders, such notice shall be sent
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to Andrew Feshbach, as Attorney-in-Fact for the Selling
Stockholders, at Big Dog Holdings, Inc., telecopier number (805) 962-9460.
13. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the several Underwriters and the Company and the Selling
Stockholders and their respective executors, administrators, successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person or entity, other than the parties hereto and
their respective executors, administrators, successors and assigns, and the
controlling persons within the meaning of the Act or the Exchange Act, officers
and directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors and assigns and said
controlling persons and said officers and directors, and for the benefit of no
other person or entity. No purchaser of any of the Shares from any Underwriter
shall be construed a successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Stockholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by you jointly or by
Robertson, Stephens & Company LLC on behalf of you.
14. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
30.
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Stockholders
and the several Underwriters.
Very truly yours,
BIG DOG HOLDINGS, INC.
By:
--------------------------------------------------------------
SELLING STOCKHOLDERS
By:
--------------------------------------------------------------
Attorney-in-Fact for the Selling Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
HAMBRECHT & QUIST LLC
NEEDHAM & COMPANY, INC.
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By: ROBERTSON, STEPHENS & COMPANY LLC
By: ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By:
--------------------------------------------------------
Authorized Signatory
31.
<PAGE>
SCHEDULE A
Underwriters
- ----------------------------------------------------------
Number of
Firm Shares
To Be
Purchased
-------------
Robertson, Stephens & Company LLC...........................
Hambrecht & Quist LLC
Needham & Company, Inc.
[NAMES OF OTHER UNDERWRITERS]
-----------
Total..................................................
-----------
-----------
<PAGE>
SCHEDULE B
Number of Firm Shares
Company To Be Sold
----------------------- -------------------------------------------------
Big Dog Holdings, Inc.
------------
-----------
Total
-----------
-----------
Number Of Selling
Stockholder Shares
Name of To Be Sold
----------------------------
Selling Stockholder As Firm Shares As Option Shares
------------------ -------------- ----------------
--------------- ---------------
Total
--------------- ---------------
--------------- ---------------
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BIG DOG HOLDINGS, INC.
(Pursuant to Sections 242, 245 and 228 of
the Delaware General Corporation Law)
Big Dog Holdings, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law") and originally incorporated in Delaware on
December 31, 1993 under the name of 190th Shelf Corporation:
FIRST. The name of the corporation is Big Dog Holdings, Inc. (the
"Corporation").
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. (a) The Corporation is authorized to issue 33,000,000 shares of
capital stock, $0.01 par value. The shares shall be divided into two classes,
designated as follows:
Designation of Class Number of Shares Par Value
-------------------- ---------------- ---------
Common Stock 30,000,000 $0.01
Preferred Stock 3,000,000 $0.01
----------------
TOTAL: 33,000,000
(b) The Preferred Stock may be issued from time to time in
one or more series. The Board of Directors is expressly authorized, in the
resolution or resolutions providing for the issuance of any wholly unissued
series of Preferred Stock, to fix, state and express the powers, rights,
designations, preferences, qualifications, limitations and restrictions
thereof, including without limitation: the rate of dividends upon which and
the times at which dividends on shares of such series shall be payable and
the preference, if any, which such dividends shall have relative to
1
<PAGE>
dividends on shares of any other class or classes or any other series of
stock of the Corporation; whether such dividends shall be cumulative or
noncumulative, and if cumulative, the date or dates from which dividends on
shares of such series shall be cumulative; the voting rights, if any, to be
provided for shares of such series; the rights, if any, which the holders of
shares of such series shall have in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation; the
rights, if any, which the holders of shares of such series shall have to
convert such shares into or exchange such shares for shares of stock of the
Corporation, and the terms and conditions, including price and rate of
exchange of such conversion or exchange; and the redemption rights (including
sinking fund provisions), if any, for shares of such series; and such other
powers, rights, designations, preferences, qualifications, limitations and
restrictions as the Board of Directors may desire to so fix. The Board of
Directors is also expressly authorized to fix the number of shares
constituting such series and to increase or decrease the number of shares of
any series prior to the issuance of shares of that series and to increase or
decrease the number of shares of any series subsequent to the issuance of
shares of that series, but not to decrease such number below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
FIFTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is authorized to make, alter or repeal any or
all of the Bylaws of the Corporation; provided, however, that any Bylaw
amendment adopted by the Board of Directors increasing or reducing the
authorized number of Directors shall require the affirmative vote of
two-thirds of the total number of Directors which the Corporation would have
if there were no vacancies. In addition, new Bylaws may be adopted or the
Bylaws may be amended or repealed by the affirmative vote of at least 66-2/3%
of the combined voting power of all shares of the Corporation entitled to
vote generally in the election of directors, voting together as a single
class. Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 66-2/3% of the combined voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, change, amend, repeal
or adopt any provision inconsistent with, this Article FIFTH.
SIXTH. (a) Special meetings of stockholders of the Corporation may
be called only by the Chairman of the Board of Directorsor the President , or
by the Chairman, the President or the Secretary at the written request of a
majority of the total number of Directors which the Corporation would have if
there were no vacancies upon not fewer than 10 nor more than 60 days' written
notice. The request shall be sent to the Chairman, President and the
Secretary and shall state the purposes of the proposed meeting. Special
meetings of holders of the outstanding Preferred Stock may be called in the
manner and for the purposes provided in the resolutions of the Board of
Directors providing for the issue of such stock. Business transacted at
special meetings shall be confined to the purpose or purposes stated in the
notice of meeting.
2
<PAGE>
(b) Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative vote
of the holders of at least 66-2/3% of the combined voting power of all shares
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to alter, change, amend,
repeal or adopt any provision inconsistent with, this Article SIXTH.
SEVENTH. (a) The number of Directors which shall constitute the whole
Board of Directors of this corporation shall be as specified in the Bylaws of
this corporation, subject to this Article SEVENTH.
(b) The Directors shall be classified with respect to the
time for which they severally hold office into three classes designated Class
I, Class II and Class III, as nearly equal in number as possible, as shall be
provided in the manner specified in the Bylaws of the Corporation. Each
Director shall serve for a term ending on the date of the third annual
meeting of stockholders following the annual meeting at which the Director
was elected; provided, however, that each initial Director in Class I shall
hold office until the annual meeting of stockholders in 1999, each initial
Director in Class II shall hold office until the annual meeting of
stockholders in 1998, and each initial Director in Class III shall hold
office until the annual meeting of stockholders in 1997. Notwithstanding the
foregoing provisions of this Article, each Director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal.
(c) In the event of any increase or decrease in the
authorized number of Directors, (i) each Director then serving as such shall
nevertheless continue as a Director of the class of which he is a member
until the expiration of his current term, or his early resignation, removal
from office or death, and (ii) the newly created or eliminated directorship
resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of Directors so as to maintain such classes
as nearly equally as possible.
(d) Any Director or the entire Board of Directors may be
removed by the affirmative vote of the holders of a majority of the combined
voting power of all shares of the Corporation entitled to vote generally in
the election of directors, voting together as a single class.
(e) Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative vote
of the holders of at least 66-2/3% of the combined voting power of all shares
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to alter, change, amend,
repeal or adopt any provision inconsistent with, this Article SEVENTH.
EIGHTH. (a) 1. In addition to any affirmative vote required by law,
any Business Combination (as hereinafter defined) shall require the
affirmative vote of at least 66-2/3% of the combined voting power of all
shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class (for purposes of this Article
EIGHTH, the "Voting Shares"). Such affirmative vote shall be required
notwithstanding the fact that no vote
3
<PAGE>
may be required, or that some lesser percentage may be specified by law or in
any agreement with any national securities exchange or otherwise.
2. The term "Business Combination" as used in this
Article EIGHTH shall mean any transaction which is referred to in any one or
more of the following clauses (A) through (E):
(A) any merger or consolidation of the Corporation
or any Subsidiary (as hereinafter defined) with or into (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation (whether
or not itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) or Associate
(as hereinafter defined) of an Interested Stockholder; or
(B) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of related
transactions) to or with, or proposed by or on behalf of, any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder, of
any assets of the Corporation or any Subsidiary constituting not less than 5%
of the total assets of the Corporation, as reported in the consolidated
balance sheet of the Corporation as of the end of the most recent quarter
with respect to which such balance sheet has been prepared; or
(C) the issuance or transfer by the Corporation or
any Subsidiary (in one transaction or a series of related transactions) of
any securities of the Corporation or any Subsidiary to, or proposed by or on
behalf of, any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder in exchange for cash, securities or other property (or
a combination thereof) constituting not less than 5% of the total assets of
the Corporation, as reported in the consolidated balance sheet of the
Corporation as of the end of the most recent quarter with respect to which
such balance sheet has been prepared; or
(D) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation, or any spin-off or split-up of
any kind of the Corporation or any Subsidiary, proposed by or on behalf of an
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder; or
(E) any reclassification of securities (including
any reverse stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its Subsidiaries or
any similar transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or indirectly, of
increasing the percentage of the outstanding shares of (i) any class of
equity securities of the Corporation or any Subsidiary or (ii) any class of
securities of the Corporation or any Subsidiary convertible into equity
securities of the Corporation or any Subsidiary, represented by securities of
such class which are directly or indirectly owned by any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder.
4
<PAGE>
(b) The provisions of section (a) of this Article EIGHTH
shall not be applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative vote as is required
by law and any other provision of this Amended and Restated Certificate of
Incorporation, if such Business Combination has been approved by two-thirds
of the whole Board of Directors.
(c) For the purposes of this Article EIGHTH:
1. A "person" shall mean any individual, firm,
corporation or other entity.
2. "Interested Stockholder" shall mean, in respect of
any Business Combination, any person (other than the Corporation or any
Subsidiary) who or which, as of the record date for the determination of
stockholders entitled to notice of and to vote on such Business Combination,
or immediately prior to the consummation of any such transaction
(A) is or was, at any time within two years prior
thereto, the beneficial owner, directly or indirectly, of 10% or more of the
then outstanding Voting Shares, or
(B) is an Affiliate or Associate of the Corporation
and at any time within two years prior thereto was the beneficial owner,
directly or indirectly, of 10% or more of the then outstanding Voting Shares, or
(C) is an assignee of or has otherwise succeeded to
any shares of capital stock of the Corporation which were at any time within
two years prior thereto beneficially owned by any Interested Stockholder, if
such assignment or succession shall have occurred in the course of a
transaction, or series of transactions, not involving a public offering
within the meaning of the Securities Act of 1933, as amended.
3. A "person" shall be the "beneficial owner" of
any Voting Shares
(A) which such person or any of its Affiliates and
Associates (as hereinafter defined) beneficially own, directly or indirectly,
or
(B) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or
indirectly, by any other person with which such first mentioned person or any
of its Affiliates or Associates
5
<PAGE>
has any agreement, arrangement or understanding for the purposes of
acquiring, holding, voting or disposing of any shares of capital stock of the
Corporation.
4. The outstanding Voting Shares shall include shares
deemed owned through application of paragraph 3 above but shall not include
any other Voting Shares which may be issuable pursuant to any agreement, or
upon exercise of conversion rights, warrants or options, or otherwise.
5. "Affiliate" and "Associate" shall have the
respective meanings given those terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on the
date of adoption of this Amended and Restated Certificate of Incorporation
(the ``Exchange Act'').
6. "Subsidiary" shall mean any corporation of which a
majority of any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Exchange Act) is owned, directly or
indirectly, by the Corporation; PROVIDED, HOWEVER, that for the purposes of
the definition of Interested Stockholder set forth in paragraph 2 of this
section (c) the term ``Subsidiary'' shall mean only a corporation of which a
majority of each class of equity security is owned, directly or indirectly,
by the Corporation.
(d) A majority of the directors shall have the power and duty
to determine for the purposes of this Article EIGHTH on the basis of
information known to them, (1) whether a person is an Interested Stockholder,
(2) the number of Voting Shares beneficially owned by any person, (3) whether
a person is an Affiliate or Associate of another, (4) whether a person has an
agreement, arrangement or understanding with another as to the matters
referred to in paragraph 3 of section (c), or (5) whether the assets subject
to any Business Combination or the consideration received for the issuance or
transfer of securities by the Corporation or any Subsidiary constitutes not
less than 5% of the total assets of the Corporation.
(e) Nothing contained in this Article EIGHTH shall be
construed to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
(f) Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative vote
of the holders of at least 66-2/3% of the combined voting power of all shares
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to alter, change, amend,
repeal or adopt any provision inconsistent with, this Article EIGHTH.
NINTH. This Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this
reservation.
6
<PAGE>
(i) TENTH. A Director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty and a Director, except for liability for any breach of the
Director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of Delaware, or (iv) for any transaction from which the
Director derived any improper personal benefit. If the General Corporation
Law of Delaware is hereafter amended to authorize, with the approval of a
corporation's stockholders, further reductions in the liability of a
corporation's directors for breach of fiduciary duty, then a Director of the
Corporation shall not be liable for any such breach to the fullest extent
permitted by the General Corporation Law of Delaware as so amended. Any
repeal or modification of the foregoing provisions of this Article TENTH by
the stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such
repeal or modification.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the Secretary of the Corporation this first day
of august, 1997.
BIG DOG HOLDINGS, INC.
By: /s/ Anthony J. Wall
-------------------------------------
Anthony J. Wall
Executive Vice President and Secretary
7
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
BIG DOG HOLDINGS, INC.
(A DELAWARE CORPORATION)
ARTICLE 1 - STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the executive offices of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held each year beginning in
the calendar year 1998 on such date and at such time as the Board of
Directors determines. If this date shall fall upon a legal holiday at the
place of the meeting, then such meeting shall be held on the next succeeding
business day at the same hour. If no annual meeting is held in accordance
with the foregoing provisions, the Board of Directors shall cause the meeting
to be held as soon thereafter as convenient.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called
only in accordance with Article SIXTH of the Certificate of Incorporation as
it may be amended from time to time (the "Certificate of Incorporation").
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notices of all
meetings shall state the place, date and hour of the meeting. The notice of
a special meeting shall state, in addition, the purpose or purposes for which
the meeting is called. If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, at a place within the city
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time of the meeting, and
may be inspected by any stockholder who is present.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote
at the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to
another time and to any other place at which a meeting of stockholders may be
held under these Bylaws by the stockholders
1
<PAGE>
present or represented at the meeting and entitled to vote, although less
than a quorum, or, if no stockholder is present, by any officer entitled to
preside at or to act as Secretary of such meeting. It shall not be necessary
to notify any stockholder of any adjournment of less than 30 days if the time
and place of the adjourned meeting are announced at the meeting at which
adjournment is taken, unless after the adjournment a new record date is fixed
for the adjourned meeting. At the adjourned meeting, the corporation may
transact any business which might have been transacted at the original
meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise
provided in the Certificate of Incorporation. Each stockholder of record
entitled to vote at a meeting of stockholders may vote in person or may
authorize another person or persons to vote or act for him by written proxy
executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 ACTION AT MEETING. In all matters other than the election of
directors, when a quorum is present at any meeting, the holders of a majority
of the stock present or represented and entitled to vote on the subject
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, the holders of a
majority of the stock of that class present or represented and entitled to
vote on the subject matter) shall decide any matter to be voted upon by the
stockholders at such meeting, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these Bylaws.
Any election of directors by stockholders shall be determined by a plurality
of the votes cast by the stockholders entitled to vote at the election.
1.10 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS.
(a) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the
corporation not later than the close of business on the sixtieth (60th) day
nor earlier than the close of business on the ninetieth (90th) day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that no annual meeting was held in the previous
year or the date of the annual meeting has been changed by more than thirty
(30) days from the date contemplated at the time of the previous year's proxy
statement, notice by the stockholder to be timely must be so received not
earlier than the close of business on the ninetieth (90th) day prior to such
annual meeting and not later than the close of business on the later of the
sixtieth (60th) day prior to such annual meeting or, in the event public
announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any
2
<PAGE>
other information that is required to be provided by the stockholder pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), in his or her capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect
to a stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in
these Bylaws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this paragraph
(a). The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph
(a), and, if he or she should so determine, such chairman shall so declare at
the meeting that any such business not properly brought before the meeting
shall not be transacted.
(b) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (b) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled
to vote in the election of directors at the meeting who complies with the
notice procedures set forth in this paragraph (b). Such nominations, other
than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice (as set forth in paragraph (a) of this Section
1.10) in writing to the Secretary of the corporation in accordance with the
provisions of paragraph (b) of this Section 1.10. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes
to nominate for election or re-election as a director: (A) the name, age,
business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares
of the corporation which are beneficially owned by such person, (D) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the stockholder, and (E)
any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the 1934
Act (including without limitation such person's written consent to being
named in the proxy statement, if any, as a nominee and to serving as a
director if elected), and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (a) of this Section
1.10. At the request of the Board of Directors, any person nominated by a
stockholder for election as a director shall furnish to the Secretary of the
corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be
eligible for election as a director of the corporation unless nominated in
accordance with the procedures set forth in this paragraph (b). The chairman
of the meeting shall, if the facts warrant, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he or she should so determine, such
chairman shall so declare at the meeting, and the defective nomination shall
be disregarded.
(c) For purposes of this Section 1.10, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the 1934 Act.
3
<PAGE>
ARTICLE 2 - DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation except as otherwise provided by
law, the Certificate of Incorporation or these Bylaws. In the event of a
vacancy in the Board of Directors, the remaining directors, except as
otherwise provided by law, may exercise the powers of the full Board of
Directors until the vacancy is filled.
2.2 NUMBER; ELECTION; TENURE AND QUALIFICATION. The number of
Directors of the Corporation shall be six (6), subject to amendment in
accordance with Article FIFTH of the Certificate of Incorporation. The
Directors shall be classified and their successors elected in accordance with
Article SEVENTH of the Certificate of Incorporation. Subject to the
requirement of the Certificate of Incorporation that the classes be as nearly
equal in number as possible, the size of each class of Directors shall be as
determined from time to time by resolution adopted by a majority of the Board
of Directors. Any reduction in the size of any class of Directors shall not
shorten the term of office of any incumbent Director. Directors need not be
stockholders of the corporation.
2.3 ENLARGEMENT OF THE BOARD OF DIRECTORS. The authorized number of
directors on the Board of Directors may be increased in accordance with
Article FIFTH of the Certificate of Incorporation.
2.4 VACANCIES. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board of Directors, may be filled by
vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director; provided, however, a vacancy created
by the removal of a director by the vote of the stockholders or by court
order may be filled only by the affirmative vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute a majority of the required
quorum). Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred
and until such director's successor shall have been elected and qualified, or
until such director's earlier death, resignation or removal.
2.5 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some
other event.
2.6 REMOVAL. Any director or the entire Board of Directors may be
removed, only as permitted by applicable law and Article SEVENTH of the
Certificate of Incorporation.
2.7 REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at such time and place, within or without the State of
Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made
shall be given notice of the determination. A regular meeting of the Board
of Directors may be held without notice immediately after and at the same
place as the annual meeting of stockholders.
4
<PAGE>
2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board, Vice Chairman of the
Board, President, two or more directors, or by one director in the event that
there is only a single director in office.
2.9 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer
or one of the directors calling the meeting. Notice shall be given to each
director in person, by telephone, by facsimile transmission or by telegram
sent to his business or home address at least 48 hours in advance of the
meeting, or by written notice mailed to his business or home address at least
72 hours in advance of the meeting. A notice or waiver of notice of a
meeting of the Board of Directors need not specify the purposes of the
meeting.
2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members
of any committee designated by the directors may participate in a meeting of
the Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
2.11 QUORUM. A majority of the number of directors fixed pursuant to
Section 2.2 shall constitute a quorum at all meetings of the Board of
Directors. In the event one or more of the directors shall be disqualified to
vote at any meeting, then the required quorum shall be reduced by one for
each such director so disqualified; provided, however, that in no case shall
less than one-third (1/3) of the number so fixed constitute a quorum. In the
absence of a quorum at any such meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice other than
announcement at the meeting, until a quorum shall be present.
2.12 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law,
the Certificate of Incorporation or these Bylaws.
2.13 ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent to the action in writing,
and the written consents are filed with the minutes of proceedings of the
Board of Directors or committee.
2.14 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members of the committee present at any
meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of Delaware, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors
may from time to time request. Except
5
<PAGE>
as the Board of Directors may otherwise determine, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Bylaws for the Board of
Directors.
2.15 COMPENSATION FOR DIRECTORS. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 - OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Treasurer, a Secretary and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents,
Assistant Treasurers, and Assistant Secretaries. The Board of Directors may
appoint such other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
by the Board of Directors at its first meeting following the annual meeting
of stockholders. Other officers may be appointed by the Board of Directors
at such meeting or at any other meeting.
3.3 QUALIFICATION. The President need not be a director. No officer
need be a stockholder. Any two or more offices may be held by the same
person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing him, or until his earlier death, resignation
or removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the
happening of some other event.
The Board of Directors, or a committee duly authorized to do so,
may remove any officer with or without cause. Except as the Board of
Directors may otherwise determine, no officer who resigns or is removed shall
have any right to any compensation as an officer for any period following his
resignation or removal, or any right to damages on account of such removal,
whether his compensation be by the month or by the year or otherwise, unless
such compensation is expressly provided in a duly authorized written
agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for
such period as it may determine any offices other than those of President,
Treasurer and Secretary. Each such successor shall hold office for the
unexpired term of his predecessor and until his successor is elected and
qualified, or until his earlier death, resignation or removal.
6
<PAGE>
3.7 CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD. If the Board
of Directors appoints a Chairman of the Board, he shall, when present,
preside at all meetings of the Board of Directors. He shall perform such
duties and possess such powers as are usually vested in the office of the
Chairman of the Board or as may be vested in him by the Board of Directors.
If the Board of Directors appoints a Vice Chairman of the Board, he shall, in
the absence or disability of the Chairman of the Board, perform the duties
and exercise the powers of the Chairman of the Board and shall perform such
other duties and possess such other powers as may from time to time be vested
in him by the Board of Directors.
3.8 PRESIDENT. The President shall be the chief operating officer of
the corporation. He shall also be the chief executive officer of the
corporation unless such title is assigned to a Chairman of the Board. The
President shall, subject to the direction of the Board of Directors, have
general supervision and control of the business of the corporation. Unless
otherwise provided by the directors, he shall preside at all meetings of the
stockholders and of the Board of Directors (except as provided in Section 3.7
above). The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time
to time prescribe. In the event of the absence, inability or refusal to act
of the President, the Vice President (or if there shall be more than one, the
Vice Presidents in the order determined by the Board of Directors) shall
perform the duties of the President and when so performing shall have all the
powers of and be subject to all the restrictions upon the President. The
Board of Directors may assign to any Vice President the title of Executive
Vice President, Senior Vice President or any other title selected by the
Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARY. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on
documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Secretary, the Assistant Secretary (or if there shall be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting
shall designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER, VICE PRESIDENT-FINANCE AND CONTROLLER. The Treasurer
shall be the chief financial officer of the corporation. The Vice
President-Finance (who may be a Senior or Executive Vice President) shall be
the chief accounting officer of the corporation. The Treasurer and Vice
President-Finance shall perform such duties and shall have such powers as may
from time to time be assigned to each of them by the Board of Directors or
the President. In addition, the Treasurer and
7
<PAGE>
Vice President-Finance shall perform such duties and have such powers as are
incident to the office of chief financial officer and chief accounting
officer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds
of the corporation in depositories selected in accordance with these Bylaws,
to disburse such funds as ordered by the Board of Directors or the President,
to make proper accounts of such funds, and to render as required by the Board
of Directors or the President statements of all such transactions and of the
financial condition of the corporation.
The Vice President-Finance, Assistant Treasurer and Controller shall
perform such duties and possess such powers as the Board of Directors, the
President or the Treasurer may from time to time prescribe. In the event of
the absence, inability or refusal to act of the Treasurer, the President, or
if the President or the Board elects, the Vice President-Finance shall
perform the duties and exercise the powers of the chief financial officer.
3.12 BONDED OFFICERS. The Board of Directors may require any officer to
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and
conditions as the Board of Directors may specify, including without
limitation a bond for the faithful performance of his duties and for the
restoration to the corporation of all property in his possession or under his
control belonging to the corporation.
3.13 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from
time to time by the Board of Directors.
ARTICLE 4 - CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or
any part of any unissued balance of the authorized capital stock of the
corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for
such consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by,
or in the name of the corporation by, the Chairman or Vice Chairman, if any,
of the Board of Directors, or the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the corporation. Any or all of the signatures on the
certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
Bylaws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have
conspicuously noted on the face or back of the certificate either the full
text of the restriction or a statement of the existence of such restriction.
4.3 TRANSFERS. Subject to the restrictions, if any, stated or noted on
the stock certificates, shares of stock may be transferred on the books of
the corporation by the surrender to the corporation or its transfer agent of
the certificate representing such shares properly endorsed or accompanied by
a written assignment or power of attorney properly executed, and with such
proof of authority or the
8
<PAGE>
authenticity of signature as the corporation or its transfer agent may
reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these Bylaws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the
owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect to such stock, regardless of any transfer,
pledge or other disposition of such stock until the shares have been
transferred on the books of the corporation in accordance with the
requirements of these Bylaws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue
a new certificate of stock in place of any previously issued certificate
alleged to have been lost, stolen, or destroyed, upon such terms and
conditions as the Board of Directors may prescribe, including the
presentation of reasonable evidence of such loss, theft or destruction and
the giving of such indemnity as the Board of Directors may require for the
protection of the corporation or any transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of
or to vote at any meeting of stockholders or to express consent (or dissent)
to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action. Such record date shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to
any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be the close of business on the day before the day on which notice is
given, or, if notice is waived, at the close of business on the day before
the day on which the meeting is held. The record date for determining
stockholders entitled to express consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed.
The record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts
the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE 5 - INDEMNIFICATION
The corporation shall, to the fullest extent permitted by Section 145 of
the General Corporation Law of Delaware, as that Section may be amended and
supplemented from time to time, indemnify any director or officer which it
shall have power to indemnify under the Section against any expenses,
liabilities or other matters referred to in or covered by that Section. The
indemnification provided for in this Article: (i) shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under any bylaw, agreement or vote of stockholders or disinterested directors
or otherwise, both as to action in their official capacities and as to action
in another capacity while holding such office; (ii) shall continue as to a
person who has ceased to be a director or officer; and (iii) shall inure to
the benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide indemnification under this Article shall
be offset to the extent of any other source of indemnification or any
otherwise applicable insurance coverage under a policy maintained by the
corporation or any other person.
9
<PAGE>
Expenses incurred by a director of the corporation in defending a civil
or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's
request as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized by relevant
sections of the General Corporation Law of Delaware.
To assure indemnification under this Article of all such persons who are
determined by the corporation or otherwise to be or to have been
"fiduciaries" of any employee benefit plan of the corporation which may
exist from time to time, such Section 145 shall, for the purposes of this
Article, be interpreted as follows: an "other enterprise" shall be deemed to
include such an employee benefit plan, including, without limitation, any
plan of the corporation which is governed by the Act of Congress entitled
"Employee Retirement Income Security Act of 1974," as amended from time to
time; the corporation shall be deemed to have requested a person to serve an
employee benefit plan where the performance by such person of his duties to
the corporation also imposes duties on, or otherwise involves services by,
such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on a person with respect to an employee benefit plan pursuant
to such Act of Congress shall be deemed "fines"; and action taken or omitted
by a person with respect to an employee benefit plan in the performance of
such person's duties for a purpose reasonably believed by such person to be
in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of the
corporation.
ARTICLE 6 - GENERAL PROVISIONS
6.1 FISCAL YEAR. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall end on the
Saturday closest to February 28.
6.2 CORPORATE SEAL. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
6.3 EXECUTION OF INSTRUMENTS. The President, the Chief Executive
Officer, any Vice President, the Secretary or the Treasurer shall have power
to execute and deliver on behalf and in the name of the corporation any
instrument requiring the signature of an officer of the corporation, except
as otherwise provided in these Bylaws, or where the execution and delivery of
such an instrument shall be expressly delegated by the Board of Directors to
some other officer or agent of the corporation.
6.4 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these Bylaws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telegraph, cable or
any other available method, whether before, at or after the time stated in
such waiver, or the appearance of such person or persons at such meeting in
person or by proxy, shall be deemed equivalent to such notice.
6.5 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President, the Chief Executive Officer, any Vice President,
the Secretary or Treasurer may waive notice of, and act as, or appoint any
person or persons to act as, proxy or attorney-in-fact for this corporation
(with or without power of substitution) at, any meeting of stockholders or
shareholders of any other corporation or organization, the securities of
which may be held by this corporation.
10
<PAGE>
6.6 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith
be conclusive evidence of such action.
6.7 CERTIFICATE OF INCORPORATION. All references in these Bylaws to
the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the corporation, as amended and in effect from time to
time. These Bylaws are subject to the provisions of the Certificate of
Incorporation and applicable law.
6.8 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or
between the corporation and any other corporation, partnership, association,
or other organization in which one or more of the directors or officers are
directors or officers, or have a financial interest, shall be void or
voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or
transaction or solely because his or their votes are counted for such
purpose, if:
(a) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.9 SEVERABILITY. Any determination that any provision of these Bylaws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
6.10 PRONOUNS. All pronouns used in these Bylaws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
11
<PAGE>
ARTICLE 7 - AMENDMENTS
7.1 BY THE BOARD OF DIRECTORS. Subject to the provisions of the
Certificate of Incorporation, these Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the affirmative vote of a majority
of the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
7.2 BY THE STOCKHOLDERS. Subject to the provisions of the Certificate
of Incorporation, these Bylaws may be altered, amended or repealed or new
Bylaws may be adopted by the affirmative vote of the holders of at least
66-2/3% of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or
at any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new bylaws shall have been stated in the
notice of such special meeting.
12
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
NOTICE - CONTAINS WAIVER OF TRIAL BY JURY
THIS AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of June 30,
1995 by and among BIG DOG HOLDINGS, INC., a Delaware corporation ("Big Dog
Holdings"), BIG DOG USA, INC. a California corporation ("Big Dog USA") and
FORTUNE DOGS INC., a California corporation ("Fortune Dogs"; and together with
Big Dog Holdings and Big Dog USA, individually and collectively, "Borrowers")
and ISRAEL DISCOUNT BANK LIMITED, LOS ANGELES AGENCY ("Lender").
RECITALS
A. Fortune Dogs and Lender have previously entered into the Original
Documents.
B. Borrowers have requested that Lender amend and restate the terms of the
Original Documents as more fully set forth herein and in the Documents.
C. This Agreement is entered into and will be performed in the State of
California.
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound hereby, the Parties hereby agree as follows:
AGREEMENT
1. CERTAIN DEFINITIONS AND INDEX TO DEFINITIONS.
1.1 ACCOUNTING TERMS. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to be delivered
hereunder shall be prepared in accordance with generally accepted accounting
principles and practices consistently applied.
1.2 DEFINITIONS. The following terms shall have the following
respective meanings:
1.2.1 "ACCEPTANCE" - an acceptance created by a draft drawn
upon Lender under a Letter of Credit.
1.2.2 "ADVANCE" - see section 2.1.
1.2.3 "AFFILIATE" - any Person
1.2.3.1 which directly or indirectly controls, or is
controlled by, or is under common control with Borrowers or any Subsidiary (the
term "control" meaning the possession, directly or
<PAGE>
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise);
1.2.3.2 which directly or indirectly beneficially owns or
holds fifty percent (50%) or more of any class of voting stock of Borrowers or
any Subsidiary; or
1.2.3.3 Fifty percent (50%) or more of the voting stock of
which is directly or indirectly beneficially owned or held by Borrowers or any
Subsidiary.
1.2.4 "BALANCE SUBJECT TO INTEREST" - the (a) Revolving Loans
Balance, plus (b) payments by Lender on account of Letters of Credit, plus (c)
the Term Loan Balance, plus (d) any other payments made by Lender arising
hereunder for which Borrowers are liable to Lender.
1.2.5 "BORROWERS' ACCOUNT" - any general deposit account of
Borrowers maintained with Lender.
1.2.6 "COLLATERAL" - the property of Borrowers described in any
security agreement securing the Obligations.
1.2.7 "CONTROLLED GROUP" - a "controlled group of corporations"
as defined in Section 1563(a)(4) of the Internal Revenue Code of 1954, as
amended, determined without regard to Section 1563(a) and (e) (3) (c) of such
Code, of which Borrowers is a part.
1.2.8 "CREDIT ACCOMMODATION" - any extension of credit by
Lender to Borrowers hereunder, including the issuance by Lender of Letters of
Credit or the making of any loan.
1.2.9 "DEFAULT RATE" - the Interest Rate plus five (5%) percent
per annum.
1.2.10 "DOCUMENTS" - this Agreement, any riders, supplements and
amendments thereto, and any and all other documents, instruments or agreements
now or hereafter executed and/or delivered in connection with this Agreement,
including but not limited to mortgages, security agreements, assignments,
pledges, subordination agreements or guaranties.
1.2.11 "ERISA" - the Employee Retirement Income Security Act of
1974, as amended.
1.2.12 "EVENTS OF DEFAULT" - see Section 8.
1.2.13 "GUARANTORS" - any and all persons now or hereafter
guaranteeing the Obligations.
-2-
<PAGE>
1.2.14 "GUARANTY" - a continuing guaranty in form and content
acceptable to Lender.
1.2.15 "INDEBTEDNESS" (of any Person) - all items of
indebtedness which, in accordance with generally accepted accounting principles
and practices, would be deemed a liability of such Person as of the date as of
which such indebtedness is to be determined and shall also include all
indebtedness and liabilities of others assumed or guaranteed by such Person or
in respect of which such Person is secondarily or contingently liable (other
than by endorsement of instruments in the course of collection) whether by
reason of any agreement to acquire such indebtedness, to supply or advance sums,
or otherwise.
1.2.16 "INTEREST RATE" - three quarters of one (3/4 of 1%)
percent per annum in excess of the rate which Lender publicly announces from
time to time at its headquarters office as its "prime rate" with the
understanding that said prime rate is one of its base rates and serves as a
basis upon which effective rates of interest are calculated for loans making
reference thereto and may not be the lowest of the base rates offered by Lender.
Any change in the Interest Rate shall be effective as of the date of any change
in such prime rate.
1.2.17 "KEY EMPLOYEE" - Andrew Feshbach.
1.2.18 "LENDING OFFICE" - Lender's office described in the
Section below entitled "Notices".
1.2.19 "LETTER OF CREDIT" - a commercial or standby letter of
credit issued by Lender for the account of Borrowers.
1.2.20 "LETTER OF CREDIT AGREEMENTS" - agreements between
Borrowers and Lender pursuant to which Borrowers requests that Lender issue
Letters of Credit for the account of Borrowers.
1.2.21 "MAXIMUM COMMITMENT" - $5,266,300.00.
1.2.22 "OBLIGATIONS" - all present and future obligations owing
by Borrowers to Lender whether or not for the payment of money, whether or not
evidenced by any note or other instrument, whether direct or indirect, absolute
or contingent, due or to become due, joint or several, primary or secondary,
liquidated or unliquidated, secured or unsecured, original or renewed or
extended, whether arising before, during or after the commencement of any
Bankruptcy Case in which Borrowers are a debtor, including but not limited to
any obligations arising pursuant to letters of credit or acceptance transactions
or any other financial accommodations; and all principal, interest, fees,
charges, expenses, attorneys' fees and accountants' fees chargeable to Borrowers
or incurred by Lender in connection with this Agreement, the other Documents
and/or the transaction(s) related thereto.
-3-
<PAGE>
1.2.23 "OBLIGORS" - Borrowers and all Guarantors.
1.2.24 "ORIGINAL CREDIT AGREEMENT" - the Revolving Credit
Agreement, dated as of November 18, 1992, between Fortune Dogs and Lender.
1.2.25 "ORIGINAL DOCUMENTS" - the Original Credit Agreement, the
Original Notes, and any riders, supplements and amendments thereto, and any and
all other documents, instruments or agreements executed and/or delivered in
connection therewith, including, but not limited to mortgages, security
agreements, assignments, pledges, subordination agreements or guaranties.
1.2.26 "ORIGINAL NOTES" - the Revolving Credit Note, dated as of
November 18, 1992, made payable by Fortune Dogs to the order of Lender in the
original principal amount of $1,500,000 and the Promissory Note, dated August 1,
1993, made payable by Fortune Dogs to the order of Lender in the original
principal amount of $416,000.
1.2.27 "PERMITTED LIENS" - (a) liens of Lender; (b) liens for
taxes not delinquent or for taxes being diligently contested in good faith by
Borrowers by appropriate proceedings, subject to the conditions set forth in
section 6.4 of this Agreement; (c) purchase money liens on equipment,
mechanic's, workman's, materialman's, landlord's, carrier's and other like liens
arising in the ordinary course of business with respect to obligations which are
not due or which are being diligently contested in good faith by Borrowers by
appropriate proceedings, provided such liens did not arise in connection with
the borrowing of money or the obtaining of advances or credit and do not, in
Lender's discretion, in the aggregate materially detract from the value of
Borrowers' assets or materially impair the use thereof; (d) liens specifically
consented to by Lender in writing; and (e) liens, if any, specifically permitted
by this Agreement.
1.2.28 "PERSON" - any entity, government, governmental agency or
any other entity and whether acting in an individual, fiduciary or other
capacity.
1.2.29 "PLAN" - any employee pension benefit plan subject to
Title IV of ERISA and maintained by Borrowers or any member of a Controlled
Group or any such plan to which Borrowers or any member of a Controlled Group is
required to contribute on behalf of any of its employees.
1.2.30 "REPORTABLE EVENT" - a reportable event as defined in
Title IV of ERISA, except actions of general applicability by the Secretary of
Labor under ERISA.
1.2.31 "REVOLVING CREDIT FACILITY" - the revolving advance
facility described in Section 2.1 of this Agreement.
-4-
<PAGE>
1.2.32 "REVOLVING CREDIT FACILITY SUBLIMIT"
$5,000,000.00 .
1.2.33 "REVOLVING LOANS BALANCE" - the sum of:
1.2.33.1 outstanding Advances;
1.2.33.2 payments by Lender on account of Letters of Credit
which are not included in the immediately preceding subsection; and
1.2.33.3 any other payments made by Lender arising
hereunder for which Borrowers is liable to Lender.
1.2.35 "SECURITY AGREEMENT" - any security agreement securing
the Obligations.
1.2.36 "STATEMENT DATE" - December 31, 1994 (see section 5.4).
1.2.37 "SUBORDINATING CREDITOR" - Fred Kayne.
1.2.38 "SUBORDINATION AGREEMENT" - a subordination agreement in
form and content acceptable to Lender.
1.2.39 "SUBSIDIARY" - corporation or similar entity of which
more than fifty percent (50%) of the outstanding stock having ordinary voting
power (irrespective of whether or not at the time stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time directly or indirectly owned by
Borrowers and/or any subsidiary.
1.2.40 "TANGIBLE NET WORTH" - the excess of total assets
(excluding intangible assets) over total liabilities (excluding such liabilities
as are fully subordinated to Lender pursuant to a Subordination Agreement).
1.2.41 "TERM LOAN FACILITY" - the Term Loan Facility described
in Section 2.3 of this Agreement.
1.2.42 "TERM LOAN BALANCE" - the outstanding amount of the Term
Loan Facility.
1.2.43 "TERM LOAN" - see Section 2.3.
1.2.44 "TERM NOTE" - the Promissory Note, dated of approximately
even date herewith, made payable by Borrowers to the order of Lender in the
original principal amount of $266,300.00.
-5-
<PAGE>
1.2.45 "TERMINATION DATE" - the earlier of February 15, 1996 or
the date on which the Lender elects to terminate this Agreement pursuant to the
terms herein.
1.3 OTHER CAPITALIZED TERMS. All capitalized terms not defined above
shall have the meanings ascribed to such terms in the Uniform Commercial Code.
2. CREDIT FACILITIES.
2.1 REVOLVING CREDIT FACILITY.
2.1.1 ADVANCES. Subject to the terms and conditions of this
Agreement, from the date on which this Agreement becomes effective until
termination, Lender, upon the request of Borrowers, shall from time to time,
make advances ("Advances") to Borrowers, so long as, before and after such
advance the Revolving Loans Balance does not exceed the Revolving Credit
Facility Sublimit.
2.1.2 GENERAL. All loans and advances by Lender may be made by
crediting Borrowers' Account.
2.1.3 MAXIMUM COMMITMENT. Despite the foregoing and
notwithstanding the nature or amount of the Collateral, the Obligations shall
not exceed at any one time the Maximum Commitment.
2.1.4 AUTHORIZATION FOR LOANS AND ADVANCES. Lender is
authorized to make loans and advances under this Agreement: (a) upon telephonic,
facsimile or other instructions received from anyone purporting to be an
officer, employee or representative of Borrowers; or (b) at the sole discretion
of Lender, and notwithstanding any other provision in this Agreement, if
necessary to meet any Obligations, including but not limited to any interest not
paid when due.
2.2 LETTERS OF CREDIT AND ACCEPTANCES.
2.2.1 ISSUANCE OF LETTERS OF CREDIT. At the request of
Borrower, Lender may, subject to the terms and conditions of this Agreement and
such additional terms and conditions as Lender shall then require, issue Letters
of Credit or create Acceptances, but the aggregate outstanding face amount of
such Letters of Credit and Acceptances plus the aggregate amount paid by Lender
pursuant to such Letters of Credit and Acceptances for which Lender has not been
reimbursed shall not exceed $5,000,000 at any one time.
2.2.2 INDEMNITY. In addition to any obligations under the
Letter of Credit Agreements, Borrower shall indemnify Lender and hold it
harmless from and against any and all claims, damages, losses, liabilities,
costs and expenses whatsoever which it may incur or suffer by reason of or in
connection with the execution and delivery or assignment of or payment or
presentation under any Letter of Credit or any action taken or omitted to be
taken with respect to any Letter
-6-
<PAGE>
of Credit, except only if and to the extent that any such claims, damages,
losses, liabilities, costs or expenses shall be caused by the willful misconduct
or gross negligence of Lender or any issuer on behalf of Lender in making
payment against any draft presented under any Letter of Credit which does not
comply with the terms thereof, or in failing to make payment against any draft
presented under any Letter of Credit which does not comply with the terms
thereof, or in failing to make payment against any such draft which complies
with the terms of such Letter of Credit (it being understood that (a) in making
such payment, Lender's or such issuer's exclusive reliance in good faith on the
documents presented to and believed to be genuine by it in accordance with the
terms of such Letter of Credit as to any and all matters set forth therein,
including, without limitation, reliance in good faith on any affidavit presented
pursuant to such Letter of Credit and on the amount of any sight draft presented
pursuant to any Letter of Credit whether or not any statement or any other
document presented pursuant to such Letter of Credit proves to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
proves to be untrue or inaccurate in any respect whatsoever, and (b) any such
noncompliance in a nonmaterial respect shall, in each case, not be deemed
willful misconduct or gross negligence of Lender or such issuer). Upon demand by
Lender or such issuer at any time, the Borrower shall reimburse Lender or such
issuer for any legal or other out of pocket expenses incurred in connection with
investigating or defending against any of the foregoing, except if the same is
due to Lender's or such issuer's willful misconduct or gross negligence as
aforesaid. The indemnities contained herein shall survive the expiration or
termination of the Letters of Credit and this Agreement and shall be payable
upon demand.
2.2.3 PAYMENT OF DRAFTS. Delivery to Lender or the issuer of
any documents purporting and appearing on their face to comply with the
requirements of any Letter of Credit shall be sufficient evidence of the
validity, genuineness, and sufficiency thereof and of the good faith and proper
performance of the shippers, drawers and user of any Letter of Credit, their
agents and assignees, and Lender and such issuer may rely and act thereon
without liability of responsibility with respect thereto or with respect to the
correctness or condition of any shipment of merchandise to which the same may
relate. Upon receipt by Lender of approval thereof from Borrower, Lender may
(but shall not be required to) accept or pay overdrafts or irregular drafts or
drafts with irregular documents attached or with respect to which property has
been substituted or time limits have been extended, and no such acceptance or
payment shall impair any rights of Lender under this Agreement. In case of any
variation between the documents called for by any Letter of Credit and the
documents accepted by Lender or any issuer on Lender's behalf, Borrower shall be
conclusively deemed to have waived any right to object to such variation with
respect to any action of Lender or such issuers relating to such documents and
to have ratified and approved such action as having been taken on the direction
of Borrower, unless Borrower within ten business days of the receipt of such
documents or
-7-
<PAGE>
acquisition of knowledge of such variation files an objection with Lender in
writing. Lender shall not be liable for any delay in giving, or failing to give,
notice of the arrival of any goods or any other notice, or for any error,
neglect or default of any issuer on its behalf or any shipper, carrier, bailee
or insurer; nor shall Lender be responsible for the nonfulfillment of any
requirement of any Letter of Credit that (a) drafts bear appropriate reference
to any Letter of Credit, (b) the amount of any draft be noted on the reverse of
any Letter of Credit, (c) any Letter of Credit be surrendered or taken up, or
(d) documents be forwarded apart from any drafts, and Lender or the issuers may,
if they see fit, waive any such requirements.
2.3 TERM LOAN FACILITY. In addition to the Revolving Credit Facility
made available by Lender to Borrowers pursuant to Section 2.1 of this Agreement,
Lender shall make a term loan (the "Term Loan") to Borrowers in the original
principal amount of Two Hundred Sixty Six Thousand Three Hundred Dollars
($266,300.00) pursuant to the Term Note. The Term Loan shall, for all purposes,
be deemed to be part of the Obligations of Borrowers and shall be subject to all
of the terms and provisions of this Agreement except that principal monthly
payments of $11,600.00 plus interest accrued and unpaid on the unpaid principal
balance of the Term Loan, at the rate set forth in Section 3.2 of this Agreement
shall be due and payable on the first day of the month following disbursement of
money and each month thereafter to and including February 1, 1996, and the
entire unpaid principal balance of the Term Loan, together with interest accrued
and unpaid thereon at the rate set forth in Section 3.2 of this Agreement, shall
be due and payable on the Termination Date.
3. PAYMENTS BY BORROWERS.
3.1 IN GENERAL.
3.1.1 All payments hereunder shall be made by Borrowers to
Lender at the Lending Office, or at such other place as Lender may designate in
writing.
3.1.2 No checks, drafts or other instruments received by Lender
purportedly in satisfaction of any of the Obligations shall constitute payment
thereof unless and until such instruments have actually been collected.
3.1.3 Borrowers shall have the right to make payments at any
time in reduction of the Obligations, in whole or in part, without premium or
penalty; provided, however, that Lender may apply any payments received by
Borrowers to any of the Obligations, or portion thereof, in any manner and in
any order as Lender may determine in its sole discretion, notwithstanding
contrary instructions received from the payor, AND NOTWITHSTANDING SECTION 2822
OF THE CALIFORNIA CIVIL CODE.
-8-
<PAGE>
3.1.4 Borrowers shall promptly make payments, from time to
time, without demand or notice, in reduction of the Revolving Loan Balance, in
the amount by which the Obligations exceed the Maximum Commitment.
3.2 INTEREST PAYMENTS.
3.2.1 Interest on the Balance Subject to Interest shall be
computed at the Interest Rate, shall be due on the first day of each month
following the accrual thereof, and shall be computed on the basis of a 360-day
year for actual days elapsed.
3.2.2 Lender is authorized to debit Borrowers' Account on the
fifth business day of each month for interest accrued on the daily Balance
Subject To Interest during the preceding month at the Interest Rate;
3.2.3 Interest upon any Obligations not paid when due (whether
by acceleration or otherwise, and before as well as after judgment) shall accrue
at the Default Rate.
3.3 PAYMENTS UPON TERMINATION. Upon the Termination Date, the unpaid
balance of the Obligations shall be due and payable without demand or notice.
3.4 LETTERS OF CREDIT.
3.4.1 Upon the Termination Date, Borrower shall immediately and
without notice pay to Lender an amount equal to the undrawn amount of all
outstanding and unexpired Letters of Credit, which payments shall be held by
Lender as cash collateral securing the Obligations in a non-interest bearing
account (the "Cash Collateral Account").
3.4.2 Subsequent to passage of the Termination Date, Lender may
charge the Cash Collateral Account with the amount of any payments made by
Lender on account of Letters of Credit, or with the amount of any other
Obligations. To the extent that the balance of the Cash Collateral Account is
insufficient, Borrower shall pay the deficiency on demand.
4 CONDITIONS PRECEDENT.
4.1 FIRST CREDIT ACCOMMODATION. Lender's obligation to make the
initial Credit Accommodation available to Borrowers is subject to the
satisfaction of, or waiver of, immediately prior to or concurrently with the
making of such Credit Accommodation, the following conditions precedent:
4.1.1 Borrowers shall deliver, or cause to be delivered, to
Lender:
-9-
<PAGE>
4.1.1.1 a duly executed copy of this Agreement;
4.1.1.2 all Security Agreements and such other documents
as Lender may require to perfect Lender's security interest in the
Collateral;
4.1.1.3 Guaranties duly executed by each Guarantor;
4.1.1.4 Subordination Agreements duly executed by the
Subordinating Creditor;
4.1.1.5 a listing of all Account Debtors' names and
addresses;
4.1.1.6 a listing of all locations where Borrowers
maintains or expects to maintain inventory; and
4.1.1.7 a letter, in the form of EXHIBIT A hereto, to
Borrowers' outside auditors (which letter Borrowers shall also deliver to
any subsequent outside auditors hired by Borrowers, all of which shall be
independent certified public accountants acceptable to Lender): (a)
instructing such auditors to send to Lender copies of all final financial
statements and reports which are prepared as a result of any audit or other
review of Borrowers' operations, finances or internal controls, including
any reports dealing with improper accounting practices, defalcations,
financial reporting errors or misstatements or fraud; (b) instructing such
auditors to, upon Lender's request, meet with Lender to discuss said
financial statements and any questions regarding same; and (c) advising
such auditors that one of the principal purposes of the audited financial
statements which they may be asked to prepare is to provide Lender with
information regarding Borrowers' financial condition.
4.1.2 Borrowers shall cause to be delivered to Lender a
certified statement by the president and any other officers of Borrowers as
Lender may require listing all fictitious business names of Borrowers, the
location of Borrowers' accounting records concerning the Collateral and
Borrowers' chief place of business, and all locations of the Collateral and the
names of the owners and mortgagees of said locations, and such other information
as Lender may require.
4.1.3 All documentation shall be reasonably satisfactory in
form and substance to Lender, and Lender shall have received any and all further
information, documents and opinions which Lender may reasonably have requested
in connection therewith, and such documents, where appropriate, shall be
certified by proper authorities and officials of Borrowers.
-10-
<PAGE>
4.1.4 Borrowers shall have delivered to Lender evidence
satisfactory to Lender that any casualty insurance policies required under any
Security Agreement listing Lender as loss payee or mortgagee (as the case may
be) and all other documents which may be required thereunder, are in full force
and effect.
4.1.5 All acts, conditions, and things (including, without
limitation, the obtaining of any necessary regulatory approvals and the making
of any required filings, recordings or registrations, including but not limited
to form UCC financing statements, mortgages, and deeds of trust) required to be
done and performed and to have happened prior to the execution, delivery and
performance of the Documents to constitute the same legal, valid and binding
obligations of Borrowers, enforceable in accordance with their respective terms,
shall have been done and performed and shall have happened in compliance with
all applicable laws.
4.2 ALL CREDIT ACCOMMODATIONS. Lender's obligation to make any Credit
Accommodation available to Borrowers is subject to the satisfaction of, or
waiver of, immediately prior to or concurrently with the making of such Credit
Accommodation, the following conditions precedent:
4.2.1 All representations and warranties of Borrowers to Lender
set forth herein or in any of the Documents shall be true and accurate and
complete in all respects;
4.2.2 There shall not exist an Event of Default or an event
which with the giving of notice or the passage of time, or both, would be or
become an Event of Default;
4.2.3 Borrowers shall have paid to Lender all accrued and
unpaid fees and expenses payable hereunder and pursuant to the terms hereof; and
4.2.4 After such Credit Accommodation is made, the Revolving
Loans Balance plus the Term Loan Balance shall not exceed the Maximum
Commitment.
4.3 REPRESENTATIONS AND WARRANTIES AT TIME OF REQUEST. By making a
request for a Credit Accommodation, Borrowers represent and warrant the accuracy
of the matters set forth herein on and as of the date of such request.
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS. Borrowers represent and
warrant to Lender as follows, the truth and accuracy of which, and compliance
with which, shall be continuing conditions of the making of any Credit
Accommodations:
5.1 CAPACITY. Borrowers are duly organized, validly existing, and in
good standing under the laws of their respective States of incorporation, and
are authorized to do business in all
-11-
<PAGE>
jurisdictions in which their ownership of property or transaction of business
legally requires such authorization, and have full power, authority, and legal
right to own their respective property and to transact their respective business
as presently transacted or proposed to be transacted.
5.2 AUTHORITY. Borrowers have full power, authority and legal right
to execute and deliver, and to perform and observe the provisions of the
Documents. The execution, delivery and performance of the Documents have been
duly authorized by all necessary Persons, and when duly executed and delivered,
will be legal, valid, and binding obligations of Borrowers enforceable in
accordance with their respective terms, except as enforceability may be limited
by the United States Bankruptcy Code or other statutes affecting creditors'
rights generally.
5.3 COMPLIANCE. The execution and delivery of the Documents and
compliance with their terms will not violate any provision of applicable law and
will not result in (a) a default under, or a breach of any of the terms or
conditions of, any agreement or other document to which any Borrower is a party,
or (b) the imposition of any lien, charge, or encumbrance upon any property of
Borrowers (with due notice or lapse of time or both), or (c) an occurrence of an
event pursuant to which any holder or holders of Indebtedness may declare the
same due and payable.
5.4 FINANCIAL STATEMENTS. Borrowers have furnished Lender with their
audited balance sheets and related statements of income and retained earnings
for the twelve (12) month period ending on the Statement Date. Such balance
sheets and statements fairly present the financial condition and results of
operations of Borrowers for such fiscal periods.
5.5 MATERIAL ADVERSE EVENTS. Since the Statement Date, neither the
respective business, properties, nor financial condition of Borrowers have been
materially and adversely affected in any way.
5.6 LITIGATION. Except as heretofore disclosed by Borrowers to Lender
in writing, there are no actions or proceedings pending, or to Borrowers'
knowledge threatened, against or affecting Borrowers or any Guarantor which, if
adversely determined, could have a material adverse effect on Borrowers.
Borrowers are not in default with respect to any applicable laws or regulations
which affect the operations or financial condition of Borrowers, nor are they in
default with respect to any other writ, injunction, demand, or decree or in
default under any indenture, agreement, or other instrument to which any
Borrower is a party or by which any Borrowers may be bound.
5.7 TAXES. Borrowers have filed or caused to be filed all tax returns
which are required to be filed by them. Borrowers have paid, or made provision
for the payment of, all taxes which have or may become due pursuant to said
returns or otherwise or pursuant to an
-12-
<PAGE>
assessment received by Borrowers, except such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been provided.
The charges, accruals, and reserves in respect of income taxes on the books of
Borrowers are adequate. Borrowers know of no proposed material tax assessment
against them and no extension of time for the assessment of federal, state, or
local taxes of Borrowers is in effect or has been requested, except as disclosed
in the financial statements furnished to Lender.
5.8 PRIORITY INTEREST. No Person other than Lender has (or, in the
case of after-acquired Collateral, will have, at the time Borrowers acquires
rights therein) any interest in the Collateral, including but not limited to any
security interest or other lien or charge.
5.9 ACCURATE INFORMATION. All information supplied to Lender by or on
behalf of Borrowers is and shall be true and correct in all material respects.
5.10 USE OF LOAN PROCEEDS. Borrowers are not engaged principally in,
nor do they have as one of them significant activities, the extension of credit
for the purpose of purchasing or carrying any margin stock (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System), and no
part of any advance made hereunder will be used to purchase or carry margin
stock, extend credit to others for the purpose of purchasing or carrying any
margin stock, or used for any purpose which violates Regulation U or Regulation
X of the Board of Governors of the Federal Reserve System or any other provision
of law.
5.11 RELATIONSHIP OF CERTAIN GUARANTORS WITH BORROWERS.
With respect to any Guarantor which is a corporation, its stock ownership
relationship with Borrowers is as follows:
Fortune Fashions, Inc. dba HRLA - Commonly controlled
6. BORROWERS' AFFIRMATIVE COVENANTS. Until payment in full of the
Obligations, Borrowers agree to:
6.1 FINANCIAL STATEMENTS, REPORTS AND CERTIFICATIONS. Furnish to
Lender, in form and substance satisfactory to Lender:
6.1.1 As soon as possible after the end of each fiscal year of
Borrowers, and in any event within ninety (90) days thereafter: (a) a complete
copy of Borrowers' financial statements, including but not limited to (i) the
management letters, if any, (ii) the balance sheets as of the close of the
fiscal year, and (iii) the income statements for such year, together with
statements of cash flows, audited by certified public accountants selected by
Borrowers and satisfactory to Lender; and (b) statements certified by the chief
financial officer of Borrowers that Borrowers are in
-13-
<PAGE>
compliance with all the terms, conditions, covenants and warranties of this
Agreement;
6.1.2 No later than ninety (90) days after June 30 of each
year: (a) a complete copy of Borrowers' financial statements, including, but not
limited to (i) the management letters, if any, (ii) the balance sheets as of the
close of each June 30, and (iii) the income statements as of each June 30,
together with statements of cash flows, reviewed by certified public accountants
selected by Borrowers and satisfactory to Lender; and (b) statements certified
by the chief financial officer of Borrowers that Borrowers are in compliance
with all the terms, conditions, covenants and warranties of this Agreement;
6.1.3 No later than thirty (30) days after the close of each
month, Borrowers' balance sheets as of the close of such month and their income
statements for that portion of the then current fiscal year through the end of
such month certified by Borrowers' chief financial officer as being complete,
correct, and fairly representing their respective financial condition and
results of operations;
6.1.4 Within ten (10) days each is required to be filed, copies
of all of Borrowers' tax returns; and
6.1.5 Such other information concerning the Collateral as
Lender may reasonably request.
6.2 OTHER INFORMATION.
6.2.1 Maintain accurate books and records concerning their
respective businesses;
6.2.2 Upon request, furnish to Lender such information,
statements, lists of property and accounts, budgets, forecasts, or reports as
Lender may reasonably request with respect to the respective business, affairs,
and financial condition of Borrowers; and
6.2.3 Permit Lender or any representatives thereof, during
usual business hours, without notice to Borrowers, to inspect each of Borrowers'
respective properties and to inspect, audit, make copies of, and make extracts
from Borrowers' books and accounts.
6.3 INDEMNIFICATION. Indemnify and save Lender harmless from any and
all liability with respect to any stamp or other taxes (other than transfer or
income taxes) which may be determined to be payable in connection with the
execution of the Documents or any action of Lender with respect to the
Collateral, including, without limitation, the transfer of the Collateral to
Lender's name or that of Lender's nominee or any purchaser at a foreclosure
sale.
