Exhibit 10.1


    
      

    

    Execution
      Copy

     

    CONVERTIBLE
      NOTE PURCHASE AGREEMENT

    


    This
      Convertible Note Purchase Agreement (the “Agreement”)
      is
      made as of April 3, 2007 between Big Dog Holdings, Inc., a Delaware
      corporation (the “Company”),
      and
      the purchasers set forth on Exhibit
      B
      hereto
      (individually, a “Purchaser”
and
      collectively, the “Purchasers”).

    


    WITNESSETH:

    


    WHEREAS,
      the Company desires to sell to the Purchasers, and the Purchasers desire to
      purchase from the Company, $18,500,000 aggregate principal amount of
      8.375% Convertible Notes due 2012, initially convertible into an
      aggregate of 1,027,777 shares (the “Shares”)
      of the
      Company’s common stock, par value $0.01 per share (the “Common
      Stock”),
      pursuant to promissory notes in the form attached hereto as Exhibit
      A
      (the
“Notes”)
      in a
      private placement pursuant to Section 4(2) of the Securities Act of 1933, as
      amended (the “Securities
      Act”),
      and
      Rule 506 promulgated thereunder, and pursuant to the terms of this Agreement;
      the private placement described in this recital is referred to herein as the
      “Offering”.
      This
      Agreement and the Notes, and any other documents or agreements executed in
      connection with the transactions contemplated hereunder, are referred to herein
      as the “Transaction
      Documents”.

    


    WHEREAS,
      the Company desires to sell to each Purchaser, and each Purchaser desires to
      purchase from the Company, the principal amount of Notes set forth on
Exhibit
      B
      opposite
      the name of each Purchaser; and

    


    WHEREAS,
      the parties hereto desire to enter into this Agreement for the purpose of
      setting forth certain representations, warranties and covenants made by each
      to
      the other as an inducement to the execution and delivery of this Agreement
      and
      the conditions precedent to the consummation of the transactions set forth
      in
      this Agreement. 

    


    NOW,
      THEREFORE, in consideration of the premises and of the mutual provisions,
      agreements and covenants contained herein and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto agree as follows: 

    


    
      	 	
              Section
                1.

            	
              Authorization
                and Sale of the Notes.

            


    

     

    (a)    Subject
      to the terms and conditions set forth in this Agreement, the Company has
      authorized the sale of the Notes to accredited investors (as defined in the
      Securities Act) in accordance with Rule 506 under the Securities
      Act.

     

    (b)    The
      completion of the purchase and sale of the Notes (the “Closing”)
      shall
      occur on the date of this Agreement (the “Closing
      Date”).
      At
      the Closing, the Company shall deliver to each Purchaser one or more Notes
      representing the aggregate principal amount set forth such Purchaser’s name on
Exhibit
      B
      hereto,
      each such Note to be recorded in the name of the applicable Purchaser or, if
      so
      indicated on the signature page hereto, in the name of a nominee designated
      by
      each Purchaser.

    


    
      
        
          
          

        

        
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                Section
                  2.

              	
                Conditions
                  to Closing.

              


      

       

      (a)    Condition
        to Company’s Obligations.
        The
        Company’s obligation to issue the Notes to the Purchasers shall be subject to
        the following conditions, any one or more of which may be waived by the
        Company:

       

      
        	 	
                1.

              	
                receipt
                  by the Company of a wire transfer of funds to an account designated
                  by the
                  Company in the full amount of the purchase price for all of the
                  Notes
                  being purchased hereunder as set forth on Exhibit
                  B;

              


      

       

      
        	 	
                2.

              	
                the
                  representations and warranties of the Purchasers set forth herein
                  shall be
                  true and correct as of the Closing Date in all respects (except
                  for
                  representations and warranties that speak as of a specific date,
                  which
                  representations and warranties shall be true and correct as of
                  such date);
                  

              


      

       

      
        	 	
                3.

              	
                receipt
                  by the Company of a subordination agreement in favor of Wells Fargo
                  in
                  substantially the form of Exhibit
                  E;
                  and

              


      

       

      
        	 	
                4.

              	
                the
                  satisfaction of the undertakings of the Purchasers to be fulfilled
                  prior
                  to the Closing.

              


      

       

      (b)    Conditions
        to Purchasers’ Obligations.
        The
        Purchasers’ obligations to purchase the Notes shall be subject to the following
        conditions:

       

      
        	 	
                1.

              	
                the
                  representations and warranties of the Company set forth herein
                  shall be
                  true and correct as of the Closing Date in all respects (except
                  for
                  representations and warranties that speak as of a specific date,
                  which
                  representations and warranties shall be true and correct as of
                  such
                  date);

              


      

       

      
        	 	
                2.

              	
                the
                  Company shall have satisfied the undertakings to be fulfilled by
                  the
                  Company prior to Closing;

              


      

       

      
        	 	
                3.

              	
                payment
                  for the costs, expenses and filing fees identified in Section 24;
                  and

              


      

       

      
        	 	
                4.

              	
                each
                  Purchaser shall have received such documents as each Purchaser
                  shall
                  reasonably have requested, including without limitation a standard
                  opinion
                  of Company counsel as to the matters set forth in the form attached
                  as
                  Exhibit
                  C
                  hereto, including without limitation as to exemption from the registration
                  requirements of the Securities Act of the sale of the Notes and
                  the
                  conversion of the Notes into
                  Shares.

              


      

       

      Section
        3.    Representations,
        Warranties and Covenants of the Company.
        The
        Company hereby represents and warrants to, and covenants with, each Purchaser,
        as follows:

       

      (a)    Organization.
        The
        Company and each of its “Subsidiaries”
(as
        defined in Rule 405 under the Securities Act) is duly organized and validly
        existing in good standing under the laws of the jurisdiction of its
        organization. Each of the Company and its Subsidiaries has full corporate
        power
        and authority to own, operate and occupy its properties and to conduct its
        business as presently conducted and as described in the documents filed by
        the
        Company under the Securities Exchange Act of 1934, as amended, and the rules
        and
        regulations promulgated thereunder (the “Exchange
        Act”),
        since
        the end of its most recently completed fiscal year through the date hereof,
        including, without limitation, its most recent report on Form 10-K (the
“Exchange
        Act Documents”)
        and is
        registered or qualified to do business and in good standing in each jurisdiction
        in which the nature of the business conducted by it or the location of the
        properties owned or leased by it requires such qualification and where the
        failure to be so qualified would have a material adverse effect upon the
        condition (financial or otherwise), earnings, business, properties or operations
        of the Company and its Subsidiaries, taken as a whole (a “Material
        Adverse Effect”),
        and
        no proceeding has been instituted in any such jurisdiction, revoking, limiting
        or curtailing, or seeking to revoke, limit or curtail, such power and authority
        or qualification.

       

      
        
          
          

        

        
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      (b)    Due
        Authorization and Valid Issuance.
        The
        Company has all corporate power and authority to execute, deliver and perform
        its obligations under the Transaction
        Documents,
        and the
        Transaction Documents have been duly authorized and validly executed and
        delivered by the Company and constitute legal, valid and binding agreements
        of
        the Company enforceable against the Company in accordance with their terms,
        except as rights to indemnity and contribution may be limited by state or
        federal securities laws or the public policy underlying such laws, except
        as
        enforceability may be limited by applicable bankruptcy, insolvency,
        reorganization, moratorium or similar laws affecting creditors’ and contracting
        parties’ rights generally and except as enforceability may be subject to general
        principles of equity (regardless of whether such enforceability is considered
        in
        a proceeding in equity or at law). The Notes being purchased by each Purchaser
        hereunder and the Shares issuable upon conversion of, or in satisfaction
        of the
        obligation to make certain interest payments on, the Notes are duly authorized
        and will, upon issuance and payment therefor pursuant to the terms hereof
        and
        thereof, be validly issued, fully-paid and nonassessable.

       

      (c)    Non-Contravention.
        The
        execution and delivery of the Transaction Documents, the issuance and sale
        of
        the Notes under this Agreement, the issuance of the Shares under the Notes,
        the
        fulfillment of the terms of the Transaction Documents, and the consummation
        of
        the transactions contemplated thereby will not (A) conflict with or
        constitute a violation of, or default (with the passage of time or otherwise)
        under, (i) any bond, debenture, note or other evidence of indebtedness,
        lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
        venture or other agreement or instrument to which the Company or any Subsidiary
        is a party or by which it or any of its Subsidiaries or their respective
        properties are bound, (ii) the charter or by-laws of the Company or any
        Subsidiary, or (iii) any law, administrative regulation, ordinance or order
        of any court or governmental agency, arbitration panel or authority applicable
        to the Company or any Subsidiary or their respective properties, except in
        the
        case of clauses (i) and (iii) for any such conflicts, violations or
        defaults which are not reasonably likely to have a Material Adverse Effect
        or
        (B) result in the creation or imposition of any lien, encumbrance, claim,
        security interest or restriction whatsoever upon any of the material properties
        or assets of the Company or any Subsidiary or an acceleration of indebtedness
        pursuant to any obligation, agreement or condition contained in any bond,
        debenture, note or any other evidence of indebtedness or any material indenture,
        mortgage, deed of trust or any other agreement or instrument to which the
        Company or any Subsidiary is a party or by which any of them is bound or
        to
        which any of the material property or assets of the Company or any Subsidiary
        is
        subject except for any such creation or imposition which is not reasonably
        likely to have a Material Adverse Effect. No consent, approval, authorization
        or
        other order of, or registration, qualification or filing with, any regulatory
        body, administrative agency, or other governmental body in the United States
        or
        any other person (including, without limitation, the stockholders of the
        Company) is required for the execution and delivery of the Transaction
        Documents, the valid issuance and sale of the Notes to be sold pursuant to
        the
        Agreements and the valid issuance of the Shares under the Notes, other than
        such
        as have been made or obtained, and except for post-closing securities filings
        or
        notifications required to be made under federal or state securities
        laws.

