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EXHIBIT 10.31
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EQUITY LINE FINANCING AGREEMENT
BETWEEN
GADZOOX NETWORKS, INC.
AND
SOCIETE GENERALE
DATED AS OF
JUNE 28, 2001
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EQUITY LINE FINANCING AGREEMENT
EQUITY LINE FINANCING AGREEMENT (this "Agreement"), dated as of June 28,
2001, between GADZOOX NETWORKS, INC., a Delaware corporation (the "Company"),
and SOCIETE GENERALE, a bank organized under the laws of France (the
"Investor").
W I T N E S S E T H:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company may issue and sell to the Investor from
time to time as provided herein, and the Investor shall purchase from the
Company, shares of Common Stock for an aggregate purchase price up to
$20,000,000 on a private placement basis pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933; and
WHEREAS, the Investor shall be entitled to resell shares of Common Stock
acquired hereunder pursuant to a resale registration statement established by
the Company pursuant to the terms of the Registration Rights Agreement between
the Company and the Investor which shall be declared effective by the Commission
prior to the delivery of a Draw Down Notice hereunder.
NOW THEREFORE, in consideration of the premises, representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. CERTAIN DEFINITIONS. For purposes of this Agreement,
capitalized terms used herein and not otherwise defined shall have the following
respective meanings:
"Affiliate" of a Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first- mentioned Person. The term "control"
(including the terms "controlling," "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Average Daily Trading Volume" with respect to any Draw Down effected by
the Company shall mean the average daily volume of shares of Common Stock traded
on the Principal Market as reported by Bloomberg Financial during the thirty
(30) consecutive Trading Day period ending on the Trading Day immediately
preceding the date on which a Draw Down Notice is delivered pursuant to Section
2.03(b) hereof.
"Bloomberg Financial" shall mean Bloomberg Financial Markets or an
equivalent reliable reporting service acceptable to the Company and hereafter
designated by the Investor.
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"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock, of such Person.
"Closing" shall have the meaning set forth in Section 2.02.
"Closing Date" shall mean the date on which the Closing occurs.
"Comfort Letter" shall mean a letter from Xxxxxx Xxxxxxxx LLP or another
"Big Five" independent public accounting firm, in form and substance reasonably
satisfactory to the Investor, addressed to the Investor and dated as of the
Effective Date or the filing date of any Current Report on Form 8-K, if such
report contains substantial financial information, (i) confirming that they are
independent public accountants within the meaning of the Securities Act and are
in compliance with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission and (ii)
stating, as of the Effective Date or filing date, as applicable, the conclusions
and findings of such firm with respect to the financial information and other
matters ordinarily covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.
"Commission" means the United States Securities and Exchange
Commission.
"Commitment Period" shall mean the period commencing on the Effective
Date and expiring on the earliest to occur of (x) the date on which the Investor
shall have purchased Draw Down Shares pursuant to this Agreement for an
aggregate Purchase Price of $20,000,000, (y) the date this Agreement is
terminated pursuant to Article X and (z) the date occurring twenty-four (24)
months from the date hereof.
"Common Stock" shall mean the Company's common stock, $0.005 par value
per share.
"Common Shares" shall mean shares of the Company's Common Stock issued
or issuable pursuant to this Agreement.
"Draw Down" shall mean each occasion the Company elects to exercise its
right to deliver a Draw Down Notice requiring the Investor to purchase the
Common Shares as specified in such Draw Down Notice, subject to the terms and
conditions of this Agreement.
"Draw Down Cancellation" shall have the meaning set forth in Section
6.04(a).
"Draw Down Cancellation Date" shall have the meaning set forth in
Section 6.04(a).
"Draw Down Cancellation Notice" shall have the meaning set forth in
Section 6.04(a).
"Draw Down Date" shall mean any Trading Day during the Commitment Period
that a Draw Down Notice to sell Common Stock to the Investor is deemed delivered
pursuant to Section 2.03(b) hereof.
"Draw Down Notice" shall mean a written notice to the Investor delivered
in accordance with this Agreement in the form attached hereto as Exhibit A
setting forth the Investment
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Amount that the Company intends to sell to the Investor pursuant to such Draw
Down and the Floor Price applicable to such Draw Down.
"Draw Down Shares" shall mean all shares of Common Stock issued or
issuable pursuant to a Draw Down that has occurred or may occur in accordance
with the terms and conditions of this Agreement.
"DWAC Transfer" shall have the meaning set forth in Section 2.04.
"Effective Date" shall mean the date on which the Commission first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 6.02(a).
"Exchange Act" means the Securities Exchange Act of 1934.
"Floor Price" shall mean the lowest VWAP (before taking into account any
discount used to calculate the Purchase Price hereunder) at which the Company
will sell its Common Stock as specified in the Draw Down Notice delivered in
connection with any Draw Down effected pursuant to this Agreement, but in no
event shall the Floor Price be less than $1.00.