-14-
<PAGE>
6.4 TAXES, EXPENSES AND OBLIGATIONS REGARDING BORROWERS' PROPERTY.
Make timely payment or deposit of all taxes, assessments, contributions or other
obligations required of Borrowers. If Borrowers fail to make any such payment or
deposit or furnish the required proof, Lender may, in its sole discretion and
without notice to or consent from Borrowers, and whether or not such taxes,
assessments, contributions or obligations are secured by liens in and to the
Collateral, or whether or not such liens, if any, are senior or junior to the
liens of Lender in and to the Collateral, make payment of the same or any part
thereof, or set up such reserves in Borrowers' Account as Lender deems necessary
to satisfy the liability therefore, or both. Lender may conclusively rely on
statements of the amount owing or other official statements issued by the
appropriate governmental agency. Any payment made by Lender (i) shall constitute
neither (A) an agreement by Lender to make similar payments in the future, nor
(B) a waiver by Lender of any default under the Documents, and (ii) shall be
deemed part of the Obligations under this Agreement and shall accrue interest at
the rate(s) set forth in this Agreement. Lender need not inquire into, nor
contest the validity of, any expense, tax, security interest, encumbrance or
lien, and the receipt of the usual official notice requiring the payment thereof
shall be conclusive evidence that the same was validly due and owing.
6.5 INSURANCE. Maintain: (a) insurance on all insurable property
owned or leased by Borrowers in the manner, to the extent and against at least
such risks (in any event, including but not limited to fire and business
interruption insurance) as usually maintained by owners of similar businesses
and properties in similar geographic areas, and (b) adequate insurance against
Workers' Compensation. All such insurance shall be in amounts and form and with
insurance companies acceptable to Lender in its sole discretion. Borrowers shall
furnish to Lender: (i) upon written request, any and all information concerning
such insurance carried; (ii) lender loss payable endorsements naming Lender as
loss payee, in form and substance satisfactory to Lender; and (iii) at least
annually and on such other times as reasonably requested by Lender, certificates
of insurance from such insurance companies, showing Lender as loss payee. All
policies of insurance shall provide for not less than thirty (30) days prior
written cancellation notice to Lender.
6.6 NOTICE OF EVENTS. Give Lender prompt written notice of any Event
of Default or any event which with the giving of notice or passage of time, or
both, would become an Event of Default.
6.7 ERISA REPORTS. Furnish to Lender: (a) as soon as possible, and in
any event within thirty (30) days after Borrowers or any of their respective
subsidiaries know or has reason to know that any Reportable Event, as defined in
Title IV of ERISA with respect to any employee benefit plan ("Plan") subject to
ERISA and maintained by Borrowers or any member of a Controlled Group of which
Borrowers are a part, a statement of the chief financial officer of Borrowers or
the affected subsidiary setting forth details of such Reportable Event and
-15-
<PAGE>
the actions which Borrowers or the affected subsidiary proposes to take with
respect thereto; (b) a copy of the notice of such Reportable Event given to the
Pension Benefit Guaranty Corporation, if a copy of such notice is available to
Borrowers; (c) prompt written notice of any decision by Borrowers, any
subsidiary or any member of the Controlled Group to terminate or withdraw from
any Plan; and (d) promptly after receipt thereof, a copy of any notice of intent
to terminate any Plan or to appoint a trustee to administer any Plan which
Borrowers, any subsidiary or any member of the Controlled Group may receive from
the Pension Benefit Guaranty Corporation or the Internal Revenue Service with
respect to any Plan.
6.8 NOTICE OF LITIGATION. Give prompt written notice to Lender of any
proceedings against Borrowers involving amounts in excess of $50,000 not fully
covered by insurance, any substantial claim or dispute which may exist between
Borrowers and any Person, any labor controversy resulting in or threatening to
result in a strike against Borrowers, or any proposal by any public authority to
acquire a material portion of the respective assets or businesses of Borrowers.
6.9 EVIDENCE OF OWNERSHIP. Deliver to Lender at any time, upon
request of Lender, all invoices, bills of sale, or other documents, satisfactory
to Lender, in its sole discretion, to evidence Borrowers' ownership of any and
all Collateral.
6.10 COOPERATION. Execute and deliver to Lender any and all documents,
and do or cause to be done any and all other acts reasonably deemed necessary by
Lender, in its sole discretion, to effect the provisions and purposes of this
Agreement or any of the Documents.
6.11 NOTICE OF UNINSURED LOSS. Give Lender written notice of any
uninsured loss in excess of $50,000 in each instance.
6.12 LOCATION OF COLLATERAL. Give Lender written notice immediately
upon forming an intention to change the location of their respective chief
places of business or any of the Collateral.
6.13 CHANGE IN NAME. Give Lender written notice immediately upon
forming an intention to change their respective names or forms of business
organization.
6.14 MAINTENANCE OF EXISTENCE. Preserve and maintain their respective
legal existence and all rights, privileges, licenses, permits, and franchises
necessary or desirable in the normal conduct of their respective businesses,
conduct their respective businesses in an orderly, efficient and regular manner,
and comply with all applicable laws and regulations and the terms of any
indenture, contract or other instrument to which they may be a party or under
which they or their properties may be bound.
-16-
<PAGE>
6.15 GUARANTORS' FINANCIAL STATEMENTS. Cause each Guarantor to furnish
to Lender, by March 1st of each year, all of such Guarantor's financial
statements and income tax returns for the preceding fiscal year, including such
Guarantor's balance sheet and income statement for such fiscal year.
6.16 NOTICE TO LENDER UPON PERCEIVED BREACH. Give Lender written
notice, within ten (10) days of Borrowers' becoming aware thereof, of the
occurrence of any action or inaction of Lender which Borrowers believes may (a)
be actionable against Lender, or (b) give rise to a defense to payment hereunder
for any reason, including without limitation, commission of a tort or violation
of any contractual duty or duty implied at law.
6.17 NOTICE TO LENDER RE: EXPANSION OF BUSINESS. Give Lender written
notice immediately upon forming the intention to expand their respective
businesses to add any retail stores above the total amount of eighty-five (85).
7. BORROWERS' NEGATIVE COVENANTS. Until full and indefeasible payment of
the Obligations, Borrowers will not, without the prior written consent of
Lender:
7.1 COLLATERAL. Except in the ordinary course of business, waive,
amend, or vary the terms of any Account Receivable, including but not limited to
the postponement of payment thereof.
7.2 LIENS. Suffer to exist any lien (including any encumbrance or
security interest) of any kind upon any of their respective assets, whether now
owned or hereafter acquired, except Permitted Liens.
7.3 SALE OF ASSETS. Sell, abandon, or otherwise dispose of any of
their respective assets except in the ordinary course of business.
7.4 CONSOLIDATION, MERGER, ETC. Consolidate with, merge into, or sell
(whether in one transaction or in a series of transactions) all or substantially
all of their respective assets to any Person.
7.5 INVESTMENT, ADVANCES, AND GUARANTIES. Other than in the ordinary
course of business, advance funds to any Person (whether by way of loan, stock
purchase, capital contribution, or otherwise) other than loans not exceeding
$25,000 in any instance to employees of Borrowers, or incur any Indebtedness
with respect to the obligations of any Person, including by way of a guaranty of
indebtedness, or acquire by purchase of stock or by purchase of assets in
exchange for cash, shares of capital stock, or other securities of Borrowers or
any other Person, all or any substantial division or portion of the assets or
business of any other Person.
-17-
<PAGE>
7.6 NO INDEBTEDNESS. Create, incur, assume, suffer to exist, or
otherwise be or become liable in respect of any Indebtedness in excess of the
aggregate of $100,000, exclusive of the Obligations, except (a) trade debts
incurred in the ordinary course of business, or (b) indebtedness which is fully
subordinated to the Obligations; PROVIDED, THAT, the aggregate amount of such
subordinated indebtedness shall not at any time exceed Six Million Five Hundred
Twenty Thousand Dollars ($6,520,000), or (c) indebtedness due to any Guarantor
which is fully subordinated to the Obligations.
7.7 DIVIDENDS, REDEMPTIONS.
7.7.1 Declare or pay any dividend on, or declare or make any
other distribution on account of, any shares of any class of its stock now or
hereafter outstanding, unless approved by Lender;
7.7.2 Directly or indirectly redeem, retire, purchase, or
otherwise acquire beneficially any shares of any class of their own stock now or
hereafter outstanding or set apart any sum for any such purpose other than the
repurchase of stock owned by executives in the event of termination of their
employment or similar circumstances.
7.9 LEASE OBLIGATIONS. Directly or indirectly incur, assume,
guarantee, or have outstanding any Indebtedness under a lease (including rent
and other periodic payments in respect of any capitalized lease obligations)
payable in any fiscal year exceeding $5,000,000 in the aggregate.
7.10 COMPENSATION, SALARY, ETC. Pay aggregate compensation, including
salaries, withdrawals, fees, bonuses, commissions, drawing accounts, and other
payments, whether directly or indirectly, in money or otherwise, to all of
Borrowers' executives, officers, directors, and stockholders in an aggregate
amount in excess of $1,100,000 for any fiscal year.
7.11 FINANCIAL COVENANTS.
7.11.1 TANGIBLE NET WORTH. Permit their consolidated Tangible
Net Worth at any time to be less than $8,500,000.00; or
7.11.2 DEBT-TO-WORTH RATIO. Permit the ratio of their
consolidated aggregate debt to Tangible Net Worth at any time to be greater than
1.3 to 1.
7.11.3 WORKING CAPITAL. Permit their consolidated working
capital to be less than $4,500,000.00.
7.12 TRANSACTIONS WITH AFFILIATES. Enter into any transaction with any
Person affiliated with Borrowers on terms less favorable to Borrowers than at
the time available to Borrowers from any Person not affiliated with Borrowers.
-18-
<PAGE>
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 EVENTS OF DEFAULT. Each of the following events or conditions
shall constitute an "Event of Default":
8.1.1 Borrowers default for a period of five (5) days after
notice from Lender in the payment of any Obligations when due, whether at
maturity, upon acceleration, or otherwise;
8.1.2 Any of Borrowers are in material default with respect to
the Documents for a period of thirty (30) days;
8.1.3 Any of Borrowers or any Guarantor (a) fail to pay any
Indebtedness for borrowed funds when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), or (b) fail to perform
or observe any term, covenant, or condition of any agreement relating to any
such Indebtedness, if the effect of such failure to perform or observe is the
acceleration of the maturity of such Indebtedness, whether or not such failure
is waived by the obligee of such Indebtedness; or any such Indebtedness is
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof;
8.1.4 An order for relief is entered against any of Borrowers
or any Guarantor by any United States Bankruptcy Court; or any of Borrowers or
any Guarantor does not generally pay its debts as they become due (within the
meaning of 11 U.S.C. 303(h) as at any time amended, or any successor statute
thereto); or any of Borrowers or any Guarantor makes an assignment for the
benefit of creditors; or any of Borrowers any Guarantor applies for or consents
to the appointment of a custodian, receiver, trustee, or similar officer for it
or for all or any substantial part of its property, or such custodian, receiver,
trustee, or similar officer is appointed without the application or consent of
such Borrowers or such Guarantor; or any of Borrowers or any Guarantor
institutes (by petition, application, answer, consent, or otherwise) any
bankruptcy, insolvency, reorganization, moratorium, arrangement, readjustment of
debt, dissolution, liquidation or similar proceeding relating to it under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application, or otherwise) against any of Borrowers or any Guarantor;
or any judgment, writ, warrant of attachment, execution, or similar process
shall be issued or levied against a substantial portion of the property of any
of Borrowers or any Guarantor;
8.1.5 An adverse change occurs with respect to the financial
condition or operations of any of Borrowers which results in a material
impairment of the prospect of repayment of such Borrowers' Indebtedness;
-19-
<PAGE>
8.1.6 A sale, hypothecation or other disposition is made of
twenty (20%) percent or more of the beneficial interest in any class of voting
stock of any of Borrowers;
8.1.7 Any Reportable Event occurs which the Lender determines
in good faith to constitute grounds for the termination of any Plan or Plans by
the Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer or liquidate
any Plan or Plans (and such Reportable Event is continuing thirty (30) days
after written notice of such determination by the Lender has been given to
Borrowers), or a decision has been made by any of Borrowers, any subsidiary or
any member of the Controlled Group to terminate, file a notice of termination
with respect to, or withdraw from, any Plan or Plans, or a trustee has been
appointed by the appropriate United States District Court to administer any Plan
or Plans, or the Pension Benefit Guaranty Corporation has instituted proceedings
to terminate any Plan or Plans or to appoint a trustee to administer any Plan or
Plans, and, in case of the occurrence of any of the above, the aggregate amount
of Borrowers' liability to the Pension Benefit Guaranty Corporation under
Sections 4062, 4063 and 4064 of ERISA as determined in good faith by the Lender
could exceed 5% of consolidated tangible net worth, and such liability of
Borrowers is not covered in full, for the benefit of Borrowers, by insurance;
8.1.8 Any Guarantor fails within thirty (30) days after notice
from Lender to perform or observe any of such Guarantor's obligations under any
Guaranty, or shall notify Lender of its intention to rescind, modify, terminate
or revoke the Guaranty with respect to future transactions, or the Guaranty
shall cease to be in full force and effect for any reason whatever;
8.1.9 Any Subordinating Creditor fails to perform or observe
any of such Subordinating Creditor's obligations under any Subordination
Agreement, or notifies Lender of the Subordinating Creditor's intention to
rescind, modify, terminate or revoke the Subordination Agreement with respect to
future transactions, or the Subordination Agreement ceases to be in full force
and effect for any reason whatsoever;
8.1.10 The Key Employee fails to devote 100% of his efforts in
furtherance of the respective business affairs of Borrowers for any one (1)
month, or ceases to be employed by Borrowers;
8.1.11 Any material provision of this Agreement or any of the
Documents ceases, for any reason, to be valid and binding on Borrowers;
8.1.12 A change unacceptable to Lender occurs in the majority of
the board of directors of any of Borrowers, or in the office of the president of
any Borrower, from that which exists on the date hereof;
-20-
<PAGE>
8.1.13 The indictment or threatened indictment of any Obligor
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceedings against any Obligor, pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of
any of the property of such Obligor, which reasonably might be expected to
materially adversely affect the business prospects or condition of any Borrower;
or
8.1.14 Lender, for any reason, in good faith, reasonably deems
itself insecure with respect to the prospect of repayment or performance of
Borrowers' Obligations.
8.2 REMEDIES. Upon the occurrence of any Event of Default,
automatically, at Lender's option:
8.2.1 Lender's obligation to make any Credit Accommodation
available to Borrowers shall terminate;
8.2.2 All Obligations shall, without presentment, demand,
protest, or notice of any kind, all of which are hereby expressly waived, be
forthwith due and payable;
8.2.3 all Obligations shall accrue interest at the Default
Rate; and
8.2.4 Lender may, immediately and without expiration of any
period of grace, enforce payment of all Obligations and exercise any and all
other remedies granted to it under the Documents, at law, in equity, or
otherwise, including but not limited to the placement of Lender's agents or
employees on Borrowers' premises to take all actions necessary to preserve the
value of the Collateral. If Lender shall, pursuant to the rights granted to
Lender under the terms of this Agreement or applicable law, dispose of any or
all of the Collateral after the occurrence of an Event of Default, such
disposition shall be deemed commercially reasonable if, in the written opinion
of three (3) commercial loan officers with three (3) or more years of workout
experience each, the manner of the disposition is not inconsistent with the
manner in which such commercial loan officers would have handled the
disposition.
9. TERMINATION. This Agreement shall terminate on the Termination Date,
at which time the unpaid principal balance of the Obligations shall be
immediately due and payable.
10. NO LIEN TERMINATION WITHOUT RELEASE. In recognition of Lender's right
to have all its attorneys' fees and other expenses incurred in connection with
this Agreement secured by the Collateral, notwithstanding payment in full of all
Obligations by Borrowers, Lender shall not be required to record any
terminations or satisfactions of any of its liens on the Collateral unless and
until Borrowers and all Guarantors have executed and delivered to Lender general
releases which conform to California Civil Code Section 1541-2.
-21-
<PAGE>
11. DISCLAIMER FOR NEGLIGENCE. Lender shall not be liable for any claims,
demands, losses or damages made, claimed or suffered by Borrowers, except such
as may arise through or could be caused by Lender's gross negligence or willful
misconduct.
12. LIMITATION OF CONSEQUENTIAL DAMAGE. Lender shall not be responsible
for any lost profits of Borrowers arising from any breach of contract, tort
(excluding the Lender's gross negligence or willful misconduct), or any other
wrong arising from the establishment, administration or collection of the
Obligations.
13. SET-OFF. Lender may exercise its rights of set-off upon the occurrence
of any Event of Default with respect to the Obligations in the same manner as if
the Obligations were unsecured. Any reserves or balances to the credit of
Borrowers and any other property or assets of Borrowers in the possession of
Lender may be held by Lender as security for any Obligations and applied in
whole or partial satisfaction of such Obligations when due.
14. INDEMNIFICATION. Borrowers will indemnify and hold harmless Lender and
each person, if any, who controls Lender within the meaning of the Securities
Act of 1933 (an "Indemnitee"), against any lawsuits, claims, damages,
liabilities or expenses (including, but not limited to, the reasonable cost of
investigating and defending against any claims therefor, and any attorneys' fees
and expenses incurred in connection therewith), which may be incurred by or
asserted against any Indemnitee in connection with: (a) any proceeding arising
in connection with the Documents or Borrowers' use of the proceeds of any Credit
Accommodation, except any such claim, damage, liability or expense arising from
Lender's own gross negligence or willful misconduct; and (b) any violation of
any environmental law, rule or regulation or the release of any toxic substance
on or near any real property which constitutes part of the Collateral; provided,
however, that in no case shall Borrowers be liable with respect to any claims
made against any Indemnitee unless such Indemnitee has given Borrowers timely
written notice after the summons or other legal process first giving information
of the nature of the claim has been served upon Indemnitee.
15. ACCOUNT STATED. Lender shall render to Borrowers a statement setting
forth the transactions arising hereunder. Each statement shall be considered
correct and binding upon Borrowers as an account stated, except to the extent
that Lender receives, within sixty (60) days after the mailing of such
statement, written notice from Borrowers of any specific exceptions by Borrowers
to that statement.
16. RETENTION OF RECORDS. Lender shall retain any documents, schedules,
invoices or other papers delivered by Borrowers only for such period as Lender,
at its sole discretion, may determine necessary.
-22-
<PAGE>
17. NOTICES TO THIRD PARTIES. Lender shall have the right at any time to
give any Guarantor or Subordinating Creditor notice of any fact or event
relating to this Agreement, as Lender may deem necessary or desirable in
Lender's sole discretion, including, without limitation, Borrowers' financial
condition. Borrowers shall provide to each Guarantor and Subordinating Creditor
a copy of each notice, statement or report required to be given to Lender under
any of the paragraphs of this section.
18. INFORMATION TO PARTICIPANTS. Lender may furnish any financial or other
information concerning Borrowers, or any of their respective Subsidiaries,
heretofore or hereafter provided by Borrowers to Lender, pursuant to this
Agreement or otherwise, to any prospective or actual purchaser of any
participation or other interest in any loans made by Lender to Borrowers
(whether under this Agreement or otherwise), or to any prospective purchaser of
any securities issued or to be issued by Lender.
19. BORROWERS' INSTRUCTIONS TO AUDITORS. Borrowers hereby irrevocably
instruct their outside auditors, as such may change from time to time (the
"Auditors") to: (a) send Lender copies of all final financial statements and
reports which are prepared as a result of any audit or other review of the
operations, finances or internal controls of Borrowers, specifically including
any reports dealing with improper accounting practices, defalcations, financial
reporting errors or misstatements or fraud; and (b) meet with Lender, upon
Lender's request, to discuss said financial statements and reports and any
questions Lender may have regarding same. Lender is irrevocably permitted to
advise the Auditors of this clause by delivering a copy of this Agreement to
them, and the Auditors are irrevocably authorized and directed, upon receipt
thereof (Borrowers' hereby waiving any claims against the Auditors arising out
of their compliance with this direction) to:
19.1 Provide copies of all such reports to Lender as same are
prepared and delivered to Borrowers;
19.2 Provide copies of all such reports previously prepared and
delivered to Borrowers between the date of this Agreement and the date of
Lender's request.
20. ENTIRE AGREEMENT. This Agreement and the Other Documents embody the
entire agreement and understanding among and between the parties hereto and
supersede all prior agreements and understandings relating to the subject matter
hereof. No course of prior dealings between the parties, no usage of the trade,
and no parol or extrinsic evidence of any nature, shall be used or be relevant
to supplement, explain or modify any term used herein. In the event of any
conflict between a term or condition of this Agreement and a term or condition
of any document(s) executed in connection herewith, the term or condition of
this Agreement shall govern. This Agreement has been fully reviewed and
negotiated between the parties and no uncertainty
-23-
<PAGE>
or ambiguity in any term or provision of this Agreement shall be construed
strictly against Lender or Borrowers under any rule of construction or
otherwise. This Agreement and the Other Documents supersede the Original
Documents and this Agreement specifically amends and restates the Original
Credit Agreement and the Original Notes in their entirety.
21. NOTICES.
21.1 All notices required to be given to any party other than
Lender shall be deemed given upon the first to occur of:
21.1.1 deposit thereof in a receptacle under the control of the
United States Postal Service;
21.1.2 transmittal by electronic means to a receiver under the
control of such party; or
21.1.3 actual receipt by such party or an employee or agent of
such party.
21.2 All notices required to be given to Lender hereunder shall be
deemed given upon actual receipt by a responsible officer of Lender.
21.3 For the purposes hereof, notices hereunder shall be sent to
the following addresses, or to such other addresses as each such party may in
writing hereafter indicate:
BORROWERS
ADDRESS: 121 Gray Avenue
Santa Barbara, California 93101
OFFICER: Anthony J. Wall, Esq.
FAX NUMBER: (805) 962-9460
LENDER
ADDRESS: 206 North Beverly Drive
Beverly Hills, California 90210
OFFICER: Mr. David Keinan
FAX NUMBER: (310) 859-1021
22. ATTORNEYS' FEES. Borrowers agrees to reimburse Lender on demand for:
22.1 the actual amount of all costs and expenses, including
reasonable attorneys' fees, which Lender has incurred or may incur in:
22.1.1 negotiating, preparing, or administering this Agreement
and any documents prepared in connection herewith;
-24-
<PAGE>
21.1.2 any way arising our this Agreement;
21.1.3 protecting, preserving or enforcing any lien, security
interest or other right granted by Borrowers to Lender or arising under
applicable law, whether or not suit is brought;
22.2 the actual costs, including photocopying (which, if performed
by Lender's employees, shall be at the rate of $.10/page), travel, and
attorneys' fees and expenses incurred in complying with any subpoena or other
legal process attendant to any litigation in which Borrowers is a party;
22.3 either (the choice of which shall be in the sole discretion
of Lender):
22.3.1 the actual amount of all costs and expenses, including
reasonable attorneys' fees, which Lender may incur in enforcing this Agreement
and any documents prepared in connection herewith, or in connection with any
federal or state insolvency proceeding commenced by or against Borrowers,
including those (a) arising out the automatic stay, (b) seeking dismissal or
conversion of the bankruptcy proceeding or (c) opposing confirmation of
Borrowers' plan thereunder.
All such costs and expenses of Lender which have been incurred on or prior to
the execution hereof shall be paid contemporaneously with the execution hereof.
Any such costs and expenses incurred subsequent to the execution hereof shall
become part of the Obligations when incurred and may be added to the outstanding
principal amount due hereunder.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement,
PROVIDED that, this Agreement shall not become effective until all counterparts
hereof have been executed by all parties hereto.
24 SURVIVAL. All representations, warranties and agreements herein
contained shall be effective so long any portion of this Agreement remains
executory.
25. SEVERABILITY. In the event any one or more of the provisions contained
in this Agreement is held to be invalid, illegal or unenforceable in any
respect, then such provision shall be ineffective only to the extent of such
prohibition or invalidity, and the validity, legality, and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
26. AMENDMENT. Neither this Agreement nor any provisions hereof may be
changed, waived, discharged or terminated orally (even if supported by new
consideration), but only by an instrument in writing
-25-
<PAGE>
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought.
27. WAIVER. No failure to exercise and no delay in exercising any right,
power, or remedy hereunder shall impair any right, power, or remedy which Lender
may have, nor shall any such delay be construed to be a waiver of any of such
rights, powers, or remedies, or any acquiescence in any breach or default
hereunder; nor shall any waiver of any breach or default of Borrowers hereunder
be deemed a waiver of any default or breach subsequently occurring. All rights
and remedies granted to Lender hereunder shall remain in full force and effect
notwithstanding any single or partial exercise of, or any discontinuance of
action begun to enforce, any such right or remedy. The rights and remedies
specified herein are cumulative and not exclusive of each other or of any rights
or remedies which Lender would otherwise have. Any waiver, permit, consent or
approval by Lender of any breach or default hereunder must be in writing and
shall be effective only to the extent set forth in such writing and only as to
that specific instance.
28. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their successors and assigns.
29. CHOICE OF LAW. This Agreement and all transactions contemplated
hereunder and/or evidenced hereby shall be governed by, construed under, and
enforced in accordance with the laws of the State of California.
30. STATUTE OF LIMITATIONS. Borrowers waives the pleading of any statute
of limitations with respect to any and all actions in connection herewith. To
the extent that Borrowers may now or in the future have any claim against
Lender, arising out of this agreement or the transaction contemplated herein
whether in contract or tort or otherwise, Borrowers must assert such claim
within one year of it accruing. Failure to assert such claim within one year
shall constitute of waiver thereof. Borrowers agrees that such period is
reasonable and sufficient for it to investigate and act upon the claim. This
Section shall survive any termination of this agreement. A copy of the waiver
may be filed as a written consent in any judicial proceeding.
31. WAIVER OF TRIAL BY JURY. IN RECOGNITION OF THE HIGHER COSTS AND DELAY
WHICH MAY RESULT FROM A JURY TRIAL, THE PARTIES HERETO WAIVE ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING HEREUNDER,
OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT HERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE, AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL
-26-
<PAGE>
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
BIG DOG HOLDINGS, INC.
By: /s/ Andrew Feshbach
--------------------------------
Title: PRESIDENT
-----------------------------
BIG DOG USA, INC.
By: /s/ Andrew Feshbach
--------------------------------
Title: PRESIDENT
-----------------------------
FORTUNE DOGS INC.
By: /s/ Andrew Feshbach
--------------------------------
Title: PRESIDENT
-----------------------------
ISRAEL DISCOUNT BANK LIMITED, LOS
ANGELES AGENCY
By: /s/ (Illegible)
--------------------------------
Title: (Illegible)
-----------------------------
-27-
<PAGE>
FIRST AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THE PARTIES HERETO hereby Amend that certain Amended and Restated Credit
Agreement ("the Agreement") dated June 30, 1995 and the other loan documents, as
defined below, effective as of February 15, 1996, as follows:
1. AMENDMENT NOT A NOVATION. This Amendment amends and supplements all
the loan documents ("Original Documents") as defined by Section 1.2.25 and
"Documents" as defined by Section 1.2.10 of the Agreement. This Amendment is
not, and should not be construed as, a novation. All terms of the Original
Documents and Documents not specifically amended and altered by this Amendment
will remain in full force and effect, and the terms of which are incorporated
herein by reference.
2. INCREASE OF REVOLVING LINE OF CREDIT. Sections 1.2.4, 1.2.21,
1.2.31, 1.2.32, 1.2.33, 2.1, and 2.2 of the Agreement are amended only to
increase the Revolving Credit Facility, as defined by Sections 1.2.31, and
2.1, to $7,000,000. The total amount of indebtedness ("Maximum Commitment"),
as defined by Section 1.2.21 of the Agreement shall be increased to
$7,000,000.
3. RENEWAL OF LINE OF CREDIT. Section 1.2.45 of the Agreement is amended
only to provide that the Revolving Credit facility is extended to May 2, 1997,
and which time the Revolving Credit Facility shall terminate, unless terminated
early pursuant to the terms of the Agreement.
4. TERM LOAN SATISIFIED BY LINE OF CREDIT PROCEEDS. Sections 1.2.41,
1.2.42, 1.2.43, 1.2.44, and 2.3 of the Agreement are amended only to eliminate
the Term Loan Facility, as defined by Section 1.2.41 of the Agreement. The Term
Loan shall be satified by advancing available credit on the Revolving Credit
Facility to the extent necessary to satisfy the Term Loan Facility.
5. REDUCTION OF INTEREST RATE. Section 1.2.16 of the Agreement is
amended to only reduce the interest rate from Prime plus .75% to Prime plus
.50%. This reduction shall be effective on the last date of any signator to
this Agreement.
6. EXONERATION OF GUARANTOR. Israel Discount Bank shall exonerate and
eliminate Fortune Fashions, Inc. as a guarantor of the Revolving Credit
Facility.
7. GUARANTOR CONSENT AND OTHER GUARANTIES TO REMAIN IN FORCE. The
Guarantors, Fred Kayne, Lenore Kayne, Andrew Feshbach, and Kendra Feshbach,
hereby acknowledge that,
1
<PAGE>
in accordance with Section 6.1 of the their Guaranty, that the Original
Documents, and Credit Documents, as defined by Section 1.1 of the Guaranty, are
being modified. The Guarantors agree and consent to the modifications set forth
above. The Guarantors agree and acknowledge that their Guaranties, and all
terms contained therein, shall remain in full force and effect.
8. ENTIRE AGREEMENT. This Amendment embodies the entire agreement and
understanding among the parties hereto, except as to the Original Documents and
Documents defined above. There are no oral agreements or understandings. No
course of prior dealings, usage of trade, or oral conversation shall be
admissible to supplement or explain this Amendment. The parties have read
Section 20 of the Agreement, the terms of which are restated and incorporated
here by reference.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
the Amended and Restated Credit Agreement to be executed as of the date first
above written.
BIG DOG USA, INC. BIG DOG HOLDINGS, INC.
By: /s/ Andrew Feshbach By: /s/ Andrew Feshbach
-------------------------------- ------------------------------------
Andrew Feshbach, President Date Andrew Feshbach, President Date
FORTUNE DOGS INC. ISRAEL DISCOUNT BANK
LIMITED, LOS ANGELES
AGENCY
By: /s/ Andrew Feshbach
--------------------------------
Andrew Feshbach, President Date By: /s/ David Keinan
------------------------------------
David Keinan, Sr. Vice President Date
and Manager
FRED KAYNE LENORE KAYNE
/s/ Fred Kayne 4/10/96 /s/ Lenore Kayne 4/14/96
- ----------------------------------- ---------------------------------------
Guarantor Date Guarantor Date
ANDREW FESHBACH KENDRA FESHBACH
/s/ Andrew Feshbach /s/ Kendra Feshbach
- ----------------------------------- ---------------------------------------
Guarantor Date Guarantor Date
2
<PAGE>
SECOND AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THE PARTIES HERETO, BIG DOG HOLDINGS, Inc., a Delaware Corporation and BIG DOG
USA, INC., a California corporation (individually and collectively "Borrowers,"
Debtors," or "Makers"), Fred Kayne, Lenore Kayne, Andrew D. Feshbach, Kendra
Feshbach, and Feshbach Family Trust, U/A DTD 7-26-95, ("Guarantors") and Israel
Discount Bank Limited ("Lender," "Bank," "Creditor," or "Payee"), hereby Amend
that certain Amended and Restated Credit Agreement ("the Agreement") dated June
30, 1995 and the other loan documents, as defined below effective as of April
30, 1996, as follows:
RECITALS
A. Borrowers are currently indebted to Lender directly and contingently
and Guarantors are currently indebted to Lender contingently, pursuant to the
terms and conditions of the AGREEMENT, made by Borrowers to the order of Bank,
as payee; and together with all other documents executed in connection,
therewith, as such documents may have been, at any time, amended, otherwise
modified, renewed or extended to the date hereof, (the "Credit Agreements"); and
B. Borrowers and Lender have agreed to amend the Credit Agreements as set
forth herein.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the parties agree as follows;
AGREEMENT
1. AMENDMENT NOT A NOVATION. This Amendment amends and supplements all
the loan documents ("Original Documents") as defined by Section 1.2.25 and
"Documents" as defined by Section 1.2.10 of the Agreement. This Amendment is
not, and should not be construed as, a novation. All terms of the Credit
Agreements not specifically amended and altered by this Amendment will remain
in full force and effect, and the terms of which are incorporated herein by
reference.
2. REVIEWED JUNE 30 FINANCIAL STATEMENT. Section 6.1.2 of the Agreement
is amended to add at the beginning of the Section "Effective January 1, 1997,".
3. NOTICE TO LENDER RE: EXPANSION OF BUSINESS. Section 6.17 of the
Agreement is amended to change the total number of retail stores to 130.
4. INVESTMENT, ADVANCES, AND GUARANTIES. Section 7.5 of the Agreement is
amended to change the reference "$25,000" to "$30,000" and to read: "Other than
in the ordinary course of business, advance funds to any Person (whether by way
of loan, stock purchase, capital contribution, or otherwise) other than loans
not exceeding Thirty Thousand Dollars ($30,000) in any instance to employees of
Borrowers, or loans not exceeding $150,000 in any instance, or $1,000,000 in the
aggregate, made to employees and/or consultants under the Big Dog Holdings, Inc.
1996 Stock Incentive Plan (the "Stock Plan") which loans are used to purchase
shares of stock of Big Dog
Page 1 of 3 - 2nd Amendment of RCA/Big Dog - 11/21/96
<PAGE>
Holdings, Inc. and which are secured by such stock, or incur any Indebtedness
with respect to the obligations of any Person, including by way of a guaranty of
indebtedness, or acquire by purchase of stock or by purchase of assets in
exchange for cash, shares of capital stock, or other securities of Borrowers, or
any other Person, all or any substantial division or portion of the assets or
business of any other Person."
5. NO INDEBTEDNESS. Section 7.6 of the Agreement is amended to change
"Six Million Five Hundred Twenty Thousand Dollars ($6,520,000)" to "Seven
Million Nine Hundred Twenty Thousand Dollars ($7,920,000)" and to add "or (d)
equipment, furniture and fixtures, and leasehold improvement debts (including
capital lease debts) incurred in the ordinary course of business not exceeding
in the aggregate One Million Three Hundred Thousand Dollars ($1,300,000).
6. DIVIDENDS, REDEMPTIONS. Section 7.7.2 of the Agreement is amended to
change "executive officers" to "employees and consultants."
7. LEASE OBLIGATIONS. Section 7.9 of the Agreement is amended to
increase the aggregate Indebtedness under a lease payable in any fiscal year to
Thirteen Million Dollars ($13,000,000) from $5,000,000.
8. COMPENSATION, SALARY, ETC. Section 7.10 of the Agreement is amended
to change "$1,100,000 to $1,500,000."
9. DEBT-TO-WORTH RATIO. Section 7.11.2 of the Agreement is amended to
read: "Permit the ratio of their consolidated aggregate debt to Tangible Net
Worth at any time to be greater than 1.3:1 except for the period May 1, 1996
through July 30, 1996 permit the ratio of their consolidated aggregate debt to
Tangible Net Worth at any time to be greater than 1.5:1."
10. NO MODIFICATION OF OTHER OBLIGATIONS. Except as is otherwise
specifically set forth herein, all obligations of Borrower and Lender, shall
remain unmodified and in full force and effect.
11. COSTS; EXPENSES; ATTORNEYS' FEES. Borrower shall reimburse Lender on
demand for all costs and expenses, including reasonable attorneys' fees expended
or incurred by Lender in the present and any future negotiation, preparation and
executions of this Agreement.
12. EXECUTION IN COUNTERPARTS. This Amendment Agreement may be executed
in counterparts and each counterpart shall constitute one and the same original
document.
13. USE OF COPY IN LIEU OF ORIGINAL. A copy of this Amendment Agreement
shall have the same force and effect as the original.
14. GUARANTOR CONSENT AND OTHER GUARANTIES TO REMAIN IN FORCE. The
Guarantors, Fred Kayne, Lenore Kayne, Andrew Feshbach, Kendra Feshbach, and
Feshbach Family Trust, U/A dated 7-26-95, hereby acknowledge that, in accordance
with Section 6.1 of their Guaranty, that the Credit Agreements are being
modified. The Guarantors agree and consent to the modifications set forth
above. The Guarantors agree and acknowledge that their Guaranties, and all
terms contained therein, shall remain in full force and effect.
Page 2 of 3 - 2nd Amendment of RCA/Big Dog - 11/21/96
<PAGE>
15. ENTIRE AGREEMENT. This Amendment embodies the entire agreement and
understanding among the parties hereto, except as to the Credit Agreements
defined above. There are no oral agreements or understandings. No course of
prior dealings, usage of trade, or oral conversation shall be admissible to
supplement or explain this Amendment. The parties have read Section 20 of the
Agreement, the terms of which are restated and incorporated here by reference.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the day and year first written above.
BIG DOG USA, Inc. Israel Discount Bank Limited
Los Angeles Agency
By: /s/ Andrew Feshbach BY: /s/ [ILLEGIBLE]
-------------------------------- ------------------------------------
Title: President Date: Title: V.P. Date: 2/6/97
-------------- ---------- -------------- --------------
Big Dog Holdings, Inc. Feshbach Family Trust
By: /s/ Andrew Feshbach BY: /s/ Andrew Feshbach
-------------------------------- ------------------------------------
Guarantor Date
Title: President Date:
-------------- ----------
Fred Kayne - Individually Andrew Feshbach - Individually
By: /s/ Fred Kayne BY: /s/ Andrew Feshbach
-------------------------------- ------------------------------------
Guarantor Date Guarantor Date
Lenore Kayne - Individually Kendra Feshbach - Individually
By: /s/ Lenore Kayne BY: /s/ Kendra Feshbach
-------------------------------- ------------------------------------
Guarantor Date Guarantor Date
3 of 3 - 2nd Amendment of RCA/Big Dog - 11/21/96
<PAGE>
THIRD AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THE PARTIES HERETO, BIG DOG HOLDINGS, Inc., a Delaware Corporation and BIG DOG
USA, INC., a California corporation (individually and collectively "Borrowers,"
Debtors," or "Makers"), Fred Kayne, Lenore Kayne, Andrew D. Feshbach, Kendra
Feshbach, and Feshbach Family Trust, U/A DTD 7-26-95, ("Guarantors") and Israel
Discount Bank Limited ("Lender," "Bank," "Creditor," or "Payee"), hereby Amend
that certain Amended and Restated Credit Agreement ("the Agreement") dated June
30, 1995 and the other loan documents, as defined below effective as of May 3,
1997, as follows:
RECITALS
A. Borrowers are currently indebted to Lender directly and contingently
and Guarantors are currently indebted to Lender contingently, pursuant to the
terms and conditions of the AGREEMENT, made by Borrowers to the order of Bank,
as payee; and together with all other documents executed in connection,
therewith, as such documents may have been, at any time, amended, otherwise
modified, renewed or extended to the date hereof, (the "Credit Agreements"); and
B. Borrowers and Lender have agreed to amend the Credit Agreements as set
forth herein.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the parties agree as follows;
AGREEMENT
1. AMENDMENT NOT A NOVATION. This Amendment amends and supplements all
the loan documents ("Original Documents") as defined by Section 1.2.25 and
"Documents" as defined by Section 1.2.10 of the Agreement. This Amendment is
not, and should not be construed as, a novation. All terms of the Credit
Agreements not specifically amended and altered by this Amendment will remain
in full force and effect, and the terms of which are incorporated herein by
reference.
2. INCREASE OF REVOLVING LINE OF CREDIT. Sections 1.2.4, 1.2.21, 1.2.31,
1.2.32, 1.2.33, 2.1, and 2.2 of the Agreement are amended only to increase the
Revolving Credit Facility, as defined by Sections 1.2.31 and 2.1, from
"$7,000,000" to "$10,500,000." The total amount of indebtedness ("Maximum
Commitment"), as defined by Section 1.2.21 of the Agreement shall be increased
to $10,500,000.
3. REDUCTION OF INTEREST RATE. Section 1.2.16 of the Agreement is
amended only to reduce the interest rate from "Prime plus .50%" to "Prime."
This reduction shall be effective on the last date of any signator to this
Agreement.
4. STATEMENT DATE. Section 1.2.36 of the Agreement is amended to read:
"December 31, 1996."
<PAGE>
5. RENEWAL OF LINE OF CREDIT. Section 1.2.45 of the Agreement is amended
only to provide that the Revolving Credit Facility is extended to "May 2, 1998,"
at which time the Revolving Credit Facility shall terminate, unless terminated
early pursuant to the terms of the Agreement.
6. PRIORITY INTEREST. Section 5.8 of the Agreement is amended only to
add at the end of the Section "excluding Permitted Liens."
7. INVENTORY. Section 5.12 is to be added to the Agreement to read as
follows: "(a) at a minimum, 98% of all Inventory is now and at all times
hereafter shall be of good and merchandisable quality, free from defects; (b)
at Lender's request, Borrower shall, from time to time hereafter, execute and
deliver to Lender, schedules of Inventory, in a form satisfactory to Lender,
specifying Borrower's cost and the wholesale market value of Borrower's raw
materials, work in process, finished goods, and further, specifying any other
category which Lender may request, as well as such other matters and information
relating to the Inventory as Lender may request; (c) all of the Inventory is
and shall remain free from all liens, claims, encumbrances, and purchase money
or other security interests, liens or encumbrances (except as held by Lender);
(d) Borrower does now keep and hereafter at all times shall keep correct and
accurate records itemizing and describing the kind, type, quality and quantity
of the Inventory, and its cost therefor, all of which records shall be available
upon demand to any of Lender's officers, agents and employees for inspection and
copying; (e) the Inventory is not now and shall not at any time or times
hereafter be stored with a bailee, warehouseman or similar party without
Lender's prior written consent, and, in such event, Borrower will, concurrent
therewith, cause any such bailee, warehouseman or similar party to issue and
deliver to Lender, in a form acceptable to Lender, warehouse receipts in
Lender's name evidencing the storage of the Inventory; and (f) Lender shall
have the right, during Borrower's usual business hours, to inspect and examine
the Inventory and to check and test the same as to quality, quantity, value and
condition."
8. FINANCIAL STATEMENTS. Section 6.1.2 of the Agreement is amended to
read "Deleted." The numbering of the subsequent Sections will not change.
9. FINANCIAL STATEMENTS. Section 6.1.3 of the Agreement is amended only
to add at the end of the Section "and a statement certified by Borrower's chief
financial officer detailing the number, scope, and results of the cyclical
counts of inventory that were performed by Borrower during the month."
10. OTHER INFORMATION. Section 6.2.3 of the Agreement is amended only to
add at the end of the Section "and upon such inspection pay Lender a field
examination fee of $2,500. Lender anticipates that inspections will take place
four (4) times each year, but there is no obligation of Lender to inspect, nor
any limitation to the number of inspections. Inspections may occur as often as
eight (8) times per year, and Borrower will pay Lender the Field Examination Fee
each time.
11. NOTICE OF LITIGATION. Section 6.8 of the Agreement is amended only to
increase the notification trigger from "$50,000" to "$100,000."
12. NOTICE TO LENDER RE: EXPANSION OF BUSINESS. Section 6.17 of the
Agreement is amended only to increase the total number of retail stores from
"eighty-five (85)" to "one hundred seventy (170)."
<PAGE>
13. INVESTMENT, ADVANCES, AND GUARANTIES. Section 7.5 of the Agreement is
amended only to change the reference "$30,000" to "$50,000" and to allow
acquisitions not requiring an investment, advance and/or guaranty in excess of
$2,000,000. Section 7.5 will now read as follows: "Other than in the ordinary
course of business, advance funds to any Person (whether by way of loan, stock
purchase, capital contribution, or otherwise) other than loans not exceeding
Fifty Thousand Dollars ($50,000) in any instance to employees of Borrowers, or
loans not exceeding One Hundred Fifty Thousand Dollars ($150,000) in any
instance, or One Million Dollars ($1,000,000) in the aggregate, made to
employees and/or consultants under the Big Dog Holdings, Inc. 1996 Stock
Incentive Plan (the "Stock Plan") which loans are used to purchase shares of
stock of Big Dog Holdings, Inc. and which are secured by such stock, or incur
any Indebtedness with respect to the obligations of any Person, including by way
of a guaranty of indebtedness, or acquire by purchase of stock or by purchase of
assets in exchange for cash, shares of capital stock, or other securities of
Borrowers, or any other Person, all or any substantial division or portion of
the assets or business of any other Person other than acquisitions not exceeding
Two Million Dollars ($2,000,000)."
14. NO INDEBTEDNESS. Section 7.5 (b) of the Agreement is amended only to
delete "PROVIDED, THAT, the aggregate amount of such subordinated indebtedness
shall not at any time exceed Seven Million Nine Hundred Twenty Thousand Dollars
($7,920,000)."
15. NO INDEBTEDNESS. Section 7.5 (d) of the Agreement is amended only to
increase the allowable amount from "One Million Three Hundred Thousand Dollars
($1,300,000)" to "Two Million Dollars ($2,000,000)."
16. LEASE OBLIGATIONS. Section 7.9 of the Agreement is amended only to
increase the aggregate Indebtedness allowable under a lease payable in any
fiscal year from "Thirteen Million Dollars ($13,000,000)" to "Eighteen Million
Dollars ($18,000,000)."
17. COMPENSATION, SALARY, ETC. Section 7.10 of the Agreement is amended
to read "Deleted." The numbering of the subsequent Sections will not change.
18. TANGIBLE NET WORTH. Section 7.11.1 of the Agreement is amended to
read: "Permit its tangible net worth at any time to be less than $12,000,000."
19. DEBT-TO-WORTH RATIO. Section 7.11.2 of the Agreement is amended to
read: "Permit the ratio of their consolidated aggregate debt to Tangible Net
Worth at any time to be greater than 1.1 to 1."
20. WORKING CAPITAL. Section 7.11.3 of the Agreement is amended to read:
"Permit its working capital (current assets minus current liabilities) at any
time to be less than $9,000,000."
21. EVENTS OF DEFAULT. Section 8.1.6 of the Agreement is amended only to
increase the beneficial interest percentage from "twenty (20%) percent" to
"forty-nine (49%) percent."
22. EVENTS OF DEFAULT. Section 8.1.10 of the Agreement is amended only to
decrease the minimum amount of efforts required of the Key Employee to devote to
the furtherance of the business of the Borrower from "100%" to "75%."
<PAGE>
23. AMENDMENT OF NOTE. Effective as of the date hereof, the Revolving
Credit Note is amended by (a) adding after "Fortune Dogs" "and its affiliates
and successor(s) Big Dog Holdings, Inc. and Big Dog USA, Inc." and (b) deleting
the reference to "$1,500,000" therein and replacing such reference with
"$10,500,000."
24. NO MODIFICATION OF OTHER OBLIGATIONS. Except as is otherwise
specifically set forth herein, all obligations of Borrower and Lender, shall
remain unmodified and in full force and effect.
25. COSTS; EXPENSES; ATTORNEYS' FEES. Borrower shall reimburse Lender on
demand for all costs and expenses, including reasonable attorneys' fees expended
or incurred by Lender in the present and any future negotiation, preparation and
executions of this Agreement.
26. EXECUTION IN COUNTERPARTS. This Amendment Agreement may be executed
in counterparts and each counterpart shall constitute one and the same original
document.
27. USE OF COPY IN LIEU OF ORIGINAL. A copy of this Amendment Agreement
shall have the same force and effect as the original.
28. GUARANTOR CONSENT AND OTHER GUARANTIES TO REMAIN IN FORCE. The
Guarantors, Fred Kayne, Lenore Kayne, Andrew Feshbach, Kendra Feshbach, and
Feshbach Family Trust, U/A dated 7-26-95, hereby acknowledge that, in accordance
with Section 6.1 of their Guaranty, that the Credit Agreements are being
modified. The Guarantors agree and consent to the modifications set forth
above. The Guarantors agree and acknowledge that their Guaranties, and all
terms contained therein, shall remain in full force and effect.
29. ENTIRE AGREEMENT, This Amendment together with all other Amendments
to the Agreement and all Other Documents executed in connection, therewith, as
such documents may have been amended, otherwise modified, or renewed, the Credit
Agreements, embody the entire agreement and understanding among the parties
hereto. There are no oral agreements or understandings. No course of prior
dealings, usage of trade, or oral conversation shall be admissible to supplement
or explain this Amendment. The parties have read Section 20 of the Agreement,
the terms of which are restated and incorporated here by reference.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the day and year first written above.
BIG DOG USA, Inc. Israel Discount Bank Limited
Los Angeles Agency
By: /s/ Andrew Feshbach BY:
-------------------------------- ------------------------------------
Title: President Date: 5/2/97 Title: Date:
-------------- ---------- -------------- --------------
<PAGE>
Big Dog Holdings, Inc. Feshbach Family Trust
By: /s/ Andrew Feshbach BY: /s/ Andrew Feshbach 5/2/97
-------------------------------- ------------------------------------
Guarantor Date
Title: President Date: 5/2/97
-------------- ----------
Fred Kayne - Individually Andrew Feshbach - Individually
By: By: /s/ Andrew Feshbach 5/2/97
-------------------------------- ------------------------------------
Guarantor Date Guarantor Date
Lenore Kayne - Individually Kendra Feshbach - Individually
By: By: /s/ Kendra Feshbach 5/2/97
-------------------------------- ------------------------------------
Guarantor Date Guarantor Date
<PAGE>
STOCKHOLDER AGREEMENT
This Stockholder Agreement (the "Agreement") is made as of ___________,
1996 between Big Dog Holdings, Inc., a Delaware corporation (the "Corporation"),
and the stockholder named on the signature page hereof ("Stockholder").
RECITALS
A. Stockholder has been afforded the opportunity to acquire, and has
acquired, the number of shares of Common Stock of the Corporation listed on the
signature page hereof (the "Stock").
B. The Stock is subject to the lien (the "Permitted Lien") of the holder
of a promissory note of even date herewith (the "Purchase Note").
AGREEMENT
In consideration of the mutual covenants and representations herein set
forth, the Corporation and Stockholder agree as follows:
1. PROHIBITION ON TRANSFER. Without the consent of the Board of Directors
of the Corporation, Stockholder may not sell, gift, pledge (except by the
Permitted Lien) or otherwise transfer Shares, other than by will or intestacy to
a spouse or other immediate family member. In the event any shares of Stock are
transferred, whether voluntarily or involuntarily, in violation of this
Agreement, the transferee shall receive and hold such shares subject to the
provisions of this Agreement. The Corporation shall not be required to transfer
on its books any Stock transferred in violation of this Agreement, or to treat
as the owner of such shares (including the right to vote or to receive
dividends) any transferee to whom such shares shall have been so transferred.
Such consent requirement shall expire upon the closing of an initial public
offering of shares of common stock of the Corporation pursuant to an effective
registration statement filed under the Act (the "IPO Date").
2. PUBLIC OFFERING
(a) On or at the closing of any public offering by the Corporation of its
securities pursuant to an effective registration statement filed under the Act,
Stockholder shall not transfer any Stock, including any short sale of Stock, or
agree to engage in any transfer without the prior written consent of the
Corporation or its underwriters, for such period of time from and after the
effective date of such registration statement as may be requested by the
Corporation or such underwriters; provided, however, that in no event
1
<PAGE>
shall such period exceed one hundred-eighty (180) days. This Section 2 shall
remain in effect only for the two-year period immediately following the IPO
Date.
(b) If the Corporation proposes to register any of its Common Stock under
the Act and/or any states' securities laws, Stockholder will cooperate in any
filings required to be made and will use his or her best efforts to cause all
stock of the Corporation to comply with all legal and other requirements
necessary or desirable to cause such registration to become effective.
3. "COME ALONG" RIGHTS. Prior to the IPO Date:
(i) Notwithstanding anything to the contrary in this Agreement,
if (x) there is a BONA FIDE offer (an "Offer") from a third party (an
"Offeror") to purchase all or substantially all of the common stock of the
Corporation and (y) the Board of Directors recommends the acceptance of
such Offer, then the Corporation (or its assignee) or the Offeror, as the
Corporation (or assignee) shall elect, shall have the right to purchase all
of the Stock owned by Stockholder at the same price per share, for the same
form of consideration and upon substantially the same terms and conditions
as such Offer.
(ii) If the Corporation proposes to reorganize or a third party
makes a BONA FIDE offer to acquire substantially all assets of, or to merge
or consolidated with, the Corporation, Stockholder agrees to vote his or
her Stock in regard to such transaction in accordance with the
recommendation of the Board of Directors of the Corporation. Each
Stockholder hereby grants to the Secretary of the Corporation a proxy to
vote his or her shares in accordance with this provision.
4. ESCROW. As security for the faithful performance of the terms of this
Agreement, Stockholder agrees to deliver to and deposit with the Secretary of
the Corporation, or such other person designated by the Corporation ("Escrow
Agent"), as Escrow Agent in this transaction, two stock Assignments duly
endorsed (with date and number of shares blank) in form acceptable to the
Corporation, together with the certificate or certificates evidencing the Stock.
Said documents are to be held by the Escrow Agent and delivered by said Escrow
Agent pursuant to the Escrow Instructions of the Corporation and Stockholder set
forth in Exhibit A, which shall also be executed and delivered to the Escrow
Agent together with execution of this Agreement.
2
<PAGE>
5. MISCELLANEOUS.
(a) Subject to the provisions hereof, Stockholder shall, during the
term of this Agreement, exercise all rights and privileges of a stockholder of
the Corporation with respect to the Stock deposited in said escrow.
(b) The parties agree to execute such further instruments and to take
such further action as may reasonably be necessary to carry out the intent of
this Agreement. In the event Stockholder fails or refuses to execute any
document which may be reasonably required to effectuate the terms of this
Agreement, Stockholder hereby appoints the Secretary of the Corporation as
attorney-in-fact to execute such documents.
(c) Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to Stockholder at his or her address shown
on the Corporation's employment records and to the Corporation at the address of
its principal corporate offices (attention: General Counsel) or at such other
address as such party may designate by ten days' advance written notice to the
other party hereto.
(d) The Corporation may assign it rights (including the Purchase
Option) and delegate its duties under this Agreement. This Agreement shall
inure to the benefit of the successors and assigns of the Corporation and,
subject to the restrictions on transfer herein set forth, be binding upon
Stockholder and his or her heirs, executors, administrators, successors and
assigns.
(e) The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof.
(f) Stockholder agrees that the Corporation will be irreparably
damaged in the event this Agreement is not specifically enforceable.
Accordingly, in the event of any controversy under this Agreement, this
Agreement shall be enforceable against Stockholder in a court of equity or
arbitration proceeding by specific performance. The rights granted in this
Section shall be cumulative and not exclusive, and shall be in addition to any
and all rights which the parties may have hereunder, at law or in equity.
(g) The provisions of this Agreement may be amended in whole or in
part, only upon the written consent of the parties hereto.
3
<PAGE>
(h) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of California.
(i) This Agreement reflects the complete agreement of the parties
with respect to the subject matter contemplated herein, and Stockholder
specifically agrees that there is no other understanding with or commitment from
the Corporation or its stockholders to provide to Stockholder any stock or any
other equity or profits interest in the Corporation or its affiliates, or that
any such understanding or commitment is superseded by this Agreement.
(j) If it becomes necessary for any party to institute any action,
suit or proceeding to enforce this Agreement, the nonprevailing party agrees to
pay the prevailing party's costs and fees, including reasonable attorneys' fees
incurred in such enforcement.
(k) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
BIG DOG HOLDINGS, INC.
a Delaware corporation
By: ________________________________
Title: _______________________________
STOCKHOLDER(S)
________________ ____________________________________
Number of Shares (Signature)
____________________________________
(Print Name)
____________________________________
(Signature)
____________________________________
(Print Name)
4
<PAGE>
EXHIBIT A
ESCROW INSTRUCTIONS
_________________, 1996
Secretary
Big Dog Holdings, Inc.
Dear Sir:
As Escrow Agent for both Big Dog Holdings, Inc., a Delaware corporation
("Corporation"), and the stockholder of the Corporation shown on the signature
page hereof ("Stockholder"), you are hereby authorized and directed to hold the
documents delivered to you (i) as escrowholder pursuant to the Stockholder
Agreement of even date herewith ("Stockholder Agreement"), and (ii) as
pledgeholder pursuant to the Stock Purchase Agreement of even date herewith (the
"Purchase Agreement") to secure payment of the Purchase Note (any capitalized
terms not defined herein shall have the meaning provided in the Stockholder
Agreement or, if not defined therein, the Purchase Agreement):
1. If a Purchaser exercises the Purchase Option, the Purchaser shall give
to Stockholder and you the written notice required by Section 1(d) of the
Stockholder Agreement. Stockholder and the Corporation hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice and the Stockholder Agreement.
2. At the closing of the Purchase Option, you are directed to date,
complete and deliver the Stock assignments, together with the certificate
evidencing the shares of Stock to be transferred, to the Corporation against the
simultaneous delivery to you of the purchase price (as provided in the
Stockholder Agreement) for the number of shares of Stock being purchased
pursuant to the exercise of the Purchase Option. In accordance with the terms
of the Stockholder Agreement, such purchase price shall be paid to the holder of
indebtedness of the Stockholder if directed in the notice.
5
<PAGE>
3. Stockholder irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of Stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his attorney-in-
fact and agent for the term of this escrow to execute with respect to such
securities all documents necessary or appropriate to make such securities
negotiable and to complete any transaction herein contemplated.
4. On the date any shares of Stock become no longer subject to the
Purchase Option, you will deliver to Stockholder a certificate or certificates
representing such shares. Ninety days after a Triggering Event, you will
deliver to Stockholder a certificate or certificates representing the aggregate
number of shares of Stock not purchased pursuant to the Purchase Option.
5. The Stock shall secure the obligations under the Purchase Note.
Notwithstanding Section 4 above, the Stock shall not be released to the
Stockholder or any transferee until the Purchase Note has been paid in full. In
the event Stockholder defaults in payment of the Purchase Note when due, subject
to the right of the Corporation to purchase the Stock pursuant to the Purchase
Option, you will, upon request of the holder of the Purchase Note ("PN Holder"),
deliver the certificate representing the shares of Stock and stock assignments
to the PN Holder to enable the PN Holder to exercise his rights as a secured
party under the Commercial Code of the State of California.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You are hereby expressly authorized to disregard any and all warnings
given by the Stockholder or by any other person or corporation, excepting only
orders or process of courts of law and of the arbitrator provided for in the
Agreement, and are hereby expressly authorized to comply with and obey orders,
judgments or decrees of any court and of the arbitrator provided for in the
Agreement. In case you obey or comply with any such order, judgment or decree,
you shall not be liable to the Stockholder or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
8. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be Secretary of the Corporation or if you shall resign by written
notice to each party. In the event of any such termination, the Corporation
shall appoint a successor Escrow Agent.
6
<PAGE>
9. If you reasonable require other or further instruments in connection
with these Escrow Instructions or obligations in respect hereto, the necessary
parties hereto shall join in furnishing such instruments.
10. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the Stock held by you
hereunder, you are authorized and directed to retain in your possession without
liability to anyone all or any part of said securities until such disputes shall
have been settled either by mutual written agreement of the parties concerned or
by a final order, decree or judgment of the arbitrator provided for in the
Agreement or of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected.
11. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled (i) as
to the Corporation or the Escrow Agent, at the principal offices of the
Corporation, and (ii) as the Stockholder, at the address shown in the employment
records of the Corporation, or at such other addresses as a party may designate
by ten days' advance written notice to each of the other parties hereto.
7
<PAGE>
12. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
Very truly yours,
BIG DOG HOLDINGS, INC.
a Delaware corporation
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
STOCKHOLDER
____________________________________________
(Signature)
____________________________________________
(Print Name)
ESCROW AGENT:
_________________________________
Secretary, Big Dog Holdings, Inc.
8
<PAGE>
EXHIBIT 10.3A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT
WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF
FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE COMPANY, OR OTHER
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION
IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS
ANY APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW.
BIG DOG HOLDINGS, INC.