       

      
        
          
          

        

        
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                (d)

              	
                Capitalization.

              


      

       

      
        	 	
                1.

              	
                The
                  capitalization of the Company as of September 30, 2006 is
                  as set forth in the most recent applicable Exchange Act Documents,
                  increased as set forth in the next sentence. The Company has not
                  issued
                  any capital stock since that date other than pursuant to (i) employee
                  benefit plans disclosed in the Exchange Act Documents, or (ii)
                  outstanding
                  warrants, options or other securities disclosed in the Exchange
                  Act
                  Documents. The Notes to be sold pursuant to the Transaction Documents
                  have
                  been duly authorized, and when issued and paid for in accordance
                  with the
                  terms of the Transaction Documents, will be duly and validly issued,
                  fully
                  paid and nonassessable. The Shares have been duly authorized and,
                  when
                  issued pursuant to the terms of the Notes, the Shares will be duly
                  and
                  validly issued, fully paid and nonassessable. The outstanding shares
                  of
                  capital stock of the Company have been duly and validly issued
                  and are
                  fully paid and nonassessable, have been issued in compliance with
                  all
                  federal and state securities laws, and were not issued in violation
                  of any
                  preemptive rights or similar rights to subscribe for or purchase
                  securities.

              


      

       

      
        	 	
                2.

              	
                Except
                  as set forth on Schedule
                  3(d)2,
                  there are no outstanding rights (including, without limitation,
                  preemptive
                  rights), warrants or options to acquire, or instruments convertible
                  into
                  or exchangeable for, any unissued shares of capital stock or other
                  equity
                  interest in the Company or any Subsidiary, or any contract, commitment,
                  agreement, understanding or arrangement of any kind to which the
                  Company
                  is a party or of which the Company has knowledge and relating to
                  the
                  issuance or sale of any capital stock of the Company or any Subsidiary,
                  any such convertible or exchangeable securities or any such rights,
                  warrants or options.

              


      

       

      
        	 	
                3.

              	
                Other
                  than with respect to the registration procedures set forth in Section
                  7
                  hereof, and without limiting the foregoing, no preemptive right,
                  co-sale
                  right, right of first refusal, registration right, or other similar
                  right
                  exists with respect to the Notes and Shares or the issuance and
                  sale
                  thereof. No further approval or authorization of any stockholder,
                  the
                  Board of Directors of the Company or others is required for the
                  issuance
                  and sale of the Notes and the Shares, including under Nasdaq rules.
                  The
                  Company owns the entire equity interest in each of its Subsidiaries,
                  free
                  and clear of any pledge, lien, security interest, encumbrance,
                  claim or
                  equitable interest, other than as described in Schedule
                  3(d)3.
                  Except as set forth on Schedule
                  3(d)3,
                  there are no stockholders agreements, voting agreements or other
                  similar
                  agreements with respect to the Company’s Common Stock to which the Company
                  is a party or, to the knowledge of the Company, between or among
                  any of
                  the Company’s stockholders.

              


      

       

      
        
          
          

        

        
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      (e)    Legal
        Proceedings.
        There
        is no material legal or governmental proceeding pending or, to the knowledge
        of
        the Company, threatened to which the Company or any Subsidiary is or may
        be a
        party or of which the business or property of the Company or any Subsidiary
        is
        subject that is required to be disclosed in an Exchange Act Documents and
        not so
        disclosed.

       

      (f)    No
        Violations.
        Except
        as disclosed in the Exchange Act Documents, neither the Company nor any
        Subsidiary is (i) in violation of its charter, bylaws, or other organizational
        document, or (ii) in violation of any law, administrative regulation, ordinance
        or order of any court or governmental agency, arbitration panel or authority
        applicable to the Company or any Subsidiary, which violation, individually
        or in
        the aggregate, would be reasonably likely to have a Material Adverse Effect,
        or
        (iii) in default (and there exists no condition which, with the passage of
        time
        or otherwise, would constitute a default) in the performance of any bond,
        debenture, note or any other evidence of indebtedness in any indenture,
        mortgage, deed of trust or any other material agreement or instrument to
        which
        the Company or any Subsidiary is a party or by which the Company or any
        Subsidiary is bound or by which the properties of the Company or any Subsidiary
        are bound, which would be reasonably likely to have a Material Adverse
        Effect.

       

      (g)    Environmental
        Matters.
        To the
        Company’s knowledge, the Company and its Subsidiaries are and have been in
        compliance in all material respects with all Environmental Laws; (b) there
        has
        been no release or threatened release of any pollutant, contaminant or toxic
        or
        hazardous material, substance or waste, or petroleum or any fraction thereof,
        (each a “Hazardous
        Substance”)
        on,
        upon, into or from any site currently or heretofore owned, leased or otherwise
        used by the Company or its Subsidiaries in violation of any Environmental
        Laws;
        (c) there have been no Hazardous Substances generated by the Company or its
        Subsidiaries that have been disposed of or come to rest at any site that
        has
        been included in any published U.S. federal, state or local “superfund” site
        list or any other similar list of hazardous or toxic waste sites published
        by
        any governmental authority in the United States; and (d) there are no
        underground storage tanks located on, no polychlorinated biphenyls
        (“PCBs”)
        or
        PCB-containing equipment used or stored on, and no hazardous waste as defined
        by
        the Resource Conservation and Recovery Act, as amended, stored on, any site
        owned or operated by the Company or its Subsidiaries, except for the storage
        of
        hazardous waste in compliance with Environmental Laws. The Company has made
        available to the Purchasers true and complete copies of all material
        environmental records, reports, notifications, certificates of need, permits,
        pending permit applications, correspondence, engineering studies, and
        environmental studies or assessments. For purposes of this Section 3(g),
        “Environmental
        Laws”
means
        any law, regulation, or other applicable requirement relating to (a) releases
        or
        threatened release of Hazardous Substance; (b) pollution or protection of
        employee health or safety, public health or the environment; or (c) the
        manufacture, handling, transport, use, treatment, storage, or disposal of
        Hazardous Substances.

       

      
        
          
          

        

        
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      (h)    Governmental
        Permits, Etc.
        With
        the exception of the matters which are disclosed in the Exchange Act Documents
        or described in Sections 3(a), 3(n), 3(o) and 3(p) hereof, each of the Company
        and its Subsidiaries has all necessary franchises, licenses, certificates
        and
        other authorizations from any foreign, federal, state or local government
        or
        governmental agency, department, or body that are currently necessary for
        the
        operation of the business of the Company and its Subsidiaries as currently
        conducted as described in the Exchange Act Documents except where the failure
        to
        currently possess could not reasonably be expected to have a Material Adverse
        Effect.

       

      (i)    Intellectual
        Property.
        Except
        as specifically set forth on Schedule
        3(i),
        (i) each of the Company and its Subsidiaries owns or possesses sufficient
        rights to conduct its business as currently conducted in the ordinary course,
        including, without limitation, rights to use all material patents, patent
        rights, industry standards, trademarks, copyrights, licenses, inventions,
        trade
        secrets, trade names and know-how described or referred to in Schedule
        3(i)
        as owned
        or possessed by it or that are necessary for the conduct of its business
        as now
        conducted (collectively, “Intellectual
        Property”)
        except
        where the failure to currently own or possess would not have a Material Adverse
        Effect, (ii) neither the Company nor any of its Subsidiaries is infringing,
        or
        has received any notice of, or has any knowledge of, any asserted infringement
        by the Company or any of its Subsidiaries of, any rights of a third party
        with
        respect to any Intellectual Property that, individually or in the aggregate,
        would have a Material Adverse Effect and (iii) neither the Company nor any
        of its Subsidiaries has received any notice of, or has any knowledge of,
        infringement by a third party with respect to any Intellectual Property rights
        of the Company or of any Subsidiary that, individually or in the aggregate,
        would have a Material Adverse Effect.

       

      (j)    Financial
        Statements.
        The
        financial statements of the Company and the related notes contained in the
        Exchange Act Documents present fairly, in accordance with generally accepted
        accounting principles, the financial position of the Company and its
        Subsidiaries as of the dates indicated, and the results of its operations
        and
        cash flows for the periods therein specified except that the unaudited interim
        financial statements were or are subject to normal year-end adjustments.
        Such
        financial statements (including the related notes) have been prepared in
        accordance with generally accepted accounting principles applied on a consistent
        basis throughout the periods therein specified, except as may be disclosed
        in
        the notes to such financial statements, or in the case of unaudited statements,
        as may be permitted by the Securities and Exchange Commission (“SEC”)
        on
        Form 10-Q under the Exchange Act and except as disclosed in the Exchange
        Act Documents. The other financial information contained in the Exchange
        Act
        Documents has been prepared on a basis consistent with the financial statements
        of the Company.

       

      (k)    No
        Material Adverse Change.
        Except
        as disclosed in the Exchange Act Documents, since September 30, 2006, there
        has
        not been (i) any event which has had, or would be reasonably expected to
        have, a Material Adverse Effect; (ii) any obligation, direct or contingent,
        that
        is material to the Company and its Subsidiaries considered as one enterprise,
        incurred by the Company, except obligations incurred in the ordinary course
        of
        business, (iii) any dividend or distribution of any kind declared, paid or
        made on the capital stock of the Company or any of its Subsidiaries, or
        (iv) any loss or damage (whether or not insured) to the physical property
        of the Company or any of its Subsidiaries which has been sustained which
        has had
        a Material Adverse Effect.

       

      
        
          
          

        

        
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      (l)    Disclosure.
        The
        representations and warranties of the Company contained in this Section 3
        as of the date hereof and as of the Closing Date, do not contain any untrue
        statement of a material fact or omit to state a material fact required to
        be
        stated therein or necessary to make the statements therein, in light of the
        circumstances under which they were made, not misleading. Except with respect
        to
        the material terms and conditions of the transaction contemplated by the
        Transaction Documents, which shall be publicly disclosed by the Company pursuant
        to Section 21 hereof, the Company confirms that neither it nor any person
        acting on its behalf has provided each Purchaser with any information that
        the
        Company believes constitutes material, non-public information. The Company
        understands and confirms that each Purchaser will rely on the foregoing
        representations in effecting transactions in securities of the
        Company.