"Governmental Authority" means any federal or state government or
political subdivision thereof and any agency or other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Investment Amount" shall mean the aggregate dollar amount (within the
range specified in Section 2.03) of any Draw Down Shares to be purchased by the
Investor with respect to any Draw Down effected by the Company in accordance
with Section 2.03 hereof.
"Irrevocable Transfer Agent Instructions" shall have the meaning set
forth in Article IX.
"Material Adverse Effect" has the meaning set forth in Section 3.01.
"Maximum Draw Down Amount" with respect to any Draw Down effected by the
Company in accordance with Section 2.03 hereof shall mean the lesser of (i)
$3,000,000 (subject to increase to $4,000,000 in the event the average VWAP for
the Common Stock for the five Trading Days immediately preceding the applicable
Draw Down Date, multiplied by the Average Daily Trading Volume of the Common
Stock applicable with respect to such Draw Down Date shall exceed $8,000,000 and
(ii) 10% of the product of (x) the average VWAP for the Common Stock for the
five Trading Days immediately preceding the applicable Draw Down Date,
multiplied by (y) the Average Daily Trading Volume of the Common Stock
applicable with respect to such Draw Down Date, multiplied by (z) 5.
"Maximum Share Amount" shall have the meaning set forth in Section
2.01(c).
"Minimum Draw Down Amount" shall mean $200,000.
"Periodic Accountant's Report" shall mean a review report from Xxxxxx
Xxxxxxxx LLP or another "Big Five" independent public accounting firm, delivered
to the Investor within 45 days
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of the end of each of the Company's fiscal quarters (other than the fourth
fiscal quarter) in conjunction with such accounting firm's issuance to the
Company of a SAS No. 71 review report with respect to each of the Company's
quarterly financial statements.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind.
"Principal Market" shall mean the Nasdaq National Market, the American
Stock Exchange or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
"Prospectus Supplement" shall have the meaning set forth in Section
6.02(o).
"Purchase Price" with respect to each Trading Day during a Valuation
Period shall mean 94% of the VWAP for such Trading Day.
"Registrable Securities" shall mean the Draw Down Shares, and any other
shares of capital stock issued or issuable as a dividend on or in exchange for
or otherwise with respect to the Draw Down Shares and until (i) the Registration
Statement has been declared effective by the Commission and all such shares have
been disposed of pursuant to the Registration Statement, (ii) all such shares
have been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) are met, (iii) all such
shares have been otherwise transferred and the Company shall have delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend, (iv) such time as, in the opinion of counsel to the Company,
all such shares may be sold without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act or (v) any combination of the foregoing relating to all such
shares.
"Registration Rights Agreement" shall mean the agreement regarding the
filing of the Registration Statement for the resale of the Registrable
Securities entered into between the Company and the Investor as of the Closing
Date.
"Registration Statement" shall mean a registration statement on such
form promulgated by the Commission for which the Company then qualifies and
which counsel for the Company shall deem appropriate and which form shall be
available for the resale of the Registrable Securities to be registered
thereunder in accordance with the provisions of this Agreement and the
Registration Rights Agreement, and in accordance with the intended method of
distribution of such securities, for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.
"SEC Reports" means, the Company's Annual Report on Form 10-K for the
year ended March 31, 2000, the Company's Reports on Form 10-Q for each of the
quarters ended June 30, 2000, September 30, 2000 and December 31, 2000, and each
of the Company's Current Reports on Form 8-K filed since March 31, 2000.
"Securities Act" means the Securities Act of 1933.
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"Settlement Date" shall mean the sixth Trading Day following the Draw
Down Date.
"Trading Day" shall mean any day during which the Principal Market shall
be open for trading.
"Transaction Documents" means, collectively, this Agreement and
the Registration Rights Agreement.
"Valuation Period" shall mean the period of five (5) consecutive Trading
Days following the Trading Day on which a Draw Down Notice is delivered or
deemed to be delivered pursuant to Section 2.03(b) hereof.
"VWAP" for any given Trading Day shall mean the daily volume weighted
average price of the Common Stock on such date on the Principal Market as
reported by Bloomberg Financial using the AQR function.
ARTICLE II
SALE AND PURCHASE OF COMMON STOCK
SECTION 2.01. INVESTMENTS. (a) Purchase and Sale of Common Stock.
Subject to the terms and conditions of this Agreement, the Company, at its sole
and exclusive option, may issue and sell to the Investor, and the Investor shall
purchase from the Company shares of the Company's Common Stock (based upon each
of the five (5) Trading Days occurring during a Valuation Period), based on such
number of Draw Downs (subject to the Maximum Draw Down Amount and the Minimum
Draw Down Amount) as the Company, in its sole discretion, shall choose to
deliver during the Commitment Period until the aggregate Investment Amount with
respect to Common Shares purchased under this Agreement equals $20,000,000 or
this Agreement is otherwise terminated.