10% PROMISSORY NOTE
DUE NOVEMBER 4, 2003
$____________ Dated: November 4, 1996
Santa Barbara, California
FOR VALUE RECEIVED, Big Dog Holdings, Inc., a Delaware corporation (the
"Company"), promises to pay to ______________________________ or assigns (the
"Holder"), the principal amount of ________________ Dollars ($_______) (the
"Principal Amount"), in such coin or currency of the United States of America
as at the time of payment shall be legal tender for the payment of public and
private debts, together with simple interest thereon at the rate of ten
percent (10%) per annum from the date hereof, at the principal office of the
Company, upon the earlier of (i) November 4, 2003 and (ii) the consummation
of a public offering of common stock of the Company in which the Company
receives net proceeds of at least $15,000,000. Interest shall be payable
quarterly in arrears on the fifteenth day after the end of each calendar
quarter, commencing January 15, 1997.
Notwithstanding anything to the contrary herein contained, the principal
amount of this Note or any interest hereon may be prepaid at any time or from
time to time, prior to the maturity of this Note, in whole or in part,
without prior notice and without penalty or premium. Prepayments shall be
applied first to interest due and then to principal.
1. THE NOTES: This Note is one of several promissory notes made and
issued by the Company in an aggregate principal amount of $2,000,000
(individually, a "Note," and together, the "Notes"), pursuant to the terms
and subject to the conditions of subscription agreements (the "Subscription
Agreements"), by and among the Company
1
<PAGE>
and certain investors. Reference is made to the Subscription Agreements for
agreements of the parties applicable to this Note.
2. COVENANTS: The Company covenants and agrees that, so long as any
of the Notes shall be outstanding and unpaid:
2.1 PAYMENT OF NOTES. The Company will punctually pay or cause to be
paid the principal amount and interest on this Note. Any sums required to
be withheld from any payment of principal amount, or interest on this Note
by operation of law or pursuant to any order, judgment, execution, treaty,
rule or regulation may be withheld by the Company and paid over in
accordance therewith.
Nothing in this Note or in any other agreement between the Holder and
the Company shall require the Company to pay, or the Holder to accept,
interest in amount which would subject the Holder to any penalty of
forfeiture under applicable law. In the event that the payment of any
charges, fees or other sums due under this Note, or in any other agreement
between the Company and the Holder are or could be held to be in the nature
of interest and would subject the Holder to any penalty or forfeiture under
applicable law, then IPSO FACTO the obligations of the Company to make such
payment to the Holder shall be reduced to the highest rate authorized under
the applicable law.
2.2 MAINTENANCE OF CORPORATE EXISTENCE; MERGER AND CONSOLIDATION.
The Company will at all times cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and all
of its rights and franchises and shall not be consolidated with or merge
into any other corporation or transfer all or substantially all of its
assets to any person unless (i) the corporation formed by such corporation
or into which the Company is merged or to which the assets of the Company
are transferred is a corporation which expressly assumes all of the
obligations of the Company under the Notes, and (ii) after giving effect to
such transaction, no Event of Default (as hereinafter defined) and no event
which, after notice or lapse of time, or both, would become an Event of
Default, shall have occurred and be continuing.
2.3 PAYMENT OF TAXES. The Company will comply or cause to be paid,
set aside for payment or discharged, before the same shall become
delinquent, all taxes, assessments and governmental charges levied or
imposed upon the Company or upon its income, profits or property; PROVIDED,
HOWEVER, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings.
2.4 COMPLIANCE WITH STATUTES. The Company will comply in all
material respects with all applicable statutes and regulations of the
United States
2
<PAGE>
of America and of any state or municipality, and of any agency of
any thereof, in respect of the conduct of business, and the
ownership of property by the Company; PROVIDED, HOWEVER, that
nothing contained in this SECTION 2.4 shall require the Company to
comply with any such statute or regulation so long as its legality
or applicability shall be contested in good faith; and provided
further that an unintentional violation of this covenant done in
good faith or inadvertently shall not be deemed an Event of Default
under SECTION 4 hereof.
3. SUBORDINATION: It is understood and agreed by the Company and
Holder (by acceptance of this Note) that all indebtedness and other
obligations of the Company to the Holder, now or hereafter existing, arising
under or in connection with this Note, including principal, interest thereon
and all other amounts payable in respect thereof or in connection therewith
(hereinafter referred to as the "Junior Debt"), shall be subordinated to the
payment of principal of and interest on (including interest accruing after
the date on which the Company becomes subject to the jurisdiction of any
federal or state debtor relief statute, whether or not recoverable against
the Company) any and all present and future debts and obligations of the
Company to Israel Discount Bank Limited ("IDB") under a certain Amended and
Restated Credit Agreement with the Company, dated as of February 15, 1996, as
the same has been and may in the future be amended from time to time (the
"Agreement"), and any loans, advances, payments, extensions of credit,
benefits or other financial accommodations heretofore or thereafter made,
granted or extended by IDB to or for the account of the Company under the
Agreement and the documents executed in connection therewith or under any
renewal, extension or amendment of the Agreement or by any other credit
agreement with another bank or financial institution replacing or
supplementing the line of credit provided under the Agreement (IDB and/or
such other institution is referred to as the "Bank"), whether or not for the
payment of money, whether or not evidenced by any note or instrument, whether
absolute or contingent, due or to become due, secured or unsecured
(hereinafter referred to as the "Senior Debt"). It is further understood and
agreed that:
(a) Upon the distribution of any of the Company's assets, whether by reason
of sale, reorganization, liquidation, dissolution, arrangement, bankruptcy,
receivership, assignment for the benefit of creditors, foreclosure or
otherwise, the Bank shall be entitled to receive payment in full of the
Senior Debt (including without limitation interest arising subsequent to the
date of the filing by or against the Company of any petition for relief under
the Federal Bankruptcy Code or the making of any assignment for the benefit
of creditors, whether or not such interest is recoverable from or provable
against the Company) prior to the payment of all or any part of the Junior
Debt.
(b) Holder will not, without the Bank's prior written consent, commence or
join with any other creditor in commencing any bankruptcy, reorganization or
insolvency proceeding against Debtor.
(c) The Bank may at any time, in its discretion, renew or extend the time of
payment of any portion of the Senior Debt, or waive or release any collateral
which may be held
3
<PAGE>
therefor, and the Bank may enter into such agreements with the Company as it
may deem desirable without notice to or further assent from Holder and
without in any way affecting the Bank's rights hereunder.
(d) In the event that (i) any event of default under the Agreement or other
credit agreement for Senior Debt shall have occurred and be continuing or
(ii) any judicial proceeding shall be pending with respect to any event of
default, then no payment shall be made by or on behalf of the Company for or
on account of any interest due pursuant to this Note, and Holder shall not
take or receive from the Company, directly or indirectly, in cash, cash
equivalent or other property or by set-off or in any other manner payment of
all or any of the Junior Debt.
(e) In the event that any Junior Debt is declared due and payable before its
stated maturity, the Bank shall be entitled to receive payment in full of all
amounts due or to become due on or in respect of all Senior Debt before any
Holder is entitled to receive any payment by the Company on account of the
Junior Debt.
(f) All payments or distributions upon or with respect to the Junior Debt
that are received by any Holder contrary to the provisions of this Note shall
be received in trust for the benefit of the Bank, shall be segregated from
other funds and property held by such Holder and shall be forthwith paid over
to the Bank to be applied (in the case of cash) to Senior Debt.
4. EVENTS OF DEFAULT AND REMEDIES: An "Event of Default" shall
occur if:
4.1 PAYMENT OF NOTES. The Company defaults in the payment of principal
amount or interest of this Note, when and as the same shall become due and
payable whether at maturity thereof, or by acceleration or otherwise, which
default shall continue uncured for a period of fifteen (15) days from the
date thereof; or
4.2 PERFORMANCE OF COVENANTS, CONDITIONS OR AGREEMENTS. The Company
fails to comply with any of the covenants, conditions or agreements set forth
in this Note and such default shall continue uncured for a period of thirty
(30) days after receipt of written notice to the Company from any Holder
stating the specific default or defaults; or
4.3 BANKRUPTCY, INSOLVENCY, ETC. The Company shall file or consent by
answer or otherwise to the entry of an order for relief or approving a
petition for relief, reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or shall make an assignment for the
benefit of its creditors, or shall consent to the appointment of a custodian,
receiver, trustee or other officer with similar powers of itself or of any
substantial part of its property, or shall be adjudicated a bankrupt of
insolvent, or shall take corporate action for the purpose of any of the
foregoing, or if a court or governmental authority of competent jurisdiction
shall enter an order appointing a custodian, receiver, trustee or other
officer with similar powers with respect to the
4
<PAGE>
Company or any substantial part of its property, or constituting an order for
relief or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding up or liquidation of the Company, or if any such
petition shall be filed against the Company and such petition shall not be
dismissed within sixty (60) days.
In case an Event of Default (other than an Event of Default resulting
from the Company's failure to pay the principal amount of, or any interest
upon, this Note when the same shall be due and payable in accordance with the
terms hereof (after giving affect to applicable "cure" provisions herein) or
bankruptcy, insolvency or reorganization) shall occur and be continuing, the
Holders of the Notes representing at least fifty-one percent (51%) in the
aggregate of the principal amount of all Notes then outstanding, may declare
by notice in writing to the Company all unpaid principal amount and accrued
interest on all of the Notes then outstanding to be due and payable
immediately. In case an Event of Default resulting from the Company's
non-payment of principal amount of, or interest upon this Note shall occur,
the Holder may declare all unpaid principal amount and accrued interest on
this Note held by such Holder to be due and payable immediately. In case an
Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization shall occur, all unpaid principal and accrued interest on the
Notes held by each such Holder shall be due and payable immediately without
any declaration or other act on the part of such Holders. Any such
acceleration may be annulled and past defaults (except, unless theretofore
cured, a default in payment of principal or interest on the Notes) may be
waived by the Holders of a majority in principal amount of the Notes then
outstanding.
5. COSTS OF COLLECTION: Should the indebtedness represented by the
Note or any part thereof be collected in any proceeding, or this Note be
placed in the hands of attorneys for collection after default, the Company
agrees to pay as an additional obligation under this Note, in addition to the
principal and interest due and payable hereon, all costs of collecting this
Note, including reasonable attorneys' fees.
6. WAIVER AND AMENDMENTS: This Note may be amended, modified,
superseded, canceled, renewed or extended, and the terms hereof may be waived
(except as above provided in paragraph 4.3) only by a written instrument
signed by the Company and Holders of at least 51% in principal amount of the
Notes at the time outstanding; PROVIDED, HOWEVER, that consent by a Holder
shall be required to modify the terms of this Note affecting the payment of
principal of, or interest on, such Holder's Note. No delay on the part of
any party in exercising any right, power or privilege hereunder shall operate
as a waiver hereof, nor shall any waiver on the part of any party of any
right, power or privilege or privilege hereunder preclude any other or
further exercise hereof or the exercise of any other right, power or
privilege hereunder. The rights and remedies provided herein are cumulative
and are not exclusive of any rights or remedies which any party may otherwise
have at law or in equity.
5
<PAGE>
7. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE: Upon receipt by
the Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note, and of indemnity or security
reasonably satisfactory to the Company, and upon reimbursement to the Company
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of this Note, if mutilated, the Company will make and deliver a
new Note of like tenor, in lieu of this Note. Any Note made and delivered in
accordance with the provisions of this Section shall be dated as of the date
to which interest has been paid on this Note, or if no interest has therefore
been paid on this Note, then date the date hereof.
8. NOTICE: Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed or
sent by certified, registered, or express mail, postage prepaid, and shall be
deemed given when so delivered personally, telegraphed or, if mailed, five days
after the date of deposit in the United States mails, as follows:
(i) if to the Company, to:
Big Dog Holdings, Inc.
121 Gray Avenue
Santa Barbara, CA 93101
Attention: President
(ii) if to the Holder, to the address of such Holder as shown on
the books of the Company.
9. GOVERNING LAW: This Note shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its conflicts of law principles. The Company and Holder (by acceptance of
this Note) agree that any dispute or controversy arising out of this Note
shall be adjudicated in a court located in the counties of Los Angeles or
Santa Barbara, California, and hereby submit to the exclusive jurisdiction of
the courts of the State of California located in the counties of Santa
Barbara or Los Angeles, California and of the federal courts in the Central
District of California in Santa Barbara or Los Angeles, California, and
irrevocably waive any objection they now or hereafter may have respecting the
venue of such action or proceeding brought in such a court or respecting the
fact that such court is an inconvenient forum, and consent to the service of
process in any such action or proceeding by means of registered or certified
mail, return receipt requested.
10. SUCCESSORS AND ASSIGNS: All the covenants, stipulations,
promises and agreements in this Note by or on behalf of the Company shall
bind its successors and assigns, whether or not so expressed.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
corporate name by a duly authorized officer and to be dated as of the date
first above written.
BIG DOG HOLDINGS, INC.
By: _______________________________
Andrew Feshbach, President
7
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, OFFERED
FOR SALE, TRANSFERRED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, AS PROVIDED IN THIS WARRANT.
BIG DOG HOLDINGS, INC.
B WARRANT
ISSUANCE DATE: NOVEMBER 4, 1996
Holder: FRED KAYNE
Number of B Warrants: 120,000
THIS CERTIFIES THAT Holder is the owner of the number of B Warrants (the
"Warrants") set forth above of Big Dog Holdings, Inc., a Delaware corporation
(the "Company"). Each Warrant entitles the registered holder to purchase for
$5.00 one share of Common Stock of the Company, which price is reduced to $4.00
per share if the Company such not prepay in full the subordinated promissory
note in the principal amount of $2,000,000 issued by the Company together with
this Warrant by June 30, 1997 (the "Exercise Price"). The Warrants are subject
to the terms of a Subscription Agreement between the Company and Holder.
1. RIGHT TO EXERCISE WARRANTS. The Warrants represented by this
certificate may be exercised at any time commencing on the above Issuance
Date and terminating at 5:00 p.m., Pacific Standard Time, on the date five
(5) year thereafter.
2. EXERCISE OF WARRANTS. Subject to Paragraph 3 and the other
provisions of this certificate, the Warrants represented by this certificate
may be exercised, in whole or in part, at any time and from time to time, by
(i) surrender of this Warrant certificate (with the purchase form at the end
hereof properly executed) at the principal executive office of the Company
(or such other office or agency of the Company as it may designate by notice
in writing to Holder at the address of Holder appearing on the books of the
Company); (ii) payment to the Company of the Exercise Price in cash for the
number of shares specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) delivery to the Company of
a statement by Holder (in a form acceptable to the Company and its counsel)
that such shares are being acquired by Holder for investment and not with a
view to their distribution or resale. Any exercise of a Warrant shall be
deemed to have occurred immediately prior to the close of
<PAGE>
business on the date the Warrant is surrendered and payment is made in
accordance with the foregoing provisions of this Paragraph 2, and the person
or persons in whose name or names the certificates for shares of Common Stock
shall be issuable upon such exercise shall become the holder or holders of
record of such Common Stock at that time and date. The certificates for the
Common Stock so purchased shall be delivered to Holder within a reasonable
time after the Warrant represented by this certificate shall have been so
exercised, and shall bear a restrictive legends including the following:
This security has not been registered under the Securities
Act of 1933 and may not be sold or offered for sale unless
registered under said Act and any applicable state
securities laws or unless an exemption from such
registration is available.
3. REDEMPTION. The Company may redeem some or all of the Warrants at
a price of $2.50 per Warrant in the event that (i) the Company has closed a
registered public offering of its Common Stock under the Securities Act of
1933 ("IPO") and (ii) the closing price at which the Common Stock of the
Company has traded on the NASDAQ or any exchange is greater than 150% of the
price to the public in the IPO for 20 out of 30 consecutive trading days.
The Company may exercise such redemption right by giving notice to Holder
within 30 days of the end of such 30-day trading period. Such notice shall
set forth the circumstances permitting such exercise and identify the number
of Warrants as to which the Company is exercising its redemption rights.
Upon receipt of such notice the Holder shall be obligated within 30 calendar
days of such notice to (i) deliver to the Company the certificate(s)
evidencing all Warrants held by Holder and (ii) execute and deliver any other
conveyance documents that the Company shall reasonably require. Upon
expiration of 30 days following such notice, and subject to receipt of such
documents, the Company shall mail payment for the redemption price to the
Holder and, if applicable, a new certificate representing any Warrants the
Company does not redeem. Notwithstanding the foregoing, within the 30 days
following such notice, the Holder may exercise any or all of his Warrants as
provided in Paragraph 2 above. In the event a Holder does not timely
exercise any Warrants and fails for any reason to surrender a certificate
evidencing a Warrant to the Company within 30 days after the Company has
given such notice of redemption, the Warrants shall be automatically canceled
as to the Warrants being redeemed, shall not be exercisable as to such
Warrants, and shall represent solely the right to receive the redemption
price as to the Warrants being redeemed.
The Warrant are also subject to redemption under the terms and conditions set
forth in the Section 4.2 of the Subscription Agreement entered into with the
Company upon the issuance of these Warrants.
4. ASSIGNMENT. The Warrants represented by this certificate may be
transferred, sold, assigned or hypothecated, only pursuant to a valid and
effective registration statement or if the Company has received from counsel
acceptable to the
<PAGE>
Company a written opinion to the effect that registration of the Warrants or
the Common Stock underlying the Warrants is not necessary in connection with
such transfer, sale, assignment or hypothecation. Any such assignment shall
be effected by Holder by (i) executing the form of assignment at the end
hereof; (ii) surrendering this Warrant certificate for cancellation, in whole
or in part, at the office or agency of the Company referred to in Paragraph 2
hereof, accompanied by the opinion of counsel to the Company referred to
above; and (iii) delivery to the Company of a statement by the transferee
Holder (in a form acceptable to the Company and its counsel) that such
Warrants are being acquired by such Holder for investment and not with a view
to distribution or resale; whereupon the Company shall issue, in the name or
names specified by the transferring Holder, new Warrant certificate(s) in the
name of the transferee Holder(s) and, if not all Warrants are being
transferred, the transferor Holder. The term "Holder" shall be deemed to
include any person to whom a Warrant is transferred in accordance with the
terms herein. Any Warrants assigned shall be subject to the provisions of
this Warrant certificate and the Subscription Agreement.
5. COMMON STOCK. The Company covenants and agrees that all shares of
Common Stock which may be issued upon exercise hereof will, upon issuance, be
duly and validly issued, fully paid and non-assessable and no personal
liability will attach to the holder thereof. The Company further covenants
and agrees that, during the periods within which the Warrants may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock for issuance upon exercise of
these Warrants and all other Warrants.
6. NO STOCKHOLDER RIGHTS. The Warrants shall not entitle Holder to any
voting rights or other rights as a stockholder of the Company.
7. ADJUSTMENT OF RIGHTS. In the event that the outstanding shares of
Common Stock of the Company are at any time increased or decreased or changed
into or exchanged for a different number or kind of share or other security
of the Company or of another corporation through reorganization, merger,
consolidation, liquidation, recapitalization, stock split, combination of
shares or stock dividends payable with respect to such Common Stock,
appropriate adjustments in the number and kind of such securities then
subject to this Warrant certificate shall be made effective as of the date of
such occurrence so that the position of Holder upon exercise will be the same
as it would have been had he owned immediately prior to the occurrence of
such events the Common Stock subject to these Warrants. Such adjustment
shall be made successively whenever any event listed above shall occur and
the Company will notify Holder of each such adjustment. In the event a
fraction of a share results from any adjustment, the Company may, at its
option, eliminate such fraction and adjust the price per share of the
remaining shares subject to this Warrant accordingly.
8. NOTICES. Notices and other communications provided for herein
shall be in writing and may be given by mail, courier, or facsimile
transmission and shall, unless otherwise expressly required, be deemed given
when received or when delivery thereof is
<PAGE>
refused. In the case of Holder, such notices and communications shall be
addressed to its address as shown on the books maintained by the Company,
unless Holder shall notify the Company that notices and communications should
be sent to a different address (or facsimile number) in which case such
notices and communications shall be sent to the address (or facsimile number)
specified by Holder.
9. GOVERNING LAW. These Warrants shall be governed by and construed
in accordance with the internal laws of California.
IN WITNESS WHEREOF, the Company has caused these Warrants to be signed and
delivered by its duly authorized officer as of the date first set forth above.
BIG DOG HOLDINGS, INC.
By: ________________________________
Name: ______________________________
Title: ______________________________
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrants)
The undersigned, the holder of the attached Warrant certificate, hereby
irrevocably elects to exercise the purchase rights represented by such
certificate to exercise __________ Warrants for, and to the purchase thereunder,
__________ shares of Common Stock and herewith makes payment of $ __________
thereof, and requests that the certificates for shares of Common Stock be issued
in the name(s) of, and delivered to _________________________________________
whose address(es) is (are) __________________________________________.
Dated: , 19
------------------ ---
-----------------------------------
Holder
-----------------------------------
Address
-----------------------------------
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Warrants)
For value received, the undersigned hereby sells, assigns, and transfers
unto ___________________________ the right to purchase
_________________________shares of Common Stock of Big Dog Holdings, Inc.
represented by _________________________ Warrants, and appoints
_________________________ attorney to transfer such rights on the books of Big
Dog Holdings, Inc., with full power of substitution in the premises.
Dated: , 19
------------------ ---
-----------------------------------
Holder
-----------------------------------
Address
-----------------------------------
In the presence of:
- ------------------------------
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO SUCH SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED, AS PROVIDED IN THIS WARRANT.
BIG DOG HOLDINGS, INC.
A WARRANT
ISSUANCE DATE: _______________, 1996
Holder: ____________________
____________________
____________________
Number of A Warrants: _________
THIS CERTIFIES THAT Holder is the owner of the number of A Warrants (the
"Warrants") set forth above of Big Dog Holdings, Inc., a Delaware corporation
(the "Company"). Each Warrant entitles the registered holder to purchase for
$4.00 one share of Common Stock of the Company, which price is reduced to
$3.00 per share if the Company such not prepay in full the subordinated
promissory note in the principal amount of $200,000 issued by the Company
together with this Warrant by June 30, 1997 (the "Exercise Price"). The
Warrants are subject to the terms of a Subscription Agreement between the
Company and Holder.
1. RIGHT TO EXERCISE WARRANTS. The Warrants represented by this
certificate may be exercised at any time commencing on the above Issuance
Date and terminating at 5:00 p.m., Pacific Standard Time, on the date five
(5) year thereafter.
2. EXERCISE OF WARRANTS. Subject to Paragraph 3 and the other
provisions of this certificate, the Warrants represented by this certificate
may be exercised, in whole or in part, at any time and from time to time, by
(i) surrender of this Warrant certificate (with the purchase form at the end
hereof properly executed) at the principal executive office of the Company
(or such other office or agency of the Company as it may designate by notice
in writing to Holder at the address of Holder appearing on the books of the
Company); (ii) payment to the Company of the Exercise Price in cash for the
number of shares specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) delivery to the Company of
a statement by Holder (in a form acceptable to the Company and its counsel)
that such shares are being
<PAGE>
acquired by Holder for investment and not with a view to their distribution
or resale. Any exercise of a Warrant shall be deemed to have occurred
immediately prior to the close of business on the date the Warrant is
surrendered and payment is made in accordance with the foregoing provisions
of this Paragraph 2, and the person or persons in whose name or names the
certificates for shares of Common Stock shall be issuable upon such exercise
shall become the holder or holders of record of such Common Stock at that
time and date. The certificates for the Common Stock so purchased shall be
delivered to Holder within a reasonable time after the Warrant represented by
this certificate shall have been so exercised, and shall bear a restrictive
legends including the following:
This security has not been registered under the Securities
Act of 1933 and may not be sold or offered for sale unless
registered under said Act and any applicable state
securities laws or unless an exemption from such
registration is available.
3. REDEMPTION. The Company may redeem some or all of the Warrants at
a price of $2.50 per Warrant in the event that (i) the Company has closed a
registered public offering of its Common Stock under the Securities Act of
1933 ("IPO") and (ii) the closing price at which the Common Stock of the
Company has traded on the NASDAQ or any exchange is greater than 150% of the
price to the public in the IPO for 20 out of 30 consecutive trading days.
The Company may exercise such redemption right by giving notice to Holder
within 30 days of the end of such 30-day trading period. Such notice shall
set forth the circumstances permitting such exercise and identify the number
of Warrants as to which the Company is exercising its redemption rights.
Upon receipt of such notice the Holder shall be obligated within 30 calendar
days of such notice to (i) deliver to the Company the certificate(s)
evidencing all Warrants held by Holder and (ii) execute and deliver any other
conveyance documents that the Company shall reasonably require. Upon
expiration of 30 days following such notice, and subject to receipt of such
documents, the Company shall mail payment for the redemption price to the
Holder and, if applicable, a new certificate representing any Warrants the
Company does not redeem. Notwithstanding the foregoing, within the 30 days
following such notice, the Holder may exercise any or all of his Warrants as
provided in Paragraph 2 above. In the event a Holder does not timely
exercise any Warrants and fails for any reason to surrender a certificate
evidencing a Warrant to the Company within 30 days after the Company has
given such notice of redemption, the Warrants shall be automatically canceled
as to the Warrants being redeemed, shall not be exercisable as to such
Warrants, and shall represent solely the right to receive the redemption
price as to the Warrants being redeemed.
The Warrant are also subject to redemption under the terms and conditions set
forth in the Section 4.2 of the Subscription Agreement entered into with the
Company upon the issuance of these Warrants.
<PAGE>
4. ASSIGNMENT. The Warrants represented by this certificate may be
transferred, sold, assigned or hypothecated, only pursuant to a valid and
effective registration statement or if the Company has received from counsel
acceptable to the Company a written opinion to the effect that registration
of the Warrants or the Common Stock underlying the Warrants is not necessary
in connection with such transfer, sale, assignment or hypothecation. Any
such assignment shall be effected by Holder by (i) executing the form of
assignment at the end hereof; (ii) surrendering this Warrant certificate for
cancellation, in whole or in part, at the office or agency of the Company
referred to in Paragraph 2 hereof, accompanied by the opinion of counsel to
the Company referred to above; and (iii) delivery to the Company of a
statement by the transferee Holder (in a form acceptable to the Company and
its counsel) that such Warrants are being acquired by such Holder for
investment and not with a view to distribution or resale; whereupon the
Company shall issue, in the name or names specified by the transferring
Holder, new Warrant certificate(s) in the name of the transferee Holder(s)
and, if not all Warrants are being transferred, the transferor Holder. The
term "Holder" shall be deemed to include any person to whom a Warrant is
transferred in accordance with the terms herein. Any Warrants assigned shall
be subject to the provisions of this Warrant certificate and the Subscription
Agreement.
5. COMMON STOCK. The Company covenants and agrees that all shares of
Common Stock which may be issued upon exercise hereof will, upon issuance, be
duly and validly issued, fully paid and non-assessable and no personal
liability will attach to the holder thereof. The Company further covenants
and agrees that, during the periods within which the Warrants may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock for issuance upon exercise of
these Warrants and all other Warrants.
6. NO STOCKHOLDER RIGHTS. The Warrants shall not entitle Holder to
any voting rights or other rights as a stockholder of the Company.
7. ADJUSTMENT OF RIGHTS. In the event that the outstanding shares of
Common Stock of the Company are at any time increased or decreased or changed
into or exchanged for a different number or kind of share or other security
of the Company or of another corporation through reorganization, merger,
consolidation, liquidation, recapitalization, stock split, combination of
shares or stock dividends payable with respect to such Common Stock,
appropriate adjustments in the number and kind of such securities then
subject to this Warrant certificate shall be made effective as of the date of
such occurrence so that the position of Holder upon exercise will be the same
as it would have been had he owned immediately prior to the occurrence of
such events the Common Stock subject to these Warrants. Such adjustment
shall be made successively whenever any event listed above shall occur and
the Company will notify Holder of each such adjustment. In the event a
fraction of a share results from any adjustment, the Company may, at its
option, eliminate such fraction and adjust the price per share of the
remaining shares subject to this Warrant accordingly.
<PAGE>
8. NOTICES. Notices and other communications provided for herein
shall be in writing and may be given by mail, courier, or facsimile
transmission and shall, unless otherwise expressly required, be deemed given
when received or when delivery thereof is refused. In the case of Holder,
such notices and communications shall be addressed to its address as shown on
the books maintained by the Company, unless Holder shall notify the Company
that notices and communications should be sent to a different address (or
facsimile number) in which case such notices and communications shall be sent
to the address (or facsimile number) specified by Holder.
9. GOVERNING LAW. These Warrants shall be governed by and construed
in accordance with the internal laws of California.
IN WITNESS WHEREOF, the Company has caused these Warrants to be signed
and delivered by its duly authorized officer as of the date first set forth
above.
BIG DOG HOLDINGS, INC.
By: ________________________________
Name: ______________________________
Title: ______________________________
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrants)
The undersigned, the holder of the attached Warrant certificate, hereby
irrevocably elects to exercise the purchase rights represented by such
certificate to exercise __________ Warrants for, and to the purchase thereunder,
__________ shares of Common Stock and herewith makes payment of $ __________
thereof, and requests that the certificates for shares of Common Stock be issued
in the name(s) of, and delivered to _________________________________________
whose address(es) is (are) __________________________________________.
Dated: , 19
------------------ ---
-----------------------------------
Holder
-----------------------------------
Address
-----------------------------------
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Warrants)
For value received, the undersigned hereby sells, assigns, and transfers
unto ___________________________ the right to purchase
_________________________shares of Common Stock of Big Dog Holdings, Inc.
represented by _________________________ Warrants, and appoints
_________________________ attorney to transfer such rights on the books of Big
Dog Holdings, Inc., with full power of substitution in the premises.
Dated: , 19
------------------ ---
-----------------------------------
Holder
-----------------------------------
Address
-----------------------------------
In the presence of:
- ------------------------------
<PAGE>
CONSULTING AGREEMENT
THIS Agreement is entered into by and between BIG DOG HOLDINGS, INC. (the
"Company") and FORTUNE FINANCIAL as of March 1, 1997.
RECITALS
A. Fortune Financial has been performing and desires to continue to
perform advisory and consulting services to the Company.
B. The Company wishes to continue to obtain the such services of Fortune
Financial.
AGREEMENTS
The parties do hereby agree as follows:
1. Fortune Financial shall provide to the Company for the term of this
Agreement advisory and consulting services, primarily in the areas of financial
and operational matters. In such capacity, Fortune Financial shall perform such
services for the Company or any of its affiliated companies as the President of
the Company may direct from time to time. In the performance of such services,
Fortune Financial, its officers and employees, shall serve the Company
faithfully and diligently and to the best of their abilities.
2. As full compensation for Fortune Financial's services, the Company
shall pay Fortune Financial the sum of $10,000 per month, payable on the first
of each month commencing March 1, 1997. There shall not be deducted from such
payments any withholding tax or employment tax; such taxes shall be the sole
responsibility of Fortune Financial.
3. All reasonable travel and out-of-pocket expenses incurred by Fortune
Financial in the course of providing its services shall be reimbursed by the
Company. Such expenses shall be billed, at cost, to the Company.
4. The term of this Agreement shall be one year from the date hereof.
Provided, however, that this Agreement may be terminated earlier by either party
at any time upon five calendar days' written notice delivered to Fortune
Financial by the Company's President, on the one hand, or delivered to the
Company's President by Fortune Financial, on the other hand, specifying the
termination date.
5. During and after the term of this Agreement, Fortune Financial, its
officers and employees, will not disclose to any persons any confidential
information relating to the business of the Company or any of its affiliates,
obtained while providing consulting and advisory services to the Company,
without the consent of the Company's President, except as necessary or
appropriate in the discharge of its obligations to the Company, its affiliates,
and their respective shareholders.
<PAGE>
6. Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration conducted by a single
arbitrator and held in Los Angeles, California in accordance with the provisions
of California Code of Civil Procedure Section 1280, et seq., as amended, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The award shall include attorneys fees and
expenses of the party prevailing in such arbitration. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
7. The parties hereto are independent contractors and nothing contained
in this Agreement shall be deemed or construed to create the relationship of
partnership or joint venture or principal and agent or of any association or
relationship between the parties other than that of independent contractors.
8. Any notice required to be given shall be deemed received upon receipt,
if hand-delivered, or on the third business day after the date when deposited in
the United States mail and addressed as follows:
Fortune Financial
Attn: Fred Kayne
1800 Avenue of the Stars, Suite 1112
Los Angeles, California 90067
Big Dog Holdings, Inc.
Attn: General Counsel
121 Gray Avenue
Santa Barbara, CA 93101
IN WITNESS WHEREOF, the parties have executed this Agreement at Los
Angeles, California, effective the 1st day of March, 1997.
BIG DOG HOLDINGS, INC. FORTUNE FINANCIAL
By: /s/ ANDREW FESHBACH By: /s/ FRED KAYNE
-------------------- --------------------
Its: President Its: President
-------------------- --------------------
<PAGE>
Exhibit 10.5
BUY-SELL AGREEMENT
THIS BUY-SELL AGREEMENT, dated as of January 1, 1997 (the "Agreement"), is
entered into among Big Dog Holdings, Inc. (the "Corporation"), Fred Kayne
("Majority Shareholder") and Andrew D. Feshbach ("Minority Shareholder").
IN CONSIDERATION of the mutual covenants provided herein and other good and
valuable consideration, the parties hereby agree as follows:
1. PUT OPTION
1.1 Upon the death of Minority Shareholder, the estate or other
successor of Minority Shareholder (the "Representative") shall have the
right to sell to the Corporation (the "Put Option") the shares of common
stock of the Corporation owned by Minority Shareholder at that time (the
"Shares"). The purchase price shall be Five Dollars ($5.00) par share.
Upon the death of Minority Shareholder, the Corporation shall notify the
Representative that the Put Option has become effective. The
Representative shall have 90 days after the date of such notice to
exercise the Put Option. The Representative may exercise the Put Option
in whole or in part by delivering notice to the Corporation of the
election to exercise and the number of Shares which it elects to tender
(the "Tendered Shares"). The Corporation shall have 90 days from the
date of such election notice to close the purchase. On the closing date
of such purchase, the Representative shall execute and deliver to the
Corporation duly endorsed certificates for the Tendered Shares and any
other appropriate documents and shall take such other actions as may be
reasonably necessary or desirable to complete such sale. Subject to
Section 1.2 below, the Corporation shall pay cash for the Tendered
Shares.
1.2 The Corporation has procured an insurance policy on the
life of the Minority Shareholder in the amount of $5 million payable to
the Corporation (the "Policy"). The Corporation agrees to use
commercially reasonable efforts to maintain the Policy during the term
of this Agreement. In the event of Minority Shareholder's death, $1
million of the proceeds of the Policy shall be retained by the
Corporation and the balance shall be applied in the following order; (i)
first, to the payment of any indebtedness then owed by Minority
Shareholder to Majority Shareholder or the Corporation, (ii) second, to
the purchase of the Tendered Shares and (iii) lastly, any balance shall
be retained by the Corporation. To the extent the foregoing application
of proceeds does not result in full payment of the purchase price for
the Tendered Shares, or to the extent applicable corporate law or any
loan or other agreement with creditors prevents the Corporation's full
payment for the Tendered Shares (and a waiver cannot reasonably be
obtained from the other party to such agreement), the Corporation may
pay the balance of the purchase price by delivery of an unsecured
promissory note bearing interest at 7% per annum with principal payable
in equal quarterly installments, together with accrued interest, over a
period of 18 months (or over such longer period as is required to comply
with applicable corporate law or such agreements).
1.3 During the term of this Agreement: (i) the Policy shall belong
solely to the Corporation and Minority Shareholder shall not have the
right to designate the beneficiaries or exercise any other power over
it, (ii) the Corporation will not amend or
1
<PAGE>
take any other action in regard to the Policy without the consent of its
Board Of Directors and (ii) the Corporation shall pay all premiums on
the Policy. Any dividends paid on the Policy before maturity or the
insured's death shall be paid to the Corporation and shall not be
subject to this Agreement.
2. INVALID PROVISIONS
The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof.
3. AMENDMENT GOVERNING LAW
3.1 This Agreement may be amended in whole or in part only by the
written consent of the parties hereto.
3.2 This Agreement shall be governed by and construed in accordance
with the internal laws of the State of California
4. TERMINATION
This Agreement shall terminate on January 1, 1998, provided that the
parties agree to in good faith renegotiate a one-year extension at that time
and on an annual basis thereafter. Provided, however, that this Agreement
shall terminate earlier upon the occurrence of either of the following: (i)
the Corporation shall consummate a registered public offering of its common
stock or (ii) the employment of Minority Shareholder by the Corporation shall
terminate other than due to the death of Minority Shareholder.
5. COMPLETE AGREEMENT
This Agreement reflects the complete agreement of the parties with
respect to the subject matter contemplated herein.
6. NOTICE
Any notice given under this Agreement shall be in writing and shall be
deemed to have been given: (i) if personally delivered, when received, (ii)
if sent by telecopy, when transmission is confirmed and (iii) if mailed, 3
days after deposit in the U.S. mail, certified mail, return receipt
requested. Any notice to the Corporation shall be addressed to its principal
executive offices, attention General Counsel, and any notice to the other
parties shall be sent to their home address as shown on the books and record
of the Corporation
7. ASSIGNMENT
The Corporation may assign any or all of his rights and obligations
under this Agreement (and the Policy) to the Majority Shareholder. Minority
Shareholder may not assign any of his rights or obligations under this
Agreement without the consent of the Board of Directors of the Company.
2
<PAGE>
BIG DOG HOLDINGS, INC.
1996 STOCK INCENTIVE PLAN
1. ESTABLISHMENT. Big Dog Holdings Inc., a Delaware corporation (the
"Company"), hereby establishes its 1996 Stock Incentive Plan (the "Plan") under
which the Company's Common Stock may be sold to Eligible Persons.
2. PURPOSE. The Plan is designed to enable the Company to attract,
retain and motivate employees and other person who may be expected to contribute
to the success of the Company by providing such persons a proprietary interest
in the Company and an incentive to increase the profitability and success of the
Company.
3. DEFINITIONS.
(a) Board: The Board of Directors of the Company.
(b) Eligible Person: Any person employed by the Company or any
affiliate, any director of or consultant to the Company and any other
person who may be expected to contribute to the success of the
Company, as determined by the Board.
(c) Plan: This 1996 Stock Incentive Plan, as the same may be
amended from time to time.
(f) Plan Documents: The Stock Agreement and other documents
executed by a Purchaser in connection with the purchase of Stock in
the form approved from time to time by the Board.
(d) Purchase Price: The price determined by the Board at which
Stock may be purchased under the Plan.
(e) Purchase Date: The date as of which the Purchaser
purchases Stock under the Plan.
(f) Purchaser: An Eligible Person to whom Stock has been or is
to be granted and sold under the Plan.
(g) Stock: Shares of the common stock of the Company, and such
other stock as may be substituted therefor as provided in the
adjustment provisions of the Plan.
<PAGE>
(h) Stock Agreement: The Stock Purchase Agreement entered into
by the Company and a Purchaser in regard to a sale of Stock under this
Plan.
4. ADMINISTRATION. The Plan shall be administered by the Board. The
interpretation and construction by the Board of any provision of the Plan or of
any Plan Documents shall be final and binding upon Purchasers and their
respective successors. No member of the Board shall be liable for any action or
determination made in good faith. The Board may from time to time adopt rules
and regulations for carrying out the Plan and, subject to the provisions of the
Plan, may prescribe the form or forms of Plan Documents.
Subject to the provisions of the Plan, the Board shall have full and final
authority in its discretion to select the Eligible Persons to be granted Stock,
to grant such Stock, and to determine the number of shares to be subject
thereto, the Purchase Price and such other terms and provisions thereof
(including the availability and terms of any financing) as it may authorize,
each of which terms may be different for each grant.
5. STOCK SUBJECT TO THE PLAN. Subject to the adjustments provided in
Section 9 hereof, the aggregate number of shares of Stock which may be granted
hereunder shall be 500,000 shares.
6. NO EMPLOYMENT OBLIGATION. Nothing herein or in a Plan Documents shall
confer upon a Purchaser any right with respect to continued employment or limit
his or her right to terminate their employment.
7. DURATION OF PLAN. Any Stock grants must be made at or prior to the
close of business on the tenth anniversary date of the effective date of the
Plan.
8. PURCHASE OPTION
(a) The Company (or its assignee) shall have the right to purchase
some or all of the Stock sold to any Purchaser under the Plan (the
"Purchase Option") upon the occurrence of one of the following events
(a "Triggering Event"): (i) the Purchaser shall cease to be employed
by or associated with the Company or its affiliates for any reason, or
no reason, with or without cause, including voluntary or involuntary
termination, death or disability, or (ii) any of the shares of Stock
shall be involuntarily transferred, including pursuant to a bankruptcy
or insolvency proceeding, a divorce or separation proceeding, a writ
of attachment garnishment, or any similar proceeding.
(b) As of the Purchase Date, one-third of the shares of Stock sold
shall be deemed to be "Vested Shares" and all remaining shares of
Stock shall be deemed "Non-Vested Shares." A second third of the
shares of
2
<PAGE>
Stock shall become Vested Shares on the first anniversary of the
Purchase Date and the remaining third shall become Vested Shares on
the second anniversary of the Purchase Date.
(c) The per share purchase price to be paid for the Stock upon the
exercise of the Purchase Option (the "Option Price") shall be as
follows:
(i) The Option Price for all Non-Vested Shares shall be
equal to the Purchase Price paid by the Purchaser for such
shares; and
(ii) The Option Price for all Vested Shares shall be
equal to the Fair Market Value. The "Fair Market Value" shall
be the fair market value of such shares as last determined the
Board prior to the date of the repurchase pursuant to the
Purchase Option. The Board shall determine the Fair Market
Value of the shares at least annually and shall set forth such
determination in the Board minutes. Such determination may
consider all factors that the Board deems relevant to valuation
(including liquidity and restrictions on resale) and shall be
final and binding on Stockholder.
(d) Within 60 days following an Event Date, the Company or its
assignee (an "Optionholder") shall notify Purchaser or his or her
successor, as applicable, by written notice as to whether it wishes to
exercise the Purchase Option. If the Optionholder elects to so
purchase, it shall identify the number of share it intends to
purchased and the date (not later than 30 days from the date of such
notice) and place for the closing of the purchase. At such closing,
the Optionholder shall tender payment for the shares of Stock
purchased and the certificates representing the Stock so purchased
shall be delivered to Optionholder.
(e) The Option Price may be payable, at the election of the
Optionholder (i) by cancellation or payment of any outstanding
indebtedness of the Purchaser to the Company or its stockholders or
affiliates, (ii) by cancellation or payment of any outstanding
indebtedness under any note delivered by a Purchaser in connection
with the Purchaser's purchase of the Stock, (iii) in cash (by check),
(iv) by delivery of a fully subordinated promissory note of the
Company payable in 12 consecutive equal monthly installments of
principal and bearing interest at a rate equal to the greater of the
prime rate (as listed in the Western Edition of the Wall Street
Journal on the first business day immediately preceding the closing
date) and ten percent (10%), or (iv) any combination of the foregoing.
3
<PAGE>
(f) Notwithstanding the foregoing, the Purchase Option shall not
apply to Vested Shares on and after the closing date (the "IPO Date")
of an underwritten initial public offering of Common Stock of the
Company pursuant to an effective registration statement filed by the
Company under the Securities Act of 1933 (the "Act").
9. STOCK SPLITS, ETC. If, from time to time during the term of this
Plan:
(i) There is any stock dividend or liquidating dividend of cash
and/or property, stock split or other change in the character or
amount of any of the outstanding securities of the Company; or
(ii) There is any consolidation, merger or sale of the Company or
of all, or substantially all, of the assets of the Company; then, in
such event, any and all new, substituted or additional securities or
other property to which Purchaser is entitled by reason of his
ownership of Stock shall be immediately subject to this Agreement and
be included in the word "Stock" for all purposes with the same after
each such event, and the Option Price shall be appropriately adjusted
by the Company.
10. PROHIBITION ON TRANSFER. A Purchaser may not sell, transfer (by gift
or otherwise), pledge (other than to the Company), grant an option on or
otherwise dispose of (collectively, "Transfer") any Non-Vested Shares. Without
the consent of the Board, a purchaser may not Transfer any Vested Shares which
remain subject to the Purchase Option. In the event any shares of Stock are
Transferred without such consent, whether by will, intestacy, involuntary
transfer or in violation of this Plan, the transferee shall receive and hold
such shares subject to the provisions of this Plan and the Plan Documents. The
Company shall not be required to transfer on its books any Stock Transferred in
violation of this Plan, or to treat as the owner of such shares (including the
right to vote or to receive dividends) any transferee to whom such shares shall
have been so transferred.
11. PUBLIC OFFERING
(a) In addition to the restrictions in Section 10, on or at the closing of
any public offering by the Company of its securities pursuant to an effective
registration statement filed under the Act, a Purchaser shall not Transfer any
Stock, make any short sale of Stock or agree to engage in any of the foregoing
transactions without the prior written consent of the Company or its
underwriters, for such period of time from and after the effective date of such
registration statement as may be requested by the Company or such underwriters;
provided, however, that in no event shall such period
4
<PAGE>
exceed one hundred-eighty (180) days. This Section 11 shall remain in effect
only for the two-year period immediately following the IPO Date.
(b) If the Company proposes to register any of its common stock under the
Act and/or any states' securities laws, each purchaser shall cooperate in any
filings required to be made and will use his or her best efforts to cause all
stock of the Company to comply with all legal and other requirements necessary
or desirable to cause such registration to become effective.
12. "COME ALONG" RIGHTS. Prior to the IPO Date:
(i) Notwithstanding anything to the contrary in this Plan, if
(x) there is a offer (an "Offer") from a third party (an "Offeror") to
purchase all or substantially all of the common stock of the Company
and (y) the Board recommends the acceptance of such Offer, then the
Company (or its assignee) or the Offeror, as the Company (or assignee)
shall elect, shall have the right to purchase all of the Stock owned
by each Purchaser at the same price per share, for the same form of
consideration and upon substantially the same terms and conditions as
such Offer.
(ii) If the Company proposes to reorganize or a third party makes
a offer to acquire substantially all assets of, or to merge or
consolidated with, the Company, each Purchaser shall vote his or her
Stock in regard to such transaction in accordance with the
recommendation of the Board. By execution of the Stock Agreement,
each Purchaser grants to the Secretary of the Company a proxy to vote
his or her shares in accordance with this Section 12.
13. AMENDMENT AND TERMINATION OF THE PLAN. The Board may alter, amend,
suspend or terminate the Plan, provided that no such action shall deprive a
Purchaser, without his or her consent, of any Stock or any of the rights
thereunder granted to the Purchaser pursuant to the Plan.
14. EFFECTIVENESS OF THE PLAN. The effective date of the Plan is June 1,
1996.
5
<PAGE>
EXHIBIT 10.7
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of __________,
1996 by and between Big Dog Holdings, Inc., a Delaware corporation
("Corporation"), and the individual listed on the signature page hereof
("Purchaser").
WHEREAS, the Corporation has adopted a 1996 Stock Incentive Plan (the
"Plan"); and
WHEREAS, the Board of Directors of the Corporation has granted to Purchaser
the right to purchase stock of the Corporation pursuant to the Plan and this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein, Corporation and Purchaser agree as follows:
1. PURCHASE AND SALE OF STOCK. Subject to the terms and conditions of
this Agreement and the Plan (the terms of which, as amended from time to time in
accordance with the Plan, are incorporated herein by reference), the Corporation
hereby agrees to sell to Purchaser and Purchaser agrees to purchase from
Corporation as of the date of this Agreement, the number of shares of the Common
Stock of the Corporation listed on the signature page hereof (the "Stock") at
the price listed on the signature page hereof (the "Purchase Price"). The total
Purchase Price shall be paid contemporaneously with the execution of this
Agreement by (i) the payment of cash in an amount equal to five percent (5%) of
such Purchase Price, as set forth on the signature page hereof, and (ii) the
delivery of Purchaser's promissory note (the "Purchase Note"), in the form
delivered to Purchaser together with this Agreement, in the amount of the
balance. Purchaser agrees to be bound by, and to perform its obligations set
forth in, the Plan.
2. INVESTMENT INTENT. Purchaser shall execute and deliver to the
Corporation a letter, in a form acceptable to the Corporation, regarding
Purchaser's investment intent and other matters required by applicable
securities laws.
3. PLEDGE. As security for the payment of the Purchase Note and any
renewal or modification thereof, and the faithful performance of the terms of
this Agreement, Purchaser hereby grants to the Corporation a security interest
in the Stock. Purchaser agrees to deliver to the General Counsel of the
Corporation or such other person designated by the Corporation ("Escrow Agent"),
as pledgeholder and escrowholder, Escrow Instructions, in form acceptable to the
Corporation, and a stock assignment duly endorsed (with date and number of
shares blank) together with the certificate evidencing the Stock. Said
documents are to be held by the Escrow Agent and delivered by said Escrow Agent
pursuant to the Escrow Agreement.
<PAGE>
4. MISCELLANEOUS.
(a) The parties agree to execute such further instruments and to take
such further action as may reasonably be necessary to carry out the intent of
this Agreement. In the event Purchaser fails or refuses to execute any document
which may be reasonably required to effectuate the terms of this Agreement,
Purchaser hereby appoints the General Counsel of the Corporation as attorney-in-
fact to execute such documents.
(b) Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or three
days following deposit in the United States Post Office, by registered or
certified mail with postage and fees prepaid, addressed to Purchaser at his or
her address shown on the Corporation's employment records and to the Corporation
at the address of its principal corporate offices (Attention: General Counsel)
or at such other address as such party may designate by ten days' advance
written notice to the other party hereto.
(d) The Corporation may assign its rights (including the Purchase
Option under the Plan) and delegate its duties under this Agreement. This
Agreement shall inure to the benefit of the successors and assigns of the
Corporation and, subject to the restrictions on transfer herein set forth, be
binding upon Purchaser and his or her heirs, executors, administrators,
successors and assigns.
(e) The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof.
(f) Purchaser agrees that the Corporation will be irreparably damaged
in the event this Agreement is not specifically enforceable. Accordingly, in
the event of any controversy under this Agreement, this Agreement shall be
enforceable against Purchaser in a court of equity or arbitration proceeding by
specific performance. The rights granted in this Section shall be cumulative
and not exclusive, and shall be in addition to any and all rights which the
parties may have hereunder, at law or in equity.
(g) The provisions of this Agreement may be amended in whole or in
part only upon the written consent of the parties hereto.
(h) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of California.
(i) This Agreement reflects the complete agreement of the parties
with respect to the subject matter contemplated herein, and Purchaser
specifically agrees that there is no other understanding with or commitment from
the Corporation or its stockholders to provide to Purchaser any additional stock
or other equity or profits interest in the Corporation or its affiliates, or
that any such understanding or commitment is superseded by this Agreement.
Nothing in this Agreement shall affect in any manner
2
<PAGE>
whatsoever the right or power of the Corporation, or any affiliates, to
terminate Purchaser's employment, for any reason, with or without cause.
(j) If it becomes necessary for any party to institute any action,
suit or proceeding to enforce this Agreement, the nonprevailing party agrees to
pay the prevailing party's costs and fees, including reasonable attorneys' fees
incurred in such enforcement.
(k) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
5. ARBITRATION. At the option of either party, any and all disputes or
controversies whether of law or fact and of any nature whatsoever arising from
or respecting this Agreement shall be decided by arbitration by the American
Arbitration Association in accordance with the rules and regulations of that
association.
The arbitrators shall be selected as follows: The Corporation and
Purchaser shall each select one independent, qualified arbitrator and the two
arbitrators so selected shall select the third arbitrator. The Corporation
reserves the right to object to any individual arbitrator who shall be employed
by or affiliated with a competing organization.
Arbitration shall take place in the City of Santa Barbara, California,
or any other location mutually agreeable to the parties. At the request of
either party, arbitration proceedings will be conducted in the utmost secrecy;
in such case all documents, testimony and records shall be received, heard and
maintained by the arbitrators in secrecy under seal, available for the
inspection only of the Corporation or Purchaser and their respective attorneys
and their respective experts who shall agree in advance and in writing to
receive all such information confidentially and to maintain such information in
secrecy until such information shall become generally known. The arbitrators,
who shall act by majority vote, shall be able to decree any and all relief of an
equitable nature, including but not limited to (i) a temporary restraining order
and (ii) a temporary and/or a permanent injunction. The arbitrators shall also
be able to award damages, with or without an accounting and costs. The decree
or judgment of an award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. Reasonable notice of the time and place of
arbitration shall be given to all persons, other than the parties, as shall be
required by law, in which case such persons or their authorized representatives
shall have the right to attend and/or participate in all the arbitration
hearings in such manner as the law shall require.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
BIG DOG HOLDINGS, INC.
a Delaware Corporation
By: ______________________________
Title: ______________________________
PURCHASER
______________________________
(Signature)
______________________________
(Print Name)
________________________
Number of Shares Sold
________________________
Per Share Purchase Price
________________________
Total Purchase Price
________________________
Amount of Note
________________________
Down Payment Amount
4
<PAGE>
CONSENT
I acknowledge that I have read the foregoing Stock Purchase Agreement and
the documents referred to therein, including the 1996 Stock Incentive Plan (the
"Agreements"). I am aware that by their provisions, my spouse agrees, among
other things, to subject his or her shares of stock (the "Stock") of Big Dog
Holdings, Inc., a Delaware corporation ("Corporation"), including my community
interest therein (if any), to repurchase rights, which rights may survive my
spouse's death. I hereby consent to such rights, approve of the provisions of
the Agreements, and agree that I will bequeath any interest that I may have in
the Stock, including my community interest (if any), or permit any such interest
to be purchased in a manner consistent with the provisions of the Agreements as
amended from time to time. I direct that any residuary clause in my will shall
not be deemed to apply to my community interest (if any) in the Stock except to
the extent consistent with the provisions of the Agreements, as so amended.
I further agree that in the event of a dissolution of the marriage between
myself and my spouse, in connection with which I secure or am awarded shares of
the Stock, or any interest therein, through property settlement agreement or
otherwise, I shall receive and hold said shares subject to all the provisions
and restrictions contained in the Agreements as so amended, including the option
of the Corporation or its assignee to purchase such shares or interest from me.
I also acknowledge that I have been provided with the opportunity to obtain
independent counsel to represent my interests with respect to the Agreements and
have either done so or declined to do so.
Dated: ______________ ______________________________
(Signature)
______________________________
(Print Name)
5
<PAGE>
EXHIBIT 10.8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BIG DOG HOLDINGS, INC.
1997 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. ESTABLISHMENT. Big Dog Holdings, Inc., a Delaware corporation, hereby
establishes its 1997 Stock Option Plan.
2. PURPOSE. The Plan is designed to enable the Company to attract,
retain and motivate persons who may be expected to contribute to the success of
the Company by providing for or increasing the proprietary interests of such
persons in the Company, and thereby provide an incentive to such persons to
increase the profitability and success of the Company.
3. DEFINITIONS.
a. Company: Big Dog Holdings, Inc.
b. Plan: This 1997 Stock Option Plan.
c. Board: The Board of Directors of the Company.
d. Stock: Shares of the Common Stock of the Company, subject to
Section 12 hereof.
e. Eligible Person: Any directors, officers and employees of the
Company or any majority-owned subsidiary, any consultant or advisor to the
Company or any majority-owned subsidiary and any other person whom the
Board determines may be expected to contribute to the success of the
Company.
f. Optionee: A person to whom an Option has been or is to be
granted.
g. Date of Grant: The date on which the Board completes the
corporate action constituting authorization of an Option.
h. Option: A right granted under the Plan to purchase Stock.
i. Exercise Price: The price at which Stock may be purchased on
exercise of an Option.
j. Option Agreement. The agreement, in form determined by the
Board, that each Optionee shall execute in regard to the grant of Options.
1
<PAGE>
k. Termination of Employment: An Optionee shall cease to be
employed by or associated with the Company or its subsidiaries or
affiliates for any reason, or no reason, with or without cause, including
voluntary or involuntary termination, death or disability.
l. IPO Date. The closing date of an underwritten initial public
offering of Common Stock of the Company pursuant to a registration
statement filed under the Act.
m. The Act. The Securities Act of 1933 and any successor thereto.
4. ADMINISTRATION. The Plan shall be administered by the Board. The
interpretation and construction by the Board of any provision of the Plan or of
any Option Agreement shall be final and binding upon Optionees. No member of
the Board shall be liable for any action or determination made in good faith.
Subject to the provisions of the Plan, the Board shall have full and
final authority in its discretion to select the Eligible Persons to be granted
an Option, to grant such Option, and to determine the number of shares to be
subject thereto, the Exercise Price, the terms of exercise, the expiration date,
and such other terms and provisions thereof as it may authorize, each of which
terms may be different for each Option.
5. STOCK SUBJECT TO THE PLAN. Subject to the adjustments provided in
section 12 hereof, the aggregate number of shares of Stock which may be subject
to Options granted hereunder shall be 200,000 shares. Shares of Stock subject
to the unexercised portions of any Option which expires or terminates or is
canceled shall again become available for purposes of the Plan. Shares of stock
deliverable upon exercise of any Option granted hereunder may be authorized and
unissued Stock or previously outstanding Stock which has been reacquired by the
Company. No Option shall be exercisable except in respect of whole shares of
Stock.
6. DURATION OF PLAN. Options may be granted as provided in the Plan at
such time or times as may be determined by the Board, but any such grants much
be made at or prior to the close of business on the tenth anniversary date of
the effective date of the Plan. All Options outstanding on that date may
thereafter be exercised in accordance with their respective terms.
7. OPTION PAYMENT. Payment for Stock purchased upon exercise of an
Option shall be made in full in cash or by check, bank draft, or postal or
express money order payable, or other instrument acceptable to the Board, and,
if the applicable Option Agreement so provides, an Optionee may deliver the
following in order to satisfy in whole or in part the Exercise Price: (i) Stock
that the Optionee has previously acquired or (ii) a promissory note having such
terms as the Board shall, in its discretion, establish.
2
<PAGE>
8. OPTION EXERCISE PRICE. Subject to the general limitations of the Plan,
and with the consent of the Optionee, the Board may make any adjustment in the
Exercise Price, the number of shares subject to, or the term of an Option by
cancellation of an outstanding Option and a subsequent regranting of an Option,
or by amendment or substitution of an outstanding Option. An Option which has
been so amended, substituted or regranted may have a higher or lower Exercise
Price, cover a greater or lesser number of shares of Stock, or have a longer or
shorter term than the Option it replaced.
9. EXERCISE OF OPTIONS. All Options shall be subject to the condition
that they may not be exercised until after the IPO Date. The Board shall have
full authority, in its discretion, to prescribe in any Option Agreement any
addition vesting and other conditions to which the exercise of an Option shall
be subject and events upon which an Option shall or may be canceled. An
Optionee shall not have the rights of a shareholder with respect to the shares
covered by an Option until such shares are issued. The Board may amend any
existing Option Agreement to accelerate the time or times that the subject
Option becomes exercisable.
10. TERMINATION OF OPTIONS.
a. Prior to the IPO Date, if the Termination of Employment of an
Optionee occurs, all Options then held by such Optionee may be canceled by
the Board.
b. On or after the IPO Date, if the Termination of Employment of an
Optionee occurs, for a period of three months after the Termination of
Employment such Optionee (or in the event of the death of the Optionee, his
or her representative) may exercise all Options that were held and were
exercisable at the time of the Termination of Employment, and all other
Options may be cancelled by the Board.