       

      (m)    NASDAQ
        Compliance.
        The
        Company’s Common Stock is registered pursuant to Section 12(g) of the
        Exchange Act and is listed on The Nasdaq Stock Market, Inc. Global Market
        (the
“Nasdaq
        National Market”),
        and
        the Company has taken no action designed to, or likely to have the effect
        of,
        terminating the registration of the Common Stock under the Exchange Act or
        de-listing the Common Stock from the Nasdaq National Market, nor has the
        Company
        received any notification that the SEC or the National Association of Securities
        Dealers, Inc. (“NASD”)
        is
        contemplating terminating such registration or listing. The Company is in
        compliance with all applicable Nasdaq maintenance requirements and corporate
        governance requirements for continuing listing on Nasdaq National Market.
        The
        issuance by the Company of the Notes and the Shares shall not have the effect
        of
        terminating the registration of the Common Stock under the Exchange Act or
        delisting the Common Stock from the Nasdaq National Market.

       

      (n)    Reporting
        Status.
        The
        Company is eligible to use Form S-3 to register the Shares to be offered
        for the
        account of each Purchaser, subject to SEC interpretation and limitation as
        to
        the number of Shares which may be included in a re-sale registration statement
        on Form S-3. The Exchange Act Documents, as of their respective dates and
        as of
        the Closing Date, do not and will not include any untrue statement of a material
        fact or omit to state any material fact necessary in order to make the
        statements therein, in the light of the circumstances under which they were
        or
        will be made, not misleading. The following documents complied as to form
        in all
        material respects with the SEC’s requirements as of their respective filing
        dates:

       

      
        	 	
                1.

              	
                the
                  Annual Report on Form 10-K for the fiscal year ended December 31,
                  2005;
                  

              


      

       

      
        	 	
                2.

              	
                all
                  other documents, if any, filed by the Company with the SEC during
                  the
                  one-year period preceding the date of this Agreement pursuant to
                  the
                  reporting requirements of the Exchange
                  Act.

              


      

       

      (o)    NASDAQ
        Listing.
        The
        Company shall comply with all requirements of the NASD and SEC with respect
        to
        the issuance of the Notes and the Shares, and the listing of the Shares on
        the
        Nasdaq National Market. The Company will promptly seek to list all of the
        Shares
        on the Nasdaq National Market.

       

      
        
          
          

        

        
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      (p)    No
        Manipulation of Stock.
        The
        Company has not taken and will not, in violation of applicable law, take,
        any
        action designed to or that might reasonably be expected to cause or result
        in
        stabilization or manipulation of the price of the Common Stock to facilitate
        the
        sale or resale of the Notes or the Shares.

       

      (q)    Company
        not an “Investment Company”.
        The
        Company has been advised of the rules and requirements under the Investment
        Company Act of 1940, as amended (the “Investment
        Company Act”).
        To
        the knowledge of the Company, the Company is not, and immediately after receipt
        of payment for the Notes will not be, an “investment company” or an entity
“controlled” by an “investment company” within the meaning of the Investment
        Company Act and shall conduct its business in a manner so that it will not
        become subject to the Investment Company Act.

       

      
        	 	
                (r)

              	
                Foreign
                  Corrupt Practices; Embargoed Person.

              


      

       

      
        	 	
                1.

              	
                Neither
                  the Company, nor to the knowledge of the Company, any agent or
                  other
                  person acting on behalf of the Company, has (i) directly or indirectly,
                  used any corrupt funds for unlawful contributions, gifts, entertainment
                  or
                  other unlawful expenses related to foreign or domestic political
                  activity,
                  (ii) made any unlawful payment to foreign or domestic government
                  officials
                  or employees or to any foreign or domestic political parties or
                  campaigns
                  from corporate funds, (iii) failed to disclose fully any contribution
                  made
                  by the Company (or made by any person acting on its behalf of which
                  the
                  Company is aware) which is in violation of law, or (iv) violated
                  in any
                  material respect any provision of the Foreign Corrupt Practices
                  Act of
                  1977, as amended.

              


      

       

      
        	 	
                2.

              	
                None
                  of the funds or other assets of the Company constitute or shall
                  constitute
                  property of, or shall be beneficially owned, directly or indirectly,
                  by
                  any person with whom U.S. persons are restricted from engaging
                  in
                  financial or other transactions under United States law, including,
                  but
                  not limited to, the International Emergency Economic Powers Act,
                  50 U.S.C.
                  § 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1
                  et seq.,
                  and any executive orders or regulations promulgated under any such
                  United
                  States laws (each, an “Embargoed
                  Person”),
                  with the result that the investments evidenced by the Shares are
                  or would
                  be in violation of law; (ii) no Embargoed Person has or shall have
                  any
                  interest of any nature whatsoever in the Company with the result
                  that the
                  investments evidenced by the Shares are or would be in violation
                  of law;
                  and (iii) none of the funds of the Company are or shall be derived
                  from
                  any unlawful activity with the result that the investments evidenced
                  by
                  the Notes are or would be in violation of law; provided, that with
                  respect
                  to the covenants contained in this Section 3(s)2, the Company may
                  assume
                  that the Purchasers are not Embargoed Persons. The Company certifies
                  that,
                  to the Company’s knowledge, the Company has not been designated, and is
                  not owned or controlled, by an Embargoed
                  Person.

              


      

       

      
        
          
          

        

        
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      (s)    Accountants.
        To the
        Company’s knowledge, Singer Lewak Greenbaum & Goldstein LLP are independent
        accountants as required by the Securities Act and the rules and regulations
        promulgated thereunder.

       

      (t)    Contracts.
        The
        contracts described in the Exchange Act Documents that are material to the
        Company are in full force and effect on the date hereof, and neither the
        Company
        nor, to the Company's knowledge, any other party to such contracts is in
        breach
        of or default under any of such contracts which breach or default would have
        a
        Material Adverse Effect. The Company has filed with the SEC all contracts
        and
        agreements required to be filed by the Exchange Act.

       

      (u)    Taxes.
        Except
        as such would not have a Material Adverse Effect, the Company has filed all
        necessary federal, state and foreign income and franchise tax returns when
        due
        (or obtained appropriate extensions for filing) and has paid or accrued all
        taxes shown as due thereon, and the Company has no knowledge of a tax deficiency
        which has been or might be asserted or threatened against it which would
        have a
        Material Adverse Effect.

       

      (v)    Transfer
        Taxes.
        On the
        Closing Date, all stock transfer or other taxes (other than income taxes)
        which
        are required to be paid in connection with the sale and transfer of the Notes
        to
        be sold to each Purchaser hereunder will be, or will have been, fully paid
        or
        provided for by the Company and all laws imposing such taxes will be or will
        have been fully complied with. Upon the issuance of the Shares pursuant to
        the
        Notes, all stock transfer or other taxes (other than income taxes) which
        are
        required to be paid in connection therewith will be, or will have been, fully
        paid or provided for by the Company and all laws imposing such taxes will
        be or
        will have been fully complied with.

       

      (w)    Private
        Offering; No General Solicitation.
        Assuming the correctness of the representations and warranties of each
        Purchaser, set forth in Section 4 hereof, and of the Placement Agent, set
        forth in a certificate to the Company and its counsel in connection herewith,
        the offer and sale of Notes hereunder is, and the issuance of the Shares
        under
        the Notes will be, exempt from registration under the Securities Act. The
        Company has not distributed and will not distribute prior to the Closing
        Date
        any offering material in connection with this Offering and sale of the Notes
        other than the Transaction Documents. The Company has not in the past nor
        will
        it hereafter take any action independent of the placement agent to sell,
        offer
        for sale or solicit offers to buy any securities of the Company which would
        bring the offer, issuance or sale of the Notes as contemplated by this
        Agreement, or the issuance of the Shares pursuant to the Notes, within the
        provisions of Section 5 of the Securities Act, unless such offer, issuance
        or
        sale was or shall be within the exemptions of Section 4 of the Securities
        Act.
        Neither the Company nor any person acting on behalf of the Company (other
        than
        the Placement Agent, as to whom the Company makes no representation or warranty)
        has offered or sold any of the Notes by any form of general solicitation
        or
        general advertising. The Company has offered the Notes for sale only to each
        Purchaser and certain other accredited investors within the meaning of Rule
        501
        under the Securities Act. The Company has no intention of making, and will
        not
        make, an offer or sale of any securities, for a period of six months after
        the
        date of this Agreement, which would be required to be integrated into this
        Offering in a manner that would require the registration under the Securities
        Act of any of the Notes or the Shares, except for the offering of Notes as
        contemplated by the Agreements.

       

      
        
          
          

        

        
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      (x)    Controls
        and Procedures.
        The
        Company is in material compliance with all provisions of the Sarbanes-Oxley
        Act
        of 2002 which are applicable to it as of the Closing Date. The Company has
        established and maintains an effective system of internal control over financial
        reporting (as such term is defined in the Exchange Act ) regarding the
        reliability of financial reporting and preparation of financial statements
        for
        external purposes in accordance with GAAP and includes policies and procedures
        that (i) pertain to maintenance of records that in reasonable detail accurately
        and fairly reflect the transactions and dispositions of the assets of the
        issuer; (ii) provide reasonable assurance that transactions are recorded
        as
        necessary to permit preparation of financial statements in accordance with
        GAAP,
        and that receipts and expenditures of the issuer are being made only in
        accordance with authorizations of management and directors of the issuer;
        and
        (iii) provide reasonable assurance regarding prevention or timely detection
        of
        unauthorized acquisition, use, or disposition of the issuer’s assets that could
        have a material adverse effect on the financial statements. The Company has
        established and maintains disclosure controls and procedures (as defined
        in
        Exchange Act) that are effective in ensuring that information required to
        be
        disclosed by the Company in the reports that it files or submits under the
        Exchange Act is recorded, processed, summarized and reported, within the
        time
        periods specified in the SEC’s rules and forms, including, without limitation,
        controls and procedures designed to ensure that information required to be
        disclosed by the Company in the reports that it files or submits under the
        Act
        is accumulated and communicated to the Company’s management, including its
        principal executive and principal financial officers, or persons performing
        similar functions, as appropriate to allow timely decisions regarding required
        disclosure. The Company’s certifying officers have evaluated the effectiveness
        of the Company’s disclosure controls and procedures and presented in the
        applicable Exchange Act Documents their conclusions about the effectiveness
        of
        the disclosure controls and procedures, as of the end of the periods covered
        by
        such Exchange Act Documents based on such evaluation. Since the last such
        evaluation date, there has been no change in the Company’s internal control over
        financial reporting that has materially affected, or is reasonably likely
        to
        materially affect, the Company’s internal control over financial reporting, and
        no significant deficiencies or material weaknesses in internal controls over
        financial reporting, or other factors that could significantly affect the
        Company’s internal control over financial reporting, have been
        identified.