(b) Draw Downs. Upon the terms and subject to the conditions set forth
herein, on any Trading Day as provided in Section 2.03(b) hereof during the
Commitment Period on which the conditions set forth in Section 6.02 and 6.03
hereof have been satisfied, the Company may exercise a Draw Down by the delivery
of a Draw Down Notice to the Investor. The aggregate number of Draw Down Shares
that the Investor shall be obligated to purchase pursuant to such Draw Down
shall be determined in accordance with Section 2.03(c). Each Draw Down will be
settled on the applicable Settlement Date following the Draw Down Date.
(c) Maximum Amount of Draw Down Shares. Unless the Company obtains the
approval of its stockholders in accordance with the applicable rules of the
Principal Market, no more than 6,812,400 shares of Common Stock (the "Maximum
Share Amount") may be issued and sold pursuant to all Draw Downs hereunder.
SECTION 2.02. EFFECTIVENESS. The effectiveness of this Agreement (the
"Closing") shall be deemed to take place concurrently with the execution and
delivery of this Agreement by the parties hereto and the completion of the
closing transactions set forth in the immediately following sentence. At the
Closing, the following closing transactions shall take place, each of
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which shall be deemed to occur simultaneously with the Closing: (i) the Company
and the Investor shall execute and deliver the Registration Rights Agreement;
(ii) Company shall deliver to the Investor a certificate executed by the
Secretary of the Company, signing in such capacity, dated the date of the
Closing (A) certifying that attached thereto are true and complete copies of the
resolutions duly adopted by the Board of Directors of the Company authorizing
the execution and delivery of the Transaction Documents and the consummation of
the transactions contemplated thereby (including, without limitation, the
reservation and issuance of the Common Stock pursuant to this Agreement), which
authorization shall be in full force and effect on and as of the date of such
certificate and (B) certifying and attesting to the office, incumbency, due
authority and specimen signatures of each Person who executed any Transaction
Document for or on behalf of the Company; (iii) the Company shall deliver to the
Investor a certificate executed by an executive officer of the Company,
confirming the accuracy of the representations and warranties of the Company
contained in this Agreement; (iv) Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional
Corporation, counsel to the Company, shall deliver to the Investor an opinion,
dated the date of the Closing and addressed to the Investor, covering customary
matters; and (iv) the Company shall pay the expenses set forth in Section 9.02
hereof by wire transfer to the account designated by the Investor in writing
prior to the Closing.
SECTION 2.03. MECHANICS OF DRAW DOWNS. (a) Draw Down Notice. On any
Trading Day during the Commitment Period, the Company may deliver a Draw Down
Notice to the Investor, subject to the satisfaction of the conditions set forth
in Sections 6.02 and 6.03; provided, however, the Investment Amount for each
Draw Down as designated by the Company in the applicable Draw Down Notice shall
be neither less than the Minimum Draw Down Amount nor more than the Maximum Draw
Down Amount (as determined as of the applicable Draw Down Date); provided
further, however, that if the Maximum Draw Down Amount as of the applicable Draw
Down Date is less than the Minimum Draw Down Amount, the Company shall not be
entitled to deliver any such Draw Down Notice.
(b) Delivery of Draw Down Notice. (i) A Draw Down Notice shall be deemed
delivered on a Trading Day if it is received by facsimile or otherwise (and the
Company confirms such delivery by e-mail notice or by telephone (including
voicemail message)) by the Investor prior to 3:00 p.m., New York City time on
such Trading Day, or (ii) in the event it is received by facsimile or otherwise
subsequent to 3:00 p.m., New York City time, on a Trading Day, then it shall be
deemed delivered on the immediately succeeding Trading Day. No Draw Down Notice
may be delivered other than on a Trading Day during the Commitment Period.
(c) Determination of Draw Down Shares Issuable. Subject to Section
2.03(d) and (e) hereof, the number of Draw Down Shares to be purchased by the
Investor with respect to any Draw Down shall be determined on a daily basis on
each Trading Day during the applicable Valuation Period and shall equal with
respect to any such Trading Day the quotient of (x) one-fifth (1/5) of the
Investment Amount, divided by (y) the Purchase Price for such Trading Day. The
portion of the Investment Amount for which Draw Down Shares may be issued for
each Trading Day during the Valuation Period may not exceed one-fifth (1/5) of
the Investment Amount.
(d) Floor Price Limitation. If the VWAP on any Trading Day during a
Valuation Period is less than the Floor Price specified in the applicable Draw
Down Notice, the Company
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shall not sell and the Investor shall not purchase the Draw Down Shares
otherwise to be purchased for such Trading Day. In such case, the Investment
Amount shall be reduced by one-fifth (1/5) of the Investment Amount for each
such Trading Day.