11. NONTRANSFERABILITY OF OPTIONS. Options may not be transferred,
assigned or pledged ("Transferred") by an Optionee. In the event an Optionee
shall attempt to Transfer any Options or any Options shall be involuntarily
Transferred (including pursuant to a bankruptcy or insolvency proceeding, a
divorce or separation proceeding, a writ of attachment garnishment, or any
similar proceeding), such Options shall be deemed to be automatically
terminated.
12. ADJUSTMENTS. If outstanding shares of the Stock are increased or
decreased, or are changed into or exchanged for a different number or kind of
shares or securities of the Company, through reorganization, recapitalization,
reclassification, stock dividend, stock split or similar transaction, an
appropriate and proportionate adjustment shall be made to change the maximum
number or type of shares or securities as to which Options may be granted under
the Plan and to change the number or type of shares or securities allocated to
unexercised Options. Any such adjustment in outstanding Options shall be made
without change in the aggregate Exercise Price applicable to the unexercised
portion of such Options, but a corresponding adjustment in the Exercise Price
for each
3
<PAGE>
share or other unit of any security covered by the Option shall be made.
Adjustments under this Section 12 shall be made by the Board, and its
determinations as to what adjustments shall be made, and the extent thereof,
shall be final and binding.
13. TRANSACTIONS TERMINATING THE PLAN AND THE OPTIONS.
Upon the dissolution or liquidation of the Company, upon a reorganization,
merger or consolidation of the Company in which the Company is not the surviving
corporation or as a result of which the outstanding shares of Stock are
exchanged or converted into cash or property or securities not issued by the
Company, or upon a sale of substantially all of the stock or assets of the
Company (a "Terminating Transaction"), the Plan may be terminated by the Board.
Upon a Terminating Transaction, the Board may also terminate all Options or may
agree with the surviving or successor corporation or other acquiror that the
Options shall be assumed by such acquiror, with appropriate adjustments as to
the numbers and types of shares and prices (as determined in the discretion of
the Board). If the Options are to be terminated pursuant to the foregoing
sentence, Optionees shall have the right, during a period immediately prior to
the consummation of the Terminating Transaction as the Board shall designate, to
exercise the unexercised portion of their Options that are then exercisable
(other than due to the fact that the IPO Date has not occurred) on the condition
that the Optionees agree to participate in and/or vote for the Terminating
Transaction on the terms agreed to by the Board. In connection with such a
Terminating Transaction, the Board may also, but shall not be required to,
provide for the exercise, on an accelerated basis, of or payment for some or all
of the then outstanding Options which would otherwise not then be exercisable
due to factors other than that the IPO Date has not occurred.
14. GOVERNMENT AND OTHER REGULATIONS. The Company shall not be required
to issue any shares of Stock upon the exercise of any Option unless and until
any then applicable requirements of federal and state securities laws and any
exchanges or trading systems upon which the Stock may be listed or quotes shall
have been fully complied with. Upon the exercise of an Option at a time when
there is not in effect a registration statement under the Act relating to the
shares of Stock issuable upon exercise thereof and available for delivery a
prospectus meeting the requirements of Section 10(a) (3) of the Act, or, if
Company counsel determines that it is advisable in order to ensure that the
Stock may be issued without registration or qualification, the Company may
require as a condition to the issuance of the Stock that (i) the Optionee
represent and warrant to the Company that the shares are being acquired for
investment and not with a view to the distribution thereof, (ii) any
certificates issued upon exercise of an Option bear appropriate legends setting
forth the restrictions on transfer of such shares and (iii) the Optionee execute
and deliver such other agreements and instruments as Company counsel shall
require. Optionees may also be required to conform to any agreement of the
Company with underwriters.
4
<PAGE>
15. WITHHOLDING TAXES. Whenever shares of Stock are to be issued upon
exercise of an Option, the Company, in its discretion, may require the Optionee
to (i) remit to the Company, all or any part of any amount determined in its
discretion by the Company to be sufficient to satisfy federal, state and local
withholding tax requirements or (ii) withhold such amounts from future wages.
16. AMENDMENT AND TERMINATION OF THE PLAN. The Board may alter, amend,
suspend or terminate the Plan, provided that no such action shall, without the
consent of the Optionee, materially adversely alter the economic terms
applicable to the Options granted to such Optionee.
17. EFFECTIVENESS OF THE PLAN. The effective date of the Plan is
January 31, 1997.
5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BIG DOG HOLDINGS, INC.
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") is entered into as of
_____________, 1997 between BIG DOG HOLDINGS, INC., a Delaware corporation (the
"Company"), and ______________________________________ (the "Optionee").
WHEREAS, the Company desires, by affording the Optionee an opportunity to
purchase shares of its Common Stock (the "Stock"), to carry out the purposes of
the Company's 1997 Stock Option Plan (the "Plan").
THEREFORE, in consideration of the mutual covenants herein and other
valuable consideration, the parties hereby agree as follows (all capitalized
terms not defined herein shall have the meaning provided in the Plan):
SECTION 1 - GRANT OF OPTION
The Company hereby grants to the Optionee an option (the "Option") to
purchase an aggregate of ______________________________ (__________) shares of
Stock (the "Option Shares").
SECTION 2 - PURCHASE PRICE
The Exercise Price for the Stock covered by this Option shall be
$__________ per share.
SECTION 3 - OPTION TERM
No part of this Option may be exercised on or after the tenth anniversary
date of this Agreement.
SECTION 4 - EXERCISE
This Option may only be exercised to the extent that Option Shares are
"Vested." This Option shall Vest in accordance with the following schedule:
a. The Option shall not be deemed to be Vested as to any Option
Shares until the first anniversary date of this Agreement.
<PAGE>
b. On and after the first anniversary date of this Agreement, the
Option shall be deemed to be Vested as to one-third of the Option
Shares
c. On and after the second anniversary of the date of this Agreement,
the Option shall be deemed to be Vested as to an additional one-third
of the Option Shares.
d. On and after the third anniversary date of this Agreement, the
Option shall be deemed to be Vested as to all Option Shares.
The number of Vested Option Shares shall be calculated to the nearest full
share. Subject to the conditions in the Plan and this Agreement, until this
Option expires the Optionee may purchase all or any part of his or her Vested
Option Stock. No partial exercise of this Option may be for less than one
hundred (100) shares. Each exercise of this Option shall be by written notice
of exercise delivered to the Secretary of the Company, at its principal place of
business, shall specify the number of shares to be purchased and shall be
accompanied by (a) such additional information or forms as the Company may
require, and (b) except as provided below, payment in cash or by check, payable
to the order of the Company, in the amount of the full Exercise Price of the
shares to be purchased. The date of delivery of the notice shall be deemed to
be the exercise date, unless such notice specifies a date subsequent to the
delivery date as the exercise date.
As soon as practicable after any exercise of this Option in accordance with
the terms of this Agreement, the Company shall deliver to the Optionee, at the
main office of the Company or at such place as shall be mutually acceptable, a
certificate representing the shares of Stock as to which this Option has been
exercised.
SECTION 5 - THE PLAN
This Option is subject to, and the Optionee agrees to be bound by, all of
the terms and conditions of the Plan as the same shall be amended from time to
time in accordance with the terms thereof, but no such amendment shall
materially adversely affect the Optionee's economic rights under this Option.
Optionee hereby confirms that he/she has been given a copy of the Plan and has
familiarized himself/herself with it provisions. A copy of the Plan in its then
current form shall be available for inspection during business hours at the
principal office of the Company.
2
<PAGE>
SECTION 6 - EMPLOYMENT
This Agreement shall not obligate the Company or any affiliate to employ
the Optionee for any period of time, nor constitute a contract or agreement of
employment with the Optionee, nor shall it interfere in any way with the right
of the Company or any affiliate to reduce the Optionee's compensation or to
terminate the Optionee's employment.
SECTION 7 - NOTICES
Any notice to be given to the Company shall be addressed to the Company in
care of its Secretary at its principal office, and any notice to be given to the
Optionee shall be addressed to him or her at his or her residence address as
then set forth in the personnel records of the Company. Any such notice shall
be deemed duly given when personally delivered or three business days after it
is sent, registered or certified, by the United States mail.
SECTION 8 - APPLICABLE LAW
This Option shall be construed and enforced in accordance with the laws of
the State of California.
SECTION 9 - ENTIRE AGREEMENT
This Agreement, the Plan and the investment Representation Letter of even
date herewith set forth the entire agreement of the parties with respect to the
subject matter hereof and supersede all prior agreements, understandings and
discussions between the parties.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officers, and Optionee has hereunto set his or
her hand, effective as of the date first above written.
BIG DOG HOLDINGS, INC. OPTIONEE
By:
------------------------------ ------------------------------
Title Name:
------------------------------ -------------------------
3
<PAGE>
By his or her signature below, the spouse of Optionee agrees to be bound by
all of the terms and conditions of this Stock Option Agreement and the 1997
Stock Option Plan.
------------------------------
4
<PAGE>
BIG DOG SPORTSWEAR HOLDINGS, INC.
1997 PERFORMANCE AWARD PLAN
<PAGE>
TABLE OF CONTENTS
Page
1. THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Administration and Authorization; Power and Procedure . . . . 1
1.2.1 Committee . . . . . . . . . . . . . . . . . . . . . 1
1.2.2 Plan Awards; Interpretation; Powers of
Committee . . . . . . . . . . . . . . . . . . . . . 1
1.2.3 Binding Determinations. . . . . . . . . . . . . . . 2
1.2.4 Reliance on Experts . . . . . . . . . . . . . . . . 2
1.2.5 Delegation. . . . . . . . . . . . . . . . . . . . . 2
1.3 Participation . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Shares Available for Awards; Share Limits . . . . . . . . . . 3
1.4.1 Shares Available. . . . . . . . . . . . . . . . . . 3
1.4.2 Share Limits. . . . . . . . . . . . . . . . . . . . 3
1.4.3 Share Reservation; Replenishment and
Reissue of Unvested Awards . . . . . . . . . . . . 3
1.5 Grant of Awards . . . . . . . . . . . . . . . . . . . . . . . 4
1.6 Award Period. . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Limitations on Exercise and Vesting of Awards . . . . . . . . 4
1.7.1 Provisions for Exercise . . . . . . . . . . . . . . 4
1.7.2 Procedure . . . . . . . . . . . . . . . . . . . . . 4
1.7.3 Fractional Shares/Minimum Issue . . . . . . . . . . 4
1.8 Acceptance of Notes to Finance Exercise . . . . . . . . . . . 4
1.8.1 Principal . . . . . . . . . . . . . . . . . . . . . 5
1.8.2 Term. . . . . . . . . . . . . . . . . . . . . . . . 5
1.8.3 Recourse; Security. . . . . . . . . . . . . . . . . 5
1.8.4 Termination of Employment . . . . . . . . . . . . . 5
1.9 No Transferability; Limited Exception to Transfer
Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . 5
1.9.1 Limit On Exercise and Transfer. . . . . . . . . . . 5
1.9.2 Exceptions. . . . . . . . . . . . . . . . . . . . . 6
1.9.3 Further Exceptions to Limits On Transfer. . . . . . 6
2. OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Option Price. . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2.1 Pricing Limits. . . . . . . . . . . . . . . . . . . 7
2.2.2 Payment Provisions. . . . . . . . . . . . . . . . . 7
2.3 Limitations on Grant and Terms of Incentive Stock
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3.1 $100,000 Limit. . . . . . . . . . . . . . . . . . . 7
2.3.2 Option Period . . . . . . . . . . . . . . . . . . . 8
i
<PAGE>
2.3.3 Other Code Limits . . . . . . . . . . . . . . . . . 8
2.4 Limits on 10% Holders . . . . . . . . . . . . . . . . . . . . 8
2.5 Option Repricing/Cancellation and Regrant/Waiver of
Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6.1 Options - Resignation or Dismissal. . . . . . . . . 9
2.6.2 Options - Death or Disability . . . . . . . . . . . 9
2.6.3 Options - Retirement. . . . . . . . . . . . . . . . 9
2.6.4 Certain SARs. . . . . . . . . . . . . . . . . . . . 10
2.6.5 Other Awards. . . . . . . . . . . . . . . . . . . . 10
2.6.6 Committee Discretion. . . . . . . . . . . . . . . . 10
3. STOCK APPRECIATION RIGHTS
(INCLUDING LIMITED STOCK APPRECIATION RIGHTS). . . . . . 10
3.1 Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Exercise of Stock Appreciation Rights . . . . . . . . . . . . 11
3.2.1 Exercisability. . . . . . . . . . . . . . . . . . . 11
3.2.2 Effect on Available Shares. . . . . . . . . . . . . 11
3.2.3 Stand-Alone SARs. . . . . . . . . . . . . . . . . . 11
3.2.4 Proportionate Reduction . . . . . . . . . . . . . . 11
3.3 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3.1 Amount. . . . . . . . . . . . . . . . . . . . . . . 11
3.3.2 Form of Payment . . . . . . . . . . . . . . . . . . 12
3.4 Limited Stock Appreciation Rights . . . . . . . . . . . . . . 12
4. RESTRICTED STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . 12
4.1 Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2.1 Pre-Vesting Restraints. . . . . . . . . . . . . . . 13
4.2.2 Dividend and Voting Rights. . . . . . . . . . . . . 13
4.2.3 Cash Payments . . . . . . . . . . . . . . . . . . . 13
4.3 Return to the Corporation . . . . . . . . . . . . . . . . . . 13
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES . . . . . . . . . . . . 13
5.1 Grants of Performance Share Awards. . . . . . . . . . . . . . 13
5.2.1 Eligible Class. . . . . . . . . . . . . . . . . . . 14
5.2.2 Maximum Award . . . . . . . . . . . . . . . . . . . 14
5.2.3 Committee Certification . . . . . . . . . . . . . . 15
5.2.4 Terms and Conditions of Awards. . . . . . . . . . . 15
5.2.5 Stock Payout Features . . . . . . . . . . . . . . . 15
5.3 Grants of Stock Bonuses . . . . . . . . . . . . . . . . . . . 15
5.4 Deferred Payments . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Cash Bonus Awards . . . . . . . . . . . . . . . . . . . . . . 15
5.5.1 Performance Goals . . . . . . . . . . . . . . . . . 15
5.5.2 Maximum Annual Amount . . . . . . . . . . . . . . . 16
5.5.3 Payment in Restricted Stock . . . . . . . . . . . . 16
ii
<PAGE>
6. OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 Rights of Eligible Persons, Participants and
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1.1 Employment Status . . . . . . . . . . . . . . . . . 16
6.1.2 No Employment Contract. . . . . . . . . . . . . . . 16
6.1.3 Plan Not Funded . . . . . . . . . . . . . . . . . . 16
6.2 Adjustments; Acceleration . . . . . . . . . . . . . . . . . . 17
6.2.1 Adjustments . . . . . . . . . . . . . . . . . . . . 17
6.2.2 Acceleration of Awards Upon Change in
Control . . . . . . . . . . . . . . . . . . . . . . 18
6.2.3 Possible Early Termination of Accelerated
Awards . . . . . . . . . . . . . . . . . . . . . . 18
6.2.4 Golden Parachute Limitations. . . . . . . . . . . . 19
6.3 Effect of Termination of Employment . . . . . . . . . . . . . 19
6.4 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . 19
6.5 Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . 19
6.5.1 Mandatory Tax Withholding Offset. . . . . . . . . . 19
6.5.2 Tax Loans . . . . . . . . . . . . . . . . . . . . . 20
6.6 Plan Amendment, Termination and Suspension. . . . . . . . . . 20
6.6.1 Board Authorization . . . . . . . . . . . . . . . . 20
6.6.2 Stockholder Approval. . . . . . . . . . . . . . . . 20
6.6.3 Amendments to Awards. . . . . . . . . . . . . . . . 20
6.6.4 Limitations on Amendments to Plan and Awards . . . 20
6.7 Privileges of Stock Ownership . . . . . . . . . . . . . . . . 21
6.8 Effective Date of the Plan. . . . . . . . . . . . . . . . . . 21
6.9 Term of the Plan. . . . . . . . . . . . . . . . . . . . . . . 21
6.10 Governing Law/Construction/Severability . . . . . . . . . . . 21
6.10.1 Choice of Law . . . . . . . . . . . . . . . . . . . 21
6.10.2 Severability . . . . . . . . . . . . . . . . . . . 21
6.10.3 Plan Construction . . . . . . . . . . . . . . . . . 21
6.11 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.12 Effect of Change of Subsidiary Status . . . . . . . . . . . . 22
7. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8. NON-EMPLOYEE DIRECTOR OPTIONS . . . . . . . . . . . . . . . . . . 28
8.1 Participation . . . . . . . . . . . . . . . . . . . . . . . . 28
8.2 Annual Option Grants. . . . . . . . . . . . . . . . . . . . . 28
8.2.1 Time of Initial Award . . . . . . . . . . . . . . . 28
8.2.2 Subsequent Annual Awards. . . . . . . . . . . . . . 28
8.2.3 Maximum Number of Shares. . . . . . . . . . . . . . 28
8.3 Option Price. . . . . . . . . . . . . . . . . . . . . . . . . 28
8.4 Option Period and Exercisability. . . . . . . . . . . . . . . 29
8.5 Termination of Directorship . . . . . . . . . . . . . . . . . 29
8.6 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.7 Acceleration Upon a Change in Control Event . . . . . . . . . 29
iii
<PAGE>
BIG DOG SPORTSWEAR
1997 PERFORMANCE AWARD PLAN
1. THE PLAN
1.1 PURPOSE. The purpose of this Plan is to promote the success of the
Company and the interests of its stockholders by attracting,
motivating, retaining and rewarding directors, officers,
employees and others with awards and incentives for high levels
of individual performance and improved financial performance of
the Company and to attract, motivate and retain experienced and
knowledgeable independent directors through the benefits
provided under Section 8. "CORPORATION" means Big Dog
Holdings, Inc. and "COMPANY" means the Corporation and its
Subsidiaries, collectively. These terms and other capitalized
terms are defined in Section 7.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
1.2.1 COMMITTEE. This Plan will be administered by and all Awards to
Eligible Employees will be authorized by the Committee.
Action of the Committee with respect to the administration
of this Plan will be taken pursuant to a majority vote or
by written consent of its members.
1.2.2 PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to
the express provisions of this Plan, the Committee will
have the authority to:
(a) determine eligible the particular Eligible Employees
who will receive Awards;
(b) grant Awards to Eligible Employees, determine the
price at which securities will be offered or awarded
and the amount of securities to be offered or awarded
to any of such persons, and determine the other
specific terms and conditions of such Awards
consistent with the express limits of this Plan, and
establish the installments (if any) in which such
Awards will become exercisable or will vest, or
determine that no delayed exercisability or vesting
is required, and establish the events of termination
or reversion of such Awards;
1
<PAGE>
(c) approve the forms of Award Agreements (which need not
be identical either as to type of Award or among
Participants);
(d) construe and interpret this Plan and any agreements
defining the rights and obligations of the Company
and Employee Participants under this Plan, further
define the terms used in this Plan, and prescribe,
amend and rescind rules and regulations relating to
the administration of this Plan;
(e) cancel, modify, or waive the Corporation's rights
with respect to, or modify, discontinue, suspend, or
terminate any or all outstanding Awards held by
Eligible Employees, subject to any required consent
under Section 6.6;
(f) accelerate or extend the exercisability or extend the
term of any or all such outstanding Awards within the
maximum ten-year term of Awards under Section 1.6;
and
(g) make all other determinations and take such other
action as contemplated by this Plan or as may be
necessary or advisable for the administration of this
Plan and the effectuation of its purposes.
but the provisions of Section 8 relating to Non-Employee Director
Awards will be automatic and, to the maximum extent possible, self-effectuating.
1.2.3 BINDING DETERMINATIONS. Any action taken by, or inaction of,
the Corporation, any Subsidiary, the Board or the
Committee relating or pursuant to this Plan will be within
the absolute discretion of that entity or body and will be
conclusive and binding upon all persons. No member of the
Board or Committee, or officer of the Corporation or any
Subsidiary, will be liable for any such action or inaction
of the entity or body, of another person or, except in
circumstances involving bad faith, of himself or herself.
Subject only to compliance with the express provisions
hereof, the Board and Committee may act in their absolute
discretion in matters within their authority related to
this Plan.
1.2.4 RELIANCE ON EXPERTS. In making any determination or in taking
or not taking any action under this Plan, the Committee or
the Board, as the case may be, may obtain and may rely
upon the advice of experts, including professional
advisors to the Corporation. No
2
<PAGE>
director, officer or agent of the Company will be liable for
any such action or determination taken or made or omitted in
good faith.
1.2.5 DELEGATION. The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or
employees of the Company.
1.3 PARTICIPATION. Awards may be granted by the Committee only to those
persons that the Committee determines to be Eligible Persons.
An Eligible Person who has been granted an Award may, if
otherwise eligible, be granted additional Awards if the
Committee so determines.
1.4 SHARES AVAILABLE FOR AWARDS; SHARE LIMITS.
1.4.1 SHARES AVAILABLE. Subject to the provisions of Section 6.2,
the capital stock that may be delivered under this Plan
will be shares of the Corporation's authorized but
unissued Common Stock and any shares of its Common Stock
held as treasury shares. The shares may be delivered for
any lawful consideration.
1.4.2 SHARE LIMITS. The maximum number of shares of Common Stock
that may be delivered pursuant to Awards granted to
Eligible Persons under this Plan will not exceed one
million (1,000,000) shares (the "SHARE LIMIT"). The
maximum number of shares subject to those options and
Stock Appreciation Rights that are granted during any
calendar year to any individual will be limited to two
hundred thousand (200,000) and the maximum individual
limit on the number of shares in the aggregate subject to
all Awards that during any calendar year are granted under
this Plan will be two hundred fifty thousand (250,000).
Each of the foregoing numerical limits will be subject to
adjustment as contemplated by this Section 1.4 and
Section 6.2.
1.4.3 SHARE RESERVATION; REPLENISHMENT AND REISSUE OF UNVESTED
AWARDS. No Award may be granted under this Plan unless,
on the date of grant, the sum of (a) the maximum number of
shares issuable at any time pursuant to such Award, plus
(b) the number of shares that have previously been issued
pursuant to Awards granted under this Plan, other than
reacquired shares available for reissue consistent with
any applicable legal limitations, plus (c) the maximum
number of shares that may be issued at any time after such
date of grant pursuant to Awards that are outstanding on
such date, does not exceed the Share Limit. Shares that
are subject to or underlie Awards that expire or for any
reason are canceled or terminated, are
3
<PAGE>
forfeited, fail to vest, or for any other reason are not
paid or delivered under this Plan, as well as reacquired
shares, will again, except to the extent prohibited by law,
be available for subsequent Awards under the Plan. Except
as limited by law, if an Award is or may be settled only in
cash, such Award need not be counted against any of the limits
under this Section 1.4.
1.5 GRANT OF AWARDS. Subject to the express provisions of this Plan,
the Committee will determine the number of shares of Common
Stock subject to each Award, the price (if any) to be paid for
the shares or the Award and, in the case of performance share
awards, in addition to matters addressed in Section 1.2.2, the
specific objectives, goals and performance criteria (such as an
increase in sales, market value, earnings or book value over a
base period, the years of service before vesting, the relevant
job classification or level of responsibility or other factors)
that further define the terms of the performance share award.
Each Award will be evidenced by an Award Agreement signed by
the Corporation and, if required by the Committee, by the
Participant.
1.6 AWARD PERIOD. Each Award and all executory rights or obligations
under the related Award Agreement will expire on such date (if
any) as determined by the Committee, but in the case of Options
or other rights to acquire Common Stock not later than ten (10)
years after the Award Date.
1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.
1.7.1 PROVISIONS FOR EXERCISE. Unless the Committee otherwise
expressly provides, no Award will be exercisable or will
vest until at least six months after the initial Award
Date, and once exercisable an Award will remain
exercisable until the expiration or earlier termination of
the Award.
1.7.2 PROCEDURE. Any exercisable Award will be deemed to be
exercised when the Corporation receives written notice of
such exercise from the Participant, together with any
required payment made in accordance with Section 2.2.2 or
8.4, as the case may be.
1.7.3 FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests
will be disregarded, but may be accumulated. The
Committee, however, may determine in the case of Eligible
Persons that cash, other securities, or other property
will be paid or transferred in lieu of any fractional
share interests. No fewer than 100 shares may be
purchased on exercise of any Award at one time unless the
number
4
<PAGE>
purchased is the total number at the time available
for purchase under the Award.
1.8 ACCEPTANCE OF NOTES TO FINANCE EXERCISE. The Corporation may, with
the Committee's express approval, accept one or more notes from
any Eligible Person in connection with the exercise or receipt
of any outstanding Award; but any such note will be subject to
the following terms and conditions:
1.8.1 PRINCIPAL. The principal of the note will not exceed the
amount required to be paid to the Corporation upon the
exercise or receipt of one or more Awards under the Plan
and the note will be delivered directly to the Corporation
in consideration of such exercise or receipt.
1.8.2 TERM. The initial term of the note will be determined by the
Committee; but the term of the note, including extensions,
will not exceed a period of five years.
1.8.3 RECOURSE; SECURITY. The note will provide for full recourse to
the Participant and will bear interest at a rate
determined by the Committee but not less than the interest
rate necessary to avoid the imputation of interest under
the Code. If required by the Committee or by applicable
law, the note will be secured by a pledge of any shares or
rights financed thereby in compliance with applicable law.
The terms, repayment provisions, and collateral release
provisions of the note and the pledge securing the note
will conform with applicable rules and regulations of the
Federal Reserve Board as then in effect.
1.8.4 TERMINATION OF EMPLOYMENT. If the employment of the
Participant terminates, the unpaid principal balance of
the note will become due and payable on the 10th business
day after such termination; but if a sale of such shares
would cause such Participant to incur liability under
Section 16(b) of the Exchange Act, the unpaid balance will
become due and payable on the 10th business day after the
first day on which a sale of such shares could have been
made without incurring such liability assuming for these
purposes that there are no other transactions (or deemed
transactions in securities of this Corporation) by the
Participant after such termination.
1.9 NO TRANSFERABILITY; LIMITED EXCEPTION TO TRANSFER RESTRICTIONS.
5
<PAGE>
1.9.1 LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly
provided in (or pursuant to) this Section 1.9, by
applicable law and by the Award Agreement, as the same may
be amended, (a) all Awards are non-transferable and will
not be subject in any manner to sale, transfer,
anticipation, alienation, assignment, pledge, encumbrance
or charge; Awards will be exercised only by the
Participant; and (b) amounts payable or shares issuable
pursuant to an Award will be delivered only to (or for the
account of) the Participant.
1.9.2 EXCEPTIONS. The Committee may permit Awards to be exercised by
and paid only to certain persons or entities related to
the Participant pursuant to such conditions and procedures
as the Committee may establish. Any permitted transfer
will be subject to the condition that the Committee
receive evidence satisfactory to it that the transfer is
being made for estate and/or tax planning purposes and
without consideration (other than nominal consideration).
ISOs and Restricted Stock Awards, however, will be subject
to any and all additional transfer restrictions under the
Code.
1.9.3 FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise and
transfer restrictions in Section 1.9.1 will not apply to:
(a) transfers to the Corporation,
(b) the designation of a beneficiary to receive benefits
if the Participant dies or, if the Participant has
died, transfers to or exercise by the Participant's
beneficiary, or, in the absence of a validly
designated beneficiary, transfers by will or the laws
of descent and distribution,
(c) transfers pursuant to a QDRO if approved or ratified
by the Committee,
(d) if the Participant has suffered a disability,
permitted transfers or exercises on behalf of the
Participant by the Participant's legal
representative, or
(e) the authorization by the Committee of "cashless
exercise" procedures with third parties who provide
financing for the purpose of (or who otherwise
facilitate) the exercise of Awards consistent with
applicable laws and the express authorization of the
Committee.
6
<PAGE>
2. OPTIONS
2.1 GRANTS. One or more Options may be granted under this Section to
any Eligible Person. Each Option granted will be designated in
the applicable Award Agreement, by the Committee as either an
Incentive Stock Option, subject to Section 2.3, or a Non-Qualified
Stock Option.
2.2 OPTION PRICE.
2.2.1 PRICING LIMITS. The purchase price per share of the Common
Stock covered by each Option will be determined by the
Committee at the time of the Award, but in the case of
Incentive Stock Options will not be less than 100% (110%
in the case of a Participant described in Section 2.4) of
the Fair Market Value of the Common Stock on the date of
grant and in all cases will not be less than the par value
thereof.
2.2.2 PAYMENT PROVISIONS. The purchase price of any shares purchased
on exercise of an Option granted under this Section will
be paid in full at the time of each purchase in one or a
combination of the following methods: (a) in cash or by
electronic funds transfer; (b) by certified or cashier's
check payable to the order of the Corporation; (c) if
authorized by the Committee or specified in the applicable
Award Agreement, by a promissory note of the Participant
consistent with the requirements of Section 1.8; (d) by
notice and third party payment in such manner as may be
authorized by the Committee; or (e) by the delivery of
shares of Common Stock of the Corporation already owned by
the Participant, but the Committee may in its absolute
discretion limit the Participant's ability to exercise an
Award by delivering such shares, and any shares delivered
that were initially acquired upon exercise of a stock
option must have been owned by the Participant at least
six months as of the date of delivery. Shares of Common
Stock used to satisfy the exercise price of an Option will
be valued at their Fair Market Value on the date of
exercise. Without limiting the generality of the
foregoing, the Committee may provide that the Option can
be exercised and payment made by delivering a properly
executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the
Corporation the amount of sale proceeds necessary to pay
the exercise price and, unless otherwise prohibited by the
Committee or applicable law, any applicable tax
withholding under Section 6.5. The Corporation will not
be obligated to deliver certificates for the
7
<PAGE>
shares unless and until it receives full payment of the exercise
price therefor and any related withholding obligations have been
satisfied.
2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
2.3.1 $100,000 LIMIT. To the extent that the aggregate "FAIR MARKET
VALUE" of stock with respect to which incentive stock
options first become exercisable by a Participant in any
calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this
Plan and stock subject to incentive stock options under
all other plans of the Company or any parent corporation,
such options will be treated as Nonqualified Stock
Options. For this purpose, the "FAIR MARKET VALUE" of the
stock subject to options will be determined as of the date
the options were awarded. In reducing the number of
options treated as incentive stock options to meet the
$100,000 limit, the most recently granted options will be
reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the
$100,000 limit, the Committee may, in the manner and to
the extent permitted by law, designate which shares of
Common Stock are to be treated as shares acquired pursuant
to the exercise of an Incentive Stock Option.
2.3.2 OPTION PERIOD. Each Option and all rights thereunder will
expire no later than 10 years after the Award Date.
2.3.3 OTHER CODE LIMITS. Incentive Stock Options may only be granted
to Eligible Employees of the Corporation or a Subsidiary
that satisfies the other eligibility requirements of the
Code. There will be imposed in any Award Agreement
relating to Incentive Stock Options such other terms and
conditions as from time to time are required in order that
the Option be an "incentive stock option" as that term is
defined in Section 422 of the Code.
2.4 LIMITS ON 10% HOLDERS. No Incentive Stock Option may be granted to
any person who, at the time the Option is granted, owns (or is
deemed to own under Section 424(d) of the Code) shares of
outstanding Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the
Corporation, unless the exercise price of such Option is at
least 110% of the Fair Market Value of the stock subject to the
Option and such Option by its terms is not exercisable after
the expiration of five years from the date such Option is
granted.
8
<PAGE>
2.5 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS.
Subject to Section 1.4 and Section 6.6 and the specific
limitations on Awards contained in this Plan, the Committee
from time to time may authorize, generally or in specific cases
only, for the benefit of any Eligible Person any adjustment in
the exercise or purchase price, the vesting schedule, the
number of shares subject to, the restrictions upon or the term
of, an Award granted under this Section by cancellation of an
outstanding Award and a subsequent regranting of an Award, by
amendment, by substitution of an outstanding Award, by waiver
or by other legally valid means. Such amendment or other
action may result among other changes in an exercise or
purchase price that is higher or lower than the exercise or
purchase price of the original or prior Award, provide for a
greater or lesser number of shares subject to the Award, or
provide for a longer or shorter vesting or exercise period.
2.6 EFFECTS OF TERMINATION OF EMPLOYMENT; TERMINATION OF SUBSIDIARY
STATUS; DISCRETIONARY PROVISIONS.
2.6.1 OPTIONS - RESIGNATION OR DISMISSAL. If the Participant's
employment by (or other service specified in the Award
Agreement to) the Company terminates for any reason (the
date of such termination being referred to as the
"SEVERANCE DATE") other than Retirement, Total Disability
or death, or "FOR CAUSE" (as determined in the discretion
of the Committee), the Participant will have, unless
otherwise provided in the Award Agreement and subject to
earlier termination pursuant to or as contemplated by
Section 1.6 or 6.2, three months after the Severance Date
to exercise any Option to the extent it has become
exercisable on the Severance Date. In the case of a
termination "for cause", the Option will terminate on the
Severance Date. In other cases, the Option, to the extent
not exercisable on the Severance Date, will terminate.
2.6.2 OPTIONS - DEATH OR DISABILITY. If the Participant's employment
by (or specified service to) the Company terminates as a
result of Total Disability or death, the Participant,
Participant's Personal Representative or the Participant's
Beneficiary, as the case may be, will have, unless
otherwise provided in the Award Agreement and subject to
earlier termination pursuant to or as contemplated by
Section 1.6 or 6.2, until 12 months after the Severance
Date to exercise any Option to the extent it will have
become exercisable by the Severance Date. Any Option to
the extent not exercisable on the Severance Date will
terminate.
9
<PAGE>
2.6.3 OPTIONS - RETIREMENT. If the Participant's employment by (or
specified service to) the Company terminates as a result
of Retirement, the Participant, Participant's Personal
Representative or the Participant's Beneficiary, as the
case may be, will have, unless otherwise provided in the
Award Agreement and subject to earlier termination
pursuant to or as contemplated by Section 1.6 or 6.2,
until 12 months after the Severance Date to exercise any
Nonqualified Stock Option (three months after the
Severance Date in the case of an Incentive Stock Option)
to the extent it will have become exercisable by the
Severance Date. The Option, to the extent not exercisable
on the Severance Date, will terminate.
2.6.4 CERTAIN SARS. Any SAR granted concurrently or in tandem with
an Option will have the same post-termination provisions
and exercisability periods as the Option to which it
relates, unless the Committee otherwise provides.
2.6.5 OTHER AWARDS. The Committee will establish in respect of each
other Award granted hereunder the Participant's rights and
benefits (if any) if the Participant's employment is
terminated and in so doing may make distinctions based
upon the cause of termination and the nature of the Award.
2.6.6 COMMITTEE DISCRETION. Notwithstanding the foregoing provisions
of this Section 2.6, in the event of, or in anticipation
of, a termination of employment with the Company for any
reason, other than discharge for cause, the Committee may
increase the portion of the Participant's Award available
to the Participant, or Participant's Beneficiary or
Personal Representative, as the case may be, or, subject
to the provisions of Section 1.6, extend the
exercisability period upon such terms as the Committee
determines and expressly sets forth in or by amendment to
the Award Agreement.
2.7 OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY
OTHER CORPORATIONS. Options and Stock Appreciation Rights may
be granted to Eligible Persons under this Plan in substitution
for employee stock options granted by other entities to persons
who are or who will become Eligible Persons in respect of the
Company, in connection with a distribution, merger or
reorganization by or with the granting entity or an affiliated
entity, or the acquisition by the Company, directly or
indirectly, of all or a substantial part of the stock or assets
of the employing entity.
10
<PAGE>
3. STOCK APPRECIATION RIGHTS
(INCLUDING LIMITED STOCK APPRECIATION RIGHTS)
3.1 GRANTS. The Committee may grant to any Eligible Person Stock
Appreciation Rights either concurrently with the grant of
another Award or in respect of an outstanding Award, in whole
or in part, or independently of any other Award. Any Stock
Appreciation Right granted in connection with an Incentive
Stock Option will contain such terms as may be required to
comply with the provisions of Section 422 of the Code and the
regulations promulgated thereunder, unless the holder otherwise
agrees.
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
3.2.1 EXERCISABILITY. Unless the Award Agreement or the Committee
otherwise provides, a Stock Appreciation Right related to
another Award will be exercisable at such time or times,
and to the extent, that the related Award will be
exercisable.
3.2.2 EFFECT ON AVAILABLE SHARES. To the extent that a Stock
Appreciation Right is exercised, only the actual number of
delivered shares of Common Stock will be charged against
the maximum amount of Common Stock that may be delivered
pursuant to Awards under this Plan. The number of shares
subject to the Stock Appreciation Right and the related
Option of the Participant will, however, be reduced by the
number of underlying shares as to which the exercise
related, unless the Award Agreement otherwise provides.
3.2.3 STAND-ALONE SARS. A Stock Appreciation Right granted
independently of any other Award will be exercisable
pursuant to the terms of the Award Agreement but in no
event earlier than six months after the Award Date, except
in the case of death or Total Disability.
3.2.4 PROPORTIONATE REDUCTION If an SAR extends to less than all the
shares covered by the related Award and if a portion of
the related Award is thereafter exercised, the number of
shares subject to the unexercised SAR shall be reduced
only if and to the extent that the remaining number of
shares covered by such related Award is less than the
remaining number of shares subject to such SAR.
3.3 PAYMENT.
11
<PAGE>
3.3.1 AMOUNT. Unless the Committee otherwise provides, upon exercise
of a Stock Appreciation Right and the attendant surrender
of an exercisable portion of any related Award, the
Participant will be entitled to receive subject to
Section 6.5 payment of an amount determined by multiplying
(a) the difference obtained by subtracting the exercise
price per share of Common Stock under the related
Award (if applicable) or the initial share value
specified in the Award from the Fair Market Value of
a share of Common Stock on the date of exercise of
the Stock Appreciation Right, by
(b) the number of shares with respect to which the Stock
Appreciation Right has been exercised.
3.3.2 FORM OF PAYMENT. The Committee, in its sole discretion, will
determine the form in which payment will be made of the
amount determined under Section 3.3.1 above, either solely
in cash, solely in shares of Common Stock (valued at Fair
Market Value on the date of exercise of the Stock
Appreciation Right), or partly in such shares and partly
in cash, but the Committee will have determined that such
exercise and payment are consistent with applicable law.
If the Committee permits the Participant to elect to
receive cash or shares (or a combination thereof) on such
exercise, any such election will be subject to such
conditions as the Committee may impose.
3.4 LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant to any
Eligible Person Stock Appreciation Rights exercisable only upon
or in respect of a change in control or any other specified
event ("LIMITED SARS") and such Limited SARs may relate to or
operate in tandem or combination with or substitution for
Options, other SARs or other Awards (or any combination
thereof), and may be payable in cash or shares based on the
spread between the base price of the SAR and a price based upon
or equal to the Fair Market Value of the Shares during a
specified period or at a specified time within a specified
period before, after or including the date of such event.
4. RESTRICTED STOCK AWARDS
4.1 GRANTS. The Committee may grant one or more Restricted Stock Awards
to any Eligible Person. Each Restricted Stock Award Agreement
will specify the number of shares of Common Stock to be issued
to the Participant, the
12
<PAGE>
date of such issuance, the consideration for such shares (but not
less than the minimum lawful consideration under applicable state law)
by the Participant, the extent (if any) to which and the time (if
ever) at which the Participant will be entitled to dividends,
voting and other rights in respect of the shares prior to
vesting, and the restrictions (which may be based on
performance criteria, passage of time or other factors or any
combination thereof) imposed on such shares and the conditions
of release or lapse of such restrictions. Such restrictions
will not lapse earlier than six months after the Award Date,
except to the extent the Committee may otherwise provide.
Stock certificates evidencing shares of Restricted Stock
pending the lapse of the restrictions ("RESTRICTED SHARES")
will bear a legend making appropriate reference to the
restrictions imposed hereunder and will be held by the
Corporation or by a third party designated by the Committee
until the restrictions on such shares have lapsed and the
shares have vested in accordance with the provisions of the
Award and Section 1.7. Upon issuance of the Restricted Stock
Award, the Participant may be required to provide such further
assurance and documents as the Committee may require to enforce
the restrictions.
4.2 RESTRICTIONS.
4.2.1 PRE-VESTING RESTRAINTS. Except as provided in Sections 4.1 and
1.9, restricted shares comprising any Restricted Stock
Award may not be sold, assigned, transferred, pledged or
otherwise disposed of or encumbered, either voluntarily or
involuntarily, until the restrictions on such shares have
lapsed and the shares have become vested.
4.2.2 DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in the
applicable Award Agreement, a Participant receiving a
Restricted Stock Award will be entitled to cash dividend
and voting rights for all shares issued even though they
are not vested, but such rights will terminate immediately
as to any Restricted Shares which cease to be eligible for
vesting.
4.2.3 CASH PAYMENTS. If the Participant has been paid or received
cash (including any dividends) in connection with the
Restricted Stock Award, the Award Agreement will specify
whether and to what extent such cash will be returned
(with or without an earnings factor) as to any restricted
shares that cease to be eligible for vesting.
4.3 RETURN TO THE CORPORATION. Unless the Committee otherwise expressly
provides, Restricted Shares that remain subject to restrictions
at the time of termination of employment or are subject to
other conditions to vesting that
13
<PAGE>
have not been satisfied by the time specified in the applicable
Award Agreement will not vest and will be returned to the
Corporation in such manner and on such terms as the Committee
provides.
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES
5.1 GRANTS OF PERFORMANCE SHARE AWARDS. The Committee may grant
Performance Share Awards to Eligible Persons based upon such
factors as the Committee deems relevant in light of the
specific type and terms of the award. An Award Agreement will
specify the maximum number of shares of Common Stock (if any)
subject to the Performance Share Award, the consideration (but
not less than the minimum lawful consideration) to be paid for
any such shares as may be issuable to the Participant, the
duration of the Award and the conditions upon which delivery of
any shares or cash to the Participant will be based. The
amount of cash or shares or other property that may be
deliverable pursuant to such Award will be based upon the
degree of attainment over a specified period of not more than
10 years (a "PERFORMANCE CYCLE") as may be established by the
Committee of such measure(s) of the performance of the Company
(or any part thereof) or the Participant as may be established
by the Committee. The Committee may provide for full or
partial credit, prior to completion of such performance cycle
or the attainment of the performance achievement specified in
the Award, in the event of the Participant's death, Retirement,
or Total Disability, a Change in Control Event or in such other
circumstances as the Committee (consistent with
Section 6.10.3(b), if applicable) may determine.
5.2 SPECIAL PERFORMANCE-BASED SHARE AWARDS. Without limiting the
generality of the foregoing, and in addition to options granted
under other provisions of this Section 5, other performance-based
awards within the meaning of Section 162(m) of the Code
("PERFORMANCE-BASED AWARDS"), whether in the form of restricted
stock, performance stock, phantom stock or other rights, the
vesting of which depends on the performance of the Company on a
consolidated, segment, subsidiary, or division basis, with
reference to revenues, net earnings (before or after taxes or
before or after taxes, interest, depreciation, and/or
amortization), cash flow, return on equity or on assets or on
net investment, or cost containment or reduction, or any
combination thereof (the business criteria) relative to
preestablished performance goals, may be granted under this
Plan. The applicable business criteria and the specific
performance goals must be approved by the Committee in advance
of applicable deadlines under the Code and while the
performance relating to such goals remains substantially
uncertain. The applicable performance measurement period may
be not less than one nor more than 10 years. Performance
targets may be
14
<PAGE>
adjusted to mitigate the unbudgeted impact of material, unusual
or nonrecurring gains and losses, accounting changes or other
extraordinary events not foreseen at the time the targets were
set. Other types of performance and non-performance awards may
also be granted under the other provisions of this Plan.
5.2.1 ELIGIBLE CLASS. The eligible class of persons for Awards under
this Section is executive officers of the Corporation.
5.2.1 MAXIMUM AWARD. In no event will grants in any calendar year to
a Participant under this Section 5.2 relate to more than
one hundred thousand (100,000) shares or a cash amount of
more than one million dollars ($1,000,000).
5.2.3 COMMITTEE CERTIFICATION. Before any Performance-Based Award
under this Section 5.2 is paid, the Committee must certify
that the material terms of the Performance-Based Award
were satisfied.
5.2.4 TERMS AND CONDITIONS OF AWARDS. The Committee will have
discretion to determine the restrictions or other
limitations of the individual Awards under this
Section 5.2 (including the authority to reduce Awards,
payouts or vesting or to pay no Awards, in its sole
discretion, if the Committee preserves such authority at
the time of grant by language to this effect in its
authorizing resolutions or otherwise).
5.2.5 STOCK PAYOUT FEATURES. In lieu of cash payment of an Award,
the Committee may require or allow a portion of the Award
to be paid in the form of stock, Restricted Shares or an
Option.
5.3 GRANTS OF STOCK BONUSES. The Committee may grant a Stock Bonus to
any Eligible Person to reward exceptional or special services,
contributions or achievements in the manner and on such terms
and conditions (including any restrictions on such shares) as
determined from time to time by the Committee. The number of
shares so awarded will be determined by the Committee. The
Award may be granted independently or in lieu of a cash bonus.
5.4 DEFERRED PAYMENTS. The Committee may authorize for the benefit of
any Eligible Person the deferral of any payment of cash or
shares that may become due or of cash otherwise payable under
this Plan, and provide for accredited benefits thereon based
upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan.
15
<PAGE>
Such deferral will be subject to such further conditions,
restrictions or requirements as the Committee may impose,
subject to any then vested rights of Participants.
5.5 CASH BONUS AWARDS.
5.5.1 PERFORMANCE GOALS. The Committee may establish a program of
annual incentive awards that are payable in cash to
Eligible Persons based upon the extent to which
performance goals are met during the performance period.
The performance goals may depend upon the performance of
the Company on a consolidated, subsidiary division basis
with reference to revenues, net earnings (before or after
interest, taxes, depreciation, or amortization), cash
flow, return on equity or on assets or net investment,
cost containment or reduction, or achievement of strategic
goals (or any combination of such factors). In addition,
the award may depend upon the Eligible Employee's
individual performance.
5.5.2 PAYMENT IN RESTRICTED STOCK. In lieu of cash payment of the
awards, the Committee may require or allow all or a
portion of the award to be paid in the form of a
Restricted Stock or other Award.
6. OTHER PROVISIONS
6.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
6.1.1 EMPLOYMENT STATUS. Status as an Eligible Person will not be
construed as a commitment that any Award will be made
under this Plan to an Eligible Person or to Eligible
Persons generally.
6.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in
any other documents related to this Plan or to any Award)
will confer upon any Eligible Person or other Participant
any right to continue in the employ or other service of
the Company or constitute any contract or agreement of
employment or other service, nor will interfere in any way
with the right of the Company to otherwise change such
person's compensation or other benefits or to terminate
the employment of such person, with or without cause, but
nothing contained in this Plan or any related document
will adversely affect
16
<PAGE>
any independent contractual right of such person without
the Participant's consent.
6.1.3 PLAN NOT FUNDED. Awards payable under this Plan will be
payable in shares or from the general assets of the
Corporation, and (except as provided in Section 1.4.3) no
special or separate reserve, fund or deposit will be made
to assure payment of such Awards. No Participant,
Beneficiary or other person will have any right, title or
interest in any fund or in any specific asset (including
shares of Common Stock, except as expressly otherwise
provided) of the Company by reason of any Award hereunder.
Neither the provisions of this Plan (or of any related
documents), nor the creation or adoption of this Plan, nor
any action taken pursuant to the provisions of this Plan
will create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Company and
any Participant, Beneficiary or other person. To the
extent that a Participant, Beneficiary or other person
acquires a right to receive payment pursuant to any Award
hereunder, such right will be no greater than the right of
any unsecured general creditor of the Company.
6.2 ADJUSTMENTS; ACCELERATION.
6.2.1 ADJUSTMENTS. The following provisions will apply if any
extraordinary dividend or other extraordinary distribution
occurs in respect of the Common Stock (whether in the form
of cash, Common Stock, other securities, or other
property), or any reclassification, recapitalization,
stock split (including a stock split in the form of a
stock dividend), reverse stock split, reorganization,
merger, combination, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Common Stock or
other securities of the Corporation, or any similar,
unusual or extraordinary corporate transaction (or event
in respect of the Common Stock) or a sale of substantially
all the assets of the Corporation as an entirety occurs.
The Committee will, in such manner and to such extent (if
any) as it deems appropriate and equitable
(a) proportionately adjust any or all of (i) the number
and type of shares of Common Stock (or other
securities) that thereafter may be made the subject
of Awards (including the specific maxima and numbers
of shares set forth elsewhere in this Plan), (ii) the
number, amount and type of shares of Common Stock (or
other securities or property) subject to any or all
outstanding Awards,(iii) the grant, purchase, or
exercise price
17
<PAGE>
of any or all outstanding Awards, (iv) the securities,
cash or other property deliverable upon exercise of any
outstanding Awards, or (v) the performance standards
appropriate to any outstanding Awards, or
(b) in the case of an extraordinary dividend or other
distribution, recapitalization, reclassification,
merger, reorganization, consolidation, combination,
sale of assets, split up, exchange, or spin off, make
provision for a cash payment or for the substitution
or exchange of any or all outstanding Awards or the
cash, securities or property deliverable to the
holder of any or all outstanding Awards based upon
the distribution or consideration payable to holders
of the Common Stock of the Corporation upon or in
respect of such event. In each case, with respect to
Awards of Incentive Stock Options, no such adjustment
will be made that would cause the Plan to violate
Section 424(a) of the Code or any successor
provisions without the written consent of holders
materially adversely affected thereby. In any of
such events, the Committee may take such action
sufficiently prior to such event if necessary to
permit the Participant to realize the benefits
intended to be conveyed with respect to the
underlying shares in the same manner as is available
to stockholders generally.
6.2.2 ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. Unless prior to
a Change in Control Event the Committee determines that,
upon its occurrence, benefits under Awards will not
accelerate or determines that only certain or limited
benefits under Awards will be accelerated and the extent
to which they will be accelerated, and/or establishes a
different time in respect of such Event for such
acceleration, then upon the occurrence of a Change in
Control Event
(a) each Option and Stock Appreciation Right will become
immediately exercisable,
(b) Restricted Stock will immediately vest free of
restrictions, and
(c) each Performance Share Award will become payable to
the Participant; but, in no event will any Award be
accelerated as to any Section 16 Person to a date
less than six months after the Award Date of such
Award.
18
<PAGE>
The Committee may override the limitations on acceleration
in this Section 6.2.2 by express provision in the Award
Agreement and may accord any Eligible Person a right to
refuse any acceleration, whether pursuant to the Award
Agreement or otherwise, in such circumstances as the
Committee may approve. Any acceleration of Awards will
comply with applicable legal requirements.
6.2.3 POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any
Option or other right to acquire Common Stock under this
Plan (other than under Section 8) has been fully
accelerated as permitted by Section 6.2.2 but is not
exercised prior to (a) a dissolution of the Corporation,
or (b) an event described in Section 6.2.1 that the
Corporation does not survive, or (c) the consummation of
an event described in Section 6.1 that results in a Change
of Control approved by the Board, such Option or right
will terminate, subject to any provision that has been
expressly made by the Committee for the survival,
substitution, exchange or other settlement of such Option
or right.
6.2.4 GOLDEN PARACHUTE LIMITATIONS. Unless otherwise specified in an
Award Agreement, no Award be accelerated under this Plan
to an extent or in a manner that would not be fully
deductible by the Company for federal income tax purposes
because of Section 280G of the Code, nor will any payment
hereunder be accelerated if any portion of such
accelerated payment would not be deductible by the Company
because of Section 280G of the Code. If a holder would be
entitled to benefits or payments hereunder and under any
other plan or program that would constitute "parachute
payments" as defined in Section 280G of the Code, then the
holder may by written notice to the Company designate the
order in which such parachute payments will be reduced or
modified so that the Company is not denied federal income
tax deductions for any "parachute payments" because of
Section 280G of the Code.
6.3 EFFECT OF TERMINATION OF EMPLOYMENT. The Committee will establish
in respect of each Award granted to an Eligible Person the
effect of a termination of employment on the rights and
benefits thereunder and in so doing may make distinctions based
upon the cause of termination.
6.4 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Awards
under this Plan and the offer, issuance and delivery of shares
of Common Stock and/or the payment of money under this Plan or
under Awards granted hereunder are subject to compliance with
all applicable federal and
19
<PAGE>
state laws, rules and regulations (including but not limited to
state and federal securities law, federal margin requirements)
and to such approvals by any listing, regulatory or governmental
authority as may, in the opinion of counsel for the Corporation,
be necessary or advisable in connection therewith. Any securities
delivered under this Plan will be subject to such restrictions, and
to any restrictions the Committee may require to preserve a
pooling of interests under generally accepted accounting
principles, and the person acquiring such securities will, if
requested by the Corporation, provide such assurances and
representations to the Corporation as the Corporation may deem
necessary or desirable to assure compliance with all applicable
legal requirements.
6.5 TAX WITHHOLDING.
6.5.1 MANDATORY TAX WITHHOLDING OFFSET. Subject only to Section 6.4,
the number of shares or the payment of cash issuable or
payable in respect of an Award, will be reduced by the
amount necessary to satisfy the minimum applicable tax
withholding requirements imposed on the Company or any
subsidiary in respect of such Award or event. The
participant will have no discretion as to whether such
shares or amount will or will not be withheld and offset
by the Company. Such withholding offset will be mandatory
and nondiscretionary.
6.5.2 TAX LOANS. If so provided in the Award Agreement, the Company
may, to the extent permitted by law, authorize a loan to
an Eligible Person in the amount of any taxes that the
Company may be required to withhold with respect to shares
of Common Stock received (or disposed of, as the case may
be) pursuant to a transaction described in Section 6.5.1.
Such a loan will be for a term, at a rate of interest and
pursuant to such other terms and conditions as the
Company, under applicable law may establish and such loan
need not comply with the provisions of Section 1.8.
6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
6.6.1 BOARD AUTHORIZATION. The Board may, at any time, terminate or,
from time to time, amend, modify or suspend this Plan, in
whole or in part. No Awards may be granted during any
suspension of this Plan or after termination of this Plan,
but the Committee will retain jurisdiction as to Awards
then outstanding in accordance with the terms of this
Plan.
20
<PAGE>
6.6.2 STOCKHOLDER APPROVAL. To the extent then required under
Sections 422 and 424 of the Code or any other applicable
law, or deemed necessary or advisable by the Board, any
amendment to this Plan shall be subject to shareholder
approval.
6.6.3 AMENDMENTS TO AWARDS. Without limiting any other express
authority of the Committee under but subject to the
express limits of this Plan, the Committee by agreement or
resolution may waive conditions of or limitations on
Awards to Eligible Persons that the Committee in the prior
exercise of its discretion has imposed, without the
consent of a Participant, and may make other changes to
the terms and conditions of Awards that do not affect in
any manner materially adverse to the Participant, the
Participant's rights and benefits under an Award.
6.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
suspension or termination of this Plan or change of or
affecting any outstanding Award will, without written
consent of the Participant, affect in any manner
materially adverse to the Participant any rights or
benefits of the Participant or obligations of the
Corporation under any Award granted under this Plan prior
to the effective date of such change. Changes
contemplated by Section 6.2 will not be deemed to
constitute changes or amendments for purposes of this
Section 6.6.
6.7 PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise expressly
authorized by the Committee or this Plan, a Participant will
not be entitled to any privilege of stock ownership as to any
shares of Common Stock not actually delivered to and held of
record by the Participant. No adjustment will be made for
dividends or other rights as a stockholder for which a record
date is prior to such date of delivery.
6.8 EFFECTIVE DATE OF THE PLAN. This Plan will be effective as of the
date it is approved by the Board, subject to stockholder
approval of the shareholders of the Corporation.
6.9 TERM OF THE PLAN. No Award will be granted under this Plan after
more than ten years after the effective date of this Plan (the
"TERMINATION DATE"). Unless otherwise expressly provided in
this Plan or in an applicable Award Agreement, any Award
granted prior to the termination date may extend beyond such
date, and all authority of the Committee with respect to Awards
hereunder, including the authority to amend an Award, will
continue
21
<PAGE>
during any suspension of this Plan and in respect of Awards
outstanding on the termination date.
22
<PAGE>
6.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
6.10.1 CHOICE OF LAW. This Plan, the Awards, all documents evidencing
Awards and all other related documents will be
governed by, and construed in accordance with the
laws of the state of California.
6.10.2 SEVERABILITY. If a court of competent jurisdiction holds any
provision invalid and unenforceable, the remaining
provisions of this Plan will continue in effect.
6.10.3 PLAN CONSTRUCTION.
(A) RULE 16b-3. It is the intent of the Corporation that
the Awards hereunder satisfy and be interpreted in a
manner that, in the case of Participants who are or
may be subject to Section 16 of the Exchange Act,
satisfies the applicable requirements of Rule 16b-3
so that such persons (unless they otherwise agree)
will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 of the
Exchange Act in respect of those transactions and
will not be subjected to avoidable liability
thereunder. If any provision of this Plan or of any
Award would otherwise frustrate or conflict with the
intent expressed above, that provision to the extent
possible will be interpreted as to avoid such
conflict. If the conflict remains irreconcilable,
the Committee may disregard the provision if it
concludes that to do so furthers the interest of the
Corporation and is consistent with the purposes of
this Plan as to such persons in the circumstances.
(B) SECTION 162(m). It is the further intent of the
Company that Options or SARs with an exercise or base
price not less than Fair Market Value on the date of
grant and performance awards under Section 5.2 of
this Plan that are granted to or held by a person
subject to Section 162(m) of the Code will qualify as
performance-based compensation under Section 162(m)
of the Code, and this Plan will be interpreted
consistent with such intent.
6.11 CAPTIONS. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate
reference.
23
<PAGE>
Such headings will not be deemed in any way material or relevant to
the construction or interpretation of this Plan or any provision thereof.
6.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS. For purposes of this Plan
and any Award hereunder, if an entity ceases to be a Subsidiary
a termination of employment and service will be deemed to have
occurred with respect to each Eligible Person in respect of
such Subsidiary who does not continue as an Eligible Person in
respect of another entity within the Company.
6.13 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan will limit or be
deemed to limit the authority of the Board or the Committee to
grant awards or authorize any other compensation, with or
without reference to the Common Stock, under any other plan or
authority.
7. DEFINITIONS
"AWARD" means an award of any Option, Stock Appreciation Right, Restricted
Stock, Stock Bonus, performance share award, dividend equivalent or deferred
payment right or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination
thereof, whether alternative or cumulative, authorized by and granted under
this Plan.
"AWARD AGREEMENT" means any writing setting forth the terms of an Award that
has been authorized by the Committee.
"AWARD DATE" means the date upon which the Committee took the action granting
an Award or such later date as the Committee designates as the Award Date at
the time of the Award or, in the case of Awards under Section 8, the
applicable dates set forth therein.
"AWARD PERIOD" means the period beginning on an Award Date and ending on the
expiration date of such Award.
"BENEFICIARY" means the person, persons, trust or trusts designated by a
Participant or, in the absence of a designation, entitled by will or the laws
of descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan if the Participant dies, and means the
Participant's executor or administrator if no other Beneficiary is designated
and able to act under the circumstances.
"BOARD" means the Board of Directors of the Corporation.