       

      (y)    Transactions
        With Affiliates.
        Except
        as set forth on Schedule
        3(y)
        or as
        contemplated in this Agreement, there are no obligations of the Company to
        officers, directors, stockholders or employees of the Company other than
        (i) for
        payment of salary for services rendered and for bonus payments; (ii)
        reimbursements for reasonable expenses incurred on behalf of the Company;
        (iii)
        for other standard employee benefits made generally available to all employees
        (including stock option agreements outstanding under any stock option plan
        approved by the Board of Directors of the Company); and (iv) obligations
        listed
        in the Company’s financial statements. Except as described above or on
Schedule
        3(y),
        none of
        the officers, directors or, to the best of the Company’s knowledge, key
        employees or stockholders of the Company or any members of their immediate
        families, are indebted to the Company, individually or in the aggregate,
        in
        excess of $120,000 or have any direct or indirect ownership interest in any
        firm
        or corporation with which the Company is affiliated or with which Company
        has a
        business relationship, or any firm or corporation which competes with the
        Company, other than passive investments in publicly traded companies
        (representing less than one percent (1%) of such company) which may compete
        with
        the Company. Except as described above, no officer, director or stockholder,
        or
        any member of their immediate families, is, directly or indirectly, interested
        in any material contract with the Company and no agreements, understandings
        or
        proposed transactions are contemplated between the Company and any such person.
        Except as set forth in any Exchange Act Documents, the Company is not a
        guarantor or indemnitor of any indebtedness of any other person, firm or
        corporation.

       

      
        
          
          

        

        
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      (z)    No
        Registration Rights.
        Except
        as set forth on Schedule
        3(z),
        no
        person has the right, which right has not been waived, to require the Company
        or
        any Subsidiary to register any securities for sale under the Securities Act
        by
        reason of the filing of the Registration Statement with the SEC or the issuance
        and sale of the Notes or the Shares. 

       

      (aa)   Margin
        Securities.
        Neither
        the Company nor any of the Subsidiaries owns any “margin securities” as that
        term is defined in Regulation U of the Board of Governors of the Federal
        Reserve System (the “Federal
        Reserve Board”),
        and
        none of the proceeds of the sale of the Notes will be used, directly or
        indirectly, for the purpose of purchasing or carrying any margin security,
        for
        the purpose of reducing or retiring any indebtedness which was originally
        incurred to purchase or carry any margin security or for any other purpose
        which
        might cause any of the Notes to be considered a “purpose credit” within the
        meanings of Regulation T, U or X of the Federal Reserve Board.

       

      (bb)   Assets;
        Solvency.
        The
        Company and its Subsidiaries have good and marketable title in fee simple
        to all
        items of real property and marketable title to all personal property owned
        by
        each of them, free and clear of any pledge, lien, encumbrance, security interest
        or other defect or claim of any third party, and any real property and buildings
        leased by the Company or such Subsidiaries are held under valid, subsisting
        and
        enforceable leases, in each case, with such exceptions as are not material
        and
        do not interfere with the use made or proposed to be made of such property
        and
        buildings by the Company or such Subsidiaries. The fair saleable value of
        the
        assets of the Company exceeds the amount that will be required to be paid
        on or
        in respect of its existing debts and other known liabilities (including known
        contingent liabilities) as they mature; the Company does not intend to, and
        does
        not believe that it will, incur debts beyond its ability to pay such debts
        as
        they mature; and upon the issuance of the Notes, the fair salable value of
        the
        assets of the Company will exceed the amount that will be required to be
        paid on
        or in respect of its existing debts and other liabilities (including known
        contingent liabilities) as they mature.

       

      Section
        4.    Representations,
        Warranties and Covenants of each Purchaser.
        Each
        Purchaser, severally and not jointly, represents and warrants to, and covenants
        with, the Company that:

       

      (a)    Such
        Purchaser is an accredited investor as defined in Rule 501 under the Securities
        Act.

       

      
        
          
          

        

        
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      (b)    The
        Purchaser has all requisite power and authority to execute, deliver and perform
        its obligations under this Agreement. The execution of this Agreement and
        the
        consummation of the transactions contemplated hereby have been duly authorized
        by all necessary action on the part of such Purchaser and this Agreement
        has
        been duly executed and delivered and constitutes the valid and binding
        obligation of the Purchaser enforceable in accordance with its terms, except
        as
        rights to indemnity and contribution may be limited by state or federal
        securities laws or the public policy underlying such laws, except as
        enforceability may be limited by applicable bankruptcy, insolvency,
        reorganization, moratorium or similar laws affecting creditors’ and contracting
        parties’ rights generally and except as enforceability may be subject to general
        principles of equity (regardless of whether such enforceability is considered
        in
        a proceeding in equity or at law).

       

      (c)    The
        Notes
        and Shares to be purchased by the Purchaser will be acquired for investment
        for
        the Purchaser’s own account, not as a nominee or agent, and not with a view to
        the resale or distribution of any part thereof in violation of the Securities
        Act, and such Purchaser has no present intention of selling, granting any
        participation in, or otherwise distributing the same. Such Purchaser does
        not
        have any contract, undertaking, agreement, or arrangement with any person
        to
        sell, transfer, or grant participation to any person with respect to any
        of the
        Notes or Shares. Nothing contained herein shall be deemed a representation
        or
        warranty by such Purchaser to hold the Notes or Shares for any period of
        time.

       

      (d)    Purchaser
        acknowledges that it has received all the information that it has requested
        relating to the Company and the purchase of the Notes and Shares. The Purchaser
        further represents that it has had an opportunity to ask questions and receive
        answers from the Company regarding the terms and conditions of the Offering.
        The
        foregoing, however, does not limit or modify the representations and warranties
        of the Company in this Agreement or the right of the Purchaser to rely
        thereon.

       

      (e)    Purchaser
        understands that the Notes and Shares that it is purchasing are characterized
        as
“restricted securities” under the federal securities laws inasmuch as they are
        being acquired from the Company in a transaction not involving a public
        offering, and that under such laws and applicable regulations such securities
        may be resold without registration under the Act, only in certain limited
        circumstances. In this connection, the Purchaser represents that it understands
        the resale limitations imposed by the Act.

       

      (f)    Legends.
        It is
        understood that the Notes and certificate or certificates for the Shares
        shall
        bear a legend reading substantially as follows:

       

      THIS
        SECURITY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
        UNDER
        THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES
        ACT”),
        AND
        THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
        MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, EXCEPT: (I) PURSUANT TO
        AN
        EFFECTIVE REGISTRATION STATEMENT RELATED THERETO; OR (II) IN ACCORDANCE WITH
        AN
        OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
        IS NOT REQUIRED UNDER THE SECURITIES ACT.

       

      
        
          
          

        

        
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      (g)    The
        Company acknowledges and agrees that such Purchaser does not make or has
        not
        made any representations or warranties with respect to the transactions
        contemplated hereby other than those specifically set forth herein or in
        the
        Accredited Investor Questionnaire.

       

      (h)    It
        shall
        be a condition to any transfer of any Note that the proposed transferee shall
        have completed and delivered to the Company an “Accredited Investor
        Questionnaire” representing that such transferee is an accredited investor, and
        that each such transferee shall make each of the representations and warranties
        and shall comply with the Purchaser’s covenants set forth in this Section
        4.

       

      (i)    Short
        Sales and Confidentiality after the date hereof.
        Each
        Purchaser, severally and not jointly, covenants that neither it nor any
        affiliate acting on its behalf or pursuant to any understanding with it has
        engaged or will engage, directly or indirectly, in any transactions in the
        securities of the Company (including, without limitation, any short sales
        involving the Company’s securities) until 2 days after the date the transactions
        contemplated by this Agreement are first publicly announced as described
        in
        Section 21. Each Purchaser, severally and not jointly, covenants that until
        such
        time as the transactions contemplated by this Agreement are publicly disclosed
        by the Company as described in Section 21, such Purchaser will maintain the
        confidentiality of all disclosures made to it in connection with this
        transaction (including the existence and terms of this transaction). Each
        Purchaser acknowledges the SEC's position set forth in Item 65, Section A,
        of
        the Manual of Publicly Available Telephone Interpretations, dated July 1997,
        compiled by the Office of Chief Counsel, Division of Corporation Finance,
        and
        such Purchaser will adhere to such position. Notwithstanding the foregoing,
        in
        the case of a Purchaser that is a multi-managed investment vehicle whereby
        separate portfolio managers manage separate portions of such Purchaser's
        assets
        and the portfolio managers have no direct knowledge of the investment decisions
        made by the portfolio managers managing other portions of such Purchaser's
        assets, the covenant set forth above shall only apply with respect to the
        portion of assets managed by the portfolio manager that made the investment
        decision to purchase the Securities covered by this Agreement.