(e) Minimum Trading Hours Limitation. In the event that the Common Stock
is not listed and approved for trading on a Principal Market and free from any
halts or suspensions of trading (whether imposed generally on such Principal
Market or specifically with respect to the Common Stock) for a period of at
least six (6) hours on any Trading Day during a Valuation Period, then the
Company shall not sell and the Investor shall not purchase the Draw Down Shares
otherwise to be purchased in respect of such Trading Day. In such case, the
Investment Amount shall be reduced by one-fifth (1/5) of the Investment Amount
for each such Trading Day.
(f) The Company shall not be subject to any penalty, liability for
damages or any other obligation to the Investor, including its affiliates,
successors and assigns, for any reduction of the Investment Amount or the Draw
Down Shares pursuant to this Section 2.03.
SECTION 2.04. SETTLEMENTS. Subject to the provisions of Section 6.04, on
each Settlement Date the Company shall, unless otherwise instructed by the
Investor, cause the Transfer Agent to electronically transmit shares of Common
Stock to the Investor (by crediting the account of the Investor's Prime Broker,
as designated by the Investor, with the Depository Trust Company through its
Deposit Withdrawal Agent Commission system ("DWAC Transfer")) representing the
Draw Down Shares to be purchased by the Investor on such Settlement Date with
respect to the Draw Down Period immediately preceding such Settlement Date
pursuant to Section 2.03(c) hereof against delivery by the Investor of the
portion of the Investment Amount representing the Draw Down Shares to be
purchased on such Settlement Date by wire transfer immediately of available
funds to an account designated by the Company on or before the Settlement Date.
In addition, on or prior to each such Settlement Date, each of the Company and
the Investor shall deliver all documents, instruments and writings required to
be delivered by either of them pursuant to this Agreement in order to implement
and effect the transactions contemplated herein.
The Investor acknowledges that although the Draw Down Shares acquired
from the Company pursuant to a DWAC Transfer do not bear a restrictive legend,
they constitute "restricted securities" within the meaning of the Securities Act
and the Investor agrees it will transfer the Draw Down Shares through the
facilities of The Depository Trust Company only pursuant to the Registration
Statement or pursuant to Rule 144 under the Securities Act.
SECTION 2.05. DAMAGES FOR LATE DELIVERY OR NON-DELIVERY OF DRAW DOWN
SHARES; INVESTOR RIGHT TO VOID DRAW DOWN NOTICE. (a) In the event the Draw Down
Shares are not delivered by the Company on any Settlement Date (or are not
delivered at all, as contemplated by Section 6.04 or otherwise) other than as a
result of the fault of the Investor, the Company will pay the Investor, the
actual damages, if any, incurred by the Investor as a result of such late
delivery or non-delivery. For purposes of the foregoing, the actual damages of
the Investor shall mean the actual costs, penalties and interest expense
incurred by the Investor resulting from its failure to deliver on the Settlement
Date any Draw Down Shares it was entitled to receive from the Company on any
Settlement Date to any unaffiliated third party to whom it had agreed to
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deliver shares of Common Stock. The Investor agrees to act in good faith and use
commercially reasonable efforts to minimize its actual damages in any such event
and shall provide the Company with a detailed calculation of its actual damages
and supporting documentation therefor. Such amount may be offset by the Investor
against the portion of the Investment Amount otherwise payable by the Investor
with respect to such Draw Down Shares or future payment obligations of the
Investor with respect to subsequent Draw Down Notices. No amounts shall be
payable in the event the Investor does not incur any actual damages. In the
event the Company does not deliver Draw Down Shares within five (5) Trading Days
of the Settlement Date, the Investor may, by written notice to the Company
cancel such transaction with respect to the Draw Down Shares not delivered.
(b) The Company may not deliver a Draw Down Notice in the event (1) all
prior required deliveries of Draw Down Shares have not been made and the
Investor has not cancelled the transaction pursuant to Section 2.05(a) or (2)
the Company has not paid any amounts owed to the Investor pursuant to Section
2.05(a) unless, in connection with such notice, the Company shall have advised
the Investor in writing that the Investor may offset the amounts payable by the
Company (which amount shall be set forth in such notice and shall be consistent
with the Investor's calculation thereof) against the portion of the Investment
Amount otherwise payable by the Investor with respect to such Draw Down Notice.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Investor to enter into this Agreement,
the Company hereby represents and warrants to the Investor that, except as set
forth in the Disclosure Schedules delivered by the Company to the Investor and
attached hereto, on and as of the date hereof:
SECTION 3.01. ORGANIZATION AND STANDING. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority necessary for it to own its properties
and assets and to carry on its business as it is now being conducted (and, to
the extent described therein, as described in the SEC Reports) and proposed to
be conducted. The Company and each of its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
character of the properties owned or leased by it or the nature of its
businesses makes such qualification necessary, except where the failure to so
qualify or be in good standing would not have a material adverse effect on the
business, assets, operations or financial condition of the Company and its
subsidiaries, taken as a whole, or any adverse effect on the Company's ability
to consummate the transactions contemplated by, or to execute, deliver and
perform its obligations under, each of the Transaction Documents (a "Material
Adverse Effect").