24
<PAGE>
"CHANGE IN CONTROL EVENT" means any of the following:
(a) Approval by the stockholders of the Corporation of the
dissolution or liquidation of the Corporation;
(b) Approval by the stockholders of the Corporation of an
agreement to merge or consolidate, or otherwise
reorganize, with or into one or more entities that are not
Subsidiaries or other affiliates, as a result of which
less than 50% of the outstanding voting securities of the
surviving or resulting entity immediately after the
reorganization are, or will be, owned, directly or
indirectly, by stockholders of the Corporation immediately
before such reorganization (assuming for purposes of such
determination that there is no change in the record
ownership of the Corporation's securities from the record
date for such approval until such reorganization and that
such record owners hold no securities of the other parties
to such reorganization), but including in such
determination any securities of the other parties to such
reorganization held by affiliates of the Corporation);
(c) Approval by the stockholders of the Corporation of the
sale of substantially all of the Corporation's business
and/or assets to a person or entity that is not a
Subsidiary or other affiliate; or;
(d) Any "PERSON" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act but excluding any person
described in and satisfying the conditions of
Rule 13d-1(b)(1) thereunder), other than a Current Affiliate,
becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of the Corporation representing more than 50%
of the combined voting power of the Corporation's then
outstanding securities entitled to then vote generally in
the election of directors of the Corporation; provided,
however, that a Change of Control will not be deemed to
have occurred if a Current Affiliate transfers to an
organization described under Section 501 of the Code
beneficial ownership of more than 50% of the combined
voting power of the Corporation's then outstanding
securities entitled to then vote generally in the election
of directors of the Corporation; or
(e) During any period not longer than two consecutive years,
individuals who at the beginning of such period
constituted the Board cease to constitute at least a
majority thereof, unless the election, or the nomination
for election by the Corporation's stockholders, of each
new Board member was approved by a vote of at least
three-fourths
25
<PAGE>
of the Board members then still in office who were
Board members at the beginning of such period (including
for these purposes, new members whose election or
nomination was so approved).
"CURRENT AFFILIATE" means Fred Kayne or any of his affiliates
(within the meaning of the Exchange Act), successors, heirs,
descendants or members of his immediate family.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"COMMISSION" means the Securities and Exchange Commission.
"COMMITTEE" means the Board or a committee appointed by the Board to
administer this Plan, which committee will be comprised only of two
or more directors or such greater number of directors as may be
required under applicable law, each of whom, in respect of any
decision at a time when the Participant affected by the decision may
be subject to Section 162(m) of the Code, will be Disinterested.
"COMMON STOCK" means the Common Stock of the Corporation and such
other securities or property as may become the subject of Awards, or
become subject to Awards, pursuant to an adjustment made under
Section 6.2 of this Plan.
"COMPANY" means, collectively, the Corporation and its Subsidiaries.
"CORPORATION" means Big Dog Sportswear, a Delaware corporation, and
its successors.
"DISINTERESTED" means a disinterested director or an "outside
director" within the meaning of any mandatory legal or regulatory
requirements, including Section 162(m) of the Code.
"ELIGIBLE EMPLOYEE" means an officer (whether or not a director) or
key employee of the Company.
"ELIGIBLE PERSON" means an Eligible Employee, or any Other Eligible
Person, as determined by the Committee.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
26
<PAGE>
"FAIR MARKET VALUE" on any date means (a) if the stock is listed or admitted
to trade on a national securities exchange, the closing price of the stock on
the Composite Tape, as published in the Western Edition of The Wall Street
Journal, of the principal national securities exchange on which the stock is
so listed or admitted to trade, on such date, or, if there is no trading of
the stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (b) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished
by the National Association of Securities Dealers, Inc. ("NASD") through the
NASDAQ National Market Reporting System or a similar organization if the NASD
is no longer reporting such information; (c) if the stock is not listed or
admitted to trade on a national securities exchange and is not reported on
the National Market Reporting System, the mean between the bid and asked
price for the stock on such date, as furnished by the NASD or a similar
organization; or (d) if the stock is not listed or admitted to trade on a
national securities exchange, is not reported on the National Market
Reporting System and if bid and asked prices for the stock are not furnished
by the NASD or a similar organization, the value as established by the
Committee at such time for purposes of this Plan.
"INCENTIVE STOCK OPTION" means an Option that is designated and intended as
an incentive stock option within the meaning of Section 422 of the Code, the
award of that contains such provisions (including but not limited to the
receipt of stockholder approval of this Plan, if the award is made prior to
such approval) and is made under such circumstances and to such persons as
may be necessary to comply with that section.
"NONQUALIFIED STOCK OPTION" means an Option that is designated as a
Nonqualified Stock Option and will include any Option intended as an
Incentive Stock Option that fails to meet the applicable legal requirements
thereof. Any Option granted hereunder that is not designated as an incentive
stock option will be deemed to be designated a nonqualified stock option
under this Plan and not an incentive stock option under the Code.
"NON-EMPLOYEE DIRECTOR" means a member of the Board of Directors of the
Corporation who is not an employee of the Company.
"NON-EMPLOYEE DIRECTOR PARTICIPANT" means a Non-Employee Director
who holds an outstanding Award under the provisions of Section 8.
27
<PAGE>
"OPTION" means an option to purchase Common Stock granted under this Plan.
The Committee will designate any Option granted to an Eligible Person as a
Nonqualified Stock Option or an Incentive Stock Option.
"OTHER ELIGIBLE PERSON" means any Non-Employee Director or any individual
consultant or advisor who or (to the extent provided in the next sentence)
agent who renders or has rendered BONA FIDE services (other than services in
connection with the offering or sale of securities of the Company in a
capital raising transaction) to the Company, and who is selected to
participate in this Plan by the Committee. If the Corporation's officers and
directors are or become subject to Section 16 of the Exchange Act, a
Non-Employee Director will not thereafter be selected as an Other Eligible
Person. A non-employee providing BONA FIDE services to the Company (other
than as an eligible advisor or consultant) may also be selected as an Other
Eligible Person if such agent's participation in this Plan would not
adversely affect (a) the Corporation's eligibility to use Form S-8 to
register under the Securities Act of 1933, as amended, the offering of shares
issuable under this Plan by the Company or (b) the Corporation's compliance
with any other applicable laws.
"PARTICIPANT" means an Eligible Person who has been granted an Award under
this Plan and a Non-Employee Director who has been received an Award under
Section 8 of this Plan.
"PERFORMANCE SHARE AWARD" means an Award of a right to receive shares of
Common Stock under Section 5.1, or to receive shares of Common Stock or other
compensation (including cash) under Section 5.2, the issuance or payment of
that is contingent upon, among other conditions, the attainment of
performance objectives specified by the Committee.
"PERSONAL REPRESENTATIVE" means the person or persons who, upon the
disability or incompetence of a Participant, has acquired on behalf of the
Participant, by legal proceeding or otherwise, the power to exercise the
rights or receive benefits under this Plan by virtue of having become the
legal representative of the Participant.
"PLAN" means this 1997 Performance Award Plan, as amended from time to time.
"QDRO" means a qualified domestic relations order.
"RESTRICTED SHARES" or "RESTRICTED STOCK" means shares of Common Stock
awarded to a Participant under this Plan, subject to payment of such
consideration, if any, and such conditions on vesting (which may include,
among others, the passage of time, specified performance objectives or other
factors) and
28
<PAGE>
such transfer and other restrictions as are established in or
pursuant to this Plan and the related Award Agreement, for so long as such
shares remain unvested under the terms of the applicable Award Agreement.
"RETIREMENT" means retirement with the consent of the Company or, from active
service as an employee or officer of the Company on or after attaining age 55
with ten or more years of service or age 65.
"RULE 16b-3" means Rule 16b-3 as promulgated by the Commission pursuant to
the Exchange Act, as amended from time to time, but subject to any applicable
transition rules.
"SECTION 16 PERSON" means a person subject to Section 16(a) of the
Exchange Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time.
"STOCK APPRECIATION RIGHT" means a right authorized under this Plan to
receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common
Stock.
"STOCK BONUS" means an Award of shares of Common Stock granted under this
Plan for no consideration other than past services and without restriction
other than such transfer or other restrictions as the Committee may deem
advisable to assure compliance with law.
"SUBSIDIARY" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
"TOTAL DISABILITY" means a disability where Participant is unable to
effectively engage in the material activities required for Participant's
position with the Company by reason of any medically determinable physical or
mental impairment that can be expected to result in death or that has lasted
or can be expected to last for a period of 90 consecutive days or for shorter
periods aggregating 180 days in any consecutive 12 month period.
29
<PAGE>
8. NON-EMPLOYEE DIRECTOR OPTIONS
8.1 PARTICIPATION. Awards under this Section 8 will be made only to
Non-Employee Directors and will be evidenced by Award
Agreements substantially in the form of EXHIBIT A.
8.2 ANNUAL OPTION GRANTS.
8.2.1 TIME OF INITIAL AWARD. After approval of this Plan by the
stockholders of the Corporation, if any person who is not
then an officer or employee of the Company will become a
director of the Corporation, such person will
automatically be granted (without any action by the Board
or Committee) a Non-qualified Stock Option (the Award Date
of which will be the date such person takes office) to
purchase 10,000 shares of Common Stock.
8.2.2 SUBSEQUENT ANNUAL AWARDS. At the close of trading on the day
of the annual stockholders meeting in each year during the
term of the Plan commencing 1998, there will be granted
automatically (without any action by the Committee or the
Board) a Nonqualified Stock Option (the Award Date of
which will be such date) to each Non-Employee Director
then continuing in office to purchase 5,000 shares of
Common Stock.
8.2.3 MAXIMUM NUMBER OF SHARES. Annual grants that would otherwise
exceed the maximum number of shares under Section 1.4.1
will be prorated within such limitation. A Non-Employee
Director will not receive more than one Nonqualified Stock
Option under this Section 8.2 in any calendar year.
8.3 OPTION PRICE. The purchase price per share of the Common Stock
covered by each Option granted pursuant to Section 8.2 will be
100% of the Fair Market Value of the Common Stock on the Award
Date. The exercise price of any Option granted under this
Section will be paid in full at the time of each purchase in
cash or by check or in shares of Common Stock valued at their
Fair Market Value on the date of exercise of the Option, or
partly in such shares and partly in cash, but any such shares
used in payment must be owned by the Participant at least six
months prior to the date of exercise.
8.4 OPTION PERIOD AND EXERCISABILITY. Each Option granted under this
Section 8 and all rights or obligations thereunder will expire
ten years after the Award Date and will be subject to earlier
termination as provided below. Each Option granted under
Section 8.2 will become exercisable at the rate
30
<PAGE>
of 20% per annum commencing on the first anniversary of the Award Date and
each of the next four anniversaries thereof.
8.5 TERMINATION OF DIRECTORSHIP. If a Non-Employee Director's services
as a member of the Board of Directors terminate by reason of
death, Disability or Retirement, an Option granted pursuant to
this Section held by such Participant will immediately become
and will remain exercisable for two years after the date of
such termination or until the expiration of the stated term of
such Option, whichever first occurs. If a Non-Employee
Director's services as a member of the Board of Directors
terminate for any other reason, any portion of an Option
granted pursuant to this Section that is not then exercisable
will terminate and any portion of such Option that is then
exercisable may be exercised for six months after the date of
such termination or until the expiration of the stated term
whichever first occurs.
8.6 ADJUSTMENTS. Options granted under this Section 8 will be subject
to adjustment as provided in Section 6.2, but only to the
extent that such adjustment and any Board or Committee action
in respect thereof in the case of a Change in Control Event is
effected pursuant to the terms of a reorganization agreement
approved by stockholders of the Corporation, or is consistent
with adjustments to Options held by persons other than
executive officers or directors of the Corporation.
31
<PAGE>
8.7 ACCELERATION UPON A CHANGE IN CONTROL EVENT. Upon the occurrence
of a Change in Control Event, each Option granted under
Section 8.2 hereof will become immediately exercisable in full;
but none of the Options granted under Section 8.2 will be
accelerated to a date less than six months after the Award Date
of such Option but may (if the Corporation survives the Event)
be exercisable thereafter subject to the provisions of Section
6.2. To the extent that any Option granted under this Section
8 is not exercised prior to (a) a dissolution of the
Corporation or (b) a merger or other corporate event that the
Corporation does not survive, and no provision is (or
consistent with the provisions of this Plan can be) made for
the assumption, conversion, substitution or exchange of the
Option, the Option will terminate upon the occurrence of such
event.
32
<PAGE>
EXHIBIT A
BIG DOG HOLDINGS, INC.
ELIGIBLE DIRECTOR
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of _____________, ____, is between BIG DOG
HOLDINGS, INC. , a Delaware corporation (the "CORPORATION"), and
________________ (the "DIRECTOR"). The Corporation and the Director agree to
the terms and conditions set forth herein as required by the terms of the
Plan.
BACKGROUND
A. The Corporation has adopted and the stockholders of the
Corporation have approved the 1997 Performance Award Plan (the "PLAN").
B. Pursuant to the Plan, the Corporation has granted an option (the
"OPTION") to the Director upon the terms and conditions evidenced hereby, as
required by the Plan, which Option is not intended as and will not be deemed
to be an incentive stock option within the meaning of Section 422 of the Code.
1. OPTION GRANT. This Agreement evidences the grant to the Director, as of
___________, ____ (the "OPTION DATE"), of an Option to purchase an aggregate
of _____ shares of Common Stock, par value $____ per share, under Section 8
of the Plan, subject to the terms and conditions and to adjustment as set
forth herein or in pursuant to the Plan.
2. EXERCISE PRICE. The Option entitles the Director to purchase (subject
to the terms of Sections 3 through 5 below) all or any part of the Option
shares at a price per share of $_______, which represents the Fair Market
Value of the shares on the Option Date.
Exhibit A-1
<PAGE>
3. OPTION EXERCISABILITY AND TERM. Subject to adjustment pursuant to the
Plan, the Option will first become and remain exercisable as to
______________ 20% of the shares on ___________________ and as to an
additional _________ shares 20% on each of the next four anniversaries of
that date, in each case subject to adjustments and acceleration under the
Plan. The Option will terminate on ____________, ____, unless earlier
terminated in accordance with the terms of the Plan.
4. SERVICE AND EFFECT OF TERMINATION OF SERVICE. The Director
agrees to serve as a director in accordance with the provisions of the
Corporation's Certificate of Incorporation, bylaws and applicable law. If
the Director's services as a member of the Board terminate, this Option will
terminate at the times and to the extent set forth in the Plan.
5. GENERAL TERMS. The Option and this Agreement are subject to,
and the Corporation and the Director agree to be bound by, the provisions of
the Plan that apply to the Option. Such provisions are incorporated herein
by this reference. The Director has received a copy of the Plan and has read
its applicable provisions. Capitalized terms not otherwise defined herein
have the meaning set forth in the Plan.
_______________
Insert day before tenth anniversary of date of grant
Exhibit A-2
<PAGE>
The parties have signed this Agreement as of the date on page 1.
BIG DOG SPORTSWEAR
(a Delaware corporation)
By __________________________
Title ______________________
Optionee Director
_____________________________
(Signature)
_____________________________
(Print Name)
_____________________________
(Address)
_____________________________
(City, State, Zip Code)
_____________________________
[social security number]
In consideration of the execution of the foregoing Stock Option
Agreement by Big Dog Holdings, inc. Sportswear, I,
____________________________, the spouse of the Director named therein, agree
to be bound by all of the terms and provisions thereof and of the Plan.
DATED: ______________, ____.
___________________________
Signature of Spouse
Exhibit A-3
<PAGE>
STANDARD INDUSTRIAL LEASE
(SINGLE TENANT; GROSS)
1. BASIC PROVISIONS ("Basic Provisions")
1.1 PARTIES. This Lease ("Lease"), dated for reference purposes only,
January 13, 1995 is made by and between STATE OF CALIFORNIA PUBLIC EMPLOYEES'
RETIREMENT SYSTEM ("Landlord"), and FORTUNE DOGS, INC. dba BIG DOG SPORTSWEAR, a
California corporation ("Tenant") (collectively, the "Parties" or individually,
a "Party").
1.2 PREMISES. That certain real property, including all improvements
therein or to be provided by Landlord under the terms of this Lease, commonly
known by the street address of 8457 S. Eastern Avenue, Unit A Bell Gardens,
located in the County of Los Angeles, State of California, and generally
described as a concrete tilt up building containing 66,877 sq.ft. which is part
of a larger multi-tenant facility ("Premises"). The Premises are identified by
BEL-3A on the Site Plan attached as EXHIBIT A. (See paragraph 2 for further
provisions.)
1.3 TERM. Three (3) years and Six (6) months ("Original Term") commencing
February 15, 1995, subject to the First Addendum ("Commencement Date"), and
ending August 14, 1998 ("Expiration Date"). (See paragraph 3 for further
provisions.)
1.4 EARLY POSSESSION. N/A ("Early Possession Date"). (See paragraphs
3.2 and 3.3 for further provisions.)
1.5 RENT
(a) BASE RENT. Nineteen Thousand and no/100----- DOLLARS
($19,000.00) per month ("Base Rent"), payable in advance on the 1st day of each
month commencing April 15, 1995. Base Rent will be adjusted at the beginning of
the 31st month(s) of the term of this Lease (the "Adjustment Date(s)"), as
provided in paragraph 4.2. (See paragraph 4 for further provisions.)
(b) INITIAL MONTHLY CONTRACTUAL MAINTENANCE COSTS. Two Hundred
Nineteen and no/100--- DOLLARS ($219.00) per month. (See paragraphs 7.1(b) and
7.5 for further provisions.)
1.6 BASE RENT PAID UPON EXECUTION. Nineteen Thousand and no/100-----
DOLLARS ($19,000.00) as Base Rent for the period April 15, 1995 to May 14, 1995.
1.7 SECURITY DEPOSIT. Nineteen Thousand and no/100------------- DOLLARS
($19,000.00) ("Security Deposit"). (See paragraph 5 for further provisions.)
1.8 PERMITTED USE. Warehousing and distribution of garments and all
legally related activities related thereto. (See paragraph 6 for further
provisions.)
1.9 INSURING PARTY. Landlord is the "Insuring Party." Ten Thousand One
Hundred Eighty-two & No/100-- DOLLARS ($10,182.00) is the "Base Cost." (See
paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS. The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes): Prentiss Properties
represents /XX/ Landlord exclusively ("Landlord's Broker"); / / both Landlord
and Tenant, and DAUM represents /X/ Tenant exclusively ("Tenant's Broker"); / /
both Tenant and Landlord. (See paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligation of the Tenant under this Lease are to be
guaranteed by N/A ("Guarantor"). (See paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
paragraphs 50 through 59, a Hazardous Materials Lease Rider referred to in
paragraph 40, __________ and Exhibits A, Multi-Tenant Facility Lease Rider and
Option to Extend Lease Rider, all of which are incorporated into and constitute
a part of this Lease.
PAGE 1
<PAGE>
2. PREMISES
2.1 LETTING. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, the Premises, for the term, at the rental rate, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
specifically provided herein, any statement of square footage set forth in this
Lease, or that may have been used in calculating rental, is an approximation
which Landlord and Tenant agree is reasonable and the rental based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 NO REPRESENTATIONS. Tenant acknowledges that: (a) it has been
advised by Landlord and the Brokers to satisfy itself with respect to the
condition of the Premises and the present and future fitness and suitability of
the Premises for Tenant's intended use; (b) Tenant has made such inspection and
investigation as it deems necessary with reference to such matters and assumes
all responsibility therefor as the same relate to Tenant's occupancy of the
Premises and the term of this Lease; and (c) neither Landlord, nor any of
Landlord's agents, has made any oral or written representations or warranties
with respect to the condition, suitability or fitness of the Premises for the
conduct of Tenant's business other than as may be specifically set forth in this
Lease. (See First Addendum, Paragraph 56).
2.3 ACCEPTANCE OF PREMISES. Tenant accepts the Premises in the condition
existing on the date Tenant executes this Lease, subject to all matters of
record and Applicable Law. Tenant acknowledges that neither Landlord nor any of
Landlord's agents has agreed to undertake any alterations or additions or
perform any maintenance or repair of the Premises unless specifically provided
in this Lease.
3. TERM
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in paragraph 1.3, unless advanced or delayed under
any provision of this Lease.
3.2 EARLY POSSESSION. If Tenant totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease (including, but not limited to, the obligations to pay Real Property Taxes
and Insurance Cost Increases and to maintain the Premises) shall be in effect
during such period. Any such early possession shall not affect or advance the
Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Landlord cannot deliver
possession of the Premises to Tenant as agreed herein by the Early Possession
Date, if one is specified in paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Landlord shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Tenant hereunder, or extend the term hereof, but in such
case, Tenant shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Tenant under the terms of this Lease
until Landlord delivers possession of the Premises to Tenant. If possession of
the Premises is not delivered to Tenant within Ten (10) days after the
Commencement Date, Tenant may, at its option, by notice in writing to Landlord
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Tenant is not received by Landlord within said ten (10)-
day period, Tenant's right to cancel this Lease shall terminate and be of no
further force or effect. Except as may be otherwise provided, and regardless of
when the term actually commences, if possession is not tendered to Tenant when
required by this Lease and Tenant does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Tenant would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Tenant would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Tenant.
4. RENT
4.1 BASE RENT. Tenant shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by
Landlord in lawful money of the United States, without offset, demand, prior
notice or deduction, on or before the day on which it is due under the terms of
this Lease. Base Rent and all other rent and charges for any period during the
term hereof which is for less than one (1) full calendar month shall be prorated
based upon a thirty (30)-day month. Payment of Base Rent and other charges
shall be made to Landlord at Landlord's address for delivery of notices set
forth in paragraph 23 or to such other persons or at such other addresses as
Landlord may from time to time designate in writing to Tenant.
4.2 COST OF LIVING INCREASES. The Base Rent shall be increased at the
time(s) stated in paragraph 1.5(a) in proportion to the increase from the
date the term commenced in the Consumer Price Index published by the United
States Department of Labor, Bureau of Labor Statistics for Urban Wage Earners
and Clerical Workers, all items, for the Los Angeles - Anaheim - Riverside
Statistical Area (1982-84 = 100) (the "Index"). The increase in Base Rent
will be calculated as follows: The initial Base Rent, set forth in Paragraph
1.5(a), will be multiplied by a fraction, the numerator of which shall be the
Index for the calendar month which is four (4) calendar months prior to the
calendar month in which the increase is effective and the denominator of
which shall be the Index for the calendar month in which the Original Term
commences 4% minimum - 8% maximum per annum. The sum so calculated shall
constitute the adjusted Base Rent payable under this Lease. In no event
shall such adjusted Base Rent be less than the Base Rent payable for the
month immediately preceding the Adjustment Date in question. Tenant shall
pay the adjusted Base Rent from its effective date until the next periodic
increase. Landlord may notify Tenant of the adjusted Base Rent after the
Adjustment Date since the Index for the appropriate month may not be
available on the Adjustment Date. In such event, Tenant shall pay Landlord
the amount of the increase in Base Rent for the period elapsed between the
Adjustment Date and Landlord's notice of such increase within ten (10) days
after Landlord's notice. Landlord's failure to request payment of adjusted
Base Rent shall not constitute a waiver of the right to any adjustment
provided for in this Lease. If the Index is changed so that the base year
differs from that in effect when the term commences, the Index shall be
converted in accordance with the conversion factor published by the United
States Department of Labor, Bureau of Labor Statistics. If the Index is
discontinued or revised during the term of this Lease, such other government
index or computation with which it is replaced shall be used in order to
obtain substantially the same result as would be obtained if the Index had
not been discontinued or revised.
5. SECURITY DEPOSIT
Tenant shall deposit with Landlord upon execution hereof the Security
Deposit set forth in paragraph 1.7 as security for Tenant's faithful performance
of Tenant's obligations under this Lease. If Tenant fails to pay Base Rent or
other rent or charges due hereunder, or otherwise Defaults under this Lease (as
defined in paragraph 13.1), Landlord may use, apply or retain all or any portion
of said Security Deposit for the payment of any amount due Landlord or to
reimburse or compensate Landlord for any liability, cost, expense, loss or
damage (including attorneys' fees) which Landlord may suffer or incur by reason
thereof. If Landlord uses or applies all or any portion of said Security
Deposit, Tenant shall, within ten (10) days after written request therefor,
deposit monies with Landlord sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Tenant shall promptly (and in no event more than ten (10)
days following the date the increase in Base Rent is effective) deposit
additional monies with Landlord sufficient to maintain the same ratio between
the Security Deposit and the Base Rent as those amounts are specified in the
Basic Provisions. Landlord shall not be required to keep all or any part of the
Security
PAGE 2
<PAGE>
Deposit separate from its general accounts. Landlord shall, at the expiration
or earlier termination of the term hereof and after Tenant has vacated the
Premises, return to Tenant (or, at Landlord's option, to the last assignee, if
any, of Tenant's interest herein), that portion of the Security Deposit not used
or applied by Landlord. Unless otherwise expressly agreed in writing by
Landlord, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment for
any monies to be paid by Tenant under this Lease.
6. USE
6.1 USE. Tenant shall use and occupy the Premises only for the purposes
set forth in paragraph 1.8, and for no other purpose. Tenant shall not use or
permit the use of the Premises in a manner that violates Applicable Law (as
defined in paragraph 6.3), creates waste or nuisance, or that disturbs owners or
occupants of, or causes damage to, neighboring premises or properties. Tenant
shall not place or permit to be placed any loads upon the floors, walls or
ceilings in excess of the maximum designed load specified by Landlord or which
might damage the Premises or any portion thereof.
6.2 HAZARDOUS MATERIALS.
(a) See attached Hazardous Materials Lease Rider for further
provisions.
(b) DUTY TO INFORM LANDLORD. If Tenant knows, or has reasonable
cause to believe, that a Hazardous Material or Toxic Substance (as
defined in the Hazardous Materials Lease Rider), or a condition
involving or resulting from same, has come to be located in, on, under
or about the Premises, other than as previously consented to by
Landlord, Tenant shall immediately give written notice of such fact to
Landlord. Tenant shall also immediately give Landlord a copy of any
statement, report, notice, registration, application, permit, business
plan, license, order, claim, action, proceeding or other communication
given to, or received from, any governmental authority or private
party, or persons entering or occupying the Premises, concerning the
presence, spill, release, discharge of, or exposure to, any Hazardous
Material or Toxic Substance or contamination in, on or about the
Premises, including, but not limited to, all such documents as may be
involved in any Reportable Uses involving the Premises. "Reportable
Use" means (i) the installation or use of any above or below ground
storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Material or Toxic Substance
that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with,
any governmental authority. Reportable use shall also include
Tenant's being responsible for the presence in, on or about the
Premises of a Hazardous Material or Toxic Substance with respect to
which any Applicable Law requires that a notice be given to persons
entering or occupying the Premises or neighboring properties.
6.3 TENANT'S COMPLIANCE WITH LAW. Except as otherwise specifically
provided in this Lease, Tenant shall, at Tenant's sole cost and expense, fully,
diligently and in a timely manner comply with all "Applicable Law," which term
is used in this Lease to include all laws, rules, regulations, ordinances,
directives, covenants, easements and restrictions of record, permits, the
requirements of any applicable fire insurance underwriter or rating bureau, and
the recommendations of Landlord's engineers and/or consultants, relating in any
manner to the Premises (including, but not limited to, matters pertaining to (a)
industrial hygiene, (b) accessibility and use by individuals with disabilities,
(c) environmental conditions on, in, under or about the Premises, including air,
soil and groundwater conditions, and (d) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage, spill
or release of any Hazardous Material or Toxic Substance or storage tank), now in
effect or which may hereafter come into effect, and whether or not reflecting a
change in policy from any previously existing policy. Tenant shall, within five
(5) days after receipt of Landlord's written request, provide Landlord with
copies of all documents and information, including, but not limited to, permits,
registrations, manifests, applications, reports and certificates, evidencing
Tenant's compliance with any Applicable Law specified by Landlord, and shall
immediately upon receipt notify Landlord in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Tenant or the
Premises or to comply with any Applicable Law. Tenant shall obtain and pay for
all permits, including a Certificate of Occupancy, required for Tenant's
occupancy of the Premises and shall promptly take all substantial and
nonsubstantial actions necessary to comply with all Applicable Law regulating
the use, condition or occupancy of the Premises (including structural or other
upgrading of or improvements to the Premises required as a result of Tenant's
activities or use of the Premises).
6.4 INSPECTION: COMPLIANCE. Landlord and Landlord's Lender(s) (as defined
in paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Tenant
with this Lease and all Applicable Law (as defined in paragraph 6.3), and to
employ experts and consultants in connection therewith and to advise Landlord
with respect to Tenant's activities, including, but not limited to, the
installation, operation, use, monitoring, maintenance or removal of any
Hazardous Material or Toxic Substance or storage tank on or from the Premises.
The costs and expenses of any such inspections shall be paid by the Party
requesting same, unless a Default or Breach of this Lease, violation of
Applicable Law, or a contamination caused or permitted by Tenant, is found to
exist or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Tenant shall, upon request, reimburse
Landlord or Landlord's Lender, as the case may be, for the costs and expenses
of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS
7.1 TENANT'S OBLIGATIONS.
(a) Subject to the provisions of this Lease, including, but not
limited to, paragraphs 7.2 (Landlord's obligations to repair), 9
(damage and destruction), and 14 (condemnation), Tenant shall, at
Tenant's sole cost and expense and at all times, keep the Premises and
every part thereof in good order, condition and repair (whether or not
such portion of the Premises requiring repair, or the means of
repairing the same, are reasonably or readily accessible to Tenant,
and whether or not the need for such repairs occurs as a result of
Tenant's use, any prior use, the elements or the age of such portion
of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and
equipment, fire hydrants, fixtures, interior and exterior walls
(including graffiti removal), ceilings, floors, windows, doors, plate
glass, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about the Premises as
further defined in the Multi-Tenant Facility Rider, but excluding
foundations, the exterior roof and the structural aspects of the
Premises. Tenant, in keeping the Premises in good order, condition
and repair, shall exercise and perform good maintenance practices.
Tenant's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements
thereon or a part thereof in good order, condition and state of repair.
(b) Landlord shall, at Tenant's sole cost and expense payable in
accordance with paragraph 7.5 below, procure and maintain contracts on
terms consistent with those maintained on behalf of other Tenants in
the Bell Gardens Industrial Park, for the inspection, maintenance and
service of the following equipment and improvements, if any, located
on the Premises and the property of which the Premises are a part; (i)
heating, air-conditioning and ventilating equipment; (ii) fire
sprinkler and/or standpipe and hose or other automatic fire
INITIALS: illegible MT
---------
PAGE 3
<PAGE>
extinguishing systems; including fire alarm and/or smoke detection;
(iii) landscaping and irrigation systems; (iv) roof membrane
maintenance; and (v) asphalt and parking lot maintenance.
Notwithstanding any provision of this paragraph 7.1 to the contrary,
if maintenance, repair or replacement of a portion of the Premises
which is the subject of a service contract described in this paragraph
7.1(b) is needed, Tenant shall promptly so notify Landlord. Following
receipt of such notice, Landlord will cause the necessary maintenance,
repair or replacement to be performed on behalf of Tenant and at
Tenant's sole cost by a contractor of Landlord's selection. Tenant
agrees to reimburse Landlord upon demand for all costs and expenses of
such performance.
(c) Tenant shall, at Tenant's expense, repair any damage to the
foundations, exterior roof and structural aspects of the Premises
caused by or resulting from any negligent act or omission of Tenant,
Tenant's agents, employees, contractors, invitees or others using the
Premises with Tenant's expressed or implied permission.
7.2 LANDLORD'S OBLIGATIONS. Following receipt of written notice of the
need for such repairs and subject to paragraph 13.5, Landlord shall, at
Landlord's expense, keep the foundations, exterior roof and structural aspects
of the Premises in good order, condition and repair. Landlord shall not,
however, be obligated to paint the exterior surface of the exterior walls or to
maintain the windows, doors or plate glass or the interior surface of exterior
walls. Landlord shall not, in any event, have any obligation to repair damage
caused by any negligent act or omission of Tenant, Tenant's agents, employees,
contractors, invitees or others using the Premises with Tenant's expressed or
implied permission, or to make any repairs until Landlord receives written
notice of the need for such repairs. It is the intention of the Parties that
the terms of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises. Tenant expressly waives the benefit of
any statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Tenant the right to, make
repairs at the expense of Landlord or to terminate this Lease by reason of the
condition of the Premises or any needed repairs. (See First Addendum, Paragraph
57)
7.3 UTILITY INSTALLATION; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility
Installations" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security,
fire protection systems, communication systems, lighting fixtures,
heating, ventilating and air-conditioning equipment, plumbing, and
fencing in, on or about the Premises. The term "Trade Fixtures" shall
mean Tenant's machinery, racking, and equipment that can be removed
without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from
those which are provided by Landlord under the terms of this Lease,
other than Utility Installations or Trade Fixtures, whether by
addition or deletion. "Tenant Owned Alterations and/or Utility
Installations" are defined as Alterations and/or Utility Installations
made by Tenant that are not yet owned by Landlord as defined in
paragraph 7.4(a). Tenant shall not make any Alterations or
Utility Installations in, on, under or about the Premises without
Landlord's prior written consent. Tenant may, however, make
non-structural Utility Installations to the interior of the Premises
(excluding the roof), as long as they are not visible from the
outside, do not involve puncturing, relocating or removing the roof,
foundation or any existing walls, and the cumulative cost thereof
during the term of this Lease as extended does not exceed FIVE
THOUSAND DOLLARS ($5,000.00).
(b) CONSENT. Any Alterations or Utility Installations that
Tenant shall desire to make and which require the consent of Landlord
shall be presented to Landlord in written form with proposed detailed
plans. All consents given by Landlord, whether by virtue of paragraph
7.3(a) or by subsequent specific consent, shall be deemed conditioned
upon: (i) Tenant's acquiring all applicable permits required by
governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Landlord prior to commencement
of the work thereon; and (iii) the compliance by Tenant with all
conditions of said permits in a prompt and expeditious manner. Any
Alterations or Utility Installations by Tenant during the term of this
Lease shall be done in a good and workmanlike manner, with new, good
and sufficient materials, by contractors approved by Landlord, and in
compliance with all Applicable Law. Tenant shall promptly upon
completion thereof furnish Landlord with as-built plans and
specifications therefor. Landlord may (but without obligation to do
so) condition its consent to any requested Alteration or Utility
Installation that costs FIVE THOUSAND DOLLARS ($5,000.00) or more upon
Tenant's providing Landlord with a lien and completion bond in form
and with a surety approved by Landlord in an amount equal to one and
one-half (1.5) times the estimated cost of such Alteration or Utility
Installation and/or upon Tenant's posting an additional Security
Deposit with Landlord under paragraph 36 hereof.
(c) INDEMNIFICATION. Tenant shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or
for Tenant at or for use on the Premises, which claims are or may be
secured by any mechanics' or materialmen's lien against the Premises
or any interest therein. Tenant shall give Landlord not less than ten
(10) days' notice prior to the commencement of any work in, on or
about the Premises, and Landlord shall have the right to post notices
of nonresponsibility in or on the Premises as provided by law. If
Tenant shall, in good faith, contest the validity of any such lien,
claim or demand, then Tenant shall, at its sole expense, defend and
protect itself, Landlord and the Premises against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof against the Landlord or the Premises.
If Landlord shall require, Tenant shall furnish to Landlord a surety
bond satisfactory to Landlord in an amount equal to one and one-half
(1.5) times the amount of such contested lien claim or demand,
indemnifying Landlord against liability for the same, as required by
law for the holding of the Premises free from the effect of such lien
or claim. In addition, Landlord may require Tenant to pay Landlord's
attorneys' fees and costs in participating in such action if Landlord
shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER AND RESTORATION.
(a) OWNERSHIP. Subject to Landlord's right to require their
removal or become the owner thereof as hereinafter provided in this
paragraph 7.4, all Alterations and Utility Additions made to the
Premises by Tenant shall be the property of and owned by Tenant, but
considered a part of the Premises. Landlord may, at any time and at
its option, elect in writing to Tenant to be the owner of all or any
specified part of the Tenant Owned Alterations and Utility
Installations. Unless otherwise instructed per paragraph 7.4(b)
hereof, all Tenant Owned Alterations and Utility Installations shall,
at the expiration or earlier termination of this Lease, become the
property of Landlord and remain upon and be surrendered by Tenant with
the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Landlord may
require that any or all Tenant Owned Alterations or Utility
Installations be removed by the expiration or earlier termination of
this Lease, notwithstanding their installation may have been consented
to by Landlord. Landlord may require the removal at any time of all
or any part of any Tenant Owned Alterations or Utility Installations
made without the required consent of Landlord.
(c) SURRENDER/RESTORATION. Tenant shall surrender the Premises
by the end of the last day of the Lease term or any earlier
termination date, with all of the improvements, parts and surfaces
thereof clean and free of debris and in good operating order,
condition and state of repair, ordinary wear and tear excepted.
"Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by
Tenant performing all of its obligations under this Lease. Except as
otherwise
INITIALS: illegible MT
---------
PAGE 4
<PAGE>
agreed or specified in writing by Landlord, the Premises, as
surrendered, shall include the Utility Installations. The
obligations of Tenant shall include the repair of any damage
occasioned by the installation, maintenance or removal of Tenant's
Trade Fixtures, furnishings, equipment and Alterations and/or
Utility Installations, as well as the removal of any storage tank
installed by or for Tenant; the removal of all Hazardous Materials
and Toxic Substances brought upon, kept, used or permitted in or
about the Premises by Tenant, its agents, employees, contractors or
invitees; and the removal, replacement or remediation of any soil,
material or ground water contamination caused or permitted by
Tenant, all as may then be required by Applicable Law and/or good
practice. Tenant's Trade Fixtures shall remain the property of
Tenant and shall be removed by Tenant subject to its obligations to
repair and restore the Premises per this Lease.
7.5 ITEMIZED CONTRACTUAL MAINTENANCE COSTS. Tenant shall pay Landlord for
Itemized Contractual Maintenance Costs (as defined below) in accordance with
this paragraph 7.5:
(a) DEFINITION OF ITEMIZED CONTRACTUAL MAINTENANCE COSTS.
Itemized Contractual Maintenance Costs means all sums actually
expended by Landlord for the service contracts described in
paragraph 7.1(b).
(b) TENANT'S OBLIGATION TO PAY. Commencing on the date that
the first payment of Base Rent is due for the first full calendar
month of the Lease term, Tenant shall pay to Landlord, at the time
and in the manner that Base Rent is payable, am amount estimated by
Landlord to be Tenant's share of Itemized Contractual Maintenance
Costs. The initial monthly charge payable by Tenant is Two Hundred
Eighteen and no/100 DOLLARS ($218.00) and is subject to increase in
accordance with paragraph 7.5(c), below.
(c) ADJUSTMENT OF ITEMIZED CONTRACTUAL MAINTENANCE CHARGES.
Landlord may adjust the monthly charge payable by Tenant at the end
of each accounting period on the basis of Landlord's reasonably
anticipated Itemized Contractual Maintenance Costs for the
following accounting period. An accounting period is a calendar
year, except that the first accounting period shall commence on
the date the Lease term commences and the last accounting period
shall end on the date the Lease term expires or terminates.
(d) STATEMENT OF ITEMIZED CONTRACTUAL MAINTENANCE CHARGES.
Landlord shall furnish to Tenant a statement showing the total
Itemized Contractual Maintenance Costs for the accounting period,
and the payments made by Tenant with respect to each accounting
period, within ninety (90) days after the end of each accounting
period, covering the accounting period just ended. Each statement
shall be prepared, signed and certified to be correct by the
authorized agent of Landlord.
(e) DEFICIENCY. If Tenant's share of Itemized Contractual
Maintenance Costs for the accounting period exceeds the payments
made by Tenant, Tenant shall pay Landlord the deficiency within ten
(10) days after the receipt of the statement. If Tenant's payments
made during the accounting period exceed Tenant's share of Itemized
Contractual Maintenance Costs, the excess will be credited against
the next monthly payment due from Tenant, or paid to Tenant if the
Lease has terminated and Tenant has no outstanding financial
obligations to Landlord.
(f) RECORDS. Landlord shall keep full and accurate books of
account covering the Itemized Contractual Maintenance Costs, and
the statement to Tenant shall accurately reflect the total Itemized
Contractual Maintenance Costs for the accounting period. Tenant
shall have the right at reasonable times during normal business
hours for a period of one (1) year after receipt of a statement of
Itemized Contractual Maintenance Costs to inspect the books of
account upon which that statement is based.
(g) TERMINATION OF OCCUPANCY. If the Lease expires or
terminates on a date other than the end of a calendar year,
Landlord will submit a current statement of Itemized Contractual
Maintenance Costs for the partial calendar year and Tenant will be
obligated to pay for Itemized Contractual Maintenance Costs through
the date of termination. If Tenant's Share of Itemized Contractual
Maintenance Costs for the accounting period in which the Lease
expires or terminates exceeds the payments made by Tenant for that
period, Tenant shall pay Landlord the deficiency within ten (10)
days after receipt of the statement. If Tenant's payments made
during the accounting period in which the Lease expires or
terminates exceed Tenant's share of Itemized Contractual
Maintenance Costs for that period, the excess will be refunded to
the Tenant.
8. INSURANCE; INDEMNITY
8.1 PAYMENT OF COST INCREASES.
(a) Tenant shall pay to Landlord any Insurance Cost Increase
(as defined below) occurring during the term of this Lease.
"Insurance Cost Increase" is defined as any increase in the cost of
insurance applicable to the Premises, over and above the Base Cost,
as hereinafter defined, calculated on an annual basis. Insurance
Cost Increase shall include, increases resulting from the nature of
Tenant's occupancy, any act or omission of Tenant, increased
valuation of the Premises, and/or a rate increase. If the Parties
insert a dollar amount in paragraph 1.9, such amount shall be
considered the "Base Cost." In lieu thereof, if the Premises have
been previously occupied, the "Base Cost" shall be the annual cost
of the insurance applicable to the most recent occupancy.
(b) Tenant shall pay any such Insurance Cost Increase to
Landlord either within fifteen (15) days after receipt by Tenant of
an invoice or other reasonable evidence of the amount due or, at
Landlord's option, in advance, as provided in paragraph 8.9. If the
applicable insurance covers other property besides the Premises,
Landlord shall also deliver to Tenant a statement of the amount of
such Insurance Cost Increase attributable only to the Premises,
showing in reasonable detail the manner in which such amount was
computed. The Insurance Cost Increase for any period extending
beyond the term of this Lease shall be prorated to coincide with
the corresponding Expiration Date of the Lease term.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY TENANT. Tenant shall obtain and keep in force
during the term of this Lease, at Tenant's expense, a Commercial
General Liability policy of insurance protecting Tenant and naming
Landlord (STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM)
and Landlord's appointed Property Manager as additional insureds
against claims for bodily injury, personal injury and property
damage based upon, involving or arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant
thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than TWO MILLION FIVE
HUNDRED THOUSAND DOLLARS ($2,500,000.00) per occurrence with an
"Additional Insured-Managers or Landlords of Premises" Endorsement
and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy
shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability
assumed under this Lease as an "insured contract" for the
performance of Tenant's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by
Tenant shall not, however, limit the liability of Tenant or
relieve Tenant of any obligation hereunder. All insurance to be
carried by Tenant shall be primary to and not contributory with any
similar insurance carried by Landlord, whose insurance shall be
considered excess insurance only.
(b) CARRIED BY LANDLORD. If Landlord is the Insuring Party,
Landlord shall also maintain liability insurance for at least the
minimum coverages described in paragraph 8.2(a). Such insurance
shall be in addition to, and
Initials [ILLEGIBLE]
------------
PAGE 5
<PAGE>
not in lieu of, the insurance required to be maintained by Tenant.
Landlord may elect to self-insure for this coverage. Tenant shall
not be named as an additional insured on any policy of liability
insurance maintained by Landlord.
8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force during the term of this Lease a policy or policies
in the name of Landlord, with loss payable to Landlord and to the
holders of any mortgages, deeds of trust or ground leases on the
Premises ("Lender(s)"), insuring loss or damage to the Premises. If
Landlord is the Insuring Party, Landlord may elect to self-insure for
this coverage. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurance value thereof if, by
reason of the unique nature or age of the improvements involved, such
latter amount is less than full replacement cost. However, Tenant Owned
Alterations and Utility Installations shall be insured by Tenant under
paragraph 8.4. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of
direct physical loss or damage, including coverage for any additional
costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating
the reconstruction or replacement of any undamaged sections of the
Premises required to be demolished or removed by reason of the
enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate
glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any coinsurance clause,
waiver of subrogation, and inflation guard protection causing an
increase in the annual property insurance coverage amount by a
factor of not less than the adjusted U.S. Department of Labor
Consumer Price Index for All Urban Consumers for the city nearest
to where the Premises are located. Landlord may (but shall not be
required to) maintain earthquake and flood insurance with the
endorsements referred to above on the Premises. If Landlord elects
to maintain such coverage, the cost of such insurance shall be
allocated to paragraph 8.1.
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain
and keep in force during the term of this Lease a policy or
policies in the name of Landlord, with loss payable to Landlord
and Lender(s), insuring the loss of the full rental and other
charges payable by Tenant to Landlord under this Lease for not
less than one (1) year (including all real estate taxes, Insurance
Cost increases and any scheduled rental increases). If Landlord is
the Insuring Party, Landlord may elect to self-insure for this
coverage. Said insurance shall provide that in the event the Lease
is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of
the completion of repairs or replacement of the Premises, to
provide for not less than one (1) full year's loss of rental
revenues from the date of any such loss. Said insurance shall
contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, property taxes, Insurance
Cost increases and other expenses, if any, otherwise payable by
Tenant, for the next twelve (12)-month period.
(c) ADJACENT PREMISES. If the Premises are part of a
larger building, or if the Premises are part of a group of
buildings owned by Landlord which are adjacent to the Premises,
the Tenant shall pay for any increase in the cost of the property
insurance applicable to such building or buildings if said
increase is caused by Tenant's acts, omissions, use or occupancy
of the Premises.
(d) TENANT'S IMPROVEMENTS. If Landlord is the Insuring Party,
Landlord shall not be required to insure Tenant Owned Alterations
and Utility installations unless the item in question has become the
property of Landlord under the terms of this Lease.
8.4 TENANT'S PROPERTY INSURANCE. Subject to the requirements of paragraph
8.5, Tenant, at its cost, shall either by separate policy or, at Landlord's
option, by endorsement to a policy already carried, maintain insurance
coverage on all of Tenant's personal property, Tenant Owned Alterations and
Utility installations in, or or about the Premises similar in coverage to that
carried by the Insuring Party under paragraph 8.3. Such insurance shall be
full replacement cost coverage with a deductible of not to exceed ONE
THOUSAND DOLLARS ($1,000.00) per occurrence. The proceeds from any such
insurance shall be used by Tenant for the replacement of personal property or
the restoration of Tenant Owned Alterations and Utility installations. Tenant
shall be the Insuring Party with respect to the insurance required by this
paragraph 8.4 and shall provide Landlord with written evidence that such
insurance is in force in accordance with paragraph 8.5.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the State where the Premises are
located, and maintaining during the policy term a "General Policyholders
Rating" of at least A-:VII, or such other rating as may be required by a
Lender having a lien on the Premises, as set forth in the most current issue
of "BEST'S INSURANCE GUIDE." Tenant shall not do or permit to be done
anything which shall invalidate the insurance policies referring to in this
paragraph 8. Tenant shall, at Tenant's sole cost and expense, comply with any
and all requirements pertaining to the Premises of any insurance provider or
fire department necessary for the maintenance of the insurance described in
this paragraph 8. At the time Tenant executes this Lease, Tenant shall cause
to be delivered to Landlord certified copies of, or certificates evidencing
the existence and amounts of, the insurance, and with the additional
insureds, required under paragraphs 8.2 and 8.4. Each policy shall contain an
endorsement providing that it is not cancellable or subject to modification
except after thirty (30) days' prior written notice from the insurance
company to Landlord. Tenant shall, at least thirty (30) days prior to the
expiration of such policies, furnish Landlord with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Landlord may (but shall
not be obligated to) order such insurance and charge the cost thereof to
Tenant, which amount shall be payable by Tenant to Landlord upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Tenant and Landlord ("Waiving Party") each hereby releases and relieves the
other, and waives their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured
against under paragraph 8. The effect of such releases and waivers of the
right to recover damages shall not be limited by the amount of insurance
carried or required, or by any deductible applicable thereto.
8.7 INDEMNITY. Except for Landlord's negligence and/or breach of express
warranties, if any, Tenant shall indemnify, protect, defend and hold harmless
the Premises, Landlord and its trustees, agents (including Landlord's
Property Manager), Landlord's master or ground lessor, partners and Lenders,
from and against any and all claims, loss or rents and/or damages, costs,
liens, judgments, penalties, permits, attorneys' and consultants' fees,
expenses and/or liabilities arising out of, involving or in dealing with, the
occupancy of the Premises by Tenant, the conduct of Tenant's business, any
negligent act, omission or neglect of Tenant, its agents, contractors,
employees or invitees, and out of any Default or Breach by Tenant in the
performance in a timely manner of any obligation on Tenant's part to be
performed under this Lease. The foregoing shall include, but shall not be
limited to, the defense or pursuit of any claim or any action or proceeding
involved therein, and whether or not (in the case of claims made against
Landlord) litigated and/or reduced to judgment, and whether well founded or
not. In case any action or proceeding being brought against Landlord by
reason of any of the foregoing matters, Tenant, upon notice from Landlord,
shall defend the same at Tenant's expense by counsel reasonably satisfactory
to Landlord, and Landlord shall cooperate with Tenant in such defense or, at
Landlord's election, Tenant shall reimburse Landlord for any and all
reasonable legal fees and costs incurred by Landlord in connection with any
such claim.
Initials [ILLEGIBLE]
------------
PAGE 6
<PAGE>
8.8 EXEMPTION OF LANDLORD FROM LIABILITY. Other than due to an ______
constituting a breach of the Lease, negligent, or willful misconduct by Landlord
or its' agents (and then only to the ex____ that any injury or damage would not
be covered by insurance required under this lease), Landlord shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Tenant, Tenant's employees, contractors, invitees, customers or any
other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air-conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not. Landlord shall not be liable for any damages arising from any act or
omission of any other tenant of Landlord. Notwithstanding Landlord's negligence
or breach of this Lease, Landlord shall not be liable under any circumstances
for injury to Tenant's business or for any loss of income or profit therefrom.
8.9 ADVANCE PAYMENT. Landlord reserves the right, at Landlord's option,
to estimate the annual Insurance Cost Increase payable by Tenant, and to require
such annual Insurance Cost Increase to be paid to Landlord by Tenant monthly, in
advance, with the payment of Base Rent. If Landlord elects to require payment
monthly in advance, the monthly payment shall be one-twelfth (1/12) of the
annual Insurance Cost Increase payable by Tenant under this Lease, as reasonably
estimated by Landlord. Landlord may adjust the monthly payment of Insurance Cost
Increase from time to time as Landlord reasonably deems necessary based on
Landlord's reasonable estimate of the annual Insurance Cost Increase. If the
amounts paid to Landlord by Tenant under the provisions of this paragraph are
insufficient to discharge the obligation of Tenant to pay such Insurance Cost
Increase, Tenant shall pay to Landlord, upon demand, such additional sums as are
necessary to pay such obligation. All monies paid to Landlord under this
paragraph may be intermingled with other monies of Landlord and shall not
bear interest. In the event of a Breach by Tenant in the performance of the
obligations of Tenant under this Lease, then any balance of funds paid to
Landlord under the provisions of this paragraph may, subject to proration as
provided in paragraph 8.1, at the option of Landlord, be treated as an
additional Security Deposit under paragraph 5.
9. DAMAGE OR DESTRUCTION
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean damage or destruction
to the improvements on the Premises, other than Tenant Owned
Alterations and Utility Installations, the repair cost of which damage
or destruction is less than fifty percent (50%) of the than
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and
Tenant Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Tenant Owned Alterations and
Utility Installations, the repair cost of which damage or destruction
is fifty percent (50%) or more of the then Replacement Cost of the
Premises immediately prior to such damage or destruction, excluding
from such calculation the value of the land and Tenant Owned
Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to
improvements on the Premises, other than Tenant Owned Alterations and
Utility Installations, which was caused by an event required to be
covered by the insurance described in paragraph 8.3(a), irrespective of
any deductible amounts or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild
the improvements owned by Landlord at the time of the occurrence to
their condition existing immediately prior thereto, including
demolition, debris removal and upgrading required by the operation of
applicable building codes, ordinances or laws, and without deduction
for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination
by, a Hazardous Material or Toxic Substance (as defined in the
Hazardous Materials Lease Rider) in, on, under or about the Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Landlord shall, at Landlord's expense, repair such
damage (but not Tenant's Trade Fixtures or Tenant Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Landlord shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Tenant provides Landlord with the funds to cover same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Landlord receives said funds
or adequate assurance thereof within said ten (10)-day period, the Party
responsible for making the repairs shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If Landlord does
not receive such funds or assurance within said period, Landlord may
nevertheless elect by written notice to Tenant within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Landlord
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Landlord does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed in writing, or caused by a negligent or
willful act or omission of Landlord or its' agents, Tenant shall in no event
have any right to reimbursement from Landlord for any funds contributed by
Tenant to repair any such damage or destruction. Premises Partial Damage due to
flood or earthquake shall be subject to paragraph 9.3 rather than paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party. Tenant shall notify Landlord in writing immediately upon the occurrence
of any damage or destruction to the Premises. If repair or restoration by
Landlord or Tenant shall exceed a twelve (12) month period as determined by
Landlord, Landlord shall so notify Tenant and either party shall have the right
to cancel this Lease by providing written notice to the other party within 30
days of Landlord's notice, and the Lease will terminate 30 days following such
written notice.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act or
omission of Tenant (in which event Tenant shall make the repairs at Tenant's
expense and this Lease shall continue in full force and effect, but subject to
Landlord's rights under paragraph 13), Landlord may, at Landlord's option,
either: (a) repair such damage as soon as reasonably possible at Landlord's
expense, in which event this Lease shall continue in full force and effect; or
(b) give written notice to Tenant within thirty (30) days after receipt by
Landlord of knowledge of the occurrence of such damage of Landlord's desire to
terminate this Lease as of the date sixty (60) days following the giving of
such notice. In the event Landlord elects to give such notice of Landlord's
intention to terminate this Lease, Tenant shall have the right within ten (10)
days after the receipt of such notice to give written notice to Landlord of
Tenant's commitment to pay for the repair of such damage totally at Tenant's
expense and without reimbursement from Landlord. Tenant shall provide Landlord
with the required funds or satisfactory assurance thereof within thirty (30)
days following Tenant's said commitment. In such event, this Lease shall
continue in full force and effect, and Landlord shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Tenant does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Landlord's notice of termination. If repair or restoration by
Landlord or Tenant shall exceed a twelve (12) month period as determined by
Landlord, Landlord shall so notify Tenant and either party shall have the right
to cancel this Lease by providing written notice to the other party within 30
days of Landlord's notice, and the Lease will terminate 30 days following such
written notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following
PAGE 7
<PAGE>
the date of such Premises Total Destruction, whether or not the damage or
destruction is an Insured Loss or was caused by a negligent or willful act or
omission of Tenant. In the event, however, that the damage or destruction was
caused by Tenant, Landlord shall have the right to recover Landlord's damages
from Tenant except as released and waived in paragraph 8.6. However, if the
Premises can be rebuilt within twelve (12) months after the date of the
destruction, Landlord may elect to rebuild the Premises at Landlord's expense,
in which case this Lease shall remain in full force and effect. Landlord shall
notify Tenant of its election within sixty (60) days after the occurrence of the
Premises Total Destruction. If the destruction was caused by a negligent or
willful act or omission of Tenant, Tenant shall pay Landlord upon demand the
difference between the actual cost of rebuilding the Premises and any insurance
proceeds received by Landlord.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured loss, Landlord may,
at Landlord's option, terminate this Lease effective sixty (60) days following
the date of occurrence of such damage by giving written notice to Tenant of
Landlord's election to do so within thirty (30) days after the date of
occurrence of such damage. Provided, however, if Tenant at that time has an
exercisable option to extend this Lease or to purchase the Premises, then Tenant
may preserve this Lease by, within twenty (20) days following the occurrence of
the damage, or before the expiration of the time provided in such option for its
exercise, whichever is earlier ("Exercise Period"), (a) exercising such option,
and (b) providing Landlord with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs. If Tenant duly exercises such
option during said Exercise Period and provides Landlord with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Landlord shall,
at Landlord's expense, repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Tenant fails to exercise
such option and provide such funds or assurance during said Exercise Period,
then Landlord may at Landlord's option terminate this Lease as of the expiration
of said sixty (60)-day period following the occurrence of such damage by giving
written notice to Tenant of Landlord's election to terminate within ten (10)
days after the expiration of the Exercise Period, notwithstanding any term or
provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT: TENANT'S REMEDIES.
(a) In the event of damage described in paragraph 9.2 (Partial
Damage--Insured), or damages described in paragraph 9.3, whether or not
Landlord or Tenant repairs or restores the Premises, the Base Rent,
Real Property Taxes, Insurance Cost Increases, and other charges, if
any, payable by Tenant hereunder for the period during which such
damage, its repair or the restoration continues, shall be abated in
proportion to the degree to which Tenant's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes,
Insurance Cost Increases, and other charges, if any, as aforesaid, all
other obligations of Tenant hereunder shall be performed by Tenant,
and Tenant shall have no claim against Landlord for any damage
suffered by reason of the damage or destruction or any such repair or
restoration (including investigation and remediation of any Hazardous
Substance Condition pursuant to paragraph 9.7) unless such loss was due
to a negligent or willful act or omission of Landlord or its' agents
and would not otherwise be covered by insurance required to be in
effect under this Lease. Also, Landlord shall not be responsible for
any injury to Tenant's business, loss of income or profit therefrom.
(b) If Landlord shall be obligated to repair or restore the
Premises under the provisions of this paragraph 9 and shall not
commence, in a substantial and meaningful way, the repair or
restoration of the Premises within ninety (90) days after such
obligation shall accrue, Tenant may, at any time prior to the
commencement of such repair or restoration, give written notice to
Landlord and to any Lenders of which Tenant has actual notice of
Tenant's election to terminate this Lease on a date not less than sixty
(60) days following the giving of such notice. If Tenant gives such
notice to Landlord and such Lenders and such repair or restoration is
not commenced within thirty (30) days after receipt of such notice,
this Lease shall terminate as of the date specified in said notice. If
Landlord or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this
Lease shall continue in full force and effect. "Commence" as used in
this paragraph shall mean either the unconditional authorization of the
preparation of the required plans or the beginning of the actual work
on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
(as defined in paragraph 9.1(e)) occurs, unless Tenant is legally responsible
therefor (in which case Tenant shall make the investigation and remediation
thereof required by Applicable Law and this Lease shall continue in full force
and effect, but subject to Landlord's rights under paragraph 13 and the
Hazardous Materials Lease Rider), Landlord may at Landlord's option either (a)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Landlord's expense, in which event this Lease
shall continue in full force and effect, or (b) if the estimated cost to
investigate and remediate such condition exceeds twelve (12) times the then
monthly Base Rent or ONE HUNDRED THOUSAND DOLLARS ($100,000.00), whichever is
greater, give written notice to Tenant within thirty (30) days after receipt by
Landlord of knowledge of the occurrence of such Hazardous Substance Condition of
Landlord's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Landlord elects to give such
notice of Landlord's intention to terminate this Lease, Tenant shall have the
right, within ten (10) days after the receipt of such notice, to give written
notice to Landlord of Tenant's commitment to pay for the investigation and
remediation of such Hazardous Substance Condition totally at Tenant's expense
and without reimbursement from Landlord except to the extent of an amount
equal to twelve (12) times the then monthly Base Rent or ONE HUNDRED THOUSAND
DOLLARS ($100,000.00), whichever is greater. Tenant shall provide Landlord with
the funds required of Tenant or satisfactory assurance thereof within thirty
(30) days following Tenant's said commitment. In such event this Lease shall
continue in full force and effect, and Landlord shall proceed to make such
investigation and remediation as soon as reasonably possible and the required
funds are available. If Tenant does not give such notice and provide the
required funds or assurance thereof within the times specified above, this
Lease shall terminate as of the date specified in Landlord's notice of
termination. If a Hazardous Substance Condition occurs for which Tenant is not
legally responsible, there shall be abatement of Tenant's obligations under this
Lease to the same extent as provided in paragraph 9.6(a) for a period of not to
exceed twelve (12) months.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Tenant to Landlord.