       

      (j)    The
        Purchaser understands that nothing in the Exchange Act Documents, this
        Agreement, the Note or any other materials presented to the Purchaser in
        connection with the purchase and sale of the Note and the Shares constitutes
        legal, tax or investment advice. The Purchaser has consulted such legal,
        tax and
        investment advisors as it, in its sole discretion, has deemed necessary or
        appropriate in connection with its purchase of the Note and the
        Shares.

       

      (k)    Change
        of Control.
        The
        Purchaser covenants and agrees with the Company that it shall not sell the
        Shares to any Person, if as a result of such sale such Person would
        beneficially own on an as-converted basis more than twenty percent (20%)
        of the
        issued and outstanding Common Stock.

       

      (l)    California
        Disclosure.
        The
        Purchaser acknowledges the following disclosure, which is set forth herein
        pursuant to Section 25102(a) of the California Corporate Securities Law of
        1968
        (provided that, subject to the accuracy of the Purchasers' representations
        and
        warranties to the Company, the Company represents that the sale of the Shares
        is
        so exempt):

       

      
        
          
          

        

        
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      THE
        SALE
        OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED
        WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
        ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
        CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE
        SALE
        OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR
        25105
        OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
        ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE
        SALE
        IS SO EXEMPT.

       

      Section
        5.    Affirmative
        and Negative Covenants.
        The
        covenants and agreements set forth in Section 3 of each Note are hereby
        incorporated by reference into this Agreement.

       

      Section
        6.    Survival
        of Representations, Warranties and Agreements.
        Notwithstanding any investigation made by any party to this Agreement, all
        covenants, agreements, representations and warranties made by the Company
        and
        each Purchaser herein shall survive the execution of this Agreement, the
        delivery to each Purchaser of the Notes being purchased and the payment therefor
        until the expiration date of the Company’s obligation to keep the Registration
        Statement effective pursuant to Section 7(a)(3).

       

      Section
        7.    Registration
        of the Shares; Compliance with the Securities Act.

       

      
        	 	
                (a)

              	
                Registration
                  Procedures and Other Matters.
                  The Company shall:

              


      

       

      
        	 	
                1.

              	
                subject
                  to Section 7(b), and subject to receipt of necessary information
                  from the
                  Purchaser after request from the Company to the Purchaser to provide
                  such
                  information, which request shall be mailed in accordance with Section
                  13
                  hereof no later than 5 business days after the Closing Date, prepare
                  and
                  file with the SEC, within 90 days after the Closing Date (the
                  “Filing
                  Date”),
                  a registration statement on Form S-3 (the “Registration
                  Statement”)
                  to enable the resale of the Shares by each Purchaser from time
                  to time
                  through the automated quotation system of the Nasdaq National Market
                  or in
                  privately-negotiated transactions;

              


      

       

      
        	 	
                2.

              	
                subject
                  to receipt of necessary information from the Purchaser after request
                  from
                  the Company to the Purchaser to provide such information, use its
                  commercially reasonable efforts to cause the Registration Statement
                  to
                  become effective on or prior to the 180th
                  day after the Closing Date (the “Required
                  Effective Date”);

              


      

       

      
        	 	
                3.

              	
                use
                  its commercially reasonable efforts to prepare and file with the
                  SEC such
                  amendments and supplements to the Registration Statement and the
                  Prospectus used in connection therewith as may be necessary to
                  keep the
                  Registration Statement current, effective and free from any material
                  misstatement or omission to state a material fact for a period
                  not
                  exceeding, with respect to each Purchaser’s Shares, the earlier of
                  (i) the date on which each Purchaser may sell all Shares then held
                  by
                  each Purchaser without restriction by the volume limitations of
                  Rule 144 of the Securities Act, (ii) such time as all Shares
                  issuable pursuant to the Notes have been sold pursuant to a registration
                  statement, or (iii) such time as all Shares and Notes cease to
                  be
                  outstanding;

              


      

       

      
        
          
          

        

        
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                4.

              	
                furnish
                  to each Purchaser with respect to the Shares registered under the
                  Registration Statement such number of copies of the Registration
                  Statement, Prospectuses, preliminary Prospectuses and free writing
                  prospectuses (as defined in Rule 405 under the Securities Act)
                  in
                  conformity with the requirements of the Securities Act and such
                  other
                  documents as each Purchaser may reasonably request, in order to
                  facilitate
                  the public sale or other disposition of all or any of the Shares
                  by each
                  Purchaser; provided, however, that the obligation of the Company
                  to
                  deliver copies of Prospectuses, preliminary Prospectuses or free
                  writing
                  prospectuses to each Purchaser shall be subject to the receipt
                  by the
                  Company of reasonable assurances from each Purchaser that each
                  Purchaser
                  will comply with the applicable provisions of the Securities Act
                  and of
                  such other securities or blue sky laws as may be applicable in
                  connection
                  with any use of such Prospectuses, preliminary Prospectuses or
                  free
                  writing prospectuses;

              


      

       

      
        	 	
                5.

              	
                file
                  documents required of the Company for normal blue sky clearance
                  in states
                  specified in writing by each Purchaser and use its reasonable best
                  efforts
                  to maintain such blue sky qualifications during the period the
                  Company is
                  required to maintain the effectiveness of the Registration Statement
                  pursuant to Section 7(a)(3); provided, however, that the Company
                  shall not be required to qualify to do business or consent to service
                  of
                  process in any jurisdiction in which it is not now so qualified
                  or has not
                  so consented;

              


      

       

      
        	 	
                6.

              	
                bear
                  all expenses in connection with the procedures in paragraph (1)
                  through
                  (5) of this Section 7(a) (other than underwriting discounts or
                  commissions, brokers’ fees and similar selling expenses, and any other
                  fees or expenses incurred by each Purchaser, including attorney
                  fees of
                  each Purchaser) and the registration of the Shares pursuant to
                  the
                  Registration Statement; 

              


      

       

      
        	 	
                7.

              	
                advise
                  each Purchaser, promptly after it shall receive notice or obtain
                  knowledge
                  of the issuance of any stop order by the SEC delaying or suspending
                  the
                  effectiveness of the Registration Statement or of the initiation
                  or threat
                  of any proceeding for that purpose; and it will promptly use its
                  reasonable best efforts to prevent the issuance of any stop order
                  or to
                  obtain its withdrawal at the earliest possible moment if such stop
                  order
                  should be issued; and

              


      

       

      
        	 	
                8.

              	
                provide
                  a “Plan
                  of Distribution”
                  section of the Registration Statement substantially in the form
                  attached
                  hereto as Exhibit
                  D.

              


      

       

      
        
          
          

        

        
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      (b)    Notwithstanding
        anything herein to the contrary, if the SEC prevents the Company from including
        any or all of the Shares on the Registration Statement due to limitations
        on the
        use of Rule 415 of the Securities Act for the resale of the Shares by the
        Purchasers (a “Rule
        415 Limitation”),
        the
        Registration Statement shall register the resale of a number of Shares which
        is
        equal to the maximum number of shares as is permitted by the SEC (the
“Registration
        Cap”).
        In
        such event, the number of Shares to be registered for each Purchaser in the
        Registration Statement shall be reduced pro rata
        among
        all Purchasers. The failure to include any or all of the Shares in such
        Registration Statement shall not be a breach or default by the Company under
        this Agreement and shall not be deemed a failure by the Company to use
        "commercially reasonable efforts" or "reasonable best efforts" as set forth
        above or elsewhere in this Agreement. With respect to Shares not included
        in the
        Registration Statement, the Company shall continue to use commercially
        reasonable efforts to register all such remaining Shares as promptly as
        possible, but if the SEC, by written or oral comment or otherwise, limits
        the
        Company’s ability to file, or prohibits or delays the filing of, a Registration
        Statement with respect to any or all the Shares which were not included in
        the
        initial Registration Statement (a “Subsequent
        Shelf Limitation”),
        it
        shall not be a breach or default by the Company under this Agreement and
        shall
        not be deemed a failure by the Company to use “commercially reasonable efforts”
or “reasonable best efforts” as set forth above or elsewhere in this
        Agreement.

       

      Section
        8.    Transfer
        of Shares After Registration; Suspension.

       

      (a)    The
        Purchaser agrees that it will not effect any disposition of the Shares or
        its
        right to purchase the Shares that would constitute a sale within the meaning
        of
        the Securities Act except as contemplated in the Registration Statement referred
        to in Section 7 and as described below or as otherwise permitted by law,
        and that it will promptly notify the Company of any changes in the information
        set forth in the Registration Statement regarding each Purchaser or its plan
        of
        distribution.

       

      (b)    Except
        in
        the event that paragraph (c) below applies, the Company shall (i) if deemed
        necessary by the Company, prepare and file from time to time with the SEC
        a
        post-effective amendment to the Registration Statement or a supplement to
        the
        related Prospectus or a supplement or amendment to any document incorporated
        therein by reference or file any other required document so that such
        Registration Statement will not contain an untrue statement of a material
        fact
        or omit to state a material fact required to be stated therein or necessary
        to
        make the statements therein not misleading, and so that, as thereafter delivered
        to purchasers of the Shares being sold thereunder, such Prospectus will not
        contain an untrue statement of a material fact or omit to state a material
        fact
        required to be stated therein or necessary to make the statements therein,
        in
        light of the circumstances under which they were made, not misleading;
        (ii) provide each Purchaser copies of any documents filed pursuant to
        Section 7(a) as each Purchaser may reasonably request; and
        (iii) inform each Purchaser that the Company has complied with its
        obligations in Section 7(a) (or that, if the Company has filed a
        post-effective amendment to the Registration Statement which has not yet
        been
        declared effective, the Company will notify each Purchaser to that effect,
        will
        use its reasonable best efforts to secure the effectiveness of such
        post-effective amendment as promptly as possible and will promptly notify
        each
        Purchaser pursuant to Section 7(a) hereof when the amendment has
        become effective).