SECTION 3.02. SECURITIES OF THE COMPANY. The authorized Capital Stock of
the Company consists of 150,000,000 shares of Common Stock and 10,000,000 shares
of preferred stock; as of June , 2001, [ ] shares of common stock and no
shares of preferred stock were outstanding and [ ] shares of Common Stock
were reserved for issuance upon
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exercise of outstanding convertible securities, warrants or pursuant to the
Company's Amended and Restated 1993 Stock Plan, 2000 Nonstatutory Stock Option
Plan, 1999 Employee Stock Purchase Plan, 1999 Director Stock Option Plan and
SmartSAN 1998 Equity Incentive Plan (collectively, the "Plans"). Except as set
forth in the SEC Reports and the Disclosure Schedules, the Company has no other
authorized, issued or outstanding equity securities or securities containing any
equity features, or any other securities convertible into, exercisable for,
exchangeable for or entitling any person to otherwise acquire any other
securities of the Company containing any equity features. The Company has no
stock option, incentive or similar plan other than the Plans under which the
issuance of [ ] shares of Common Stock may be issued. All of the outstanding
shares of Capital Stock of the Company have been duly and validly authorized and
issued, and are fully paid and nonassessable. The Common Shares in an amount up
to the Maximum Share Amount) have been duly and validly authorized and have been
duly reserved, and will remain available for issuance pursuant to this
Agreement. When issued against payment therefor as provided in this Agreement,
the Common Shares will be validly issued, fully paid and nonassessable, free and
clear of all preemptive rights, claims, liens, charges, encumbrances and
security interests of any nature whatsoever. Except as set forth in this Section
3.02, the SEC Reports or the Disclosure Schedules, there are no outstanding
options, warrants, conversion rights, subscription rights, preemptive rights,
rights of first refusal or other rights or agreements of any nature outstanding
to subscribe for or to purchase any shares of Capital Stock of the Company or
any other securities of the Company of any kind binding on the Company. The
issuance of the Common Shares pursuant to this Agreement is not subject to any
preemptive rights, rights of first refusal or other similar limitation. Except
as otherwise required by law, there are no restrictions upon the voting or
transfer of any shares of the Company's Capital Stock pursuant to the Company's
Certificate of Incorporation, bylaws or other documents. Except as provided
herein or in the other Transaction Documents, there are no agreements or other
obligations (contingent or otherwise) that may require the Company to repurchase
or otherwise acquire any shares of its Capital Stock.
SECTION 3.03. AUTHORIZATION; ENFORCEABILITY. The Company has the
corporate power and authority to execute, deliver and perform the terms and
provisions of each of the Transaction Documents to be executed, delivered or
performed by it and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of, and the consummation of the
transactions contemplated by, the Transaction Documents. No other corporate
proceeding on the part of the Company is necessary, and no consent of any
shareholder of the Company is required, for the valid execution and delivery by
the Company of the Transaction Documents, and except as described in Section
5.06 hereof, the performance and consummation by the Company of the transactions
contemplated by the Transaction Documents to be performed by the Company. The
Company has duly executed and delivered, or concurrently herewith is executing
and delivering, each of the Transaction Documents. Assuming the due execution of
this Agreement and the Registration Rights Agreement by the Investor, this
Agreement and the Registration Rights Agreement constitute the valid and binding
obligations of the Company, enforceable against the Company in accordance with
each of their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
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SECTION 3.04. NO VIOLATION; CONSENTS.
(a) The execution, delivery and performance by the Company of the
Transaction Documents and the consummation of the transactions contemplated
thereby to be performed by the Company do not and will not (i) contravene the
applicable provisions of any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or Governmental Authority to or by
which the Company or any of its subsidiaries or any of its respective property
or assets is bound, (ii) violate, result in a breach of or constitute (with due
notice or lapse of time or both) a default or give rise to an event of
acceleration under any material contract, lease, loan or credit agreement,
mortgage, security agreement, trust indenture or other agreement or instrument
to which the Company is a party or by which it or any of its subsidiaries is
bound or to which any of its respective properties or assets is subject, nor
result in the creation or imposition of any lien, security interest, charge or
encumbrance of any kind upon any of the properties, assets or Capital Stock of
the Company or any of its subsidiaries, or (iii) violate any provision of the
organizational and other governing documents of the Company or any of its
subsidiaries.
(b) No consent, approval, authorization or order of, or filing or
registration with, any court or Governmental Authority or other Person is
required to be obtained or made by the Company for the execution, delivery and
performance of the Transaction Documents or the consummation of any of the
transactions contemplated thereby (other than (i) the registration of the resale
of the Common Shares with the Commission and pursuant to any state "blue sky"
laws as contemplated by the Registration Rights Agreement, (ii) the stockholder
approval required by the rules applicable to companies whose common stock is
quoted on NASDAQ described in Section 5.06 hereof and (iii) the filing of a Form
D with the Commission), except for those consents or authorizations previously
obtained and those filings previously made.