Landlord shall, in addition, return to Tenant so much of Tenant's Security
Deposit as has not been, or is not then required to be, used by Landlord under
the terms of this Lease.
9.9 WAIVE STATUTES. Landlord and Tenant agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES
10.1 (a) PAYMENT OF TAXES. Landlord shall pay the Real Property
Taxes, as defined in paragraph 10.2, applicable to the Premises;
provided, however, that Tenant shall pay, in addition to rent, the
amount, if any, by which Real Property Taxes applicable to the
Premises increase over the fiscal tax year during which the
Commencement Date occurs ("Tax Increase"). Subject to paragraph
10.1(b), payment of any such Tax Increase shall be made by Tenant
within fifteen (15) days after receipt of Landlord's written statement
setting forth the amount due. Tenant shall promptly furnish Landlord
with satisfactory evidence that such taxes have been paid. If any
such taxes to be paid by Tenant shall cover any period of time prior
to or after the expiration
PAGE 8
<PAGE>
or earlier termination of the term hereof, Tenant's share of such
taxes shall be equitably prorated to cover only the period of time
within the tax fiscal year this Lease is in effect, and Landlord shall
reimburse Tenant for any overpayment after such proration.
(b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Landlord
reserves the right, at Landlord's option, to estimate the current Real
Property Taxes applicable to the Premises, and to require such current
year's Tax Increase to be paid in advance to Landlord by Tenant,
either: (i) in a lump sum amount equal to the amount due, at least
twenty (20) days prior to the applicable delinquency date: or (ii)
monthly, in advance, with the payment of the Base Rent. If Landlord
elects to require payment monthly in advance, the monthly payment
shall be that equal monthly amount which, over the number of months
remaining before the month in which the applicable tax installment
would become delinquent (and without interest thereon), would provide
a fund large enough to fully discharge before delinquency the
estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund
needed to pay the applicable Tax Increase before delinquency. If the
amounts paid to Landlord by Tenant under the provisions of this
paragraph are insufficient to discharge the obligation of Tenant to
pay such Tax Increase as the same becomes due, Tenant shall pay to
Landlord, upon Landlord's demand, such additional sums as are
necessary to pay such obligation. All monies paid to Landlord under
this paragraph may be intermingled with other monies of Landlord and
shall not bear interest. In the event of a Breach by Tenant in the
performance of the obligations of Tenant under this Lease, then any
balance of funds paid to Landlord under the provisions of this
paragraph may, subject to proration as provided in paragraph 10.1(a),
at the option of Landlord, be treated as an additional Security
Deposit under paragraph 5.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding paragraph 10.1(a)
hereof, Tenant shall pay to Landlord upon demand therefor the entirety
of any increase in Real Property Taxes assessed by reason of
Alterations or Utility Installations placed upon the Premises by or on
behalf of Tenant or at Tenant's request.
10.2 DEFINITION OF "REAL PROPERTY TAXES". As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy, charge or tax (other than
inheritance, personal income or estate taxes) imposed upon the Premises by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Landlord in the Premises or in the real property of which
the Premises are a part, Landlord's right to rent or other income therefrom,
and/or Landlord's business of leasing the Premises. The term "Real Property
Taxes" shall also include any tax, fee, levy, assessment of charge, or any
increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, before or during the term of this Lease,
including, but not limited to, a change in the ownership of the Premises or in
the improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
The STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM is an agency of
the State of California, and as such is exempt from the payment of ad valorem
real property taxes under Section 3(a) of Article XIII of the California
Constitution. However, Tenant's possessory interest in the Premises may be
subject to property taxation and to the payment of property taxes levied on
that interest. The full cash value, as defined in Sections 110 and 110.1 of
the Revenue and Taxation Code, of the possessory interest upon which property
taxes will be based shall equal the greater of (a) the full cash value of the
possessory interest of (b) if Tenant has leased less than all of the property
of which the Premises are a part, the Tenant's allocable share of the full
cash value of such property that would have been enrolled if such property
had been subject to property taxation upon acquisition by Landlord. Tenant's
allocable shall be Tenant's leasable square feet divided by the total leasable
square feet of such property. For the purposes of this Lease, the term "Real
Property Tax" shall also include (in addition to the matters described above)
possessory interest taxes and Tenant shall pay such possessory interest taxes
and in the manner and at the times required under paragraph 10.
10.3. JOINT ASSESSMENT. If the Premises are not separately assessed,
Tenant's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Landlord from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonable available. Landlord's reasonable determination thereof, in good
faith, shall be conclusive.
10.4. PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon Tenant Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Tenant contained in the Premises or elsewhere. When possible, Tenant shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Landlord. If any
of Tenant's said personal property shall be assessed with Landlord's real
property. Tenant shall pay Landlord the taxes attributable to Tenant within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Tenant's property or, at Landlord's option, as provided in
paragraph 10.1(b). Landlord's reasonable determination thereof, in good faith,
shall be conclusive.
11. UTILITIES
Tenant shall make all arrangements and pay for all water, gas, heat, light,
power, telephone, trash disposal, and other utilities and services supplied to
the Premises, together with any taxes thereon. If any such services are not
separately metered to Tenant, Tenant shall pay a reasonable proportion, to be
determined by Landlord, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING
12.1 LANDLORD'S CONSENT REQUIRED.
(a) Tenant shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Tenant's interest in this
Lease or in the Premises without Landlord's prior written consent
given under and subject to the terms of paragraph 36.
(b) A change in the control of Tenant shall constitute an
assignment requiring Landlord's consent. Any transfer of the voting
control of Tenant shall constitute a change in control for this
purpose. See First Addendum Paragraph 58.
(c) The involvement of Tenant or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise),
whether or not a formal assignment or hypothecation of this Lease or
Tenant's assets occurs, which results or will result in a reduction of
the Net Worth of Tenant, as hereinafter defined, by an amount equal to
or greater than twenty-five percent (25%) of such Net Worth of Tenant
as it was represented to Landlord at the time of the execution by
Landlord of this Lease or at the time of the most recent assignment to
which Landlord has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at
whichever time said Net Worth of Tenant was or is greater, shall be
considered an assignment of this Lease by Tenant to which Landlord
may reasonably withhold its consent. "Net Worth of Tenant" for
purposes of this Lease shall be the net worth of Tenant (excluding any
guarantors) established under generally accepted accounting principles
consistently applied.
Initials [ILLEGIBLE]
---------------
PAGE 9
<PAGE>
(d) An assignment or subletting of Tenant's Interest in this
Lease without Landlord's specific prior written consent shall be void
and shall, at Landlord's option, be a Default curable after notice per
paragraph 13.1(c), or a noncurable Breach without the necessity of any
notice and grace period. If Landlord elects to treat such unconsented
to assignment or subletting as a noncurable Breach, Landlord shall
have the right to either: (i) terminate this Lease; or (ii) upon
thirty (30) days' written notice ("Landlord's Notice"), increase the
monthly Base Rent to fair market rental value or one hundred ten
percent (110%) of the Base Rent then in effect, whichever is greater.
Pending determination of the new fair market rental value, if disputed
by Tenant, Tenant shall pay the amount set forth in Landlord's Notice,
with any overpayment credited against the next installment(s) of Base
Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately
upon the determination thereof. Further, in the event of such Breach
and market value adjustment, (i) the purchase price of any option to
purchase the Premises held by Tenant shall be subject to similar
adjustment to the then fair market value (without the Lease being
considered an encumbrance or any deduction for depreciation or
obsolescence, and considering the Premises at its highest and best use
and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be
adjusted to require that the base index be determined with reference
to the index applicable to the time of such adjustment, and (iii) any
fixed rental adjustments scheduled during the remainder of the Lease
term shall be increased in the same ratio as the new market rental
bears to the Base Rent in effect immediately prior to the market value
adjustment.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Landlord's consent, any assignment or
subletting shall not: (i) be effective without the express written
assumption by such assignee or subtenant of the obligations of Tenant
under this Lease; (ii) release Tenant of any obligations hereunder; or
(iii) alter the primary liability of Tenant for the payment of Base
Rent and other sums due Landlord hereunder or for the performance of
any other obligations to be performed by Tenant under this Lease.
(b) Landlord may accept any rent or performance of Tenant's
obligations from any person other than Tenant pending approval or
disapproval of an assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of any rent or
performance shall constitute a waiver or estoppel of Landlord's right
to exercise its remedies for the Default or Breach by Tenant of any of
the terms, covenants or conditions of this Lease.
(c) The consent of Landlord to any assignment or subletting
shall not constitute a consent to any subsequent assignment or
subletting by Tenant or to any subsequent or successive assignment or
subletting by the subtenant. However, Landlord may consent to
subsequent sublettings and assignments of the sublease or any
amendments or modifications thereto without notifying Tenant or anyone
else liable on the Lease or sublease and without obtaining their
consent, and such action shall not relieve such persons from liability
under this Lease or sublease.
(d) In the event of any Default or Breach of Tenant's
obligations under this Lease, Landlord may proceed directly against
Tenant, any Guarantors or any one else responsible for the performance
of the Tenant's obligations under this Lease, including the subtenant,
without first exhausting Landlord's remedies against any other person
or entity responsible therefor to Landlord, or any security held by
Landlord or Tenant.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Landlord's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or subtenant, including, but
not limited to, the name, business and financial condition of the
proposed assignee or subtenant, financial details of the proposed
transfer and the intended use and/or required modification of the
Premises, if any.
(f) Any assignee of, or subtenant under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Landlord, to have assumed and agreed to
conform and comply with each and every term, covenant, condition and
obligation herein to be observed or performed by Tenant during the
term of said assignment or sublease, other than such obligations as
are contrary to or inconsistent with provisions of an assignment or
sublease to which Landlord has specifically consented in writing.
(g) The occurrence of a transaction described in paragraph
12.1(c) shall give Landlord the right (but not the obligation) to
require that the Security Deposit be increased to an amount equal to
six (6) times the then monthly Base Rent, and Landlord may make the
actual receipt by Landlord of the amount required to establish such
Security Deposit a condition to Landlord's consent to such
transaction.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Tenant of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Tenant hereby assigns and transfers to Landlord all of
Tenant's Interest in all rentals and income arising from any sublease
of all or a portion of the Premises heretofore or hereafter made by
Tenant, and Landlord may collect such rent and income and apply same
toward Tenant's obligations under this Lease; provided, however, that
until a Breach (as defined in paragraph 13.1) shall occur in the
performance of Tenant's obligations under this Lease, Tenant may,
except as otherwise provided in this Lease, receive, collect and enjoy
the rents accruing under such sublease. Landlord shall not, by reason
of this or any other assignment of such sublease to Landlord, nor by
reason of the collection of the rents from a subtenant, be deemed
liable to the subtenant for any failure of Tenant to perform and
comply with any of Tenant's obligations to such subtenant under such
sublease. Tenant hereby irrevocably authorizes and directs any such
subtenant, upon receipt of a written notice from Landlord stating that
a Breach exists in the performance of Tenant's obligations under this
Lease, to pay to Landlord the rents and other charges due and to
become due under the sublease. Subtenant shall rely upon any such
statement and request from Landlord and shall pay such rents and other
charges to Landlord without any obligation or right to inquire as to
whether such Breach exists and notwithstanding any notice from or
claim from Tenant to the contrary. Tenant shall have no right or
claim against said subtenant, or, until the Breach has been cured,
against Landlord, for any such rents and other charges so paid by said
subtenant to Landlord.
(b) In the event of a Breach by Tenant in the performance of its
obligations under this Lease, Landlord, at its option and without any
obligation to do so, may require any subtenant to attorn to Landlord,
in which event Landlord shall undertake the obligations of the
sublandlord under such sublease from the time of the
Initials [ILLEGIBLE]
---------------
PAGE 10
<PAGE>
exercise of said option to the expiration of such sublease;
provided, however, Landlord shall not be liable for any prepaid
rents or security deposit paid by such subtenant to such sublandlord
or for any other prior Defaults or Breaches of such sublandlord
under such sublease.
(c) Any matter or thing requiring the consent of the
sublandlord under a sublease shall also require the consent of
Landlord herein.
(d) No subtenant shall further assign or sublet all or any
part of the Premises without Landlord's prior written consent.
(e) Landlord shall deliver a copy of any notice of Default or
Breach by Tenant to the subtenant, who shall have the right to cure
the Default of Tenant within the grace period, if any, specified in
such notice. The subtenant shall have a right of reimbursement and
offset from and against Tenant for any such Defaults cured by the
subtenant.
13. DEFAULT; BREACH; REMEDIES
13.1 DEFAULT; BREACH. Landlord and Tenant agree that if an attorney is
consulted by Landlord in connection with a Tenant Default or Breach (as
hereinafter defined), THREE HUNDRED FIFTY DOLLARS ($350.00) is a reasonable
minimum sum per such occurrence for legal services and costs in the preparation
and service of a notice of Default, and that Landlord may include the cost of
such services and costs in said notice as rent due and payable to cure said
Default. A "Default" is defined as a failure by the Tenant to observe, comply
with or perform any of the terms, covenants, conditions or rules applicable to
Tenant under this Lease. A "Breach" is defined as the occurrence of any one or
more of the following Defaults, and, where a grace period for cure after notice
is specified herein, the failure by Tenant to cure such Default prior to the
expiration of the applicable grace period, and shall entitle Landlord to pursue
the remedies set forth in paragraphs 13.2 and 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) The failure by Tenant to make any payment of Base Rent or
any other monetary payment required to be made by Tenant hereunder,
whether to Landlord or to a third party, as and when due; the
failure by Tenant to provide Landlord with reasonable evidence of
insurance or surety bond required under this Lease; or the failure
of Tenant to fulfill any obligation under this Lease which endangers
or threatens life or property or the environment, where such failure
continues for a period of three (3) days following written notice
thereof by or on behalf of Landlord to Tenant.
(c) The failure by Tenant to provide Landlord with reasonable
written evidence (in duly executed original form, if applicable) of
(i) compliance with Applicable Law per paragraph 6.3, (ii) the
rescission of an unauthorized assignment or subletting per paragraph
12.1(d) (if Landlord elects to treat such assignment or subletting
as a curable Default), (iii) a Tenancy Statement per paragraph 16 or
37, (iv) the subordination or nonsubordination of this Lease per
paragraph 30, (v) the guaranty of the performance of Tenant's
obligations under this Lease if required under paragraph 1.11 and
37, (vi) the execution of any document requested under paragraph 42
(easements), or (vii) any other documentation or information which
Landlord may reasonably require of Tenant under the terms of this
Lease, where any such failure continues for a period of twenty (20)
days following written notice by or on behalf of Landlord to Tenant.
(d) A Default by Tenant as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under paragraph
40 hereof, that are to be observed, complied with or performed by
Tenant, other than those described in subparagraph (a), (b) or (c),
above, where such Default continues for a period of thirty (30) days
after written notice thereof by or on behalf of Landlord to Tenant;
provided, however, that if the nature of Tenant's Default is such
that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by
Tenant if Tenant commences such cure within said thirty (30)-day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Tenant of any general arrangement or assignment for the
benefit of creditors; (ii) Tenant's becoming a "debtor" as defined
in 11 U.S.C. Section 101 or any successor statute thereto (unless,
in the case of a petition filed against Tenant, the same is
dismissed within sixty (60) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in
this Lease, where possession is not restored to Tenant within thirty
(30) days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where such seizure
is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any
applicable law, such provision shall be of no force or effect, and
not affect the validity of the remaining provisions.
(f) The discovery by Landlord that any representation,
warranty or financial statement given to Landlord by Tenant or any
Guarantor of Tenant's obligations hereunder was materially false or
misleading.
(g) If the performance of Tenant's obligations under this
Lease is guaranteed: (i) the death of a guarantor; (ii) the
termination of a guarantor's liability with respect to this Lease
other than in accordance with the terms of such guaranty; (iii) a
guarantor's becoming insolvent or the subject of a bankruptcy
filing; (iv) guarantor's refusal to honor the guaranty; or (v) a
guarantor's breach of its guaranty obligation on an anticipatory
breach basis, and Tenant's failure, within sixty (60) days following
written notice by or on behalf of Landlord to Tenant of any such
event, to provide Landlord with written alternative assurance or
security, which, when coupled with the then existing resources of
Tenant, equals or exceeds the combined financial resources of Tenant
and the guarantors that existed at the time of execution of this
Lease.
13.2 REMEDIES. If Tenant fails to perform any affirmative duty or
obligation of Tenant under this Lease, within ten (10) days after written notice
to Tenant (or in case of an emergency, without notice), Landlord may, at its
option (but without obligation to do so), perform such duty or obligation on
Tenant's behalf, including, but not limited to, the obtaining of reasonably
required bonds, insurance policies or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Landlord
(including penalties, interest and attorneys' fees incurred in connection
therewith) shall be due and payable by Tenant to Landlord upon invoice therefor.
If any check given to Landlord by Tenant shall not be honored by the bank upon
which it is drawn, Landlord, at its option, may require all future payments to
be made under this Lease by Tenant to be made only by cashier's check. In the
event of a Breach of this Lease by Tenant, as defined in paragraph 13.1, with or
without further notice or demand, and without limiting Landlord in the exercise
of any right or remedy which Landlord may have by reason of such Breach,
Landlord may:
(a) Terminate Tenant's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall
terminate and Tenant shall immediately surrender possession of the
Premises to Landlord. In such event Landlord shall be entitled to
recover from Tenant: (i) the worth at the time of the award of the
unpaid rent which had been earned at the time of termination; (ii)
the worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that the Tenant
proves could have been reasonably avoided; (iii) the worth at the
time of award of the amount by which the unpaid rent for the balance
of the term after the time of award exceeds the amount of such
rental loss that the Tenant proves could be reasonably avoided; and
Initials [ILLEGIBLE]
-----------
PAGE 11
<PAGE>
(iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by the Tenant's failure to perform its
obligations under this Lease or which, in the ordinary course of
things, would be likely to result therefrom, including, but not
limited to, the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the
leasing commission paid by Landlord applicable to the unexpired term
of this Lease. The worth at the time of award of the amount
referred to in provisions (i) and (ii) of the prior sentence shall
be computed by allowing interest at the rate of twelve percent (12%)
per annum, but not exceeding the maximum rate then allowed by law.
The worth at the time of award of the amount referred to in
provision (iii) of the first sentence of this subparagraph (a) shall
be computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). Efforts by Landlord to mitigate damages caused by
Tenant's Default or Breach of this Lease shall not waive Landlord's
right to recover damagers under this paragraph. If termination of
this Lease is obtained through the provisional remedy of unlawful
detainer, Landlord shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein,
or Landlord may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a
notice and grace period required under paragraph 13.1(b), (c) or (d)
was not previously given, a notice to pay rent or quit, or to
perform or quit, as the case may be, given to Tenant under any
statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period
purposes required by paragraph 13.1(b), (c) or (d). In such case,
the applicable grace period under paragraph 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the
one (1) such statutory notice, and the failure of Tenant to cure the
Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease
entitling Landlord to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Tenant's right to possession in
effect under California Civil Code Section 1951.4 after Tenant's
Breach and abandonment and recover the rent as it becomes due,
provided Tenant has the right to sublet or assign, subject only to
reasonable limitations. See paragraphs 12 and 36 for the
limitations on assignment and subletting, which limitations Tenant
and Landlord agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises or the appointment of a
receiver to protect the Landlord's interest under the Lease shall
not constitute a termination of the Tenant's right to possession.
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which
the Premises are located.
(d) The expiration or termination of this Lease and/or the
termination of Tenant's right to possession shall not relieve Tenant
from liability under any indemnity provisions of this Lease as to
matters occurring or accruing during the term hereof or by reason of
Tenant's occupancy of the Premises.
(e) Tenant waives any right of redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174
and 1179, or under any other present or future law in the event
Tenant is evicted or Landlord takes possession of the Premises by
reason of a Breach.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by
Landlord for free or abated rent or other charges applicable to the Premises,
or for the giving or paying by Landlord to or for Tenant of any cash or other
bonus, inducement or consideration for Tenant's entering into this Lease, all
of which concessions are hereinafter referred to as "Inducement Provisions,"
shall be deemed conditioned upon Tenant's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Tenant during the term hereof as the same may be extended. Upon
the occurrence of an uncured Breach of this Lease by Tenant, as defined in
paragraph 13.1, any such Inducement Provision shall automatically be deemed
deleted from this Lease and of no further force or effect, and any rent,
other charge, bonus, inducement or consideration theretofore abated, given or
paid by Landlord under such an Inducement Provision shall be immediately due
and payable by Tenant to Landlord, and recoverable by Landlord as additional
rent due under this Lease, notwithstanding any subsequent cure of said Breach
by Tenant. The acceptance by Landlord of rent or the cure of the Breach
which initiated the operation of this paragraph shall not be deemed a waiver
by Landlord of the provisions of this paragraph unless specifically so stated
in writing by Landlord at the time of such acceptance.
13.4 LATE CHARGES. Tenant hereby acknowledges that late payment by
Tenant to Landlord of rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which will
be extremely difficult to ascertain. Such costs include, but are not limited
to, processing and accounting charges, and late charges which may be imposed
upon Landlord by the terms of any ground lease, mortgage or trust deed
covering the Premises. Accordingly, if any installment of rent or any other
sum due from Tenant shall not be received by Landlord or Landlord's designee
within five (5) days after such amount shall be due, then, without any
requirement for notice to Tenant, Tenant shall pay to Landlord a late charge
equal to six percent (6%) of such overdue amount. The parties hereby agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of late payment by Tenant. Acceptance of such
late charge by Landlord shall in no event constitute a waiver of Tenant's
Default or Breach with respect to such overdue amount, or prevent Landlord
from exercising any of the other rights and remedies granted hereunder. In
the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding
paragraph 4.1 or any other provision of this Lease to the contrary, Base
Rent shall, at Landlord's option, become due and payable quarterly in
advance. Landlord's failure to promptly enforce Landlord's right to any late
charge shall not be a waiver of Landlord's right to collect such late charge
or any subsequent late charge.
13.5 BREACH BY LANDLORD. Landlord shall not be deemed in breach of
this Lease unless Landlord fails within a reasonable time to perform an
obligation required to be performed by Landlord. For purposes of this
paragraph 13.5 [ILLEGIBLE] Paragraph 5.7 of the First Addendum a reasonable
time shall in no event be less than thirty (30) days after receipt by
Landlord, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Tenant
in writing for such purpose, of written notice specifying wherein such
obligation of Landlord has not been performed; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Landlord shall
not be in Breach of this Lease if performance is commenced within such thirty
(30)-day period and thereafter diligently pursued to completion. If Tenant
obtains a money judgment against Landlord resulting from any breach or other
claim arising under this Lease, that judgment shall be satisfied only out of
Landlord's right, title and interest in the Premises and out of rent or other
income from the Premises receivable by Landlord. No other real, personal or
mixed property of Landlord, wherever situated, shall be subject to levy to
satisfy such judgment. Neither Landlord nor any of its trustees, directors
or officers, employees or agents shall ever be personally liable for any such
judgment. Tenant shall not have the right to withhold, reduce or offset any
amount against any payments of rent or any other charges due and payable
under this Lease by reason of a breach of this Lease by Landlord.
14. CONDEMNATION
If the Premises or any portion thereof are taken under the power of eminent
domain or sold under the threat of the exercise of said power (all of which are
herein called "condemnation"), this Lease shall terminate as to the part so
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than twenty
Initials [ILLEGIBLE]
-----------
PAGE 12
<PAGE>
percent (20%) of the floor area of the Premises, or more than twenty percent
(20%) of the land area not occupied by any building, is taken by condemnation,
either Landlord or Tenant may, at its option, to be exercised in writing within
ten (10) days after receipt of written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession), terminate this Lease as of the date the condemning authority
takes such possession. If neither Landlord nor Tenant terminates this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
(less any addition thereto by reason of any reconstruction) bears to the
original rentable floor area of the Premises. No reduction of Base Rent shall
occur if the only portion of the Premises taken is land on which there is no
building. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Landlord, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Tenant shall be entitled
to any compensation separately awarded to Tenant for Tenant's relocation
expenses and/or loss of Tenant's Trade Fixtures. In the event that this Lease
is not terminated by reason of such condemnation, Landlord shall, to the extent
of its net severance damages received, over and above the legal and other
expenses incurred by Landlord in the condemnation matter, repair any damage to
the Premises caused by such condemnation, except to the extent that Tenant has
been reimbursed therefor by the condemning authority. Tenant shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKER'S FEE
15.1 The Brokers named in paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon full execution of this Lease by both Parties, Landlord shall pay
to Landlord's Broker named in paragraph 1.10 a fee as set forth in a separate
written agreement between Landlord and said Broker for brokerage services
rendered to Landlord in this transaction. If a Tenant's Broker is named in
paragraph 1.10, Landlord's Broker shall pay an appropriate portion of its fee to
Tenant's Broker if so provided in any agreement between Landlord's Broker and
Tenant's Broker. Nothing contained in this Lease shall impose any obligation on
Landlord to pay a commission or fee to any party other than Landlord's Broker.
15.3 Tenant and Landlord each represents and warrants to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any, named in paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Tenant and Landlord do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the Indemnifying Party, including any
costs, expenses and attorneys' fees reasonably incurred with respect thereto.
15.4 Landlord and Tenant hereby consent to and approve all agency
relationships, including any dual agencies, indicated in paragraph 1.10.
16. TENANCY STATEMENT
16.1 Each Party (as "Responding Party") shall, within ten (10) days after
written notice from the other Party (the "Requesting Party"), execute,
acknowledge and deliver to the Requesting Party a statement in writing
certifying: (i) that this Lease is unmodified and in full force and effect (or
in full force and effect as modified, as stating the modifications); (ii) the
amount of, and date to which Base Rent and other charges have been paid in
advance; (iii) the amount of any security deposit; (iv) acknowledging that the
Requesting Party is not in default under this Lease (or, if the Requesting Party
is claimed to be in default, stating the nature of the default); and (v) such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 If Landlord desires to finance, refinance or sell the Premises, any
part thereof or the building of which the Premises are a part, Tenant and all
Guarantors of Tenant's performance hereunder shall deliver to any potential
lender or purchaser designated by Landlord such financial statements of Tenant
and such Guarantors as may be reasonably required by such lender or purchaser,
including, but not limited to, Tenant's financial statements for the past three
(3) years. All such financial statements shall be received by Landlord and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LANDLORD'S LIABILITY
The term "Landlord" as used herein shall mean the owner or owners at the
time in question of the fee title to the Premises or, if this is a sublease, of
the Tenant's interest in the prior lease. In the event of a transfer of
Landlord's title or interest in the Premises or in this Lease, Landlord shall
deliver to the transferee or assignee (in cash or by credit) any unused Security
Deposit held by Landlord at the time of such transfer or assignment. Upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Landlord shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by the
Landlord. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Landlord shall be binding only upon the Landlord as
hereinabove defined.
18. SEVERABILITY
The invalidity of any provision of this Lease, as determined by a court of
competent jurisdiction, shall in no way affect the validity of any other
provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS
Except as expressly otherwise provided in this Lease, any monetary payment
due Landlord hereunder, other than late charges, which is not received by
Landlord on the date on which it was due, shall bear interest from the day after
it was due at the rate of twelve percent (12%) per annum, but not exceeding the
maximum rate then allowed by law, in addition to the late charge provided for in
paragraph 13.4.
20. TIME OF ESSENCE
Time is of the essence with respect to the performance of all obligations
to be performed or observed by the Parties under this Lease.
21. RENT DEFINED
All monetary obligations of Tenant to Landlord under the terms of this
Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS
This Lease contains all agreements between the Parties with respect to any
matter mentioned herein, and no other prior or contemporaneous agreement or
understanding shall be effective.
Initials [ILLEGIBLE]
-----------
PAGE 13
<PAGE>
23. NOTICES
All notices required or permitted by this Lease shall be in writing and may
be delivered in person (by hand or by messenger or courier service) or may be
sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this paragraph 23.
Notices shall be addressed as follows:
Landlord: State of California Public Employees'
Retirement System
c/o Prentiss Properties Limited, Inc.
Attn: Property Manager, Southern
California Industrial
970 West 190th Street, Suite 550
Torrance, CA 90502
TENANT: Fortune Dogs, Inc., dba Big Dog Sportswear
Mark Green 121 Gray Avenue
copy: Equity Real Estate Santa Barbara, CA 93101
3510 Torrance Blvd#209 (805) 963-8727
Torrance, CA 90503
Either Party may, by written notice to the other, specify a different address
for notice purposes, except that upon Tenant's taking possession of the
Premises, the Premises shall constitute Tenant's address for the purpose of
mailing or delivering notices to Tenant. A copy of all notices required or
permitted to be given to Landlord hereunder shall be concurrently transmitted to
such party or parties at such addresses as Landlord may from time to time
hereafter designate by written notice to Tenant.
Any notice sent by registered or certified mail, return receipt requested,
shall be deemed given on the date of delivery shown on the receipt card, or if
no delivery date is shown, the postmark thereon. If sent by regular mail, the
notice shall be deemed given forty-eight (48) hours after the same is addressed
as required herein and mailed with postage prepaid. Notices delivered by United
States Express Mail or overnight courier that guarantees next-day delivery shall
be deemed given twenty-four (24) hours after delivery of the same to the United
States Postal Service or courier. If any notice is transmitted by facsimile
transmission or similar means, the same shall be deemed served or delivered upon
telephone confirmation of receipt of the transmission thereof, provided a copy
is also delivered via delivery or mail. If notice is received on a Sunday or
legal holiday, it shall be deemed received on the next business day.
24. WAIVERS
No waiver by Landlord of the Default or Breach of any term, covenant or
condition hereof by Tenant shall be deemed a waiver of any other term, covenant
or condition hereof, or of any subsequent Default or Breach by Tenant of the
same or of any other term, covenant or condition hereof. Landlord's consent to,
or approval of, any act shall not be deemed to render unnecessary the obtaining
of Landlord's consent to, or approval of, any subsequent or similar act by
Tenant, or be construed as the basis of an estoppel to enforce the provision or
provisions of this Lease requiring such consent. Regardless of Landlord's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Landlord shall not be a waiver of any preceding Default or Breach by
Tenant of any provision hereof, other than the failure of Tenant to pay the
particular rent so accepted. Any payment given Landlord by Tenant may be
accepted by Landlord on account of monies or damages due Landlord,
notwithstanding any qualifying statements or conditions made by Tenant in
connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Landlord
at or before the time of deposit of such payment.
25. RECORDING
Either Landlord or Tenant shall, upon request of the other, execute,
acknowledge and deliver to the other a short form memorandum of this Lease for
recording purposes. The Party requesting recordation shall be responsible for
payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLD OVER
Tenant has no right to retain possession of the Premises or any part
thereof beyond the expiration or earlier termination of this Lease. Tenant
shall indemnify, defend and hold Landlord harmless of and from any and all
claims, demands, liabilities, losses, costs, expenses (including attorneys'
fees) and damages incurred by Landlord as a result of any delay by Tenant in
vacating the Premises. If Tenant does not vacate the Premises upon the
expiration of termination of the term and Landlord thereafter accepts rent from
Tenant, Tenant's occupancy of the Premises shall be a tenancy from month-to-
month only, subject to all of the terms and conditions of this Lease applicable
to a month-to-month tenancy, except that Base Rent shall be increased to one
hundred fifty percent (150%) of the Base Rent in effect during the last month of
the term.
27. CUMULATIVE REMEDIES
No remedy or election of Landlord hereunder shall be deemed exclusive but
shall, wherever possible, be cumulative with all other rights and remedies at
law or in equity.
28. COVENANTS AND CONDITIONS
All provisions of this Lease to be observed or performed by Tenant are both
covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW
This Lease shall be binding upon the parties, their personal
representatives and permitted successors and assigns. This Lease shall be
governed by the laws of the State of California. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NONDISTURBANCE
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Landlord upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Tenant
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Landlord under this
Lease, but that in the event of Landlord's default with respect to any such
obligation, Tenant will give any Lender whose name and address has been
furnished Tenant in writing for such purpose, notice of Landlord's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Tenant may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Tenant, this
Initials [ILLEGIBLE]
-----------
PAGE 14
<PAGE>
Lease and such Options shall be deemed prior to such Security Device,
notwithstanding the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the nondisturbance provisions of paragraph
30.3, Tenant agrees to attorn to and recognize as the Landlord under this Lease
a Lender or any other party who acquires ownership of the Premises by reason of
a foreclosure of a Security Device, and that in the event of such foreclosure,
such new owner shall not be: (a) liable for any act or omission of any prior
landlord or with respect to events occurring prior to acquisition of ownership;
(b) subject to any offsets or defenses which Tenant might have against any prior
landlord; or (c) bound by prepayment of more than one (1) month's rent.
30.3 NONDISTURBANCE. With respect to Security Devices entered into by
Landlord after the execution of this Lease, Landlord agrees to use diligent
efforts to obtain assurance (a "nondisturbance agreement") from the Lender that
Tenant's possession and this Lease, including any Options to extend the term
hereof, will not be disturbed so long as Tenant is not in Breach hereof and
attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Landlord or a Lender in connection with a sale,
financing or refinancing of the Premises, Tenant and Landlord shall execute such
further writings as may be reasonably required to separately document any such
subordination or nonsubordination, attornment and/or nondisturbance agreement as
is provided for herein.
31. ATTORNEYS' FEES
If either Party brings an action or proceeding for Breach of this Lease, to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment or the
abandonment by the other Party of its claim or defense. The attorneys' fee
award shall not be computed in accordance with any court fee schedule, but shall
be such as to fully reimburse all attorneys' fees reasonably incurred. Landlord
shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach.
32. LANDLORD'S ACCESS; SHOWING PREMISES; REPAIRS
Landlord and Landlord's agents shall have the right to enter the Premises
at any time, in the case of an emergency, and otherwise at reasonable times for
the purpose of inspecting the same, showing the same to prospective purchasers,
lenders or tenants, and making such alterations, repairs, improvements or
additions to the Premises or to the building of which they are a part as
Landlord may reasonably deem necessary or prudent. Landlord may, at any time,
place on or about the Premises or building any ordinary "For Sale" signs and
Landlord may, at any time during the last one hundred eighty (180) days of the
term hereof, place on or about the Premises any ordinary "For Lease" signs. All
such activities of Landlord shall be without abatement of rent or liability to
Tenant.
33. AUCTIONS
Tenant shall not conduct, or permit to be conducted, either voluntarily or
involuntarily, any auction upon the Premises without first having obtained
Landlord's prior written consent. Notwithstanding anything to the contrary in
this Lease, Landlord shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
34. SIGNS
Tenant shall not place any sign upon the Premises, except that Tenant may,
with Landlord's prior written consent, install (but not on the roof) such signs
as are reasonably required to advertise Tenant's own business in the location
designated by Landlord, in Landlord's sole discretion. The installation of any
sign on the Premises by or for Tenant shall be subject to the provisions of
paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations). Unless otherwise expressly agreed herein, Landlord reserves all
rights to the use of the roof and the right to install, and all revenues from
the installation of, such advertising signs on the Premises, including the roof,
as do not unreasonably interfere with the conduct of Tenant's business.
35. TERMINATION; MERGER
Unless specifically stated otherwise in writing by Landlord, the voluntary
or other surrender of this Lease by Tenant, the mutual termination or
cancellation hereof, or a termination hereof by Landlord for Breach by Tenant,
shall automatically terminate any sublease or lesser estate in the Premises;
provided, however, Landlord shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Landlord's failure within thirty (30) days following any
such event to make a written election to the contrary by written notice to the
holder of any such lesser interest, shall constitute Landlord's election to have
such event constitute the termination of such interest.
36. CONSENTS
36.1 Except for paragraph 33 (Auctions), 34 (location of signs) or as
otherwise provided herein, wherever in this Lease the consent of a Party is
required to an act by or for the other Party, such consent shall not be
unreasonably withheld or delayed. Landlord's actual reasonable costs and
expenses (including, but not limited to, architects', attorneys', engineers' or
other consultants' fees) incurred in the consideration of, or response to, a
request by Tenant for and Landlord consent pertaining to this Lease or the
Premises, including, but not limited to, consents to an assignment, a subletting
or the presence or use of a Hazardous Material or Toxic Substance, practice or
storage tank, shall be paid by Tenant to Landlord upon receipt of an invoice and
supporting documentation therefor. Subject to paragraph 12.2(e) (applicable to
assignment or subletting), Landlord may, as a condition to considering any such
request by Tenant, require that Tenant deposit with Landlord an amount of money
(in addition to the Security Deposit held under paragraph 5) reasonably
calculated by Landlord to represent the cost Landlord will incur in considering
and responding to Tenant's request. Except as otherwise provided, any unused
portion of said deposit shall be refunded to Tenant without interest.
Landlord's consent to any act, assignment of this Lease or subletting of the
Premises by Tenant shall not constitute an acknowledgment that no Default or
Breach by Tenant of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Landlord at the time of such consent.
36.2 All conditions to Landlord's consent authorized by this Lease are
acknowledged by Tenant as being reasonable. The failure to specify herein any
particular condition to Landlord's consent shall not preclude the imposition by
Landlord at the time on consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
PAGE 15 Initials [ILLEGIBLE]
------------
<PAGE>
37. GUARANTOR
37.1 If there are to be any Guarantors of this Lease per paragraph 1.11,
the guaranty shall be on a form provided by Landlord, and each said Guarantor
shall have the same obligations as Tenant under this Lease, including, but not
limited to, the obligation to provide the Tenancy Statement and information
called for by paragraph 16.
37.2 It shall constitute a Default of the Tenant under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Landlord, to give:
(a) evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including,
in the case of a corporate guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may, from
time to time, be requested by Landlord, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION
Upon payment by Tenant of the rent for the Premises and the observance and
performance of all of the covenants, conditions and provisions on Tenant's part
to be observed and performed under this Lease, Tenant shall have quiet
possession of the Premises for the term hereof as against any person claiming
the same by, through or under Landlord, subject to all of the provisions of this
Lease.
39. OPTIONS
39.1 DEFINITION. As used in this paragraph 39, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Tenant has on other property of
Landlord; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Landlord or the right of first offer to lease other property of
Landlord; and (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Landlord, or the right of
first refusal to purchase other property of Landlord, or the right of first
offer to purchase other property of Landlord.
39.2 OPTIONS PERSONAL TO ORIGINAL TENANT. Each Option granted to Tenant in
this Lease is personal to the original Tenant named in paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Tenant and any assignee the transfer to which
Lessor's consent is not required hereunder or as to which such consent was
given. No Option may be separated from this Lease in any manner, by reservation
or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Tenant has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Tenant shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary:
(i) during the period commencing with the giving of any notice of
Default under paragraph 13.1 and continuing until the noticed Default
is cured; or (ii) during the period of time any monetary obligation
due Landlord from Tenant is unpaid (without regard to whether notice
thereof is given Tenant); or (iii) during the time Tenant is in Breach
of this Lease; or (vi) in the event that Landlord has given to Tenant
three (3) or more notices of Default under paragraph 13.1, whether or
not the Defaults are cured, during the twelve (12)-month period
immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Tenant's inability to
exercise an Option because of the provision of paragraph 39.4(a).
(c) All rights of Tenant under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding
Tenant's due and timely exercise of the Option, if, after such
exercise and during the term of this Lease, (i) Tenant fails to pay to
Landlord a monetary obligation of Tenant for a period of thirty (30)
days after such obligation becomes due (without any necessity of
Landlord to give notice thereof to Tenant), or (ii) Landlord gives to
Tenant three (3) or more notices of Default under paragraph 13.1
during any twelve (12)-month period, whether or not the Defaults are
cured, or (iii) if Tenant commits a Breach of this Lease.
40. MULTIPLE BUILDINGS
If the Premises are part of a group of buildings controlled by Landlord,
Tenant agrees that it will abide by, keep and observe all reasonable rules and
regulations which Landlord may make from time to time for the management,
safety, care and cleanliness of the grounds, the parking and unloading of
vehicles and the preservation of good order, as well as for the convenience of
other occupants or tenants of such other buildings and their invitees, and that
Tenant will pay its fair share of common expenses incurred in connection
therewith.
41. SECURITY MEASURES
Tenant hereby acknowledges that the rental payable to Landlord hereunder
does not include the cost of guard service or other security measures, and that
Landlord shall have no obligation whatsoever to provide same. Tenant assumes
all responsibility for the protection of the Premises, Tenant, its agents and
invitees and their property from the acts of third parties.
42. RESERVATIONS
Landlord reserves to itself the right, from time to time, to grant, without
the consent or joinder of Tenant, such easements, rights and dedications that
Landlord deems necessary or desirable, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Tenant. Tenant agrees to sign any documents reasonably requested by Landlord to
effectuate any such easement rights, dedication, map or restrictions.
43. AUTHORITY
If Tenant is a corporation, trust, or general or limited partnership, each
individual executing this Lease on behalf of Tenant represents and warrants that
he or she is duly authorized to execute and deliver this Lease on its behalf and
that this Lease is binding upon Tenant in accordance with its terms. If Tenant
is a corporation, trust or partnership, Tenant shall, within thirty (30) days
after request by Landlord, deliver to Landlord evidence satisfactory to Landlord
of such authority.
44. CONFLICT
Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
PAGE 16 Initials [ILLEGIBLE]
------------
<PAGE>
EXECUTED AT Santa Barbara, California, on January 30, 1995.
TENANT:
FORTUNE DOGS, INC. dba BIG DOG SPORTSWEAR.
-------------------------------------------
a California corporation
--------------------------------------
By /s/ Andrew Feshbach
--------------------------------------
Its President
--------------------------------------
President
By /s/ Anthony J. Wall
--------------------------------------
Its S. Vice President & Secretary
--------------------------------------
Senior Vice President and Secretary
Address: 121 Gray Avenue
---------------------------------
Santa Barbara, CA 93101
---------------------------------
---------------------------------
(805) 963-8727
----- --- ----
FAX: (____) ___-____
PAGE 18 Initials______
<PAGE>
45. OFFER
Preparation of this Lease by Landlord or Landlord's agent and submission of
same to Tenant shall not be deemed an offer to lease to Tenant. This Lease is
not intended to be binding and shall not be effective until executed by all
Parties hereto.
46. AMENDMENTS
This Lease may be modified only in writing, signed by the Parties in
interest at the time of the modification. As long as they do not materially
adversely affect Tenant's obligations hereunder, Tenant agrees to make such
reasonable nonmonetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
47. MULTIPLE PARTIES
If more than one person or entity is named herein as Tenant, the obligations
imposed on each such person or entity shall be the joint and several
responsibility of all persons or entitles so named.
48. INTERPRETATION
The paragraph headings and captions of this Lease, the Hazardous Materials
Lease Rider and any and all other documents attached to and made a part of this
Lease are for convenience only and shall not be used to define or limit any
provision hereof or thereof. The language in all parts of this Lease shall be
construed as a whole according to its fair meaning and not strictly for or
against either Landlord or Tenant. When the context of this Lease requires, the
neuter gender includes the masculine, the feminine, a partnership, corporation
or joint venture, the singular includes the plural, and the plural includes the
singular.
49. UNAVOIDABLE DELAY
If Landlord is delayed or prevented from performing any of its
obligations due to events beyond Landlord's reasonable control (including,
without limitation acts of God, war, civil commotion, labor disputes,
strikes, fire, flood, earthquake or other casualty, inability to procure
labor or materials, government regulation or restriction and adverse weather
conditions), the time provided for performing such obligations shall be
extended by a period of time equal to such delay.
LANDLORD AND TENANT HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND TENANT WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE
CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE
PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS MATERIALS OR TOXIC
SUBSTANCES.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
EXECUTED AT SACRAMENTO, California, on February 7, 1995.
LANDLORD:
STATE OF CALIFORNIA PUBLIC EMPLOYEES'
RETIREMENT SYSTEM
By: LA SALLE ADVISORS LIMITED PARTNERSHIP
Its: As Advisor and Duly Authorized Agent
By /s/ Richard C. Cunningham
-----------------------------------
Richard C. Cunningham
Its Vice President
----------------------------------
By /s/ Joseph R. Shea
-----------------------------------
Joseph R. Shea
Its Vice President
----------------------------------
Address: 1601 Response Road, Suite 300
Sacramento, CA 95815
(916) 920-4051
FAX: (916) 920-0205
--AND--
PAGE 17 Initials______
<PAGE>
HAZARDOUS MATERIALS LEASE RIDER
This Rider is attached to and made part of that certain Lease (the "Lease")
dated January 13, 1995, between STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT
SYSTEM ("Landlord") and Fortune Dogs, Inc., dba Big Dog Sportswear, a California
corporation ("Tenant"), covering the premises commonly known as 8457 S. Eastern
Ave, Unit A, Bell Gardens, CA (the "Premises"). Capitalized terms not otherwise
defined in this Rider shall have the meaning given them in the Lease. The
provisions of this Rider shall supersede any inconsistent or conflicting
provisions of the Lease.
1. HAZARDOUS MATERIALS. Landlord and Tenant agree as follows with
respect to the existence or use of Hazardous Materials and Toxic Substances on
or about the Premises:
A. As used herein, the terms "Hazardous Materials and/or Toxic
Substances" mean (1) any hazardous or toxic substance, material or waste
which is or becomes regulated by any local, state or federal government or
special district, (2) designated as a "hazardous substance" pursuant to
Section 1311 of the Federal Water Pollution Control Act (33 USC
Section 1317), (3) defined as a "hazardous waste" pursuant to Section 1004
of the Federal Resource Conservation and Recovery Act, 42 USC Section 6901,
ET SEQ. (42 USC Section 6903), (4) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 USC Section 9601, ET SEQ. (42 USC
Section 9601), (5) defined as a "hazardous waste" or as a "hazardous
substance" pursuant to Section 25117, 25316 or 25821(d) of the California
Health and Safety Code, or (6) any infectious wastes or substances.
References herein to specific statutes or laws shall also be references to
any amendments of or applicable successor statutes or laws.
B. Tenant shall not cause or permit any Hazardous Materials or Toxic
Substances to be brought upon, kept or used in or about the Premises or the
real property of which the Premises are a part (the "Project") by Tenant,
its agents, employees, contractors or invitees, without the prior written
consent of Landlord. Landlord shall not unreasonably withhold such consent
as long as Tenant demonstrates to Landlord's reasonable satisfaction and
covenants to Landlord that such Hazardous Materials or Toxic Substances are
necessary or useful to Tenant's business and will be used, kept and stored
in a manner that complies with all laws relating to any such Hazardous
Materials or Toxic Substances so brought upon or used or kept in or about
the Premises or the Project. If Tenant breaches the obligations stated in
the preceding sentence, or if the presence of Hazardous Materials or Toxic
Substances on the Premises or the Project caused or permitted by Tenant
results in contamination of the Premises or the Project, or if
contamination of the Premises or the Project by Hazardous Materials or
Toxic Substances otherwise occurs for which Tenant is legally liable to
Landlord for damage resulting therefrom, then Tenant shall indemnify,
defend and hold Landlord harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses (including, without
limitation, diminution in value of the Premises or the Project, damages for
the loss or restriction on use of rentable or usable space or of any
amenity of the Premises or the Project, damages arising from any adverse
impact on marketing of space in the Project, and sums paid in settlement of
claims, actual attorneys' fees, consultant fees and expert fees), which
arise during or after the term of the Lease as a result of such
contamination. This indemnification of Landlord by Tenant includes,
without limitation, costs incurred in connection with any investigation of
site conditions, including regular inspections, or any clean-up, remedial,
removal or restoration work required or recommended by any federal, state
or local governmental agency or political subdivision because of Hazardous
Materials or Toxic Substances present in the soil or ground water on or
under the Premises and/or the Project. The indemnity, defense and hold
harmless obligations of Tenant under this Rider shall survive any
termination of this Lease. Without limiting the foregoing, if the presence
of any Hazardous Materials or Toxic Substances on the Premises or the
Project caused or permitted by Tenant results in any contamination of the
Premises or the Project, Tenant shall promptly take all actions at its sole
expense as are necessary to return the Premises and the Project to the
condition existing prior to the introduction of any such Hazardous
Materials or Toxic Substances; provided that, Landlord's approval of such
actions shall first be obtained, which approval shall not be unreasonably
withheld so long as such actions, in Landlord's sole and absolute
discretion, would not potentially have any material adverse long-term or
short-term effect on the Premises or the Project.
C. Landlord shall have the right, at any time, to cause testing
wells to be installed on or about the Premises and/or the Project, and may,
at its option, cause the ground water, soil and air to be tested to detect
the presence of Hazardous Materials or Toxic Substances at least once every
twelve (12) months during the term of the Lease by the use of such tests as
are then customarily used for such purposes. If Tenant so requests,
Landlord shall supply Tenant with copies of such test results. The cost of
such tests and of the maintenance, repair and replacement of such wells
shall be fully paid for by Tenant within ten (10) days after receiving a
statement of charges from Landlord.
D. Landlord and Landlord's agents shall have the right to inspect
the Premises for the purposes of ascertaining Tenant's compliance with this
Rider. The cost of such inspections shall be reimbursed to Landlord by
Tenant. In the event of a spill or mishandling of Hazardous Materials or
Toxic Substances, Tenant shall immediately inform Landlord verbally and in
writing. Such notice shall identify the Hazardous Materials or Toxic
Substances involved and the emergency procedures taken.
E. It shall not be unreasonable for Landlord to withhold its consent
to any proposed assignment or sublease if: (1) the proposed assignee's or
sublessee's anticipated use of the Premises or the Project involves the
generation, storage, use, treatment or disposal of Hazardous Materials or
Toxic Substances; (2) the proposed assignee or sublessee has been required
by any prior landlord, lender or governmental authority to take remedial
action in connection with Hazardous Materials or Toxic Substances
contaminating a property if the contamination resulted from such assignee's
or sublessee's actions or use of the property in question; or (3) the
proposed assignee is subject to an enforcement order issued by any
governmental authority in connection with the use, disposal or storage of
any Hazardous Materials or Toxic Substances.
F. If Tenant presently uses in its business materials which may be
Hazardous Materials or Toxic Substances as defined in this Rider, Tenant
shall, prior to execution of the Lease, deliver to Landlord (1) a list of
all such Hazardous Materials and Toxic Substances, (2) a plan for use,
handling, storage and disposal of Hazardous Materials and Toxic Substances,
(3) the name, address, telephone number and qualifications of a licensed
company that will handle emergency clean-up for Tenant, and (4) a written
contingency plan for any emergency involving Hazardous Materials and Toxic
Substances. During the term of the Lease, Tenant shall immediately deliver
to Landlord (1) a new list of all such Hazardous Materials and Toxic
Substances, each time Tenant adds or changes the materials or substances it
uses and each time a material or substance used by Tenant becomes included
within the definition of Hazardous Materials or Toxic Substances under this
Lease (due to new or revised laws or otherwise), and (2) copies of all
reports required by any and all regulator agencies governing the use,
handling, storage and disposal of Hazardous Materials or Toxic Substances.
<PAGE>
G. Landlord agrees that Tenant may use the Hazardous Materials and
Toxic Substances specifically consented to by Landlord as required by
paragraph 1B above, subject to the terms of this Lease and this Rider.
Tenant shall immediately notify Landlord in writing of any other materials
which may be used by Tenant or stored by Tenant on or about the Premises
which may be hazardous or toxic, and shall obtain Landlord's written
consent prior to such use or storage.
H. Any increase in the premium for insurance carried by Landlord or
required of Tenant under this Lease on the Premises or the Project which
arises from Tenant's use and/or storage of these materials shall be solely
at Tenant's expense. Tenant shall procure and maintain at its sole expense
such additional insurance as may be necessary to comply with any
requirement of any federal, state or local governmental agency or special
district with jurisdiction.
I. It is the intent of the parties hereto that the provisions of
this Lease Rider regarding the use and handling of Hazardous Materials and
Toxic Substances shall also apply to Tenant's storage upon the Premises of
any substances, including, but not limited to, gasoline and diesel fuels,
in above- or below-ground storage tanks.
J. Except as may be disclosed in the Phase II Environmental Report
for Bell Gardens Industrial Park, Prentiss Properties, Limited, Inc., has
no actual knowledge of any Hazardous Material on the Premises in violation
of any Applicable Law. Tenant shall not be responsible for any Hazardous
Material contamination existing prior to the Commencement of this Lease
unless Tenant intentionally or negligently causes, permits or exacerbates
such contamination.
2. EXCULPATORY CLAUSE. The obligations of Landlord herein are intended
to be binding only upon the financial assets of the entity acting as Landlord
and shall not be personally binding, nor shall any resort be had to the
financial assets of any of its trustees or board of directors and officers, as
the case may be, its investment manager or any employees or agents of Landlord
or the investment manager.
LANDLORD:
LA SALLE ADVISORS LIMITED PARTNERSHIP,
As Advisor and Duly Authorized Agent for the
STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT
SYSTEM
By /s/ Richard C. Cunningham
-------------------------------------------
Richard C. Cunningham
Its Vice President
------------------------------------------
By /s/ Joseph R. Shea
------------------------------------------
Joseph R. Shea
Its Vice President
------------------------------------------
TENANT:
FORTUNE DOGS, INC., dba BIG DOG SPORTSWEAR
a California corporation
---------------------------------------------
By /s/ Andrew Feshbach
------------------------------------------
Its President
------------------------------------------
President
By /s/ Anthony J. Wall
------------------------------------------
Anthony J. Wall
Its S. Vice President & Secretary
------------------------------------------
Senior Vice President and Secretary
PAGE 2
<PAGE>
MULTI-TENANT FACILITY
LEASE RIDER
This Rider is attached to and made part of that certain Lease (the "Lease")
dated January 13, 1995 between STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT
SYSTEM, as Landlord, and FORTUNE DOGS, INC. dba BIG DOG SPORTSWEAR, a California
corporation, as Tenant, covering the premises commonly known as 8457 S. Eastern
Ave, Unit A, Bell Gardens, CA (the "Premises"). Capitalized terms not otherwise
defined in this Rider shall have the meaning given them in the Lease. The
provisions of this Rider shall prevail over any inconsistent or conflicting
provisions of the Lease.
1. PROJECT. The Premises are part of a multi-tenant industrial/commercial
real property development described in Exhibit "A" attached hereto and
incorporated herein by this reference (the "Project"). The Project includes the
land, the buildings and all other improvements located thereon, and the common
areas described in paragraph 2 below.
2. COMMON AREAS: USE, MAINTENANCE AND COSTS.
A. COMMON AREAS. As used in this Rider, "Common Areas" shall mean
all areas within the Project which are available for the common use of
tenants of the Project and which are not leased or held for the exclusive
use of Tenant or other tenants, including, but not limited to, parking
areas, driveways, sidewalks, loading areas, access roads, corridors,
landscaping and planted areas. Landlord may from time to time change the
size, location, nature and use of any of the Common Areas, including
converting Common Areas into leasable areas, constructing additional
parking facilities (including parking structures) in the Common Areas, and
increasing or decreasing Common Area land and/or facilities but no change
shall be made in Tenant's parking spaces unless required by applicable
governmental agency. Tenant acknowledges that such activities may result in
occasional inconvenience to Tenant from time to time. Such activities and
changes shall be expressly permitted if they do not materially affect
Tenant's use of the Premises.
B. USE OF COMMON AREAS. Tenant shall have the nonexclusive right (in
common with other tenants and all others to whom Landlord has granted or
may grant such rights) to use the Common Areas for the purposes intended,
subject to such reasonable rules and regulations as Landlord may establish
from time to time. Tenant shall abide by such rules and regulations and
shall use its best effort to cause others who use the Common Areas with
Tenant's expressed or implied permission to abide by Landlord's rules and
regulations. At any time, Landlord may close any Common Areas to perform
any acts in and to the Common Areas as, in Landlord's judgment, may be
desirable to improve the Project. Tenant shall not, at any time, interfere
with the rights of Landlord, other tenants, or any other person entitled to
use the Common Areas.
C. SPECIFIC PROVISION RE: VEHICLE PARKING. Tenant shall be entitled
to use N/A vehicle parking spaces in the Project without paying any
additional rent. Tenant's parking shall not be reserved and shall be
limited to vehicles no larger than standard size automobiles or pickup
utility vehicles. Tenant shall not cause large trucks or other large
vehicles to be parked within the Project or on the adjacent public streets.
Temporary parking of large delivery vehicles in the Project may be
permitted by the rules and regulations established by Landlord. Vehicles
shall be parked only in striped parking spaces and not in driveways,
loading areas or other locations not specifically designated for parking.
If Tenant parks more vehicles in the parking area than the number set forth
in this paragraph, such conduct shall be a material breach of the Lease. In
addition to Landlord's other remedies under the Lease, Tenant shall pay a
reasonable daily charge for each such additional vehicle.
D. TENANT'S SHARE AND PAYMENT. Tenant's share of Common Areas
maintenance costs shall be paid as itemized Contractual Maintenance Costs
pursuant to paragraphs 7.1(b) and 7.5 of the Lease
(See First Addendum Paragraph 59)
Landlord warrants that Itemized Contractual Maintenance Costs have been
averaging approximately $0.06 per square foot during the prior two years
and that the computation of Itemized Contractual Maintenance Costs has
been and will remain the same for all tenants.
<PAGE>
EXHIBIT "A"
[MAP]
<PAGE>
OPTION TO EXTEND TERM
LEASE RIDER
This Rider is attached to and made part of that certain Lease (the
"Lease") dated January 13, 1995, between STATE OF CALIFORNIA PUBLIC
EMPLOYEES' RETIREMENT SYSTEM, as Landlord, and FORTUNE DOGS, INC., dba Big
Dog Sportswear, a California corporation, as Tenant, covering the premises
commonly known as 8457 S. Eastern Avenue, Unit A, Bell Gardens, California
(the "Premises"). Capitalized terms not otherwise defined in this Rider shall
have the meaning given them in the Lease. The provisions of this Rider shall
supersede any inconsistent or conflicting provisions of the Lease.
1. OPTION(S) TO EXTEND TERM.
A. Landlord hereby grants to Tenant 1 option(s) (the "Option(s)")
to extend the Lease Term for additional term(s) of four (4) years each
(the "Extension(s)"), on the same terms and conditions as set forth in
the Lease, but at an increased rent as set forth below. Each Option
shall be exercised only by written notice delivered to Landlord at
least one hundred twenty (120) days before the expiration of the
Original Term or the preceding Extension of the Original Term,
respectively. If Tenant fails to deliver Landlord written notice of
the exercise of an Option within the prescribed time period, such
Option and any succeeding Options shall lapse, and there shall be no
further right to extend the Original Term. Each Option shall be
exercisable by Tenant on the express conditions that (a) at the time
of the exercise, and at all times prior to the commencement of such
Extension, Tenant shall not be in default under any of the provisions
of this Lease and (b) Tenant has not been ten (10) or more days late in
the payment of rent more than a total of three (3) times during the
Original Term and all preceding Extensions.