       

      
        
          
          

        

        
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      (c)    Subject
        to paragraph (d) below, in the event (i) of any request by the SEC or any
        other federal or state governmental authority during the period of effectiveness
        of the Registration Statement for amendments or supplements to a Registration
        Statement or related Prospectus or for additional information; (ii) of the
        issuance by the SEC or any other federal or state governmental authority
        of any
        stop order suspending the effectiveness of a Registration Statement or the
        initiation of any proceedings for that purpose; (iii) of the receipt by the
        Company of any notification with respect to the suspension of the qualification
        or exemption from qualification of any of the Shares for sale in any
        jurisdiction or the initiation or threatening of any proceeding for such
        purpose; or (iv) of any event or circumstance which, upon the advice of its
        counsel, necessitates the making of any changes in the Registration Statement
        or
        Prospectus, or any document incorporated or deemed to be incorporated therein
        by
        reference, so that, in the case of the Registration Statement, it will not
        contain any untrue statement of a material fact or any omission to state
        a
        material fact required to be stated therein or necessary to make the statements
        therein not misleading, and that in the case of the Prospectus, it will not
        contain any untrue statement of a material fact or any omission to state
        a
        material fact required to be stated therein or necessary to make the statements
        therein, in the light of the circumstances under which they were made, not
        misleading; then the Company shall deliver a certificate in writing to each
        Purchaser (the “Suspension
        Notice”)
        to the
        effect of the foregoing and, upon receipt of such Suspension Notice, each
        Purchaser will refrain from selling any Shares pursuant to the Registration
        Statement (a “Suspension”)
        until
        each Purchaser’s receipt of copies of a supplemented or amended Prospectus
        prepared and filed by the Company, or until it is advised in writing by the
        Company that the current Prospectus may be used, and has received copies
        of any
        additional or supplemental filings that are incorporated or deemed incorporated
        by reference in any such Prospectus. In the event of any Suspension, the
        Company
        will use its reasonable best efforts to cause the use of the Prospectus so
        suspended to be resumed as soon as reasonably practicable within 20 business
        days after the delivery of a Suspension Notice to each Purchaser. In addition
        to
        and without limiting any other remedies (including, without limitation, at
        law
        or at equity) available to each Purchaser, each Purchaser shall be entitled
        to
        specific performance in the event that the Company fails to comply with the
        provisions of this Section 8.

       

      (d)    Notwithstanding
        the foregoing paragraphs of this Section 8, each Purchaser shall not be
        prohibited from selling Shares under the Registration Statement as a result
        of
        Suspensions on more than two occasions of not more than 45 days each in any
        twelve month period, unless, in the good faith judgment of the Company’s Board
        of Directors, upon the advice of counsel of the Company and, subject to the
        provisions of Section 9 below, the sale of Notes under the Registration
        Statement in reliance on this paragraph 8(d) would be reasonably likely to
        cause
        a violation of the Securities Act or the Exchange Act and result in liability
        to
        the Company.

       

      (e)    Provided
        that a Suspension is not then in effect, each Purchaser may sell Shares under
        the Registration Statement, provided that it arranges for delivery of a current
        Prospectus to the transferee of such Shares. Upon receipt of a request therefor,
        the Company has agreed to provide an adequate number of current Prospectuses
        to
        each Purchaser and to supply copies to any other parties requiring such
        Prospectuses.

       

      
        
          
          

        

        
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                Section
                  9.

              	
                Indemnification.

              


      

       

      (a)    For
        the
        purpose of this Section 9: (i) the term “Selling
        Stockholder”
means
        each Purchaser and any affiliate of such Purchaser; (ii) the term “Registration
        Statement”
shall
        include the Prospectus in the form first filed with the SEC pursuant to
        Rule 424(b) of the Securities Act or filed as part of the Registration
        Statement at the time of effectiveness if no Rule 424(b) filing is
        required, and any exhibit, supplement or amendment included in or relating
        to
        the Registration Statement referred to in Section 7; and (iii) the term
“Untrue
        Statement”
means
        any untrue statement or alleged untrue statement, or any omission or alleged
        omission to state in, the Registration Statement a material fact required
        to be
        stated therein or necessary to make the statements therein not
        misleading.

       

      (b)    The
        Company agrees to indemnify and hold harmless each Selling Stockholder from
        and
        against any losses, claims, damages, liabilities, or expenses to which such
        Selling Stockholder may become subject (under the Securities Act or otherwise)
        insofar as such losses, claims, damages, liabilities or expenses (or actions
        or
        proceedings in respect thereof) arise out of, or are based upon (i) any
        breach of the representations or warranties of the Company contained herein
        or
        failure to comply with the covenants and agreements of the Company contained
        herein, (ii) any Untrue Statement, or (iii) any failure by the Company
        to fulfill any undertaking included in the Registration Statement as amended
        or
        supplemented from time to time, and the Company will reimburse such Selling
        Stockholder for any reasonable legal or other expenses reasonably incurred
        in
        investigating, defending or preparing to defend any such action, proceeding
        or
        claim, or preparing to defend any such action, proceeding or claim, provided,
        however,
        that
        the Company shall not be liable in any such case to the extent that such
        loss,
        claim, damage or liability arises out of, or is based upon, an Untrue Statement
        made in reliance upon and in conformity with written information furnished
        to
        the Company by or on behalf of such Selling Stockholder specifically for
        use in
        preparation of the Registration Statement, as amended or supplemented from
        time
        to time, or the failure of such Selling Stockholder to comply with its covenants
        and agreements contained in Section 4 hereof
        respecting the sale of the Shares or any statement or omission in any Prospectus
        that is corrected in any subsequent Prospectus that was delivered to the
        Selling
        Stockholder prior to the pertinent sale or sales by the Selling Stockholder.
        The
        Company shall reimburse each Selling Stockholder for the indemnifiable amounts
        provided for herein on demand as such expenses are incurred.

       

      (c)    The
        Purchaser agrees to indemnify and hold harmless the Company (and each person,
        if
        any, who controls the Company within the meaning of Section 15 of the
        Securities Act, each officer of the Company who signs the Registration Statement
        and each director of the Company) from and against any losses, claims, damages
        or liabilities to which the Company (or any such officer, director or
        controlling person) may become subject (under the Securities Act or otherwise),
        insofar as such losses, claims, damages or liabilities (or actions or
        proceedings in respect thereof) arise out of, or are based upon, (i) any
        failure of each Purchaser to comply with the covenants and agreements contained
        in Section 4 hereof respecting the sale of the Notes or Shares, or
        (ii) any Untrue Statement if such Untrue Statement was made in reliance
        upon and in conformity with written information furnished by or on behalf
        of
        each Purchaser specifically for use in preparation of the Registration
        Statement, as amended or supplemented from time to time, and each Purchaser
        will
        reimburse the Company (or such officer, director or controlling person),
        as the
        case may be, for any legal or other expenses reasonably incurred in
        investigating, defending or preparing to defend any such action, proceeding
        or
        claim. The Purchaser shall reimburse the Company or such officer, director
        or
        controlling person, as the case may be, for the indemnifiable amounts provided
        for herein on demand as such expenses are incurred. Notwithstanding the
        foregoing, each Purchaser’s aggregate obligation to indemnify the Company and
        such officers, directors and controlling persons shall be limited to the
        net
        amount received by each Purchaser from the sale of the Notes and
        Shares.

       

      
        
          
          

        

        
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      (d)    Promptly
        after receipt by any indemnified person of a notice of a claim or the beginning
        of any action in respect of which indemnity is to be sought against an
        indemnifying person pursuant to this Section 9, such indemnified person
        shall notify the indemnifying person in writing of such claim or of the
        commencement of such action, but the omission to so notify the indemnifying
        person will not relieve it from any liability which it may have to any
        indemnified person under this Section 9 (except to the extent that such
        omission materially and adversely affects the indemnifying person’s ability to
        defend such action) or from any liability otherwise than under this
        Section 9. Subject to the provisions hereinafter stated, in case any such
        action shall be brought against an indemnified person, the indemnifying person
        shall be entitled to participate therein, and, to the extent that it shall
        elect
        by written notice delivered to the indemnified person promptly after receiving
        the aforesaid notice from such indemnified person, shall be entitled to assume
        the defense thereof, with counsel reasonably satisfactory to such indemnified
        person. After notice from the indemnifying person to such indemnified person
        of
        its election to assume the defense thereof, such indemnifying person shall
        not
        be liable to such indemnified person for any legal expenses subsequently
        incurred by such indemnified person in connection with the defense thereof,
        provided,
        however,
        that if
        there exists or shall exist a conflict of interest that would make it
        inappropriate, in the opinion of counsel to the indemnified person, for the
        same
        counsel to represent both the indemnified person and such indemnifying person
        or
        any affiliate or associate thereof, the indemnified person shall be entitled
        to
        retain its own counsel at the expense of such indemnifying person; provided,
        however, that no indemnifying person shall be responsible for the fees and
        expenses of more than one separate counsel (together with appropriate local
        counsel) for all indemnified parties. In no event shall any indemnifying
        person
        be liable in respect of any amounts paid in settlement of any action unless
        the
        indemnifying person shall have approved the terms of such settlement;
provided
        that
        such consent shall not be unreasonably withheld or delayed. No indemnifying
        person shall, without the prior written consent of the indemnified person,
        effect any settlement of any pending or threatened proceeding in respect
        of
        which any indemnified person is or could have been a party and indemnification
        could have been sought hereunder by such indemnified person, unless such
        settlement includes an unconditional release of such indemnified person from
        all
        liability on claims that are the subject matter of such proceeding.