SECTION 3.05. SECURITIES ACT REPRESENTATIONS. The Company has not
offered or sold and will not offer or sell any shares of its Capital Stock in
this offering other than to the Investor. Assuming the accuracy of the
Investor's representations pursuant to Section 4.02 hereof, the sale of the
Common Shares hereunder will be, exempt from the registration requirements of
the Securities Act. Neither the Company, nor any of its Affiliates, or, to its
knowledge, any Person acting on its or their behalf has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) in connection with the offer or sale of the Common
Shares hereunder. Neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security other than
pursuant to this Agreement under circumstances that would require registration
under the Securities Act of the Common Shares to be issued under this Agreement.
As of the date of this Agreement, the Company is eligible to use Form S-3 under
the Securities Act to file the Registration Statement (as defined in the
Registration Rights Agreement).
SECTION 3.06. SOLVENCY; NO DEFAULT. (a) The Company is, and upon giving
effect to the transactions contemplated hereby to be performed by it as of the
Closing will be, Solvent. "Solvent" means that, as of the date of determination,
(i) the then fair saleable value of the assets of the Company (on a consolidated
basis) exceeds the then total amount (on a consolidated basis) of its debts and
other liabilities, (including any guarantees and other contingent, subordinated,
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unmatured or unliquidated liabilities whether or not reduced to judgment,
disputed or undisputed, secured or unsecured), (ii) the Company has sufficient
funds and cash flow to pay its liability on its existing debts as they become
absolute and matured, (iii) final judgments against the Company in pending or,
to the Company's knowledge, threatened actions for money damages will not be
rendered at a time when, or in an amount such that, the Company will be unable
to satisfy any such judgments promptly in accordance with their terms (taking
into account (a) the maximum reasonable amount of such judgments in any such
actions (other than amounts that would be remote), (b) the earliest reasonable
time at which such judgments would be rendered and (c) any reasonably expected
insurance recovery with respect thereto), and (iv) the Company does not have
unreasonably small capital with which to engage in its present business.
(b) The Company is not, and immediately after the consummation of the
transactions contemplated hereby to be performed by the Company will not be, in
default of (whether upon the passage of time, the giving of notice or both) its
organizational and other governing documents, or any provision of any security
issued by the Company, or of any agreement, instrument or other undertaking to
which the Company is a party or by which it or any of its property or assets is
bound, or the applicable provisions of any law, statute, rule, regulation,
order, writ, injunction, judgment or decree of any court or Governmental
Authority to or by which the Company or any of its property or assets is bound,
which default or violation, either individually or in the aggregate, is likely
to have a Material Adverse Effect.
SECTION 3.07. NO BROKERS. Other than Shoreline Pacific Institutional
Finance, the Institutional Division of Financial West Group, no broker, finder,
agent or similar intermediary is entitled to any broker's, finder's, placement
or similar fee or other commission in connection with the transactions
contemplated hereby based on any agreement, arrangement or understanding with
the Company.
SECTION 3.08. SEC REPORTS; FINANCIAL CONDITION; NO ADVERSE CHANGES. (a)
The unaudited consolidated financial statements of the Company as of March 31,
2001, copies of which are publicly available, present fairly the financial
condition and results of operations of the Company (on a consolidated basis) at
such date and for the periods set forth therein (such consolidated financial
statements, the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles as set
forth in the opinions and pronouncements of the Accounting Principles Board of
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board as in effect on the
date of filing of such documents with the Commission, applied on a consistent
basis (except for changes concurred in by the Company's independent public
accountants) unless otherwise expressly stated therein. Except as disclosed in
the SEC Reports, during the period from April 1, 2001 to and including the date
hereof, there has been no sale, transfer or other disposition by the Company of
any material part of the business, property or securities of the Company and no
purchase or other acquisition of any business, property or securities by the
Company material in relation to the financial condition of the Company.
(b) Except as are fully reflected or reserved against in the Financial
Statements, there are no liabilities or obligations with respect to the Company
or any of its subsidiaries of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether or not due) which would have been required
to be disclosed in the balance sheets included in the Financial
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Statements that, either individually or in the aggregate, after taking into
account (a) the maximum reasonable amount of any liability that may arise on
account of any litigation or any other contingent liability or obligation (other
than amounts that would be remote), (b) the earliest reasonable time at which
any such liability or obligation may become due and (c) any reasonably expected
insurance recovery with respect thereto, could reasonably be expected to have a
Material Adverse Effect.
(c) Since March 31, 2001, except as set forth in the SEC Reports and the
Disclosure Schedules, there has been no development or event, nor any
prospective development or event known to the Company or any of its
subsidiaries, or any litigation, proceeding or other action seeking an
injunction or other restraining order, damages or other relief from a court or
administrative agency of competent jurisdiction pending, threatened or, to the
knowledge of the Company, contemplated, or any action of any Governmental
Authority, that has had or is likely to have a Material Adverse Effect (provided
that any changes resulting from general economic conditions or the computer
storage industry in general or fluctuations in the market price of the Company's
Common Stock shall not be deemed to constitute a "Material Adverse Effect" for
purposes hereof).