B. PERSONAL OPTIONS. The Option(s) are personal to the Tenant
named in paragraph 1.1 of the Lease. If Tenant subleases any portion of
the Premises or assigns or otherwise transfers any interest under the
Lease prior to the exercise of an Option (whether with or without
Landlord's consent), such Option and any succeeding Options shall lapse.
If Tenant subleases any portion of the Premises or assigns or otherwise
transfers any interest of Tenant under the Lease after the exercise of
an Option but prior to the commencement of the respective Extension
(whether with or without Landlord's consent), such Option and any
succeeding Options shall lapse and the Original Term shall expire as if
such Option were not exercised. If Tenant subleases any portion of the
Premises or assigns or otherwise transfers any interest of Tenant under
the Lease in accordance with paragraph 12 of the Lease after the
exercise of an Option and after the commencement of the Extension
related to such Option, then the term of the Lease shall expire upon the
expiration of the Extension during which such sublease or transfer
occurred and only the succeeding Options shall lapse.
2. CALCULATION OF RENT.
The Base Rent during the Extension(s) shall be determined by one or
combination of the following methods (INDICATE YOUR CHOICE UPON
EXECUTION OF THE LEASE):
(1) Cost of Living Adjustment (paragraph 2A, below) /X/
(2) Fair Rental Value Adjustment (paragraph 2B, below) / /
(3) Fixed Adjustment (paragraph 2C, below) /X/
A. COST OF LIVING ADJUSTMENT. The Base Rent shall be increased
on the first day of the 31st month(s) of the 1st Extension(s) of the
Original Term (the "Rental Adjustment Date") by reference to the Index
or substitute Index defined in paragraph 4.2 of the Lease, as follows:
The Base Rent in effect immediately prior to the applicable Rental
Adjustment Date (the "Comparison Base Rent") shall be increased by the
percentage that the Index has increased from the month in which the
payment of the Comparison Base Rent commenced through the month in
which the applicable Rental Adjustment Date occurs Minimum 4% Maximum
8% per annum. In no event shall the Base Rent be reduced by reason of
such computation.
B. FAIR RENTAL VALUE ADJUSTMENT. The Base Rent shall be
increased on the first day of the N/A month(s) of the _______________
Extension(s) of the Lease Term (the "Rental Adjustment Date(s)") to the
"fair rental value" of the Premises, determined in the following manner:
(1) Not later than one hundred (100) days prior to any
applicable Rental Adjustment Date, Landlord and Tenant shall meet in an
effort to negotiate, in good faith, the fair rental value of the Premises
as of such Rental Adjustment Date. If Landlord and Tenant have not agreed
upon the fair rental value of the Premises at least ninety (90) days prior
to the applicable Rental Adjustment Date, the fair rental value shall be
determined by appraisal, as follows (INDICATE YOUR CHOICE UPON EXECUTION
OF THE LEASE):
Appraisal by Appraiser / / Appraisal by Broker / /
(2) If Landlord and Tenant are not able to agree upon the
fair rental value of the Premises within the prescribed time period, then
Landlord and Tenant shall attempt to agree in good faith upon a single
appraiser or broker, as indicated above, not later than seventy-five
(75) days prior the applicable Rental Adjustment Date. If Landlord and
Tenant are unable to agree upon a single appraiser/broker within such
time period, then Landlord and Tenant shall each appoint one appraiser
or broker, as indicated above, not later than sixty-five (65) days prior
to the applicable Rental Adjustment Date. Within ten (10) days thereafter,
the two (2) appointed appraisers/brokers shall appoint a third appraiser
or broker, as indicated above. If either Landlord or Tenant fails to
appoint its appraiser/broker within the prescribed time period, the single
appraiser/broker appointed shall determine the fair rental value of the
Premises. If both parties fail to appoint appraisers/brokers within the
prescribed time periods, then the first appraiser/broker thereafter
selected by a party shall determine the fair rental value of the Premises.
Each party shall bear the cost of its own appraiser or broker and the
parties shall share equally the cost of the single or third appraiser or
broker, if applicable. If appraisers are used, such appraisers shall have
at least five (5) years' experience in the appraisal of
commercial/industrial real property in the area in which the Premises is
located and shall be members of professional organizations such as MAI or
equivalent. If brokers are used, such brokers shall have at least five
(5) years' experience in the sales and leasing of commercial/industrial
real property in the area in which the Premises is located and shall be
members of professional organizations such as the Society of Industrial
Realtors or equivalent.
(3) For the purposes of such appraisal, the term "fair market
value" shall mean the price that a ready and willing tenant would pay,
as of the applicable Rental Adjustment Date, as monthly rent
Initials ILLEGIBLE
---------
ILLEGIBLE
---------
<PAGE>
to a ready and willing landlord of property comparable to the Premises
if such property were exposed for lease on the open market for a
reasonable period of time and taking into account all of the purposes
for which the Premises may be used. If a single appraiser/broker is
chosen, then such appraiser/broker shall determine the fair rental value
of the Premises. Otherwise, the fair rental value of the Premises
shall be the arithmetic average of the two (2) of the three (3)
appraisals which are closest in amount, and the third appraisal shall
be disregarded. In no event, however, shall the Base Rent be reduced
by reason of such computation. Landlord and Tenant shall instruct
the appraiser(s)/ broker(s) to complete their determination of the
fair rental value not later than thirty (30) days prior to the
applicable Rental Adjustment Date. If the fair rental value is not
determined prior to the applicable Rental Adjustment Date, then
Tenant shall continue to pay to Landlord the Base Rent applicable
to the Property immediately prior to such Extension, until the fair
rental value is determined. When the fair rental value of the Property
is determined, Landlord shall deliver notice thereof to Tenant, and
Tenant shall pay to Landlord, within ten (10) days after receipt
of such notice, the difference between the Base Rent actually paid
by Tenant to Landlord and the new Base Rent determined hereunder.
C. FIXED ADJUSTMENT. The Base Rent shall be increased to the
following amounts on the following dates: August 15, 1998 - $22,000 per
month
Page 2
<PAGE>
GROSS LEASE FORM
FIRST ADDENDUM TO LEASE
This Addendum to Lease dated January 13, 1995, by and between The State of
California Public Employees' Retirement System, Landlord, and Fortune Dogs,
Inc., A California Corporation, DBA: Big Dog Sportswear, Tenant, recites
provisions which are in addition to or in amendment of the Lease form and shall
be deemed to be a part of said Lease as if incorporated in the same Lease form
thereof, to wit: The provisions of this First Addendum to Lease shall prevail
over any inconsistent or conflicting provisions of the Lease, including the
riders attached to and made part thereof.
50) TENANT IMPROVEMENT - Tenant agrees to accept the premises in their "as is"
condition, subject to the following improvements to be made at the
Landlord's expense. Landlord shall at its sole costs and expense:
a) Paint, recarpet and retile the existing office and office
restrooms. Tenant shall select all paint and carpet colors from
Landlord's specifications.
b) Landlord shall install 10 foot chain link fencing in the parking
area. Location of fencing is to be mutually agreed to by both
Tenant and Landlord.
51) RENTAL ABATEMENT - Base rent only shall be abated for the first two (2)
months of both the original lease term and option period. During the
abatement period(s), Tenant shall remain liable for all cost associated
with Common Area Maintenance (CAM).
52) LEASE COMMENCEMENT - For the purpose of this agreement Lease Commencement
shall 3 days after Landlord substantially completes the Tenant Improvements
(as defined in paragraph 1) or when Tenant takes possession of the
warehouse area, whichever occurs first. Should Landlord not be able to
deliver possession of the premises to Tenant by February 15, 1995, Tenant
shall have the right to terminate this Lease Agreement in it's entirety by
providing written notice to Landlord within ten (10) days of such date.
53) RIGHT OF FIRST REFUSAL - If Tenant is not in default under any of the terms
of this Lease, Landlord shall grant to Tenant the Right of First Offer to
lease the adjacent 50,563 square feet, commonly known as 8457 S. Eastern
Ave., Unit B, Bell Gardens, California ("Additional Premises"). Should a
Proposal to lease all or part of the Additional Premises be procured from a
third party, Landlord and Tenant shall have five (5) days from the date of
Landlord's notice to agree on a rental rate for the Additional Premises.
If Tenant and Landlord cannot agree as to the rent and any other terms of
the Additional Premises within the time period provided herein, This right
of first offer shall be of no further force and effect, and Landlord may
lease the Additional Premises to others under terms and conditions as
Landlord, in his sole discretion, may determine. If Tenant and Landlord
agree to the rent and terms of the Additional Premises, Tenant and Landlord
shall immediately execute an Amendment to Lease to confirm the rental and
to modify this Lease Agreement to include the following terms and
conditions:
A) The Additional Premises shall be part of the leased premises for the
remainder of the lease term, including any extension.
B) Landlord shall deliver the Additional Premises to the Tenant on such
date as may be agreed by Landlord and Tenant.
54) ROOF MAINTENANCE - Landlord shall maintain the building structure: roof,
walls, and foundation. Landlord shall remain liable for all cost
associated with the roof maintenance in excess of the preventative
maintenance contract payable by Tenant as part of common Area Maintenance
(CAM).
Page 1 of 3
<PAGE>
55) EXISTING IMPROVEMENTS - Landlord shall assign it's interest, if any, in the
phone, alarm, paging systems and warehouse racking to Tenant upon execution
of the Lease Agreement. However, as previously stated, Landlord currently
has no interest in said improvements and has no control over the
disposition of said improvements. Landlord shall endeavor to obtain these
improvements for Tenant's usage, but in no way guarantees delivery of the
aforementioned items. Tenant's full performance under the Lease is not
contingent upon Landlord's delivery of such improvements for Tenant's use.
Furthermore, Tenant releases Landlord from any liability associated with
the usage of the aforementioned improvements.
56) CONDITION OF PREMISES -
(a) Landlord shall deliver the Premises to Tenant clean and free of debris
on the Commencement Date and warrants to Tenant that the existing plumbing,
electrical systems, fire sprinkler system, lighting, HVAC and loading doors
in the Premises shall be in god operating condition and that the roof is
water tight on the Commencement Date. If a non-compliance with said
warranty exists as of the Commencement Date, Landlord shall, except as
otherwise expressly provided in this Lease, promptly after receipt of
written notice from Tenant setting forth with specificity the nature and
extent of such non-compliance, rectify the same at Landlord's expense. If
Tenant does not give Landlord notice of non-compliance within thirty days
after the Commencement Date, correction of that non-compliance shall be at
the cost of the Tenant, except as otherwise expressly provided herein.
(b) If as of the Commencement Date the Premises do not comply with current
Applicable Law as required by the appropriate governmental authorities,
Landlord shall promptly, after receipt of notice from Tenant, take such
action, at Landlord's expense, as may be required to rectify the non-
compliance. Tenant's notice shall specify the nature and extent of such
non-compliance and be provided to Landlord within 180 days of the
Commencement Date. However, Landlord shall not be responsible for
rectifying any non-compliance that is a result of Tenant's use or
modification of the Premises. Landlord makes no warranty that the
permitted use in paragraph 1.8 is permitted for the Premises under
Applicable Law.
57) Notwithstanding the foregoing or paragraph 13.5, in the event a roof leak
occurs which results or is likely to result in damage to Tenant's property,
harm to personnel or shutdown or slowdown of all or part of Tenant's
business and such leak is not covered by the maintenance contract referred
to in 7.1(b), Landlord shall use its' best efforts to cause roof repairs to
commence within 48 hours or as soon thereafter as reasonably practicable.
In the event Landlord does not cause such repairs to commence within such
time period, Tenant shall be entitled to hire a contractor to perform such
work and Landlord will reimburse Tenant for the cost thereof within thirty
days of presentment of a bill.
58) Notwithstanding the foregoing, a change in control of Tenant shall not
constitute an assignment of this Lease if securities of Tenant become
registered under the Securities Exchange Act of 1934 or if such change in
control results from (i) an initial public offering of securities of
Tenant, (ii) a transfer of stock of Tenant from one stockholder to another
stockholder or tenant or (iii) a transfer of stock by any stockholder of
Tenant to an immediate family member or any trust or other entity the
ultimate beneficial owners of which are immediate family members.
59) Landlord shall indemnify and save Tenant free and harmless from all
liability for injury or damage to any person(s) or property, occurring on
or about the Common Areas arising solely out of the negligence or willful
misconduct of Landlord or its' agents.
Page 2 of 3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Addendum effective as
of the date first set forth above.
EXECUTED AT SACRAMENTO, California, on 2-7-95
---------------- -------------
LANDLORD:
LA SALLE ADVISORS LIMITED PARTNERSHIP,
As Advisor and Duly Authorized Agent for the
STATE OF CALIFORNIA PUBLIC EMPLOYEES
RETIREMENT SYSTEM
By /s/ Richard C. Cunningham
-----------------------------------------------
Richard C. Cunningham
Its Vice President
-----------------------------------------------
By /s/ Joseph R. Shea
-----------------------------------------------
Joseph R. Shea
Its Vice President
-----------------------------------------------
Address: 1601 Response Road, Suite 300
Sacramento, CA 95815
(916) 920-4051 FAX: (916) 920-0205
EXECUTED AT Santa Barbara, California, on Jan. 30, 1995
------------------ ------------------
TENANT:
FORTUNE DOGS, INC., DBA: Big Dog Sportswear
--------------------------------------------------
a California corporation
------------------------------------------------
By /s/ Andrew Feshbach
-----------------------------------------------
Andrew Feshbach
Its
-----------------------------------------------
President
By /s/ Anthony J. Wall
-----------------------------------------------
Anthony J. Wall
Its /s/ Senior Vice President & Secretary
-----------------------------------------------
Senior Vice President and Secretary
Address: 121 Gray Ave.
-----------------------------------------
Santa Barbara, California 93101
-----------------------------------------
-----------------------------------------
( 805 ) 963 - 8727
------- ----- ------
Page 3 of 3
<PAGE>
LEASE
This LEASE is made as of JUNE 1, 1994, between S.V.B. PROPERTIES, A JOINT
VENTURE, consisting of Frank A. Serena, Lorraine D. Serena, Leonard Vernon,
Majorie Vernon, Charles Boxenbaum and Kharlene Boxenbaum, ("Landlord") and
FORTUNE DOGS INC. DBA BIG DOG SPORTSWEAR, ("Tenant"), who agree as follows:
1. PREMISES. Landlord leases to Tenant and Tenant leases from
Landlord the real property located in Santa Barbara, California, described as
SUITE 100 (FIRST FLOOR) CONSISTING OF APPROXIMATELY 3,300 SQUARE FEET, SUITE
200 (SECOND FLOOR) CONSISTING OF APPROXIMATELY 1,800 SQUARE FEET AND SUITE
300 (THIRD FLOOR) CONSISTING OF APPROXIMATELY 5,500 SQUARE FEET FOR A TOTAL
OF 10,600 SQUARE FEET LOCATED ON THE FIRST, SECOND AND THIRD FLOORS OF THE
BUILDING COMMONLY KNOWN AS 121 GRAY AVENUE, SANTA BARBARA, CALIFORNIA
("PREMISES"), as outlined in red on the attached Exhibit "A". Tenant
acknowledges that the dimensions, shape and location of the premises as
described herein are approximate and it is agreed and understood by Tenant
and Landlord that, upon the completion of the construction of the premises,
the actual number of square feet of floor area will be measured by Tenant and
Landlord. If the variance in the final measured space is either 2% more than
or 2% less than the 10,500 square feet used to determine the rent, then the
lease and rent will be adjusted up or down accordingly. The appurtenant
rights referred to in this lease are as follows:
(a) Tenant shall have full and unimpaired access to the premises at
all times, including use of the elevator, common stairs and building
entry.
(b) Landlord has agreed to install certain interior improvements
pursuant to provisions of paragraph 2 below. The items furnished by
Landlord under said paragraph 2 shall be included within the meaning
of "premises."
(c) TWENTY-ONE (21) designated parking spaces.
2. TERM. The term shall commence on AUGUST 1, 1994 OR UPON COMPLETION
OF TENANT IMPROVEMENTS WHICHEVER IS LATER, and shall expire JULY 31, 1999 OR
UPON EXPIRATION OF A PERIOD OF FIVE YEARS FROM COMPLETION OF TENANT
IMPROVEMENTS WHICHEVER IS LATER. Tenant has TWO (2) options to extend this
lease for consecutive FIVE (5) year terms commencing upon the expiration of
the initial term, provided Tenant shall give to Landlord written notice of
its exercise of each option no later than ONE HUNDRED TWENTY (120) days prior
to the expiration of the lease term, and provided that Tenant is not in
default or breach of lease agreement. All the terms and conditions of this
lease shall apply to the FIVE (5) year option periods, except that the annual
base rental rate for the first option period will be TWELVE THOUSAND
SIX-HUNDRED DOLLARS ($12,600.00) per month (based upon $1.20 per square foot
per month for 10,500 square feet) with an annual compounded CPI and the
second option period shall be at fair market value as specified herein.
However, in no event shall the option periods base rent be less than TWELVE
THOUSAND SIX HUNDRED DOLLARS ($12,600.00) dollars per month. Within ten (10)
days of receipt of Tenant's second option exercise notice, Landlord will
supply to Tenant a written estimate of the fair market rental. Landlord
covenants that in computing said rental value it will consider the fact that
no further Tenant improvements will be required to be made by Landlord.
If Landlord and Tenant are unable to agree to the fair market rental value
within Ten (10) days of Tenant's receipt of Landlord's estimate, Tenant shall
have the option of either notifying Landlord of its intent to not renew or
proceeding to determine fair market rental value for base rent as set forth
below. Should tenant elect to proceed to determine fair market rental value it
shall so notify Landlord in writing. No later than thirty (30) days after
receipt of notice by Landlord, Tenant and Landlord will obtain at their own
expense an independent MAI appraisal of the fair market value rent. If the
variance between the two appraisals is ten (10) percent or less, Landlord and
Tenant agree that the lower of the fair market value
1
<PAGE>
rental figures shall be the rental amount for the extended period. If the
variance is more than ten (10) percent, then a third independent MAI appraisal
shall be obtained within thirty (30) days from an MAI appraiser selected by the
two (2) MAI appraisers used by Landlord and Tenant in making the aforesaid
appraisals. Landlord and Tenant shall share equally in the cost of the third
appraisal. Tenant shall not be bound by the fair market rental value of said
third appraisal and Tenant may elect to not renew this lease. After receipt of
the third appraisal, Tenant shall have ten (10) days within which to cancel or
revoke its exercise of the option to renew, after which the appraisal amount
shall be binding. In no event shall the base rent be less than the monthly rent
for the previous year.
If Landlord is unable to deliver possession of the premises by the date
specified for the commencement of the term as a result of causes beyond its
reasonable control, including its inability to obtain an occupancy permit by
that date, Landlord shall not be liable for any damage caused for failing to
deliver possession, and this Lease shall not be void or voidable. Tenant shall
not be liable for rent until Landlord delivers possession of the premises to
Tenant. If Landlord does not deliver possession of the premises by SEPTEMBER 1,
1994, Tenant can elect to terminate this Lease by giving notice to Landlord at
any time before the date Landlord delivers possession of the premises to Tenant.
On commencement of the term the premises shall be in good condition and
Landlord shall have completed the construction of the shell of the premises
together with the interior improvements specified in Exhibit "B" attached.
3. MINIMUM RENT; MONTHLY ADJUSTMENT OF RENT; ADDITIONAL RENT. Tenant
shall pay to Landlord as minimum monthly rent, without deduction, setoff, prior
notice or demand the sum of TEN THOUSAND FIVE HUNDRED AND 00/100 DOLLARS
($10,600.00) for years one and two of the lease ($1.00 per square foot per
month); ELEVEN THOUSAND TWENTY-FIVE AND 00/100 DOLLARS ($11,025.00) for years
three and four of the lease ($1.05 per square foot per month) and ELEVEN
THOUSAND FIVE HUNDRED FIFTY AND 00/100 DOLLARS ($11,550.00) for year five of the
lease ($1.10 per square foot per month).
All rent shall be paid to Landlord at the address to which notices to
Landlord are given. In addition to the rent required above, Tenant shall pay to
Landlord, as additional rent, an amount estimated by Landlord to be Tenant's
share of the operating costs (as defined in this paragraph), on the first day of
each month, commencing on the date the term commences and continuing during the
term.
Tenant's proportionate share of the operating costs, subject to complete
verification from time to time by Tenant and Landlord, shall be FIFTY-SIX AND
EIGHT TENTHS PERCENT (56.8%) of Landlord's total operating costs for the
building in which the premises are located and the real property on which the
building is located. "Operating Costs" shall include all real property taxes
and assessments, premiums for insurance maintained by Landlord, utilities and
all costs incurred by Landlord in maintaining and operating the building, its
equipment and the adjacent walks, parking areas and landscaped areas. If the
percentage occupied by tenant is different than as stated herein, then such
percentage will be adjusted in the lease and subsequent payments by Tenant.
Operating costs shall also include the annual capitalized percentage of all
capital expenditures treated as capital items by Landlord in accordance with
generally accepted accounting principles, applied on a consistent basis, with
the result that Tenant will only be charged for capital items over the life of
the capital items in question and not all in the year in which the capital
expenditure is initially incurred. Operating costs that cover a period not
within the term of this Lease shall be prorated. THE MONTHLY OPERATING COSTS
FOR THE CALENDAR YEAR 1994 SHALL NOT BE GREATER THAN $0.35 PER SQUARE FOOT PER
MONTH.
Landlord may adjust the monthly operating charge at the end of each
accounting period on the basis of Landlord's reasonably anticipated costs for
the following accounting period. An "accounting period" is the one year
period commencing on January 1 of each calendar year. At the expiration of
each subsequent accounting period, Landlord shall furnish to Tenant a
statement showing the total operating
2
<PAGE>
costs actually incurred, Tenant's proportionate share of such operating costs
for the accounting period, and payments made by Tenant with respect to such
accounting period, within forty-five (45) days after the end of each
accounting period, covering the accounting period just ended. Each statement
shall be prepared, signed and certified to be correct by Landlord or
Landlord's independent accountant. If Tenant's share of the actual operating
costs for the accounting period exceed the payments made by Tenant, Tenant
shall pay Landlord the deficiency within thirty (30) days after receipt of
the statement. If Tenant's payments during the accounting period exceeds
Tenant's share of the actual operating costs, Landlord shall pay Tenant the
excess at the time Landlord furnishes the statement to Tenant. Tenant shall
have the right, exercisable once in any calendar year and within 90 days of
receipt of statement, to review at Landlord's place of business any and all
records of the Landlord's relating to operating costs charged to Tenant for
the previous accounting period.
It is the intention of the parties hereto that during the term of this
Lease, the rent payable to Landlord shall not be reduced by any cost or charge
whatsoever, and that all expenses and charges, whether for repairs, upkeep,
maintenance, insurance, taxes (other than taxes on net income), utilities
and other charges of a like nature or type shall be paid by Tenant, in
Tenant's proportionate share, so that this Lease will be on a net/net/net basis
to Landlord. This provision is not in derogation of specific provisions
herein, but in expansion thereof, and an indication of the general intention
of the parties.
4. RENT ADJUSTMENT. The minimum monthly rent provided for above shall
be subject to further annual adjustment at the commencement of the first option
period (sixth year) and each succeeding annual anniversary of the commencement
of the lease term, as follows:
The minimum monthly rent shall be adjusted in the same percentage as
the increase or decrease in the Consumer Price Index, all items,
1982-84 = 100 for the Los Angeles/Anaheim/Riverside metropolitan area,
as published by the United States Bureau of Labor Statistics. This
automatic adjustment shall be calculated by means of the following
formula:
X = A x B / C
X = Adjusted rental
A = Minimum monthly rent
B = Monthly index for the third month prior to the
month in which each rental adjustment is to become
effective.
C = Monthly index for the third month prior to the
month in which the Lease became effective.
In no event during the option terms shall the adjusted rental fall below
the sum of TWELVE THOUSAND SIX HUNDRED AND 00/100 DOLLARS ($12,600.00).
If the index is discontinued or revised during the term of this Lease,
such other government index with which it is replaced shall be used in order
to obtain substantially the same result as would be obtained if the index had
not been discontinued.
5. USE. Tenant shall use and occupy the premises for general office
purposes only, in compliance with applicable zoning regulations, and shall not
use or occupy the premises for any other purpose without the prior written
consent of Landlord.
3
<PAGE>
Tenant shall not use or occupy the premises in violation of law or of
the certificate of occupancy issued for the building, and shall within five
(5) days after receipt of written notice from Landlord, discontinue any use of
the premises which is lawfully declared by any governmental authority, having
jurisdiction, to be a violation of law, of the certificate of occupancy or of
other applicable governmental regulations. Tenant shall comply with any
lawful direction of any governmental authority having jurisdiction which
shall, by reason of the nature of Tenant's use or occupancy of the premises,
impose any duty upon Tenant and Landlord with respect to the premises or
with respect to the use or occupancy thereof. Tenant shall not do or permit
to be done anything which will invalidate or increase the cost of any fire and
extended coverage insurance policy covering the building and/or property
located therein. Without waiving Landlord's right to insist that Tenant cease
and refrain from any use increasing fire or extended coverage insurance
rates, Tenant shall promptly upon demand reimburse Landlord for any
additional premium charged for such policy by reason of Tenant's failure to
comply with the provision of this section.
6. WASTE. Tenant shall not permit, or suffer to be permitted, any acts
of waste upon the premises.
7. ALTERATIONS. Tenant shall not make, or suffer to be made, any
material alterations of said premises or any part thereof without the written
consent of Landlord first had and obtained which consent shall not be
unreasonably withheld, conditioned, or delayed any any additions to or
alterations of the said premises, except movable furniture, trade fixtures
and appliances, shall become at once a part of the realty and belong to
Landlord upon termination of the lease, and Tenant shall keep the demised
premises, and the property herein described free from any liens arising out
of any work performed, material furnished or obligations incurred by Tenant.
8. REPAIR AND MAINTENANCE. Except as provided in paragraph 15 and 16,
Landlord at its cost shall maintain, in good condition, the structural parts
of the building and other improvements in which the premises are located for
structural integrity only, which structural parts include only the
foundation, bearing and exterior walls (excluding glass, doors and interior
perimeter drywall, interior and exterior painting), subflooring and roof
(excluding interior portions of skylights and ceiling).
Subject to reimbursement by Tenant, as specified below, Landlord shall
maintain and repair the following:
(a) Unexposed electrical, plumbing and sewage systems including,
without limitation, those portions of the systems lying outside the
premises.
(b) Window frames, gutters and down spouts on the building in which
the premises are located.
(c) Heating, ventilating and air conditioning systems servicing the
premises. Landlord shall engage a maintenance firm to service the
heating, ventilating and air conditioning systems servicing the
premises.
(d) The elevator, the stairwells, the common entryway and the parking
area.
4
<PAGE>
Pursuant to paragraph 3, Tenant shall pay to the Landlord, as additional
rent, FIFTY-SIX AND EIGHT TENTHS PERCENT (56.8%) of Landlord's expenses incurred
in fulfilling his obligations to maintain the facilities as enumerated above,
subject to the first year cap of $0.35 per square foot per month.
Except as provided above or in paragraph 15 and 16, Tenant at its cost
shall maintain the premises in operating condition, with reasonable wear and
tear expected.
Landlord may upon reasonable written notice to Tenant make any such repairs
which are not promptly made by Tenant and may charge the cost thereof to Tenant
as additional rent, and there shall be no liability on the part of Landlord by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, alterations, or improvements in or any portion of the
buildings or of the premises or in or to fixtures, appurtenances and equipment
therein. Tenant shall make all repairs thereto or to the buildings which are
made necessary as a result of any misuse or neglect by Tenant or by its agents
or employees or by its visitors while in the building. All such repairs shall
be at least equal in quality to the original work.
9. UTILITIES AND SERVICES. Tenant shall make all arrangements for and
pay for all utilities and services furnished to or used by it including, without
limitation, electricity, telephone service, and for all connection charges
except for those utilities and services Landlord is to furnish the premises
under the following paragraph.
Landlord shall furnish to the premises reasonable quantities of water as
required for Tenant's use and provide customary trash collection to the
premises. Landlord shall also provide electricity and gas needed for elevator
service, common area and exterior lighting and for heating, ventilating and air
conditioning to the extent that the latter is not separately metered for the
premises. Such utilities and services shall be furnished to the premises at all
times during the term. If Tenant's utility or service requirements increase, or
its requirements change as of the date the term commences, Tenant shall be
required to pay the increased cost of utilities or services. If Landlord is
required to construct new or additional utility installations including, without
limitation, wiring, plumbing, conduits and mains resulting from Tenant's changed
or increased utility requirements, Tenant shall on demand pay to Landlord the
total cost of these items. Landlord shall provide heating, ventilating, and air
conditioning systems in sufficient quantities to provide a reasonably
comfortable working environment within the premises as part of the tenant
improvements. Tenant shall pay for the utility usage costs associated with
those systems.
Landlord shall not be liable for failure to furnish utilities or services
to the premises when the failure results from causes beyond Landlord's
reasonable control. In case of a failure, Landlord will take all reasonable
steps to restore the interrupted utilities and services.
Pursuant to paragraph 3, Tenant shall reimburse Landlord on a monthly basis
for Landlord's costs in furnishing utilities and services to the premises. The
cost of furnishing utilities and services to the premises shall be FIFTY-SIX AND
EIGHT TENTHS PERCENT (56.8%) of the entire cost of the utilities and services
furnished by Landlord to the building and the land on which the premises are
located, subject to first year cap of $0.35 per square foot per month.
Landlord can discontinue, upon five (5) days prior written notice to
Tenant, any of the utilities and services furnished to the premises for which
Tenant fails to pay as provided in this paragraph, and no such discontinuance
shall be deemed an actual or constructive eviction.
5
<PAGE>
10. TAXES. Tenant shall pay before delinquency all taxes, assessments,
licenses and other charges ("taxes") that are levied and assessed against
Tenant's personal property installed or located in or on the premises and that
become payable during the term. On demand by Landlord, Tenant shall furnish
Landlord with satisfactory evidence of these payments.
If any taxes on Tenant's personal property are levied against Landlord or
Landlord's property, or if the assessed value of the building or other
improvements in which the premises are located is increased by the inclusion of
a value placed on Tenant's personal property, and if Landlord pays the taxes on
any of these items, Tenant, on demand, shall immediately reimburse Landlord for
the sum of taxes levied against Landlord or the proportion of the taxes
resulting from the increase in Landlord's assessment.
Pursuant to paragraph 3, Tenant shall pay its proportionate share of all
real property taxes and general and special assessments ("real property
taxes") levied and assessed against the building, other improvements and land
of which the premises are a part; Tenant's proportionate share shall be
FIFTY-SIX AND EIGHT TENTHS PERCENT (56.8%) of the total subject to the first
year cap of $0.35 per square foot per month. Tenant shall be responsible for
Tenant's proportionate share of real property tax increases assessed in
accordance with California law. Provided, however, that in the event the
property is reassessed as a result of a transfer in ownership, with the
result that there is a reassessment resulting in an increase in property
taxes greater than ten (10%), then the total amount of the one-time increase
in property taxes shall be allocated to Tenant on a phased basis over a
period of five (5) years, so that Tenant will be charged twenty percent (20%)
of the increase in the first year, forty percent (40%) in the second year,
and so forth, with the Landlord bearing that portion of the tax increase not
allocable to the Tenant, with all of said one-time increase being allocated
to Tenant in the fifth and subsequent years.
If Landlord's lender requests Landlord to impound real property taxes on a
periodic basis during the term, Tenant, on five (5) days prior written notice
from Landlord indicating this requirement, shall pay its proportionate share of
real property taxes to Landlord on a periodic basis in accordance with the
lender's requirement. Landlord shall impound the tax payments received from
Tenant in accordance with the requirements of the lender.
Tenant's liability to pay its proportionate share of real property taxes
shall be prorated on the basis of a 365-day year to account for any fractional
portion of a fiscal year included in the term at its commencement and
expiration.
11. ABANDONMENT OF THE PREMISES. Tenant shall not vacate or abandon the
premises at any time during the term hereof; and if Tenant shall abandon, vacate
or surrender said premises, or be dispossessed by process of law, or otherwise,
and personal property belonging to Tenant and left on the premises shall be
deemed to be abandoned at the option of Landlord.
12. NON LIABILITY OF LANDLORD FOR DAMAGE: LIABILITY INSURANCE. This
lease is made upon the express condition that Landlord is to be free from all
liability and claims for damage by reason of any injury to any person or
persons, including Tenant, its agents, servants or employees, or property of any
kind whatsoever, and to whomsoever belonging, from any cause or causes
whatsoever while in or upon the premises during the term of this Lease or any
renewal hereof or any occupancy hereunder absent Landlord's own negligence or
that of its agents or contractors, Tenant hereby covenants and agrees to
indemnify and save harmless Landlord from all liability, costs, loss and
obligations on account of or arising out of any such injury or losses occurring
during the term of this Lease hereof. Tenant shall maintain at its expense,
public liability insurance to protect all parties hereto against any liability
to the public incident to the use or resulting from any accident occurring
in or about the premises. The liability under such insurance shall be not less
than One Million Dollars ($1,000,000) for any one person injured, or One Hundred
Thousand Dollars ($100,000) for property damage.
6
<PAGE>
Landlord shall indemnify Tenant from and against all claims, losses or
liabilities which either (a) arise from, or in connection with any act or
omission of Landlord or any of Landlord's employees, agents or invitees; or
(b) result from any default, breach, violation, or non performance of
Landlord's obligations under this Lease.
All such policies shall expressly name Landlord as an additional insured
and Tenant shall deliver to Landlord a certificate of insurance issued by the
insurance carrier to notify Landlord at Landlord's notice address, thirty (30)
days in advance, in writing, prior to any cancellation thereof. Tenant agrees,
if Lessee does not keep such insurance in full force and effect, that Landlord
may take out the necessary insurance and pay the premium and the repayment
thereof shall be deemed to be part of the rental and payment as such on the next
day upon which the rent becomes due.
13. OTHER INSURANCE. Tenant at its cost shall maintain on all its
personal property, Tenant's improvements, and alterations, in, on or about the
premises a policy of standard fire and extended coverage insurance, with
vandalism and malicious mischief endorsements, to the extent of at least ninety
percent (90%) of full replacement value, less a deductible determined solely by
Tenant.
Landlord at its cost shall maintain on the building and other improvements
in which the premises are located a policy of standard fire and extended
coverage insurance, with vandalism and malicious mischief endorsements, to the
extent of at least ninety percent (90%) of full replacement value.
The Landlord's insurance policy shall provide that any proceeds shall be
made payable to Landlord as provided in paragraph 15. The insurance proceeds
from Landlord's insurance shall be paid pursuant to the provisions of
paragraph 15.
Landlord shall maintain public liability insurance to protect all parties
hereto against any liability to the public incident to the use or resulting from
any accident occurring in or about the areas of the building not leased or
available for lease to Tenant including, without limitation, the elevator, the
stairwells, the common entryway, common restroom facilities and the parking
area. The liability under such insurance shall be in such amounts as Landlord
may deem appropriate.
Landlord shall pay the premiums for maintaining the insurance that is
required to maintain by this paragraph 13.
Pursuant to paragraph 3, Tenant shall reimburse Landlord for Tenant's
proportionate share of the premiums paid by Landlord for maintaining the
insurance required above. Tenant's proportionate share of the insurance
premiums shall be FIFTY-SIX AND EIGHT TENTHS PERCENT (56.8%) of the total
subject to the first year cap of $0.35 per square foot per month. Tenant
shall not be liable for increase in the insurance premiums caused by a
particular use or activity of any other tenant in the building in which the
premises are located, or caused by improvements constructed by or for the
exclusive benefit of any other tenant.
Tenant's obligation to pay the insurance costs shall be prorated for any
partial year at the commencement and expiration or termination of the term.
The parties release each other, and their respective authorized
representatives from any claims for damage to any person or to the premises and
the building and other improvements in which the premises are located, and to
the fixtures, personal property, Tenant's improvements and alterations of either
Landlord or Tenant in or on the premises in the building and other improvements
where the premises are located that are caused by or result from risks insured
against under any insurance policies carried by the parties and in force at the
time of any such damage. Each party shall cause each insurance policy obtained
by it to provide that the insurance company waives all right of recovery by way
of
7
<PAGE>
subrogation against either party in connection with any damage covered by any
policy. Neither party shall be liable to the other for any damage caused by
fire or any of the risks insured against under any insurance policy required by
this Lease. If any insurance policy cannot be obtained with a waiver of
subrogation, or is obtainable only by the payment of an additional premium
charge above that charged by insurance companies issuing policies without waiver
of subrogation, the party undertaking to obtain the insurance shall notify the
other party of this fact. The other party shall have a period of ten (10) days
after receiving the notice either to place the insurance with a company that is
reasonably satisfactory to the other party and that will carry the insurance
with a waiver of subrogation, or to agree to pay the additional premium if such
a policy is obtainable at additional cost.
If the insurance cannot be obtained or the party in whose favor a waiver of
abrogation is desired refuses to pay the additional premium charged, the other
party is relieved of the obligation to obtain a waiver of abrogation rights with
respect to the particular insurance involved.
All insurance under this Lease shall:
(a) Be issued by insurance companies authorized to do business in the
State of California, with a financial rating of at least an A+3A status as
rated in the most recent edition of Best's Insurance Reports.
(b) Be issued as a primary policy, though it may be part of a blanket
policy.
(c) Contain an endorsement requiring thirty (30) days' written notice
from the insurance company to the Landlord at Landlord's address before
cancellation or reduction of the coverage of any policy below required
limits.
Upon written request, a certificate of the policy shall be deposited with
the other party at the commencement of the term, and on renewal of the policy
not less than thirty (30) days before expiration of the term of the policy.
14. ENTRY BY OWNER. Tenant shall permit Landlord, or its agents, to
enter into and upon said premises at reasonable times and upon reasonable notice
for the purpose of inspecting the same for the purpose of maintaining the
buildings as aforesaid.
15. DESTRUCTION OF PREMISES. In the event of a partial destruction of
the premises during the life hereof, caused by a casualty covered under any
insurance policy maintained by landlord, Landlord shall forthwith repair the
same, provided such repairs can be and are made within one hundred twenty (120)
days under the laws and regulations then applicable. Such partial destruction
alone shall in no way annual or void this Lease, except that Tenant shall be
entitled to a proportionate reduction of rent while such repairs are being made,
such proportionate reduction, if the parties hereto cannot agree, to be based
upon the extent to which the making of such repairs shall interfere with the
business carried on by said Tenant in the said premises.
If such repairs cannot be made in one hundred twenty (120) days, Landlord
may, at Landlord's option, given within such 120 days period in writing to
attempt to make the same within a reasonable time, the lease continuing in full
force and effect and the rent to be proportionately abated as aforesaid. In the
event that Landlord does not so elect to make said repairs, or such repairs
cannot be made under such laws and regulations then in effect, this lease may be
terminated at the option of either party.
In respect to any partial destruction which Landlord is obligated to
repair, or may elect to repair under the terms of the above paragraph, the
provisions of Section 1933, Subdivision 4, of the Civil Code of the State of
California are waived by Tenant. In the event that the building in which the
Premises may
8
<PAGE>
be situated is partially destroyed from a casualty not covered by insurance or
is destroyed to the extent of thirty-three percent (33%) or more of the
replacement cost of said building, Landlord may elect to terminate this Lease.
However, a total destruction of the building on the premises shall terminate
this Lease automatically. In the event of any dispute between Landlord and
Tenant relative to the provisions of the foregoing, they shall each select an
arbitrator and those selected arbitrators shall then select a third arbitrator,
and the three arbitrators shall hear and determine the controversy and their
decision thereon shall be binding upon all parties.
16. CONDEMNATION. In case the whole of the leased premises are taken by
right of eminent domain or other authority of law during the period of this
Lease, or any extension thereof, this Lease shall terminate. In case a part of
the leased premises are taken by right of eminent domain or other authority of
law, this Lease may, at the election of Landlord by written notice given to
Tenant within thirty (30) days after the effective date of the taking, be
terminated.
If a part of the premises are taken by the right of eminent domain and
Landlord does not elect to terminate the Lease, the rent herein stipulated shall
be decreased proportionately according to the value of that part of the premises
taken.
If over thirty percent (30%) of the building is taken by condemnation, and
if the premises after the taking is not suitable to Tenant's needs, Tenant may
terminate the Lease.
If the entire premises are taken or if a part of the leased premises are
taken and Landlord elects to terminate the Lease, then all compensation paid for
the taking shall belong to the parties, as determined by law.
17. ASSIGNING AND SUBLETTING.
(a) INVOLUNTARY ASSIGNMENT. No interest of Tenant in this Lease shall be
assignable by operation of law (including without limitation, the transfer
of this Lease by testacy or intestacy). Each of the following acts shall be
considered an involuntary assignment:
(i) If Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or institutes a proceeding
under the Bankruptcy Act, in which Tenant is the bankrupt, or, if
Tenant is a partnership or consists of more that one person or entity,
of any partner of the partnership or other person or entity is or
becomes bankrupt or insolvent, or makes an assignment for the benefit
of creditors;
(ii) If, a writ of attachment or execution is levied on this Lease.
(iii) If, in any proceeding or action to which Tenant is a party,
a receiver is appointed with authority to take possession of the
premises. An involuntary assignment shall constitute a default by
Tenant and Landlord shall have the right to elect to terminate this
Lease, in which case this Lease shall not be treated as an asset of
Tenant. If a writ of attachment or execution is levied on this Lease,
Tenant shall have thirty (30) days in which to cause the attachment to
be removed. If any involuntary proceeding of bankruptcy is brought
against Tenant, or if a receiver is appointed, Tenant shall have sixty
(60) days in which to have the involuntary proceeding dismissed or the
receiver removed.
(b) ASSIGNMENT AND SUBLETTING. Tenant shall not assign nor sublet any
of its rights under this Lease except with Landlord's prior written
consent, which shall not be withheld or delayed unreasonably.
Notwithstanding the foregoing to the contrary, an assignment or other
transfer directly to, or to a trust for the benefit of, the principals of
Tenant, a spouse and/or
9
<PAGE>
immediate family or lineal descendant(s) of the principals of Tenant, or to
a corporation, partnership, or other entity controlled by one or more of
the principals of Tenant or acquiring substantially all of the assets of
Tenant in a reorganization transaction shall not require Landlord's
consent, providing that the financial and capital condition of the proposed
new Tenant is substantially the same or better than the existing Tenant.
18. RULES AND REGULATIONS. Tenant agrees to comply, at Tenant's own cost
and expense, with all hereafter enacted or adopted requirements of the county,
municipal, state and federal authorities pertaining to said premises and the
business conducted therein, and not engage in, or allow, any business or
occupation to be carried on, in, or immediately about the premises that is
forbidden by law, or that will increase the existing rate of insurance.
19. DEFAULT. Excepting only the time of payment of all rentals and other
sums payable by Tenant to Landlord hereunder, as to which payments Tenant shall
be allowed a notice period of only ten (10) days, time of payment thereof being
otherwise of the essence, no default or breach shall exist on the part of the
Landlord or Tenant of any of the covenants and conditions on the part of such
party unless and until the party claiming a default or breach on the part of the
other shall provide the other with written notice, specifying with reasonable
particularity wherein said default or breach is alleged to exist, and the
failure on the part of the other to perform or observe said covenant or
condition, as the case may be, within thirty (30) days after said notice. In
the event, however, that any penalty be incurred or created by reason of said
lapse of time due to the failure or omission of said party to have performed or
observed said covenant or condition, then said party shall bear and pay said
penalty.
20.(A) TERMINATION FOR TENANT BREACH. Should default, as above
specified, be made in the payment of rent or in the keeping of the covenants
agreed to be kept by Tenant, then it shall be lawful for Landlord, at its
option, to terminate the Lease and to reenter upon the premises and repossess
them and remove all persons therefrom; or Landlord may, at its option and
without notice to Tenant of its election, pursue any remedy, either at law or in
equity, which it may have for the collection of rent, breach or covenant, or for
any other relief whatsoever.
It is hereby agreed that absent Landlord's tortious actions, Tenant waives
all claims for damage that may be caused by Landlord in reentering and taking
possession of said premises as herein provided, and all claims for damages to or
loss of any property belonging to Tenant as may be in or upon the premises. In
the event of such termination, landlord shall be entitled to recover as damages:
(a) The worth at the time of award of the unpaid rent which had been
earned at the time of termination.
(b) The worth at the time of the award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that could have been reasonably
avoided,
(c) The worth at the time of award of the amount by which the unpaid rent
for the balance of the term after the time of award exceeds the amount of
such rental loss that could be reasonably avoided, and
(d) Any other amount necessary to compensate Landlord for all necessary
and reasonable costs incurred by Landlord as a direct result of Tenant's
failure to perform its obligations under the lease, subject to Article 21.
10
<PAGE>
20. (B) TERMINATION FOR LANDLORD'S BREACH. In the event Landlord fails
to perform any of its obligations hereunder to Tenant ("Landlord's Default"),
and such failure continues thirty (30) days after notice to Landlord from Tenant
of Landlord's Default, Tenant may:
(i) Perform the obligations itself, and abate Rent payable to Landlord by
the amount incurred in such performance;
(ii) By process of law, compel Landlord to perform its obligations; or
(iii) Declare Landlord in default, and terminate the Lease.
All reasonable costs incurred by Tenant while pursuing any of the preceding
remedies, including attorney's fees, shall be paid to Tenant by Landlord upon
demand. These remedies shall not be alternative or exclusive, and Tenant shall
be entitled to pursue any other remedies available to it at law or equity.
21. ATTORNEY'S FEES. If it is necessary for either party to take legal
action to enforce their rights hereunder, the party prevailing in any such
action shall be entitled to a reasonable attorney's fee and all costs and
expenses connected therewith.
22. WAIVER. It is understood and agreed that any waiver on the part of
Landlord of any breach on the part of Tenant of any covenant herein shall not be
deemed to be a waiver on the part of Landlord of any other breach on the part of
Tenant of the same or any other covenant herein, nor affect the right of
Landlord to insist on a forfeiture of this Lease for another breach on the part
of Tenant of the same or any other covenant herein.
The waiver by Tenant of any Landlord's default shall not act as a waiver of
any future default, and Tenant's payment of Rent hereunder shall not constitute
a waiver of any Landlord's default.
23. HOLDING OVER. It is understood and agreed that any holding over of
tenancy by Tenant beyond the time created by this Lease shall be a
month-to-month tenancy only unless otherwise expressly agreed in writing by
Landlord and Tenant.
24. NOTICES. Any Notices given by Landlord to Tenant hereunder shall
be in writing and forwarded by certified mail, reputable commercial courier, or
by hand delivery to Tenant as follows:
TENANT:
FORTUNE DOGS INC. dba BIG DOG SPORTSWEAR
121 GRAY AVENUE
SANTA BARBARA, CA 93101
Notices from Tenant to Landlord shall be in writing and forwarded by
certified mail, reputable commercial courier, or by hand delivery to Landlord as
follows:
LANDLORD:
SVB PROPERTIES
C/O MR. FRANK A. SERENA
1180 EUGENIA PLACE, SUITE 200
CARPINTERIA, CA 93013
All notices shall be effective at the time of receipt or refusal.
11
<PAGE>
25. END OF TERM: SURRENDER. At the termination of this Lease, Tenant
shall surrender the premises to Landlord in substantially as good condition and
repair as reasonable and proper use thereof will permit, ordinary wear and tear
and casualty loss excepted. Tenant shall promptly repair any damage to the
premises caused by removal of its property.
26. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Lease, all of the covenants, conditions and provisions of this Lease shall be
binding upon and shall inure to the benefit of the parties hereto and respective
heirs, personal representatives, successors and assigns.
27. BROKERS. Landlord and Tenant acknowledge that this Lease was
negotiated through F. David Serena, Real Estate Broker. Landlord acknowledges
that the real estate commission due the Real Estate Broker is the responsibility
of Landlord.
28. ESTOPPEL CERTIFICATE.
Tenant shall at any time and from time to time upon not less than ten (10)
business days prior written notice from Landlord execute, acknowledge and
deliver to Landlord a statement in writing (1) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect) and the dates to which the rental and other charges are paid
in advance, if any, and (2) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults if any are claimed. Any such statement may be relied upon by any
prospective purchaser or encumbrancer of all or any portion of the real property
of which the premises are a part.
29. INTEREST ON PAST DUE OBLIGATIONS. Any amount due from either party to
the other hereunder which is not paid when due shall bear interest at the rate
of the maximum rate permitted by law or ten percent (10%) per annum, whichever
is less, from the due date until paid, unless otherwise specifically provided
herein, but the payment of such interest shall not excuse or cure any default by
either party under this Lease.
30. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer or
transfers of Landlord's interest in the premises or in the real property of
which the premises are a part, the transfer shall automatically relieve the
prior Landlord of any and all obligations and liabilities on its part accruing
from and after the date of such transfer.
31. SEVERABILITY. Any provision of this Lease which shall prove to
be invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provisions shall remain in full force and
effect.
32. TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor.
33. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This lease contains
all of the agreements of the parties hereto with respect to any matter covered
or mentioned in this Lease and no prior agreement or understanding pertaining to
any such matter shall be effective for any purpose. No provision of this Lease
may be amended or added to except by an agreement in writing signed by the
parties hereto or their respective successors in interest.
34. RIGHTS RESERVED TO LANDLORD. Landlord shall have the following rights
exercisable upon reasonable prior written notice and without liability to Tenant
for damage or injury to property, person or business, and without effecting an
eviction or disturbance of Tenant's use or possession or
12
<PAGE>
giving rise to any claim for set-offs, or abatement of rent, provided that
Landlord's activities do not unreasonably, or materially interfere with
Tenant's quiet enjoyment of the premises, that all such activities are
performed in a non-negligent fashion, and Landlord provides Tenant with
reasonable advance notice of such activities.
(a) To install and maintain signs on the exterior and interior of the
building.
(b) To enter the premises to make inspections, repairs, alterations or
additions in or to the premises or the building or to exhibit the premises to
prospective tenants, purchasers or others, at reasonable hours and at any time
in the event of any emergency, and to perform any acts related to the safety,
protection, preservation, reletting, sale or improvement of the premises or
the building.
(c) To approve the weight, size and location of safes and other unusually
heavy equipment and articles in and about the premises and the building and to
require all such items to be moved in and out of the building and premises
only at such times and in such manner as Landlord shall reasonably direct and
in all events at Tenant's sole risk and responsibility. Landlord shall, in
such event, promptly provide Tenant with such times and a description of such
manner.
35. SIGNS. Landlord has the sole right to determine the type of
directory, bulletin board, and sign and the content of each (including,
without limitation, size of letters, style, color and whether affixed or
painted). Tenant may place a sign on the exterior of the building at its sole
cost subject to approval by the Landlord, which shall not be unreasonably
delayed, and the City of Santa Barbara.
36. PLANS. Any construction or tenant improvement plans attached to and
made part of this Lease, except as otherwise specifically provided, are used
solely for the purpose of identifying or designating the premises demised
under the terms of this Lease, and any markings, measurements, dimensions or
notes of any kind contained therein have no bearing upon any of the terms,
covenants, conditions, provisions or agreements of this Lease and are not to
be considered a part thereof.
37. CONDITIONS AND COVENANTS. It is further expressly understood and
agreed that each and all of the provisions of this Lease are conditions
precedent to be faithfully and fully performed and observed by each party to
entitle it to the benefit accorded that party by the Lease; that said
conditions are also covenants on the part of each party.
38. SUBORDINATION. This Lease and any option granted hereby shall be
subject and subordinate to any ground lease, mortgages and deeds of trust or
other hypothecation or security device (collectively, SECURITY DEVICE) now or
hereafter placed by the Landlord upon the real property of which the Premises
are a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Tenant agrees that Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Landlord
under this Lease, but that in the event of Landlord's default with respect to
any such obligation, Tenant will give any Lender whose name and address have
been furnished Tenant in writing for such purpose notice of Landlord's
default and allow for the cure of said default before invoking any remedies
Tenant may have by reason thereof. If any Lender shall elect to have this
Lease and/or any option granted hereby superior to the lien of its Security
Device and shall give written notice thereof to Tenant, this lease and such
option shall be deemed prior to such Security Device, notwithstanding the
relative dates of the documentation or recordation thereof.
Tenant, or its successors in interest, will execute and deliver upon
demand of Landlord, any and all instruments desired by Landlord subordinating
in the manner reasonably requested by Landlord this Lease to such Security
Device. Landlord is hereby irrevocably appointed and authorized as agent and
attorney-in-fact of Tenant to execute all such subordination instruments
within five (5) days after notice
13
<PAGE>
from Landlord demanding the execution thereof. Said notice may be given in
the manner herein provided for giving notice.
Subject to the non-disturbance provisions of this paragraph, Tenant agrees
to attorn to a Lender or any other party who acquires ownership of the Premises
by reason of a foreclosure of security Device, and that in the event of such
foreclosure, such new owner shall not: (i) be liable for any act or omission
of any prior Landlord or with respect to events occurring prior to
acquisition of ownership, (ii) be subject to any offsets or defenses which
Tenant might have against any prior Landlord, or (iii) be bound by
prepayments of more than one (1) month's rent.
With respect to Security Devices presently in effect and those entered
into by Landlord after execution of the Lease, Tenant's subordination of this
Lease shall be subject to first receiving written assurance (a "NON-DISTURBANCE
AGREEMENT") from the Lender that Tenant's possession and this Lease,
including any options to extend the term hereof, will not be disturbed so
long as Tenant is not in breach hereof and attorns to the record owner of the
Premises.
39. SECURITY DEPOSIT. Tenant shall deposit with Landlord upon execution
hereof TWENTY-ONE THOUSAND DOLLARS ($21,000.00) as security for Tenant's
faithful performance of Tenant's obligations hereunder. If Tenant fails to
pay rent or other charges due hereunder, or otherwise defaults with respect
to any provision of this lease, Landlord may use, apply or retain all or any
portion of said deposit for the payment of any rent or other charge in
default or for the payment of any other sum to which Lessor may become
obligated by reason of Tenant's default, or to compensate Landlord for any
loss or damage which Landlord may suffer thereby. If Landlord so uses or
applies all or any portion of said deposit, Tenant shall within ten (10) days
after written demand therefore deposit cash with Landlord in an amount
sufficient to restore said deposit to the full amount hereinabove stated and
Tenant's failure to do so shall be a material breach of this lease. Landlord
shall not be required to keep said deposit separate from Landlord's general
accounts. If Tenant performs all of Tenant's obligations hereunder, said
deposit, or so much thereof as has not theretofore been applied by Landlord,
shall be returned, without payment of interest or other increment for its
use, to Tenant at the expiration of the term hereof, and after Tenant has
vacated the premises. No trust relationship is created herein between
Landlord and Tenant with respect to said security deposit. If Tenant performs
all of Tenant's obligations hereunder during the first thirty (30) months of
the first term of this lease, then Landlord shall return TEN THOUSAND FIVE
HUNDRED AND 00/100 ($10,500.00) dollars of the security deposit in the
thirty-first month of the first term of the lease. Should Tenant occupy
additional space in the building, in accordance with paragraph 42 herein, the
security deposit shall be increased on a prorata basis.
40. TENANT IMPROVEMENTS. Prior to the commencement of the Lease,
Landlord shall improve the Premises in accordance with Tenant's final plans
and specifications which are attached as EXHIBIT B. Landlord shall secure the
necessary building permits and approvals for such work and promptly commence
work on the improvements after receipt of said permits and approvals.
Landlord shall deliver possession of the Premises to the Tenant on or
before the commencement date of this Lease. In the event Landlord fails to
complete the improvements and tender occupancy of the Premises to the Tenant
by said date or the date specified in paragraph 2 of this Lease, the Tenant
may cancel the Lease at any time in accordance with paragraph 2.
All cost for the improvements shall be borne by the Landlord, provided
that any net increase in the cost of the work resulting from changes or
additions to the work resulting from changes or additions to the work
requested by Tenant after Landlord and Tenant have both approved the final
plans and specifications shall be borne by Tenant.
14
<PAGE>
Landlord and Tenant have agreed to tenant improvements consisting of providing a
new cosmetic appearance to the premises using reasonable business standards,
including new paint, carpeting, ceiling tiles and to provide the office in a
good working order. Such work is described in the plan attached hereto as
Exhibit B. Additionally, Landlord will provide $15,000.00 of additional tenant
improvements, as designated by Tenant.
41. FREE RENT. Landlord agrees to fully abate the base rent in the
thirteenth and thirty-seventh months of the first term of this lease and the
twenty-fifth and forty-ninth month of the first option period. Tenant shall
continue to pay the operating costs for the months abated.
42. OPTIONS FOR ADDITIONAL SPACE. Landlord agrees to give Tenant first
right of refusal to occupy any other office space in the premises that becomes
available as a result of the completion of the terms and associated options of
the following named tenants in the building: Western States Petroleum, Coastal
Trade Service, Clarke Design or Miramar Systems. Such leases or summary of
leases and options have been attached as Exhibit C. The additional space will
be subject to all the terms and conditions of the then existing lease of the
Tenant and reasonable tenant improvements allowances consistent with Exhibit B.
Tenant shall pay the then current lease rate for the additional office space as
well as the increase in the percentage of operating costs based upon the
additional office space. Landlord will notice Tenant 120 days before the end of
the lease terms or option for the other tenants. Tenant has 30 days to exercise
its option for the additional office space. Tenant shall have the right to
occupy additional space at the conclusion of the above designated tenants
leases, including their options, by exercising Tenant's option as aforesaid, and
Landlord shall not hereafter grant any renewal of any lease on any such space.
SIGNATURE PAGE
DATED: 6-8 , 1994.
-------------
LANDLORD: TENANT:
S.V.B PROPERTIES, FORTUNE DOGS INC. DBA
A JOINT VENTURE BIG DOG SPORTSWEAR
BY: /s/ Frank A. Serena BY: /s/ Andrew D. Feshbach
--------------------------- ---------------------------
FRANK A. SERENA
MANAGING PARTNER
15
<PAGE>
[FLOOR PLAN]
GROUND FLOOR PLAN 121 GRAY AVENUE
- --------------------------------------------------------------------------------
BIG DOG SPORTSWEAR OPERATIONS
CUSTOMER SERVICE
MAIL ORDER
<PAGE>
[FLOOR PLAN]
SECOND FLOOR PLAN 121 GRAY AVENUE
- --------------------------------------------------------------------------------
BIG DOG SPORTSWEAR RETAIL OFFICES
<PAGE>
[FLOOR PLAN]
THIRD FLOOR PLAN 121 GRAY AVENUE
- --------------------------------------------------------------------------------
BIG DOG SPORTSWEAR EXECUTIVE OFFICES
ACCOUNTING AND MARKETING
<PAGE>
EXHIBIT B
TENANT IMPROVEMENTS
* Carpet: New carpet to be provided at a $16.00 per square yard allowance.
Tenant to pay for difference if carpet upgrade is chosen.
* Paint: New paint through out premises.
* Ceiling Tiles: All warped, stained, missing ceiling tiles to be replaced
* Lighting: Lighting fixtures to be added and adjusted to accommodate new
office space plan. Replace all burnt out bulbs.
* Air Conditioning Vents: Rusted and missing air conditioning vents in
ceiling and walls to be replaced.
* Window treatment: Existing blinds and shades to be cleaned and repaired if
damaged.
* Window Screens: Replace all missing and damaged window screens
* Kitchen: Third floor kitchen vinyl flooring to be replaced.