       

      (e)    If
        the
        indemnification provided for in this Section 9 is unavailable to or
        insufficient to hold harmless an indemnified person under subsection (b)
        or (c)
        above in respect of any losses, claims, damages or liabilities (or actions
        or
        proceedings in respect thereof) referred to therein, then each indemnifying
        person shall contribute to the amount paid or payable by such indemnified
        person
        as a result of such losses, claims, damages or liabilities (or actions in
        respect thereof) in such proportion as is appropriate to reflect the relative
        fault of the Company on the one hand and each Purchaser, as well as any other
        Selling Shareholders under such Registration Statement on the other in
        connection with the statements or omissions or other matters which resulted
        in
        such losses, claims, damages or liabilities (or actions in respect thereof),
        as
        well as any other relevant equitable considerations. The relative fault shall
        be
        determined by reference to, among other things, in the case of an Untrue
        Statement, whether the Untrue Statement relates to information supplied by
        the
        Company on the one hand or an Purchaser or other Selling Shareholder on the
        other and the parties’ relative intent, knowledge, access to information and
        opportunity to correct or prevent such Untrue Statement. The Company and
        each
        Purchaser agree that it would not be just and equitable if contribution pursuant
        to this subsection (e) were determined by pro rata allocation (even if each
        Purchaser and other Selling Shareholders were treated as one entity for such
        purpose) or by any other method of allocation which does not take into account
        the equitable considerations referred to above in this subsection (e). The
        amount paid or payable by an indemnified person as a result of the losses,
        claims, damages or liabilities (or actions in respect thereof) referred to
        above
        in this subsection (e) shall be deemed to include any legal or other expenses
        reasonably incurred by such indemnified person in connection with investigating
        or defending any such action or claim. Notwithstanding the provisions of
        this
        subsection (e), each Purchaser shall not be required to contribute any amount
        in
        excess of the amount by which the net amount received by each Purchaser from
        the
        sale of the Shares to which such loss relates exceeds the amount of any damages
        which such Purchaser has otherwise been required to pay by reason of such
        Untrue
        Statement. No person guilty of fraudulent misrepresentation (within the meaning
        of Section 11(f) of the Securities Act) shall be entitled to contribution
        from any person who was not guilty of such fraudulent misrepresentation. The
        Purchaser’s obligations in this subsection to contribute shall be in proportion
        to its sale of Shares to which such loss relates and shall not be joint with
        any
        other Selling Shareholders.

       

      
        
          
          

        

        
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            19 -

          
            

          

        

        
          
          

        

      


      (f)    The
        parties to this Agreement hereby acknowledge that they are sophisticated
        business persons who were represented by counsel during the negotiations
        regarding the provisions hereof including, without limitation, the provisions
        of
        this Section 9, and are fully informed regarding said provisions. They
        further acknowledge that the provisions of this Section 9 fairly allocate
        the risks in light of the ability of the parties to investigate the Company
        and
        its business in order to assure that adequate disclosure is made in the
        Registration Statement as required by the Securities Act and the Exchange
        Act.
        The parties are advised that federal or state public policy as interpreted
        by
        the courts in certain jurisdictions may be contrary to certain of the provisions
        of this Section 9, and the parties hereto hereby expressly waive and
        relinquish any right or ability to assert such public policy as a defense
        to a
        claim under this Section 9 and further agree not to attempt to assert any
        such defense.

       

      (g)    Notwithstanding
        the other provisions of this Section 9, the Purchasers’ sole and exclusive
        remedy with respect to a breach of Section 7(b) of this Agreement shall be
        default interest under the Notes.

       

      Section
        10.    Termination
        of Conditions and Obligations.
        The
        conditions precedent imposed by Section 8 or this Section 10 upon the
        transferability of the Shares shall cease and terminate as to any particular
        Shares when such Shares are sold or otherwise disposed of in accordance with
        the
        intended method of disposition set forth in the Registration Statement covering
        such Shares or at such time as an opinion of counsel reasonably satisfactory
        to
        the Company shall have been rendered to the effect that such conditions are
        not
        necessary in order to comply with the Securities Act.

       

      
        
          
          

        

        
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      Section
        11.    Information
        Available.
        So long
        as the Registration Statement is effective covering the resale of Shares
        owned
        by each Purchaser, upon the reasonable request of each Purchaser, the Company
        will furnish to each Purchaser:

       

      (a)    as
        soon
        as practicable after it is available, one copy of (i) its Annual Report to
        Stockholders (which Annual Report shall contain financial statements audited
        in
        accordance with generally accepted accounting principles by a national firm
        of
        certified public accountants), (ii) its Annual Report on Form 10-K and
        (iii) its Quarterly Reports on Form 10-Q (the foregoing, in each case,
        excluding exhibits);

       

      (b)    all
        exhibits excluded by the parenthetical to subparagraph (a) of this
        Section 11 as filed with the SEC and all other information that is made
        available to shareholders; and

       

      (c)    an
        adequate number of copies of the Prospectuses to supply to any other party
        requiring such Prospectuses; and upon the reasonable request of each Purchaser,
        the President or the principal financial officer of the Company (or an
        appropriate designee thereof) will meet with each Purchaser or a representative
        thereof at the Company’s headquarters to discuss all information relevant for
        disclosure in the Registration Statement covering the Shares and will otherwise
        cooperate with any Purchaser conducting an investigation for the purpose
        of
        reducing or eliminating such Purchaser’s exposure to liability under the
        Securities Act, including the reasonable production of information at the
        Company’s headquarters; provided, that the Company shall not be required to
        disclose any confidential information to or meet at its headquarters with
        any
        Purchaser until and unless each Purchaser shall have entered into a
        confidentiality agreement in form and substance reasonably satisfactory to
        the
        Company with the Company with respect thereto.

       

      Section
        12.    Legend;
        Restrictions on Transfer.
        The
        Notes and certificate or certificates for the Shares shall be subject to
        a
        legend or legends restricting transfer under the Securities Act and referring
        to
        restrictions on transfer herein, such legend to be substantially as
        follows:

       

      THIS
        SECURITY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
        UNDER
        THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES
        ACT”),
        AND
        THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
        MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, EXCEPT: (I) PURSUANT TO
        AN
        EFFECTIVE REGISTRATION STATEMENT RELATED THERETO; OR (II) IN ACCORDANCE WITH
        AN
        OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
        IS NOT REQUIRED UNDER THE SECURITIES ACT.


      
        
          
          

        

        
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      The
        Company and each Purchaser acknowledge and agree that each Purchaser may,
        as
        permitted by law, from time to time pledge pursuant to a bona fide margin
        agreement or grant a security interest in some or all of the Notes or Shares
        and, if required under the terms of such arrangement, each Purchaser may,
        as
        permitted by law, transfer pledged or secured Notes or Shares to the pledgees
        or
        secured parties. So long as each Purchaser is not an affiliate of the Company,
        such a pledge or transfer would not be subject to approval or consent of
        the
        Company, provided that, upon the request of the Company, a legal opinion
        of
        legal counsel to the pledgee, secured party or pledgor shall be obtained.
        At
        each Purchaser’s expense, so long as the Notes or Shares are subject to the
        legend required by this Section 12, the Company will use its reasonable
        commercial efforts to execute and deliver such reasonable documentation as
        a
        pledgee or secured party of Notes may reasonably request in connection with
        a
        pledge or transfer of the Notes or Shares including such amendments or
        supplements to the Registration Statement and Prospectus as may be reasonably
        required. The foregoing does not affect each Purchaser’s obligations pursuant to
        Section 4.

      


      The
        Purchaser expressly agrees that any sale by each Purchaser of Shares pursuant
        to
        the Registration Statement shall be sold in a manner described under the
        caption
“Plan of Distribution” in such Registration Statement and each Purchaser will
        deliver a copy of the Prospectus contained in the Registration Statement
        to the
        purchaser or purchasers, directly or through each Purchaser's broker, in
        connection with such sale, in each case in compliance with the requirements
        of
        the Securities Act and Exchange Act applicable to such sale. The Purchaser
        further agrees that the Shares will only be sold while the Registration
        Statement is effective, unless another exemption from registration is available.
        The Purchaser acknowledges that the removal of the restrictive legends from
        the
        Notes as provided in this Section 12 is predicated upon the Company’s
        reliance on the Purchaser’s compliance with its covenants in this
        Section 12.

      


      Section
        13. Notices.
        All
        notices, requests, consents and other communications hereunder shall be in
        writing, shall be mailed (A) if within the United States by first-class
        registered or certified airmail, or nationally recognized overnight express
        courier, postage prepaid, or by facsimile or electronic mail, or (B) if
        delivered from outside the United States, by International Federal Express
        (or
        other recognized international express courier) or facsimile, and shall be
        deemed given (i) if delivered by first-class registered or certified mail,
        three business days after so mailed, (ii) if delivered by nationally
        recognized overnight carrier, one business day after so mailed, (iii) if
        delivered by International Federal Express (or other recognized international
        express courier), two business days after so mailed, or (iv) if delivered
        by facsimile or electronic mail, upon electronic confirmation of receipt
        and
        shall be delivered as addressed as follows:

       

      
        	 	
                (a)

              	
                if
                  to the Company, to:

              


      

      


      Big
        Dog
        Holdings, Inc.

      121
        Gray
        Avenue

      Santa
        Barbara, CA 93101

      Attention:
        Anthony J. Wall

      Facsimile:
        (805) 963-8727 x1215

      Email:
        TonyW@BigDogs.com


      
        
          
          

        

        
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            22 -

          
            

          

        

        
          
          

        

      


      
        	 	
                (b)

              	
                with
                  a copy to:

              


      

      


      Fulbright &
        Jaworski L.L.P.

      555
        South
        Flower Street

      Forty-First
        Floor

      Los
        Angeles, CA 90071

      Attention:
        Victor Hsu

      Facsimile:
        (213) 892-9494

      Email:
        vhsu@fulbright.com 

      


      
        	 	
                (c)

              	
                if
                  to each Purchaser, at its address on the signature page hereto,
                  or at such
                  other address or addresses as may have been furnished to the Company
                  in
                  writing.

              


      

      


      Notwithstanding
        anything in this Agreement to the contrary, (a) the Company may deliver any
        documents, information or notices required to be delivered to an Purchaser
        under
        this Agreement by email, in any recognized electronic format, including Portable
        Document Format (PDF) or Microsoft Word document format, and (b) with respect
        to
        any documents, exhibits, filings, furnishings or other submissions (other
        than
        any Registration Statement, Prospectus, or Preliminary Prospectus pursuant
        to
        Section 7 of this Agreement) publicly available on the SEC’s EDGAR system (each,
        an “EDGAR
        Filing”),
        such
        EDGAR Filing shall be deemed furnished by the Company to such Purchaser,
        in each
        case as of the date first publicly available on the EDGAR system.