SECTION 3.09. USE OF PROCEEDS; FEDERAL REGULATIONS. No part of the net
proceeds from the sale of the Common Stock issued hereunder will be used in a
manner that would violate the provisions of Regulation T, U or X of the Board of
Governors of the Federal Reserve System. The Company will not use such proceeds
other than for or in connection with general working capital purposes.
SECTION 3.10. SUBSIDIARIES. As of the date hereof, the Company has no
subsidiaries other than those set forth in the SEC Reports.
SECTION 3.11. NO INTEGRATED OFFERING. Neither the Company, nor any of
its Affiliates, nor to its knowledge any Person acting on its or their behalf,
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would require
registration under the Securities Act of the offer and sale of the Common Stock
hereunder.
SECTION 3.12. NO LITIGATION. Except as set forth in the SEC Reports or
the Disclosure Schedules, no litigation or claim (including those for unpaid
taxes), or environmental proceeding against the Company or any of its
subsidiaries is pending, threatened or, to the Company's best knowledge,
contemplated that, if determined adversely, would (after taking into
consideration any reasonably expected insurance recovery with respect thereto)
have a Material Adverse Effect on the Company.
SECTION 3.13. ENVIRONMENTAL MATTERS. The Company and each of its
subsidiaries is in compliance in all material respects with all applicable state
and federal environmental laws, and no event or condition has occurred that may
interfere in any material respect with the compliance by the Company or any of
its subsidiaries with any environmental law or that may give rise to any
liability under any environmental law that, individually or in the aggregate,
would have a Material Adverse Effect.
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SECTION 3.14. INTELLECTUAL PROPERTY. The Company (and/or its
subsidiaries) owns or has licenses to use certain patents, copyrights and
trademarks ("intellectual property") associated with its business. The Company
and its subsidiaries have all intellectual property rights that are needed to
conduct the business of the Company and its subsidiaries as it is now being
conducted as disclosed in the SEC Reports. To the Company's knowledge, the
intellectual property rights that the Company (and/or its subsidiaries) owns are
valid and enforceable. To the Company's knowledge, the use of such intellectual
property by the Company (and/or its subsidiaries') does not infringe upon or
conflict with any right of any third party, and neither the Company nor any of
its subsidiaries has received notice, written or otherwise, of any such
infringement or conflict. Except as set forth in the SEC Reports, the Company
has no knowledge of any infringement of its (and/or its subsidiaries)
intellectual property by any third party.
SECTION 3.15. INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. The Company has no reason to believe that it and its
subsidiaries will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in
cost.
SECTION 3.16. RELATED PARTY TRANSACTIONS. Except as disclosed in the SEC
Reports and the Disclosure Schedules none of the officers, directors, employees
or 5% or greater shareholders of the Company is presently a party to any
transaction with the Company or any of its subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or the advances of money or
otherwise requiring payments to or from any such officer, director, employee or
shareholder or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any such officer, director, employee or
shareholder has a substantial interest or is an officer, director, trustee or
partner.
SECTION 3.17. PERMITS. The Company and each of its subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits except for such Company
Permits the failure of which to possess, or the cancellation or suspension of
which, would not, individually or in the aggregate, have a Material Adverse
Effect. To the best of its knowledge neither the Company nor any of its
subsidiaries is in material conflict with, or in material default or material
violation of, any of the Company Permits.
SECTION 3.18. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
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accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
SECTION 3.19. TAX RETURNS. Except as set forth in the Disclosure
Schedules, the Company has filed or caused to be filed all Federal tax returns
and all material state and local tax returns required to have been filed by it
and has paid or caused to be paid all taxes shown to be due and payable by it on
such returns or on any assessments received by it, except any such tax, the
validity or amount of which is being contested in good faith by appropriate
proceedings and as to which the Company has set aside on its books adequate
reserves with respect thereto in accordance with generally accepted accounting
principles. Neither the Company nor its subsidiaries has received any tax
assessment, notice of audit, notice of proposed adjustment or deficiency notice
from any taxing authority.
SECTION 3.20. DISCLOSURE. The representations and warranties of the
Company in this Agreement and the statements contained in the SEC Reports and
the Disclosure Schedules and the schedules, certificates and exhibits furnished
to the Investor by or on behalf of the Company in connection herewith do not
contain any untrue statement of a material fact and do not omit to state any
material fact necessary to make the statements herein or therein not misleading.