* Bathrooms: Clean all fixtures, toilets, and counter tops. Replace third
floor executive bathroom vinyl flooring. Clean all floor tiles in common
lobby.
* Laundry Room: Replace vinyl flooring. Close off water connections.
* Walls: Repair all walls and repaint.
* Wall additions and demolition: Walls to be added and removed per attached
floor plans. New walls to be constructed with 5/8" drywall. Glass to be
added to interior offices per floor plans. Third floor lobby to be secured
entry vestibule to include door locks and elevator lock.
* Additional Tenant Improvements: Landlord agrees to provide Tenant with an
additional tenant improvement allowance of $15,000.00 to be applied toward
work over and above work detailed in this exhibit.
17
<PAGE>
EXHIBIT C
TENANT LEASES
Attached herewith are the pertinent pages from the Lease for the following
Tenants:
1. Coastal Trade Services
2. Western States Petroleum
3. Miramar Systems
4. Clarke Designs
18
<PAGE>
LEASE AMENDMENT
This LEASE AMENDMENT dated December 1, 1994 for reference, is entered into
at Santa Barbara, California, by and between SVB PROPERTIES., a General
Partnership ("Landlord") and FORTUNE DOGS INC., dba BIG DOG SPORTSWEAR
("Tenant"), with reference to the following:
RECITALS
A. On or about June 1, 1994, Landlord leased to Tenant certain premises
in Santa Barbara, California, described as 121 Gray Avenue, Santa Barbara,
California ("premises"), consisting of approximately 10,600 square feet,
pursuant to the "Lease."
B. Paragraph 42 of said Lease provides that Tenant shall have the first
right of refusal to lease any additional office space that becomes available as
a result of the termination of any lease.
C. On October 31, 1994, Clarke Design terminated its lease and vacated
the space located at SUITE 200, 121 GRAY AVENUE, consisting of 1,132 square
feet.
D. Tenant has notified Landlord that Tenant desires to lease said space
described in paragraph C above.
WHEREFORE, the parties agree as follows:
TERMS AND PROVISIONS
1. Effective DECEMBER 1, 1994 Tenant shall occupy Suite 200, 121 Gray
Avenue, consisting of approximately 1,132 square feet, therefore, increasing the
total square footage of premises to 11,732 square feet.
2. Effective DECEMBER 1, 1994 the base rent for the premises shall be
increased to ELEVEN THOUSAND SEVEN HUNDRED THIRTY-TWO AND 00/100 DOLLARS
$11,732.00 for years one and two of the lease ($1.00 per square foot per month),
TWELVE THOUSAND THREE HUNDRED EIGHTEEN AND 60/100 DOLLARS ($12,318.60) for year
three and four of the lease ($1.05 per square foot per month), and (TWELVE
THOUSAND NINE HUNDRED FIVE AND 20/100 DOLLARS 12,905.20) for year five of the
lease ($1.10 per square foot per month).
2. Tenant will accept the above additional premises without the
improvements Tenant is entitled to under Section 39 of the Lease on the
condition that Tenant will be entitled to such improvements at the time the
space currently occupied by Miramar Systems becomes available (whether or not
Tenant accepts the Miramar space).
3. Tenant's proportionate share of operating costs shall be increased to
SIXTY AND 38 HUNDREDTHS PERCENT (60.38%) of Landlord's total operating costs for
the building in which the premises are located and the real property on which
the building is located.
<PAGE>
4. Pursuant to paragraph 4 of the Lease, the minimum monthly rent and the
option period adjusted rental shall not fall below the sum of TWELVE THOUSAND
SEVEN HUNDRED NINETY-FIVE AND 20/100 DOLLARS ($12,905.20).
5. Pursuant to the terms in paragraph 39 of the Lease the Security
Deposit shall be increased to TWENTY-THREE THOUSAND FOUR HUNDRED SIXTY-FOUR
DOLLARS ($23,464.00). The amount Landlord shall return to Tenant in the
thirty-first month of the first term shall be increased to ELEVEN THOUSAND SEVEN
HUNDRED THIRTY-TWO DOLLARS ($11,732.00).
WHEREFORE, the parties have executed this Agreement as follows:
DATED: DECEMBER 1, 1994
"LANDLORD":
SVB PROPERTIES
BY: /S/ FRANK A. SERENA
--------------------------------
FRANK A. SERENA, GENERAL PARTNER
"TENANT":
FORTUNE DOGS INC. dba BIG DOG SPORTSWEAR
BY: /S/ ANDREW D. FESHBACH
--------------------------------
ANDREW D. FESHBACH, PRESIDENT
<PAGE>
SECOND LEASE AMENDMENT
This Second Lease Amendment, dated March 1, 1996 for reference, is entered
into at Santa Barbara, California, by and between S.V.B. PROPERTIES, L.P., a
California Limited Partnership ("Landlord") and BIG DOG HOLDINGS, INC., dba Big
Dog Sportswear ("Tenant"), with reference to the following facts:
RECITALS
A. Landlord and Tenant previously entered into a LEASE dated June 1, 1994
(the "Lease"), with respect to certain premises at 121 Gray Avenue, Santa
Barbara, California.
B. By Lease Amendment dated December 1, 1994, the premises consisted of
approximately 11,732 square feet, which includes "Suite 200" (of approximately
1,132 square feet) and two designated parking spaces which are assigned to Suite
200.
C. Pursuant to paragraph 42 of the Lease, Tenant has options to occupy
other office space in the building that becomes available, and Tenant is willing
to relinquish such options.
D. Tenant wishes to occupy approximately 2,959 square feet of space known
as "Suite 103" on the first floor of the building in lieu of but on the same
terms as it currently occupies "Suite 200" and to obtain certain options with
respect to Suite 103.
WHEREFORE, the parties agree as follows:
TERMS AND PROVISIONS
1. Tenant shall occupy Suite 103 in lieu of but at the same rent and
otherwise on the terms by which it occupies Suite 200 until May 31, 1996.
- 1 -
<PAGE>
2. In connection with Tenant's relinquishment of Suite 200, it shall
reinquish its right to utilize two designated parking spaces which are assigned
to Suite 200.
3. Landlord grants to Tenant one (1) two (2) month option to continue to
occupy Suite 103 on the same terms and conditions until July 31, 1996, such
option to be exercisable by not less than 30 days' prior written notice from
Tenant to Landlord.
4. When Tenant's occupancy of Suite 103 ends, Tenant shall relinquish the
six designated parking spaces which are assigned to Suite 103, leaving a net 21
spaces.
5. When Tenant's occupancy of Suite 103 ends, Tenant's current percentage
of common area maintenance shall be reduced from 60.83% to 56.8%.
6. The effectiveness of the Second Lease Amendment shall be contingent
upon Landlord's entering into a Lease Amendment with Miramar Systems, Inc. with
respect to (among other things) Suite 200. The parties shall attempt to make
this Second Lease Amendment effective on March 1, 1996; the same shall be
effective as soon as practicable.
7. Except as otherwise provided for herein, the terms of the Lease and
the Lease Amendment shall remain in full force and effect, in accordance with
their terms.
WHEREFORE, the parties have executed this Second Lease Amendment as
follows:
DATED: March 1, 1996 DATED: March 1, 1996
"Landlord": "Tenant":
S.V.B. PROPERTIES, L.P., A California BIG DOG HOLDINGS, INC.,
limited partnership dba Big Dog Sportswear
By: /s/ Frank A. Serena By: /s/ Anthony Wall
-------------------------------- -----------------------------
Frank A. Serena Name: Anthony Wall
General Partner Authorized Agent
- 2 -
<PAGE>
THIRD LEASE AMENDMENT
This Third Lease Amendment, dated July 22, 1996 for reference, is entered
into at Santa Barbara, California, by and between Freeland Realty, L.L.C.,
("Landlord") and Big Dog Holdings, Inc., dba Big Dog Sportswear ("Tenant").
with reference to the following facts:
RECITALS
A. Landlord and Tenant previously entered into a LEASE dated June 1, 1994
(the "Lease"), with respect to certain premises at 121 Gray Avenue, Santa
Barbara, California.
B. Under a Lease Amendment dated December 1, 1994, the premises was
expanded to approximately 11,732 square feet, which includes "Suite 200" of
approximately 1,132 square feet and two (2) designated parking spaces which are
assigned to Suite 200. In a Second Lease Amendment dated March 1, 1996, the
Tenant relinquished Suite 200 and two (2) designated parking spaces and
temporarily occupied Suite 103.
C. Tenant wishes to continue to occupy approximately the 2,959 square
feet of space known as "Suite 103" on the first floor of the building but on the
same terms and conditions as stated in the Lease.
WHEREFORE, the parties agree as follows:
TERMS AND PROVISIONS
1. Landlord agrees to perform the improvements to Suite 103 identified
in the plans attached hereto. Tenant shall remain in possession of Suite 103
at the rent and on the other terms provided in the Second Amendment until
Tenant can move its employees out of Suite 103, which Tenant expects to be
August 24, 1996. Tenant shall provide notice if such move-out date is
delayed, and Tenant agrees that such delay shall not extend beyond August 31,
1996. Effective as of the date Tenant has moved its employees out of Suite
103, (i) Tenant shall cease payment of any rent or other charge on Suite 103
(any rent previously paid on Suite 103 beyond the move-out date shall be
credited toward September rent owed by Tenant under the Lease) and (ii)
Landlord shall diligently commence the improvements to Suite 103 and use its
best efforts to complete such improvements within three weeks. Tenant shall
take possession of Suite 103 upon satisfactory completion of such
improvements. Upon Tenant so taking possession, Tenant shall from such date
occupy Suite 103 on the same terms and conditions as applicable to the other
space occupied by Tenant as specified in the Lease dated June 1, 1994,
including any rental adjustments, and the rent provisions of the Second
Amendment shall no longer be effective.
2. In connection with tenant's occupancy of Suite 103, Tenant shall have
the right to utilize six (6) designated spaces which are assigned to Suite 103,
giving Tenant a total of twenty-seven (27) parking spaces.
<PAGE>
3. When tenant's occupancy of Suite 103 begins, Tenant's current
percentage of common area maintenance shall be 69.79%.
4. Tenant Expansion Rights under Paragraph 42 are hereby limited to the
space currently occupied by Western States Petroleum Association (the "WSPA
Space"). In connection with an exercise of such Expansion Rights, Landlord
shall not required to perform any tenant improvements in the WSPA Space in the
nature of new construction. Such tenant improvements shall be limited to
repairing any damage to the WSPA Space and providing such improvements as new
carpeting and painting only to the extent necessary to bring the condition of
the WSPA Space into conformity with the condition of the remaining space
occupied by Tenant in the building.
5. Except as otherwise provided for herein, the terms of the Lease and
the Lease Amendment shall remain in full force and effect, in accordance with
their terms.
WHEREFORE, the parties have executed the Third Lease Amendment as follows:
DATED: Aug. 9, 1996 DATED: Aug. 9, 1996
"Landlord" "Tenant"
Freeland Realty, L.L.C. Big Dog Holdings, Inc.,
dba Big Dog Sportswear
By: /s/ Dirk Freeland By: /s/ A. J. Wall
----------------- -------------------------
Dirk Freeland Name: /s/ Anthony Wall
Managing General Partner -------------------------
Authorized Agent
<PAGE>
[FLOOR PLAN]
(W/ POWER AND COMMUNICATION PLAN)
<PAGE>
[FLOOR PLAN]
INTERIOR ELEVATION
<PAGE>
TENANT IMPROVEMENT PLAN
- Carpet: replace all carpet damaged by wall reconstruction and clean
remaining carpet - the new carpet must reasonably match the
existing carpet
- Paint: new paint throughout premises
- Ceiling Tiles: all damaged ceiling tiles to be replaced
- Lighting: lighting fixtures to be added and adjusted to accommodate
new offices
- Air Conditioning Vents: vents to be added and adjusted to accommodate
new offices
- Sprinklers & Security: to be added and adjusted to accommodate new
offices
- Wall additions and demolition: Walls to be added and removed per
attached floor plan. New walls to be constructed with 5/8"
drywall. Glass to be added to interior offices and doors per
floor plan.
- Conduit: lay conduit for phone and computer lines (Big Dog to pull
wires)
<PAGE>
TENANT IMPROVEMENT PLAN
- Carpet: replace all carpet damaged by wall reconstruction and clean
remaining carpet - the new carpet must reasonably match the
existing carpet
- Paint: new paint throughout premises
- Ceiling Tiles: all damaged ceiling tiles to be replaced
- Lighting: lighting fixtures to be added and adjusted to accommodate
new offices
- Air Conditioning Vents: vents to be added and adjusted to accommodate
new offices
- Sprinklers & Security: to be added and adjusted to accommodate new
offices
- Wall additions and demolition: Walls to be added and removed per
attached floor plan. New walls to be constructed with 5/8"
drywall. Glass to be added to interior offices and doors per
floor plan.
- Conduit: lay conduit for phone and computer lines (Big Dog to pull
wires)
<PAGE>
[FLOOR PLAN]
<PAGE>
[FLOOR PLAN]
INTERIOR ELEVATION
<PAGE>
[FLOOR PLAN]
FLOOR PLAN (W/ POWER AND COMMUNICATION PLAN)
<PAGE>
[FLOOR PLAN]
INTERIOR ELEVATION
<PAGE>
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
April 4, 1996, is made by and between Eldred Family Trust & Jason Eldred Trust
("LESSOR") and Big Dog Holdings, Inc., dba Big Dog Sportswear ("LESSEE"),
(collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 25 E. Mason Street (A & B), located in
the City of Santa Barbara, County of Santa Barbara, State of California, with
zip code 93101, as outlined on Exhibit A attached hereto "PREMISES"). The
"BUILDING" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building):
------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the "INDUSTRIAL
CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: Seven (7) reserved vehicle parking spaces ("RESERVED
PARKING SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: See Addendum (Also see Paragraph 3.)
1.4 EARLY POSSESSION: See Addendum ("EARLY POSSESSION DATE"). (Also
see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $7,723.98 per month ("BASE RENT"), payable on the first
day of each month commencing See Addendum (Also see Paragraph 4.)
/X/ If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum A, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $7,723.98 as Base Rent for the
period first month's rent.
1.7 SECURITY DEPOSIT: $7,723.98 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: All allowable uses as permitted by the City of
Santa Barbara ("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see
Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
/ / ___________________________ represents Lessor exclusively ("LESSOR's
BROKER");
/ / ___________________________ represents Lessee exclusively ("LESSEE'S
BROKER"); or
/X/ Pacifica Commercial Realty represents both Lessor and Lessee ("DUAL
AGENCY"). (Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$________) for brokerage services rendered by said Broker(s) in connection with
this transaction.
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1.3, 1.4, 1.5, 2.3, 2.7, 6.5, 7.1, 49 through 54, and
Exhibits A through --, all of which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental is an approximation which Lessor
and Lessee agree is reasonable and the rental and Lessee's Share (as defined in
Paragraph 1.6(b)) based thereon is not subject to revision whether or not the
actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
regulations and ordinances except for building codes & zoning ordinances in
effect on the Commencement Date. Lessor further warrants to Lessee that Lessor
has no knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations, or ordinances
exist with regard to the Premises as of the Commencement Date. Said warranties
shall not apply to any Alterations or Utility Installations (defined in
Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply
with said warranties, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee given within six (6) months
following the Commencement Date and setting forth with specificity the nature
and extent of such non-compliance, take such action, at Lessor's expense, as may
be reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under the Applicable Laws (as defined in Paragraph 2.4) subject to 2.3 of
Addendum.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable municipal, county, state and federal laws, ordinances and regulations
except for building codes & zoning ordinances and any covenants or restrictions
of record (collectively, "APPLICABLE LAWS") and the present and future
suitability of the Premises for Lessee's intended use, (b) that Lessee has made
such investigation as it deems necessary with reference to such matters, is
satisfied with reference thereto, and assumes all responsibility therefor as the
same relate to Lessee's occupancy of the Premises and/or the terms of this Lease
and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or
written representations of warranties with respect to said matters other than as
set forth in this Lease subject to 2.3 of Addendum.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
<PAGE>
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
See Addendum
2.7 COMMON AREAS--DEFINITION. The term "COMMON AREAS" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Industrial Center and interior utility raceways within the Premises
that are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS--LESSEE'S RIGHTS. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers,
contractors, customers and invitees, during the term of this Lease, the
non-exclusive right to use, in common with others entitled to such use, the
Common Areas as they exist from time to time, subject to any rights, powers,
and privileges reserved by Lessor under the terms hereof or under the terms
of any rules and regulations or restrictions governing the use of the
Industrial Center. Under no circumstances shall the right herein granted to
use the Common Areas be deemed to include the right to store any property,
temporarily or permanently, in the Common Areas. Any such storage shall be
permitted only by the prior written consent of Lessor or Lessor's designated
agent, which consent may be revoked at any time. In the event that any
unauthorized storage shall occur then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 COMMON AREAS--RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial Center
to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes in, to or
with respect to the Common Areas and Industrial Center as Lessor may, in the
exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION subject to 1.5 of Addendum. If for any reason
Lessor cannot deliver possession of the Premises to Lessee by the Early
Possession Date, if one is specified in Paragraph 1.4, or if no Early Possession
Date is specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereon, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days after the end of said sixty (60) day period, cancel this
Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the Original Term
actually commences, if possession is not tendered to Lessee when required by
this Lease and Lessee does not terminate this lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to the period during which the Lessee would have otherwise
enjoyed under the terms hereof, but minus any days of delay caused by the acts,
changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges,
as the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is foe less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
-2-
<PAGE>
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security
for Lessee's faithful performance of Lessee's obligations under this Lease.
If Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor
may use, apply use, apply or retain all or any portion of said Security
Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, cost, expense, loss or damage (including
attorneys' fees) which Lessor may suffer or incur by reason thereof. If
Lessor uses or applies all or any portion of said Security Deposit, Lessee
shall within ten (10) days after written request therefore deposit monies
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of
this Lease, Lessee shall, upon written request from Lessor, deposit additional
monies with Lessor as an addition to the Security Deposit sot that the total
amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general
accounts. Lessor shall, at the expiration or earlier termination of the term
hereof and after Lessee has vacated the Premises, return to Lessee (or, at
Lessor's option, to the last assignee, if any, of Lessee's interest herein),
that portion of the Security Deposit not used or applied by Lessor. Unless
otherwise expressly agreed in writing by Lessor, no part of the Security
Deposit shall be considered to be held in trust, to bear interest or other
increment for its use, or to be prepayment for any monies to be paid by
Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit
the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to
the Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not
conflict with uses by other lessees, is not significantly more burdensome to
the Premises or the Building and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days after such request give a
written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to
be on the Premises, is either: (i) potentially injurious to the public
health, safety or welfare, the environment, or the Premises; (ii) regulated
or monitored by any governmental authority; or (iii) a basis for potential
liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substance shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any
products or by-products thereof. Lessee shall not engage in any activity in
or about the Premises which constitutes a Reportable Use (as hereinafter
defined) of Hazardous Substances without the express prior written consent of
Lessor and compliance in a timely manner (at Lessee's sole cost and expense)
with all Applicable Requirements (as defined in Paragraph 6.3). "REPORTABLE
USE" shall mean (i) the installation or use of any above or below ground
storage tank, (ii) the generation, possession, storage, use, transportation,
or disposal of a Hazardous Substance that requires a permit from, or with
respect to which a report, notice, registration or business plan is required
to be filed with, any governmental authority, and (iii) the presence in, on
or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or
occupying the Premises or neighboring properties. Notwithstanding the
foregoing, Lessee may, without Lessor's prior consent, but upon notice
to Lessor and in compliance with all Applicable Requirements, use any
ordinary and customary materials reasonably required to be used by
Lessee in the normal course of the Permitted Use, so long as such use
is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose
Lessor to any liability therefor. In addition, Lessor may (but without any
obligation to do so) condition its consent to any Reportable Use of any
Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to
protect itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability thereof, including but not limited
to the installation (and, at Lessor's option, removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the
deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under
or about the Premises or the Building, other than as previously consented to
by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding
given to, or received from, any governmental authority or private party
concerning the presence, spill, release, discharge of, or exposure to, such
Hazardous Substance including but not limited to all such documents as may be
involved in any Reportable Use involving the Premises. Lessee shall not cause
or permit any Hazardous Substance to be spilled or released in, on, under or
about the Premises (including, without limitation, through the plumbing or
sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorney's and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under
Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultants' and attorneys' fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with
all "APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all
laws, rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene,
(ii) environmental conditions, on, in, under or about the Premises, including
soil and groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage,
spill, or release of any Hazardous Substance), now in effect or which may
hereafter come into effect. Lessee shall, within five (5) days after receipt
of Lessor's written request, provide Lessor with copies of all documents and
information, including but not limited to permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with
any Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of
any threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to comply with
any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the
condition of the Premises and for verifying compliance by Lessee with this
Lease and all Applicable Requirements (as defined in Paragraph 6.3), and
Lessor shall be entitled to employ experts and/or consultants in connection
therewith to advise Lessor with respect to Lessee's activities, including but
not limited to Lessee's installation, operation, use, monitoring,
maintenance, or removal of any Hazardous Substance on or from the Premises.
The costs and expenses of any such inspections shall be paid by the party
requesting same, unless a Default or Breach of this Lease by Lessee or a
violation of Applicable requirements or a contamination, caused or
materially contributed to by Lessee, is found to exist or to be imminent, or
unless the inspection is requested or ordered by a governmental authority as
the result of any such existing or imminent violation or contamination. In
such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as
the case may be, for the costs and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. See 7.1 of Addendum
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall,
at Lessee's sole cost and expense and at all times, keep the Premises and in
good order, condition and repair (whether or not such portion of the Premises
requiring repair, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not he need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of
the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, electrical, lighting facilities, fire hose
connections if within the Premises, fixtures, interior walls, interior
surfaces of exterior walls, ceilings, floors, windows, doors, plate glass,
and but excluding any items which are the responsibility of Lessor pursuant
to Paragraph 7.2 below. Lessee, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance practices.
Lessee's obligations shall include restorations, replacements or renewals
when necessary to keep the Premises and all improvements thereon or a part
thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance
for and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation
system for the Premises. However, Lessor reserves the right, upon notice to
Lessee, to procure and maintain the contract for the heating, and if Lessor
so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case
no notice shall be required), perform such obligations on Lessee's behalf,
and put the Premises in good order, condition and repair, in accordance with
Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), shall keep in good order,
condition and repair the foundations, exterior walls, structural condition of
interior walls, roof, fire sprinkler and/or standpipe and hose (if located in
the Common Areas) or other automatic fire extinguishing system including fire
alarm and/or smoke detection
-3-
<PAGE>
systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not be obligated to paint the exterior or interior surfaces of exterior walls
nor shall Lessor be obligated to maintain, repair or replace windows, doors
or plate glass of the Premises. Lessee expressly waives the benefit of any
statute now or hereafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminated this Lease because
of Lessor's failure to keep the Building, Industrial Center or Common areas
in good order, condition and repair. There is no air-conditioning,
ventilation, boilers, & skylights.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipments,
plumbing, and fencing in, on or about the Premises. The term "TRADE
FIXTURES" shall mean Lessee's machinery and equipment which can be removed
without doing material damage to the Premises. The term "ALTERATIONS" shall
mean any modification of the improvements on the Premises which are provided
by Lessor under the terms of this Lease, other than Utility Installations or
Trade Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are
defined as Alterations and/or Utility Installations made by Lessee that are
not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make
nor cause to be made any Alterations or Utility Installations in, on, under
or about the Premises without Lessor's prior written consent. Lessee may,
however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without Lessor's consent but upon notice to
Lessor, so long as they are not visible from the outside of the Premises, do
not involve puncturing, relocating or removing the roof or any existing
walls, or changing or interfering with the fire sprinkler or fire
detection systems and the cumulative cost thereof during the term of this
Lease as extended does not exceed $2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given
by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities; (ii) the furnishing
of copies of such permits together with a copy of the plans and
specifications for the Alteration or Utility Installation to Lessor prior to
commencement of the work thereon; and (iii) the compliance by Lessee with all
conditions of said permits in a prompt and expeditious manner. Any
Alterations or Utility Installations by Lessee during the term of this Lease
shall be done in a good and workmanlike manner, with good and sufficient
materials, and be in compliance with all Applicable Requirements. Lessee
shall promptly upon completion thereof furnish Lessor with as-built plans and
specifications therefor. Lessor may, (but without obligation to do so)
condition its consent to any requested Alterations or Utility Installation
that costs $2,500.00 or more upon Lessee's providing Lessor with a lien and
completion bond in an amount equal to one and one-half times the estimated
cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at
or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on, or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense, defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises. If
Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the
amount of such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorneys' fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in
this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but
considered a part of the Premises. Lessor may, at any time and at its
option, elect in writing to Lessee to be the owner of all or any specified
part of the Lessee-Owned Alterations and Utility Installations. Unless
otherwise instructed per Subparagraph 7.4(b) hereof, all Lessee-Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of this Lease, become the property of Lessor and remain upon the
Premises and be surrendered with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed
by the expiration or earlier termination of this Lease, notwithstanding that
their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under
this Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by
the installation, maintenance or removal of Lessee's Trade Fixtures,
furnishings, equipment, and Lessee-Owned Alterations and Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by
Applicable Requirements and/or good practice. Lessee's Trade Fixtures shall
remain the property of Lessee and shall be removed by Lessee subject to its
obligation to repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is defined as
any increase in the actual cost of the insurance applicable to the Building
and required to be carried by Lessor pursuant to Paragraphs 8.2(b), 8.3(a)
and 8.3(b), ("REQUIRED INSURANCE"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost
Increase" shall include, but not be limited to, requirements of the holder of
a mortgage or deed of trust covering the Premises, increased valuation of the
Premises, and/or a general premium rate increase. The term "Insurance Cost
Increase" shall not, however, include any premium increases resulting from
the nature of the occupancy of any other lessee of the Building. If the
parties insert a dollar amount in Paragraph 1.9, such amount shall be
considered the "BASE PREMIUM." If a dollar amount has not been inserted in
Paragraph 1.9 and if the Building has been previously occupied during the
twelve (12) month period immediately preceding the Commencement Date, the
"Base Premium" shall be the annual premium applicable to such twelve (12)
month period. If the Building was not fully occupied during such twelve (12)
month period, the "Base Premium" shall be the lowest annual premium
reasonably obtainable for the Required Insurance as of the Commencement Date,
assuming the most nominal use possible of the Building. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant
to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of
the ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence
with an "Additional Insured-Managers or Lessors of Premises" endorsement and
contain the "Amendment of the Pollution Exclusion" endorsement for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "INSURED CONTRACT" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of
Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to any Lender(s), insuring against
loss or damage to the Premises. Such insurance shall be for full replacement
cost, as the same shall exist from time to time, or the amount required by
any Lender(s), but in no event more than the commercially reasonable and
available insurable value thereof if, by reason of the unique nature or age
of the improvements involved, such latter amount is less than full
replacement cost. Lessee-Owned Alterations and Utility Installations, Trade
Fixtures and Lessee's personal property shall be insured by Lessee pursuant
to Paragraph 8.4. If the coverage is available and commercially appropriate,
Lessor's policy or policies shall insure against all risks of direct physical
loss or damage (except the perils of flood and/or earthquake unless required
by a Lender or included in the Base Premium), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or policies shall also
contain an agreed valuation provision in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protecton causing an increase in
the annual property insurance coverage amount by a factor of not less than
the adjusted U.S. Department of Labor Consumer Price Index for All Urban
Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area
Operating Expenses and any scheduled rental increases). Said insurance may
provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of completion of repairs or replacement of the Premises, to provide for
one full year's loss of rental revenues from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any
co-insurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, Real Property Taxes, insurance premium
costs and other expenses, if any, otherwise payable, for the next 12-month
period. Common Area Operating Expenses shall include any deductible amount
in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas
or other buildings in the Industrial Center if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
-4-
<PAGE>
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee
for the replacement or personal property and the restoration of Trade Fixtures
and Lessee-Owned Alterations and Utility Installations. Upon request from
Lessor, Lessee shall provide Lessor with written evidence that such insurance is
in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not
do or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by
the amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss or rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid
any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except to the extent attributable
to an act or omission of Lessor or its agents or employees. Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not, Lessor
shall not be liable for any damages arising from any act or neglect of any other
Lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty (50%) or more of the then
Replacement Cost of the Premises (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE--INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. if
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within
such ten (10) day period, and if Lessor does not so elect to restore and
repair, then this Lease shall terminate sixty (60) days following the occurrence
of the damage or destruction. Unless otherwise agreed, Lessee shall in no event
have any right to reimbursement from Lessor for any funds contributed by Lessee
to repair any such damage or destruction. Premises Partial Damage due to flood
or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or
satisfactory assurance thereof within thirty (30) days following such commitment
from Lessee. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
after the required funds are available. If Lessee does not give such notice and
provide the funds or assurance thereof within the times specified above, this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is as Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with fund (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges,
if any, as aforesaid, all other obligations of Lessee hereunder shall be
performed by Lessee, and Lessee shall have no claim against Lessor for any
damage suffered by reason of any such damage, destruction, repair, remediation
or restoration.
-5-
<PAGE>
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent of $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds
or assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION--ADVANCED PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include any
form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be the
amount of Real Property Taxes, which are assessed against the Premises, Building
or Common Areas in the calendar year during which the Lease is executed. In
calculating Real Property Taxes for any calendar year, the Real Property Taxes
for any real estate tax year shall be included in the calculation of Real
Property Taxes for such calendar year based upon the number of days which such
calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas, water, trash collection, and cleaning of the Premises, together
with any taxes thereon. If any such utilities or services are not separately
metered to the Premises or separately billed to the Premises, Lessee shall pay
to Lessor a reasonable proportion to be determined by Lessor of all such charges
jointly metered or billed with other premises in the Building within 30 days
after a reasonably detailed statement of actual expenses is presented to Lessee
by Lessor.
-6-
<PAGE>
12. This Lease may be assigned by Lessee to any entity which acquires
substantially all assets of Lessee or any entity which is a subsidiary without
consent of Lessor.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said default. A "DEFAULT" by
Lessee is defined as a failure by Lessee to observe, comply with or perform
any of the terms, covenants, conditions or rules applicable to Lessee under
the Lease. A "BREACH" by Lessee is defined as the occurrence of any one or
more of the following Defaults, and, where a grace period for cure after
notice is specified herein, the failure by Lessee to cure such Default prior
to the expiration of the applicable grace period, and shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor
with reasonable evidence of insurance or surety bond required under this
Lease, or the failure of Lessee to fulfill any obligation under this Lease
which endangers or threatens life or property, where such failure continues
for a period of ten (10) days following written notice thereof by or on
behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination
of this Lease per Paragraph 30, (vi) the guaranty of the performance of
Lessee's obligations under this Lease if required under Paragraphs 1.11 and
37, (vii) the execution of any document requested under Paragraph 42
(easements), or (viii) any other documentation or information which Lessor
may reasonably require of Lessee under the terms of this lease, where any
such failure continues for a period of ten (10) days following written notice
by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than
those described in Subparagraphs 13.1(a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice
thereof by or on behalf of Lessor to Lessee; provided, however, that if the
nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach
of this Lease by Lessee if Lessee commences such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code
Section 101 or any successor thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where possession is not restored to Lessee within thirty (30) days; or
(iv) the attachment, execution or other judicial seizure of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this Subparagraph
13.1(e) is contrary to any applicable law, such provision shall be of no
force or effect, and shall not affect the validity of the remaining
provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) following
written notice by or on behalf of Lessor to Lessee of any such event, to
provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its own option, may require all future payments to be made under
this Lease by Lessee to be made only by cashier's check. In the event of a
Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee: (i) the worth
at the time of the award of the unpaid rent which had been earned at the time
of termination; (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of any leasing commission paid by Lessor in connection
with this Lease applicable to the unexpired term of this Lease. The worth at
the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount
at the discount rate of the Federal Reserve Bank of San Francisco or the
Federal Reserve Bank District in which the Premises are located at the time
of award plus one percent (1%). Efforts by Lessor to mitigate damages caused
by Lessee's Default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph 13.2. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall
have the right to recover in such pro-
-7-
<PAGE>
ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by Subparagraph 13.1(b), (c) or (d). In such case, the applicable
grace period under the unlawful detainer statute shall run concurrently after
the one such statutory notice, and the failure of Lessee to cure the Default
within the greater of the two (2) such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right
to sublet or assign, subject only to reasonable limitations. Lessor and
Lessee agree that the limitations on assignment and subletting in this Lease
are reasonable. Acts of maintenance or preservation, efforts to relet the
Premises, or the appointment of a receiver to protect the Lessor's interest
under this Lease, shall not constitute a termination of this Lessee's right
to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for
the giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS"
shall be deemed conditioned upon Lessee's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended. Upon
the occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by
Lessee, any such Inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid by
Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor, as additional rent
due under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph 13.3 shall not be deemed a waiver
by Lessor of the provisions of this Paragraph 13.3 unless specifically so
stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering
the Premises. Accordingly, if any installment of rent or other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by any Lender(s) whose name and address shall have been
furnished to Lessee in writing for such purpose, of written notice specifying
wherein such obligation of Lessor has not been performed; provided, however,
that if the nature of Lessor's obligation is such that more than thirty (30)
days after such notice are reasonably required for its performance, then
Lessor shall not be in breach of this Lease if performance is commenced
within such thirty (30) day period and thereafter diligently pursued to
completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken
under the power of eminent domain or sold under the threat of the exercise of
said power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the portion of the Common Areas designated for Lessee's parking, is
taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If
Lessee does not terminate this Lease in accordance with the foregoing, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in the same proportion
as the rentable floor area of the Premises taken bears to the total rentable
floor area of the Premises. No reduction of Base Rent shall occur if the
condemnation does not apply to any portion of the Premises. Any award for the
taking of all or any part of the Premises under the power of eminent domain
or any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution of value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation, separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal
and other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed
in writing, Lessor agrees that: (a) if Lessee exercises any Option (as
defined in Paragraph 39.1) granted under this Lease or any Option
subsequently granted, or (b) if Lessee acquires any rights to the Premises
or other premises in which Lessor has an interest, or (c) if Lessee remains
in possession of the Premises with the consent of Lessor after the expiration
of the term of this Lease after having failed to exercise an Option, or (d)
if said Brokers are the procuring cause of any other lease or sale entered
into between the Parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, or (e) if Base Rent is increased,
whether by agreement or operation of an escalation clause herein, then as to
any of said transactions, Lessor shall pay said Broker(s) a fee in accordance
with the schedule of said Broker(s) in effect at the time of the execution of
this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation
of law, shall be deemed to have assumed Lessor's obligation under this
Paragraph 15. Each Broker shall be an intended third party beneficiary of the
provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of its
interest in any commission arising from this Lease and may enforce that right
directly against Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with
the negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm, or entity
other than said named Broker(s) is entitled to any commission or finder's fee
in connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such
unnamed broker, finder or other similar party by reason of any dealings or
actions of the indemnifying Party, including any costs, expenses, and/or
attorneys' fees reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within
ten (10) days after written notice from the other Party (the "REQUESTING
PARTY") execute, acknowledge and deliver to the Requesting Party a statement
in writing in a form similar to the then most current "TENANCY STATEMENT"
form published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In
the event of a transfer of Lessor's title or interest in the Premises or in
this Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15.3, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid,
the prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in
this Lease to be performed by the Lessor shall be binding only upon the
Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10)
days following the date on which it was due, shall bear interest from the
date due at the prime rate charged by the largest state chartered bank in the
state in which the Premises are located plus two percent (2%) per annum, but
not exceeding the maximum rate allowed by law, in addition to the potential
late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
-8-
<PAGE>
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may by written notice to
the other specify a different address for notice purposes, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail, the notice shall be deemed given forty-eight (48) hours
after the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any Default or Breach by Lessee of any provision hereof. Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages
due Lessor, notwithstanding any qualifying statements or conditions made by
Lessee in connection therewith, which such statements and/or conditions shall
be of no force or effect whatsoever unless specifically agreed to in writing
by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgement. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of
Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign
on the Premises by or for Lessee shall be subject to the provisions of Paragraph
7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and Information required in
Paragraph 16.
-9-
<PAGE>
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of separate Defaults
under Paragraph 13.1 during the twelve (12) month period immediately
preceding the exercise of the Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
-10-
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW
THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT,
AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE
CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE
PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS
SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES
OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS
LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<CAPTION>
<S> <C>
Executed at: Santa Barbara, CA Executed at: Santa Barbara, CA
--------------------------------- --------------------------------
on: April 16, 1996 on: 4/15/96
------------------------------------------ -----------------------------------------
By LESSOR: By LESSEE:
Santa Barbara Storage Big Dog Holdings, Inc.
- --------------------------------------------- --------------------------------------------
Big Dog Sportswear
- --------------------------------------------- --------------------------------------------
By: David E. Eldred By: Anthony Wall
------------------------------------------ -----------------------------------------
Name Printed: David E. Eldred Name Printed: Anthony Wall
-------------------------------- -------------------------------
Title: Trustee Eldred Family Trust of 4-21-94 Title: Senior Vice President
--------------------------------------- --------------------------------------
By: By:
------------------------------------------ -----------------------------------------
Name Printed: Name Printed:
-------------------------------- -------------------------------
Title: Title:
--------------------------------------- --------------------------------------
Address: P.O. Box 5717 Address: 121 Gray Avenue
------------------------------------- ------------------------------------
Santa Barbara, CA 93150 Santa Barbara, CA
- --------------------------------------------- --------------------------------------------
Telephone: (805) 684-7257 Telephone: (805) 963-8727
----------------------------------- ----------------------------------
Facsimile: (805) 684-4704 Facsimile: (805) 962-9460
----------------------------------- ----------------------------------
BROKER: Pacifica Commercial Realty BROKER: Pacifica Commercial Realty
Executed at: Executed at:
--------------------------------- --------------------------------
on: on:
------------------------------------------ -----------------------------------------
By: By:
------------------------------------------ -----------------------------------------
Name Printed: Robert Tuler Name Printed: Francois DeJohn
-------------------------------- -------------------------------
Title: Associate Vice President Title: Agent Associate
--------------------------------------- --------------------------------------
Address: 1033 Anacapa Street Address: 1033 Anacapa Street
------------------------------------- ------------------------------------
Santa Barbara, CA 93101 Santa Barbara, CA 93101
- --------------------------------------------- --------------------------------------------
Telephone: (805) 899-2400 Telephone: (805) 899-2400
----------------------------- ----------------------------
Facsimile: (805) 899-2424 Facsimile: (805) 899-2424
----------------------------- ----------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 South
Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777.
-11-
<PAGE>
ADDENDUM A
DATED: April 4, 1996
BY AND BETWEEN: (LESSOR) Eldred Family Trust & Jason Eldred Trust
(LESSEE) Big Dog Holdings, Inc. dba Big Dog Sportswear
PROPERTY ADDRESS: 25 E. Mason Street (A & B), Santa Barbara
1.3 The "Original Term" shall be from June 1, 1996 until December 31, 1997
("Expiration Date.")
1.4 "The LESSEE shall be allowed occupancy upon completion of LESSOR
improvements as outlined in Paragraph 49." LESSEE may terminate this Lease if
the LESSOR improvements are not completed, and the Premises is not ready for
occupancy by July 31, 1996.
1.5 "... thirty (30) days after completion of 'LESSOR improvements.' In the
event the LESSOR's improvements are not completed by June 1, 1996, the then
LESSEE'S base monthly rent in paragraph 1.5 shall commence forty-five (45)
days after completion of LESSOR's improvements (the "rent commencement date").
2.3 CONDITION OF THE PREMISES. The LESSOR shall remove any improvements
that are required to be removed by the City of Santa Barbara. However, the
City has informed LESSEE that it will allow the improvements on the mezzanine
in 25A and 25B to remain and for Big Dog Sportswear to occupy such space for
office and/or light industrial use as long as the total floor space of such
mezzanine improvements and all other mezzanine improvements in the entire
building do not exceed one-third of the total footage of the first floor of
the building. LESSOR shall agree to remove all mezzanine improvements in the
building other than in 25A and 25B so that the mezzanine improvements in 25A
and 25B constitute the only mezzanine improvements in the building and are
less than one-third of the footage of the first floor. After removing such
mezzanine improvements outside of 25A and 25B, LESSOR agrees that, unless the
approval of the City is obtained, LESSOR will not reconstruct mezzanine
improvements in the building or take any other action within or relating to
the building during the term of the lease which results in the City requiring
removal of all or part of the mezzanine improvements in 25A and 25B. LESSOR
shall, at its expense, promptly (i) prepare and submit to the City an
application for a conditional use permit or other permits necessary for
LESSEE to occupy the first floor and mezzanine space in 25A and 25B for
LESSEE'S office and light industrial use, (ii) prepare and submit to the City
all necessary seismic plans and permit applications covering such first floor
and mezzanine improvements and (iii) complete all required seismic work in
the leased premises prior to LESSEE'S occupancy.
2.7. Common area as defined in 2.7 shall be the two common bathrooms, as
shown in Exhibit A, which LESSOR shall maintain weekly. A higher level of
maintenance shall be the obligation of LESSEE.
6.5 LESSOR'S COMPLIANCE. Lessor warrants that to his knowledge as of the
date of delivery of possession of the premises to Lessee and throughout the
term of this Lease, the Premises and the Building have not and will not be in
violation of any federal, state or local law, ordinance or regulation
relating to industrial hygiene or to the environmental conditions, under or
about the Premises and the Building including, but not limited to, soil and
ground water conditions. As of such delivery date, neither Lessor nor, to the
best of Lessor's knowledge, any third party has used, generated,
manufactured, produced, stored or disposed of on, under or about the Premises
or the Building or transported to or from the Premises or Building any
Hazardous Substances. There is no proceeding or inquiry by any governmental
authority with respect to the presence of any Hazardous Substances on the
Premises or the Building or the migration thereof from or to other property.
Lessor shall indemnify, defend and hold Lessee harmless against any and all
claims, judgments, damages, penalties, fines, costs, liabilities or losses
(including, without limitation sums paid in settlement of claims, attorneys'
fees, consultant fees and expert fees) which arise during or after the term
of this Lease from or in connection with the Hazardous Substances and the
occurrence in question, unless such is caused by Lessee.
<PAGE>
In the event that at any point in time the Premises and/or the Building are
determined to contain Hazardous Substances, and Lessor refuses to mitigate or
remove same, Lessee shall have the right to remove, encapsulate, contain, or
otherwise dispose of such Hazardous Substances, and the cost incurred by
Lessee in connection therewith shall be reimbursed by Lessor to Lessee within
30 business days after receipt by Lessor from Lessee of an invoice
documenting such costs. Notwithstanding anything contained herein to the
contrary, Lessee shall not be obligated to perform such removal,
encapsulation or disposal and nothing contained herein shall in any way
derogate, diminish or otherwise affect Lessee's rights at equity, at law or
otherwise under this Lease.
7.1 LESSEE'S obligation to repair the Premises pursuant to 7.1 (a) & (b)
shall not commence until the expiration of twelve (12) months after LESSEE'S
occupancy of all the Premises. Until then, the LESSOR shall repair the
Premises pursuant to 7.1 (a) & (b).
49. LESSOR IMPROVEMENTS: The LESSOR shall install a roll-up door to cover
the elevator shaft opening, as shown in Exhibit A as well as the
improvements set forth in 2.3 of this Addendum.
50. OPTIONS TO EXTEND: LESSOR hereby grants to LESSEE the option to extend
the term of this Lease for two additional periods with the first option
period for nineteen (19) months commencing January 1, 1998 and expiring
July 31, 1999, and the second option period commencing August 1, 1999, expiring
July 31, 2004.
(i) LESSEE gives to LESSOR, and LESSOR actually receives on a date which
is prior to the date that the option period would commence (if exercised) by
at least four (4) months, a written notice of the exercise of the option(s)
to extend this Lease for said additional term(s), time being of essence. If
said notification of the exercise of said option(s) is (are) not so given and
received, the option(s) shall automatically expire; said option(s) may (if
more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating to
default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where specifically
modified by this option shall apply;
(iv) The monthly rent for each month of the second (2nd) option period
beginning August 1, 1999 shall be calculated as follows, using the method(s)
indicated below (refer to paragraph 51):
(v) BROKER'S FEE: The Real Estate Brokers specified in paragraph 1.10 of
the attached Lease shall be paid a Brokerage Fee for each adjustment
specified above in accordance with paragraph 15 of the attached Lease.
51. COST OF LIVING ADJUSTMENTS:
(a) On August 1, 1999 and on each August 1st thereafter, the monthly
rent payable under paragraph 1.5 ("Base Rent") of the attached Lease shall be
adjusted by the change, if any, from the Base Month specified below, in the
Consumer Price Index of the bureau of Labor Statistics of the U.S. Department
of Labor for CPI U (All Urban Consumers), for L.A./Anaheim/Riverside, All
Items (1982-1984=100), herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph 51(a) of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph
1.5 of the attached Lease, shall be multiplied by a fraction the numerator of
which shall be the C.P.I. of the calendar month two (2) months prior to the
month(s) specified in paragraph 51(a) above during which the adjustment is to
take effect, and the denominator of which shall be the C.P.I of the calendar
month of two (2) months prior to the rent commencement date (base month). The
sum so calculated shall constitute the new monthly rent hereunder, but in no
event, shall any such new monthly rent be less than the rent payable for the
month immediately preceding the date for rent adjustment.
(c) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I.
shall be used to make such calculation. In the event that LESSOR and LESSEE
cannot agree on such alternative index, then the matter shall be submitted
for decision to the American Arbitration Association in accordance with the
then rules of said association and the decision of the arbitrators shall be
binding upon the parties. The cost of said Arbitrators shall be paid equally
by LESSOR and LESSEE.
52. ADDITIONAL OFF-SITE PARKING: The LESSEE shall be responsible for making
arrangements and pay for any additional off-street parking required for
LESSEE'S use of the space.
53. Lessee acknowledges and agrees that the leased premises shall be
classified as storage space. Lessor shall apply to the City of Santa Barbara
for permits which would authorize the use
<PAGE>
of the leased premises for Lessee's light industrial and office uses. In the
event that said permit applications are denied, Lessee agrees that its use of
the leased premises shall be restricted to storage use and at Lessee's option
it may terminate the Lease by giving 30 days written notice.
54. Lessee recognizes that Lessor expects to perform seismic work and
construction in areas in the Building adjacent to the Premises after the
commencement date. Lessor shall use it reasonable best efforts to complete
such work as soon as practicable and to perform such work in a manner which
does not interfere with the conduct of Lessee's business, If such work does
in the reasonable determination of Lessee materially interfere with the
conduct of Lessee's business in the Premises, Tenant shall be entitled to an
abatement of Base Rent until such condition has been eliminated.
/s/ Anthony Wall /s/ David E. Eldred April 16, 1996
- -------------------------------------- ---------------------------------------
LESSEE Date LESSOR Date
S. Vice President Trustee Eldred Family Trust of 4-21-94
<PAGE>
EXHIBIT A
DATED: April 4, 1996
BY AND BETWEEN: (LESSOR) Eldred Family Trust & Jason Eldred Trust
(LESSEE) Big Dog Holdings, Inc. dba Big Dog Sportswear
PROPERTY ADDRESS: 25 E. Mason Street (A & B), Santa Barbara
[FLOOR PLAN]
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into
as of__________, 1997 by and between Big Dog Holdings, Inc., a Delaware
corporation (the "Company"), and _______________ ("Indemnitee").
WHEREAS, Indemnitee, a member of the Board of Directors or an officer,
employee or agent of the Company, performs a valuable service in such capacity
for the Company;
WHEREAS, the stockholders of the Company have adopted Bylaws (the "Bylaws")
providing for the indemnification of the officers, directors, employees and
agents of the Company to the maximum extent authorized by the Delaware General
Corporation Law, as amended (the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Company and the members of its Board of Directors,
officers, employees or agents with respect to indemnification of such directors,
officers, employees or agents;
WHEREAS, in accordance with the authorization as provided by the Code, the
Company either has purchased and presently maintains or intends to purchase and
maintain a policy or policies of Directors and Officers Liability Insurance
("D & O Insurance") covering certain liabilities which may be incurred by its
directors and officers in the performance of their duties as directors and
officers of the Company;
WHEREAS, as a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded members of the Board of Directors or officers,
employees or agents by such D & O Insurance and by statutory and bylaw
indemnification provisions; and
WHEREAS, in order to induce Indemnitee to continue to serve as a member of
the Board of Directors, officer, employee or agent of the Company, the Company
has determined and agreed to enter into this contract with Indemnitee.
NOW, THEREFORE, in consideration of Indemnitee's continued service as a
director, officer, employee or agent after the date hereof, and for other good
and valid consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. INDEMNIFICATION OF INDEMNITEE. The Company hereby agrees to
hold harmless and indemnify Indemnitee to the fullest extent authorized or
permitted by the provisions of the Code, as may be amended from time to time.
<PAGE>
2. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth
in Sections 3 and 6(c) hereof, the Company hereby further agrees to hold
harmless and indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of the Company) to which
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Indemnitee is, was or at any time becomes a
director, officer, employee or agent of the Company or any subsidiary of the
Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise;
and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Company under the non-exclusivity provisions of Article 5 of
the Bylaws of the Company and the Code.
3. LIMITATIONS ON ADDITIONAL INDEMNITY.
(a) No indemnity pursuant to Section 2 hereof shall be paid by
the Company:
i) in respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
ii) on account of any suit in which judgment is rendered
against Indemnitee for an accounting of profits made from the purchase or sale
by Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law; on account of
Indemnitee's conduct which is finally adjudged to have been knowingly fraudulent
or deliberately dishonest or to constitute willful misconduct;
iii) on account of Indemnitee's conduct which is the subject
of an action, suit or proceeding described in Section 6(c)(ii) hereof;
iv) on account of any action, claim or proceeding (other
than a proceeding referred to in Section 7(b) hereof) initiated by the
Indemnitee unless such action, claim or proceeding was authorized in the
specific case by action of the Board of Directors;
v) if a final decision by a Court having jurisdiction in
the matter shall determine that such indemnification is not lawful (and, in this
respect, both the
<PAGE>
Company and Indemnitee have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); and
vi) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of (a) such losses for which the
Indemnitee is indemnified pursuant to Section 1 hereof and (b) any additional
amount paid to the Indemnitee pursuant to any D & O Insurance purchased and
maintained by the Company.
vii) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of (a) such losses for which the
Indemnitee is indemnified pursuant to Section 1 hereof and (b) any additional
amount paid to the Indemnitee pursuant to any D & O Insurance purchased and
maintained by the Company.
(b) No indemnity pursuant to Section 1 or 2 hereof shall be paid
by the Company if the action, suit or proceeding with respect to which a claim
for indemnity hereunder is made arose from or is based upon any of the
following:
i) Any solicitation of proxies by Indemnitee, or by a
group of which he was or became a member consisting of two or more persons that
had agreed (whether formally or informally and whether or not in writing) to act
together for the purpose of soliciting proxies, in opposition to any
solicitation of proxies approved by the Board of Directors.
ii) Any activities by Indemnitee that constitute a breach
of or default under any agreement between Indemnitee and the Company.
4. CONTRIBUTION. If the indemnification provided in Sections 1 and
2 hereof is unavailable by reason of a Court decision described in Section
3(a)(vi) hereof based on grounds other than any of those set forth in paragraphs
(i) through (v) of Section 3 (a) hereof, then in respect of any threatened,
pending or completed action, suit or proceeding in which the Company is jointly
liable with Indemnitee (or would be if joined in such action, suit or
proceeding), the Company shall contribute to the amount of expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and Indemnitee on the other hand from the transaction from which such
action, suit or proceeding arose, and (ii) the relative fault of the Company on
the one hand and of Indemnitee on the other in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of Indemnitee on the other shall be determined by reference
to, among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such expenses, judgments, fines or settlement amounts. The Company agrees that
it would not be just and
<PAGE>
equitable if contribution pursuant to this Section 4 were determined by pro
rata allocation or any other method of allocation which does not take account
of the foregoing equitable considerations.
5. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Indemnitee of notice of the commencement of any action,
suit or proceeding, Indemnitee shall, if a claim in respect thereof is to be
made against the Company under this Agreement, notify the President of the
Company of the commencement thereof; but Indemnitee's omission so to notify the
Company will not relieve the Company from any liability which it may have to
Indemnitee otherwise than under this Agreement. The Company shall promptly
acknowledge the notice from the Indemnitee. With respect to any such action,
suit or proceeding as to which Indemnitee notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at its
own expense.
(b) Except as otherwise provided below, to the extent that it
may wish, the Company shall, jointly with any other indemnifying party similarly
notified, be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee. After notice from the Company to Indemnitee of its
election to assume the defense thereof, the Company will not be liable to
Indemnitee under this Agreement for any legal or other expenses subsequently
incurred by Indemnitee in connection with the defense thereof, other than
reasonable costs of investigation or as otherwise provided below. Indemnitee
shall have the right to employ its own counsel in such action, suit or
proceeding, but the fees and expenses of such counsel incurred after notice from
the Company of the Company's assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Company; (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and Indemnitee in
the conduct of the defense of such action; or (iii) the Company shall not in
fact have employed counsel to assume the defense of such action; in each of
which cases the fees and expenses of Indemnitee's separate counsel shall be paid
by the Company. The Company shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of the Company or as to which
Indemnitee shall have made the conclusion provided for in (ii) above.
(c) The Company shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall be permitted to settle
any action except that it shall not settle any action or claim in any manner
which would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent. Neither the Company nor Indemnitee will unreasonably withhold
its consent to any proposed settlement.
6. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Indemnitee employs his or her own counsel
pursuant to Sections 5(b)(i) through (iii) above, the Company shall advance to
Indemnitee, prior
<PAGE>
to any final disposition of any threatened or pending action, suit or
proceeding, whether civil, criminal, administrative or investigative, any and
all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten
(10) days after receiving from Indemnitee copies of invoices presented to
Indemnitee for such expenses.
(b) Indemnitee agrees that Indemnitee will reimburse the Company
for all reasonable expenses paid by the Company in investigating or defending
any civil or criminal action, suit or proceeding against Indemnitee in the event
and only to the extent it shall be ultimately determined by a final judicial
decision (from which there is no right of appeal) that Indemnitee is not
entitled, under the provisions of the Code, the Bylaws, this Agreement or
otherwise, to be indemnified by the Company for such expenses.
(c) Notwithstanding the foregoing, the Company shall not be
required to advance such expenses to Indemnitee in respect of any action arising
from or based upon any of the matters set forth in subsection (b) of Section 3
or if Indemnitee (i) commences any action, suit or proceeding as a plaintiff
unless such advance is specifically approved by a majority of the Board of
Directors or (ii) is a party to an action, suit or proceeding brought by the
Company and approved by a majority of the Board which alleges willful
misappropriation of corporate assets by Indemnitee, disclosure of confidential
information in violation of Indemnitee's fiduciary or contractual obligations to
the Company, or any other willful and deliberate breach in bad faith of
Indemnitee's duty to the Company or its shareholders.
7. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the Company
hereby in order to induce Indemnitee to continue as a director, officer,
employee or other agent of the Company, and acknowledges that Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) In the event Indemnitee is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is successful
in such action, the Company shall reimburse Indemnitee for all Indemnitee's
reasonable fees and expenses, including attorney's fees, in bringing and
pursuing such action.
8. SUBROGATION. In the event of payment under this agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
9. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
the Company contained herein shall commence upon the date that Indemnitee first
became a member of the Board of Directors or an officer, employee or agent of
the Company, as the case may be, and shall continue during the period Indemnitee
is a director, officer, employee or agent of the
<PAGE>
Company (or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that Indemnitee was a
director, officer, employee or agent of the Company or serving in any other
capacity referred to herein.
10. SURVIVAL OF RIGHTS. The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of the Company and shall inure to the benefit of
Indemnitee's heirs, executors and administrators.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee by
this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquire under any statute, provision of the Company's
Certificate of Incorporation or Bylaws, agreement, vote of stockholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office; provided, however, that this
Agreement shall supersede and replace any prior indemnification agreements
entered into by and between the Company and Indemnitee and that any such prior
indemnification agreement shall be terminated upon the execution of this
Agreement.
12. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any or
all of the provisions hereof shall be held to be invalid or unenforceable for
any reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof or the obligation of the Company
to indemnify the Indemnitee to the full extent provided by the Bylaws or the
Code.
13. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware.
14. BINDING EFFECT. This Agreement shall be binding upon Indemnitee
and upon the Company, its successors and assigns, and shall inure to the benefit
of Indemnitee, his or her heirs, personal representatives and assigns and to the
benefit of the Company, its successors and assigns.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is in
writing and is signed by both parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
BIG DOG HOLDINGS, INC.
a Delaware corporation
By:
------------------------------------
------------------------------------
INDEMNITEE
---------------------------------------
---------------------------------------
(Print Name)
Address:
------------------------------
------------------------------
------------------------------
<PAGE>
EXHIBIT 11.1
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Seven Months
Ended Year Ended Six Months Ended
December 31, December 31, June 30,
------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 9,000,000 9,000,000 9,000,000 9,503,000 9,976,000 9,799,000 10,211,000
Assumed exercise of dilutive
options and warrants using the
treasury stock method 225,000 225,000 225,000 225,000 254,000 239,000 280,000
Weighted average number
common and common share ------------------------------------------------------------------------------------------------
equivalents outstanding 9,225,000 9,225,000 9,225,000 9,728,000 10,230,000 10,038,000 10,491,000
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Net income (loss) $ (544,000) $ (54,000) $ 392,000 $ 638,000 $ 635,000 $(1,540,000) $(1,803,000)
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Net income (loss) per common
and common share equivalents
outstanding $ (0.06) $ (0.01) $ 0.04 $ 0.07 $ 0.06 $ (0.15) $ (0.17)
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SUBSIDIARIES OF BIG DOG HOLDINGS, INC.
Big Dog USA, Inc.
Big Dog International, Inc.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Big Dog Holdings,
Inc. on Form S-1 of our report dated January 31, 1997, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial and Operating Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
August 6, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BIG DOG
HOLDINGS, INC., CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND
THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY AND CASH
FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996. AND IS QUALIFIED IN ITS ENTIRETY BE
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1997 JUN-30-1997
<CASH> 723 1650
<SECURITIES> 0 0
<RECEIVABLES> 443<F1> 735
<ALLOWANCES> (90) (99)
<INVENTORY> 15403 18763
<CURRENT-ASSETS> 17718 29890
<PP&E> 10774<F1> 12597
<DEPRECIATION> (3029) (4057)
<TOTAL-ASSETS> 32976 32967
<CURRENT-LIABILITIES> 13160 13160
<BONDS> 0 0
0 0
0 0
<COMMON> 102 102
<OTHER-SE> 6040 4237
<TOTAL-LIABILITY-AND-EQUITY> 32976 4339
<SALES> 68683 31143
<TOTAL-REVENUES> 68683 31143
<CGS> 29720 13208
<TOTAL-COSTS> 65966<F2> 99089
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 174 14
<INTEREST-EXPENSE> 1647 967
<INCOME-PRETAX> 2717 (1940)
<INCOME-TAX> 435 (1104)
<INCOME-CONTINUING> 0 (2907)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 635 (1803)
<EPS-PRIMARY> .06 (.17)
<EPS-DILUTED> 0 0
<FN>
<F1>Receivable and PP&E are shown gross before deduction of reserves
<F2>Included in cost of sales is the loss provision for doubtful accounts
</FN>
</TABLE>