      


      Section
        14.    Changes.
        This
        Agreement may be modified, amended or waived only pursuant to a written
        instrument signed by the Company and (a) Purchasers holding a majority of
        the
        Notes issued and sold in the Offering, provided
        that
        such
        modification, amendment or waiver is made with respect to all Agreements
        and
        does not adversely affect each Purchaser without adversely affecting all
        Purchasers in a similar manner; or (b) each Purchaser.

       

      Section
        15.    Headings.
        The
        headings of the various sections of this Agreement have been inserted for
        convenience of reference only and shall not be deemed to be part of this
        Agreement.

       

      Section
        16.    Severability.
        In case
        any provision contained in this Agreement should be invalid, illegal or
        unenforceable in any respect, the validity, legality and enforceability of
        the
        remaining provisions contained herein shall not in any way be affected or
        impaired thereby.

       

      Section
        17.    Governing
        Law.
        This
        Agreement shall be governed by, and construed in accordance with, the internal
        laws of the State of New York, without giving effect to the principles of
        conflicts of law.

       

      
        
          
          

        

        
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            23 -

          
            

          

        

        
          
          

        

      


      Section
        18.    Counterparts.
        This
        Agreement may be executed in two or more counterparts, each of which shall
        constitute an original, but all of which, when taken together, shall constitute
        but one instrument, and shall become effective when one or more counterparts
        have been signed by each party hereto and delivered to the other
        parties.

       

      Section
        19.    Entire
        Agreement.
        This
        Agreement and the other Transaction Documents constitute the entire agreement
        between the parties hereto and supersedes any prior understandings or agreements
        concerning the purchase and sale of the Notes and the resale registration
        of the
        Shares.

       

      Section
        20.    Rule
        144.
        The
        Company covenants that it will timely file the reports required to be filed
        by
        it under the Securities Act and the Exchange Act and the rules and regulations
        adopted by the SEC thereunder (or, if the Company is not required to file
        such
        reports, it will, upon the request of any Purchaser holding Notes purchased
        hereunder, or Shares issued under any Notes, made after the first anniversary
        of
        the Closing Date, make publicly available such information as necessary to
        permit sales pursuant to Rule 144 under the Securities Act), and it will
        take
        such further action as any such Purchaser may reasonably request, all to
        the
        extent required from time to time to enable such Purchaser to sell such Notes
        and Shares without registration under the Securities Act within the limitation
        of the exemptions provided by (a) Rule 144 under the Securities Act, as such
        Rule may be amended from time to time, or (b) any similar rule or regulation
        hereafter adopted by the SEC. Upon the request of any Purchaser, the Company
        will deliver to such holder a written statement as to whether it has complied
        with such information and requirements.

       

      Section
        21.    Press
        Release; 8-K.
        On the
        Closing Date, the Company shall issue a press release disclosing information
        provided by the Company or any person acting on its behalf that the Company
        believes constitutes material and non-public information, if any. The Company
        shall, within two (2) business day of the Closing Date, file with the SEC
        a Form
        8-K disclosing the material terms of the transactions contemplated hereby
        (including at least the number of Notes sold and proceeds therefrom). The
        Company shall not publicly disclose the name of each Purchaser or any beneficial
        owner of Notes held by each Purchaser, or include the name of each Purchaser
        or
        such beneficial owner in any filing with the SEC or any state and federal
        regulatory agency or the Nasdaq (other than the filing of the Agreements
        with
        the SEC pursuant to the Exchange Act), without the prior written consent
        of each
        Purchaser, except to the extent such disclosure is required by law, regulation
        or Nasdaq regulations.

       

      Section
        22.    No
        Third-Party Beneficiaries.
        Other
        than as set forth in Section 9, this Agreement is intended for the benefit
        of
        the parties hereto and their respective successors and permitted assigns
        and is
        not for the benefit of, nor may any provision hereof be enforced by, any
        other
        person.

       

      Section
        23.    Debt
        Obligation.
        So long
        as any portion of the Notes are outstanding, the Company shall cause its
        books
        and records to reflect the Notes as a debt of the Company in its unpaid
        principal amount, shall cause its financial statements to reflect the Note
        as a
        debt of the Company in such amount as shall be the greatest amount permitted
        in
        accordance with GAAP and as a valid debt obligation of the Company for money
        borrowed.

       

      
        
          
          

        

        
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            24 -

          
            

          

        

        
          
          

        

      


      Section
        24.    Costs
        and Expenses.
        The
        Company agrees to pay the reasonable fees and expenses of
        Goodwin | Procter LLP, counsel for
        Thomas Weisel Partners LLP, as Placement Agent, subject to the
        agreement between the Company and the Placement Agent.

       

      Section
        25.    Independent
        Nature of Purchasers’ Obligations and Rights.
        The
        obligations of each Purchaser under this Agreement are several and not joint
        with the obligations of any other Purchaser, and no Purchaser shall be
        responsible in any way for the performance of the obligations of any other
        Purchaser under this Agreement. Nothing contained herein or in any other
        document, and no action taken by any Purchaser pursuant thereto, shall be
        deemed
        to constitute each Purchaser as a partnership, an association, a joint venture
        or any other kind of entity, or create a presumption that each Purchaser
        are in
        any way acting in concert or as a group with respect to such obligations
        or the
        transactions contemplated by this Agreement. Each Purchaser shall be entitled
        to
        independently protect and enforce its rights, including without limitation,
        the
        rights arising out of this Agreement or out of the other related documents,
        and
        it shall not be necessary for any other Purchaser to be joined as an additional
        party in any proceeding for such purpose. Each Purchaser has been represented
        by
        its own separate legal counsel in their review and negotiation of this
        Agreement. The Company has elected to provide all Purchasers with the same
        terms
        and documents for the convenience of the Company and not because it was required
        or requested to do so by each Purchaser.

       

      
        	 	
                Section
                  26.

              	
                Dispute
                  Resolution.

              


      

       

      (a)    All
        disputes, claims, or controversies arising out of or relating to (i) this
        Agreement or any other agreement executed and delivered pursuant to this
        Agreement or the negotiation, breach, termination, validity or performance
        hereof or the transactions contemplated hereby or (ii) each Purchaser’s loan to
        the Company, that are not resolved by mutual agreement shall be resolved
        by
        litigation, or if the Company and each Purchaser agree to resolve any particular
        dispute by arbitration, then such arbitration shall be conducted in accordance
        with the procedures set forth in Section 26(b) below.

       

      (b)    In
        the
        event the parties hereto agree to resolve a particular dispute by arbitration,
        the following procedures will apply: Such dispute shall be submitted to
        arbitration by one arbitrator mutually agreed upon by the parties, and if
        no
        agreement can be reached within thirty (30) days after names of potential
        arbitrators have been proposed by J.A.M.S./Endispute, Inc. or its successor,
        then by one arbitrator having reasonable experience in corporate finance
        transactions of the type provided for in this Agreement and who is chosen
        by
        J.A.M.S./Endispute, Inc. or its successor. The arbitration shall take place
        in
        Los Angeles, California, in accordance with the J.A.M.S./Endispute, Inc.
        rules
        then in effect, and judgment upon any award rendered in such arbitration
        will be
        binding and may be entered in any court having jurisdiction thereof. There
        shall
        be limited discovery prior to the arbitration hearing as follows: (a) exchange
        of witness lists and copies of documentary evidence and documents relating
        to or
        arising out of the issues to be arbitrated, (b) depositions of all party
        witnesses and (c) such other depositions as may be allowed by the arbitrators
        upon a showing of good cause. Depositions shall be conducted in accordance
        with
        the California Rules of Civil Procedure, the arbitrator shall be required
        to
        provide in writing to the parties the basis for the award or order of such
        arbitrator, and a court reporter shall record all hearings, with such record
        constituting the official transcript of such proceedings. The prevailing
        party
        shall be entitled to reasonable attorney’s fees, costs, and necessary
        disbursements in addition to any other relief to which such party may be
        entitled.

       

      
        
          
          

        

        
          -
            25 -

          
            

          

        

        
          
          

        

      


      Section
        27.    ACKNOWLEDGEMENTS.
        THE
        PURCHASER HEREBY ACKNOWLEDGES RECEIPT OF A DRAFT OF THE COMPANY’S FORM 10-K
        ANTICIPATED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL
        2,
        2007. THE PURCHASER FURTHER ACKNOWLEDGES THAT WITH RESPECT TO NET SHARE
        SETTLEMENT, THE COMPANY IS NOT OBLIGATED TO TREAT ALL HOLDERS THE SAME OR
        ON A
        PRO RATA BASIS WITH RESPECT TO THE COMPANY’S UTILIZING NET SHARE SETTLEMENT.
        WITHOUT LIMITING THE FOREGOING, THE PURCHASER ACKNOWLEDGES THAT DIRECTORS,
        OFFICERS, CONSULTANTS OR EMPLOYEES OF THE COMPANY MAY, SUBJECT TO ANY APPLICABLE
        PRINCIPAL MARKET SHAREHOLDER APPROVAL RULES, BE AMONG HOLDERS SUBJECT TO
        THE
        COMPANY’S NET SHARE SETTLEMENT OPTION.

       

      
        
          
          

        

        
          -
            26 -

          
            

          

        

        
          
          

        

      


      AGREED
        AND ACCEPTED: 

      


      BIG
        DOG
        HOLDINGS, INC. 

      


      
        	
                By:
                  

              	
                /s/
                  Anthony Wall

              	 
	 	 	 
	
                Print
                  Name: 

              	
                Anthony
                  Wall

              	 
	 	 	 
	
                Title:
                  

              	
                Executive
                  Vice President