The SEC Reports contain all material information concerning the Company required
to be set forth therein, and no event or circumstance has occurred or exists
since December 31, 2000, that would require the Company to disclose such event
or circumstance in order to make the statements in the SEC Reports not
misleading as of the date of the Closing but that has not been so disclosed. The
Company hereby acknowledges that the Investor is and will be relying on the SEC
Reports and the Company's representations, warranties and covenants contained
herein in making an investment decision with respect to the Common Shares and
will be relying thereon (together with future reports filed with the Commission)
in connection with any transfer of Common Shares.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR
The Investor hereby acknowledges, represents, warrants and covenants, to
the Company as follows:
SECTION 4.01. AUTHORIZATION; ENFORCEABILITY; NO VIOLATIONS.
(a) The Investor is duly organized, validly existing and in good
standing under the laws of its jurisdiction, has all requisite power and
authority to execute, deliver and perform the terms and provisions of this
Agreement and the Registration Rights Agreement and has taken all necessary
action to authorize the execution, delivery and performance by it of this
Agreement and the Registration Rights Agreement and to consummate the
transactions contemplated hereby and thereby to be performed by it.
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(b) The execution, delivery and performance by the Investor of this
Agreement and the Registration Rights Agreement and the consummation by the
Investor of the transactions contemplated hereby and thereby to be performed by
it do not and will not violate any provision of (i) the Investor's
organizational documents or (ii) any law, statute, rule, regulation, order,
writ, injunction, judgment or decree to which the Investor is subject. The
Investor has duly executed and delivered this Agreement and has executed and
delivered, or concurrently herewith is executing and delivering, the
Registration Rights Agreement. Assuming the due execution hereof and thereof by
the Company, each of this Agreement and the Registration Rights Agreement
constitutes the legal, valid and binding obligation of the Investor, enforceable
against the Investor in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
SECTION 4.02. SECURITIES ACT REPRESENTATIONS; LEGENDS.
(a) The Investor understands that: (i) the offering and sale of the
Common Shares to be issued and sold hereunder is intended to be exempt from the
registration requirements of the Securities Act; (ii) the initial offer and sale
of the Common Shares issuable hereunder has not been registered under the
Securities Act or any other applicable securities laws and such securities may
be resold only if registered under the Securities Act and any other applicable
securities laws or if an exemption from such registration requirements is
available; and (iii) the Company is required to register any resale of the
Common Shares under the Securities Act and any other applicable securities laws
only to the extent provided in the Registration Rights Agreement.
(b) The Investor represents that the Common Shares to be acquired by the
Investor pursuant to this Agreement are being acquired for its own account and
not with a view to, or for sale in connection with, any distribution thereof or
(other than the resale of such Common Shares pursuant to an effective
registration statement as contemplated by the Registration Rights Agreement) in
violation of the Securities Act or any other securities laws that may be
applicable.
(c) The Investor represents that the Investor is not an affiliate (as
such term is defined in the Securities Act) of the Company.
(d) The Investor (i) has sufficient knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of its investment in the Common Stock and is capable of bearing the
economic risks of such investment, including a complete loss of its investment
in the Common Shares; (ii) believes that its investment in the Common Shares is
suitable for it based upon its objectives and financial needs, and the Investor
has adequate means for providing for its current financial needs and business
contingencies and has no present need for liquidity of investment with respect
to the Common Shares; (iii) has no present plan, intention or understanding and
has made no arrangement to sell the Common Shares at any predetermined time or
for any predetermined price; (iv) has not purchased, sold or entered into any
put option, short position or similar arrangement with respect to the Common
Shares, and will not, for the term of this Agreement purchase, sell or enter
into any such put option, short
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position or similar arrangement in any manner that violates the provisions of
the Securities Act or the Exchange Act.
(e) The Investor acknowledges that no oral or written statements or
representations have been made to the Investor by or on behalf of the Company in
connection with the offering and sale of the Common Shares hereunder other than
those set forth in the SEC Reports, or as set forth herein or in the other
Transaction Documents, and the Investor represents that it is not subscribing
for the Common Shares as a result of, or in response to, any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media or broadcast over television or radio, or presented at any seminar
or meeting.
(f) The Investor acknowledges that the Securities Act restricts the
transferability of securities, such as the Common Shares, issued in reliance
upon the exemption from the registration requirements of the Securities Act
provided by Section 4(2) thereunder, and that, unless sold pursuant to the
Registration Statement, the transfer of such Common Shares is restricted.
(g) In the event that the Investor is required in the future to obtain
any third party approvals, governmental or otherwise, in connection with the
transactions contemplated by this Agreement, the Investor agrees it will use its
commercially reasonable efforts to obtain such approvals and the Company shall
not be penalized for any delays in obtaining, or the inability of the Investor
to obtain, such approvals; accordingly, the Commitment Period shall be extended
by the amount of any delays and the provisions of Section 9.13 shall not apply
if such approval is not obtained.
SECTION 4.03. NO BROKERS. No broker, finder, agent or similar
intermediary is entitled to any broker's, finder's, placement or similar fee or
other commission in connection with the transactions contemplated hereby based
on any agreement, arrangement or understanding with the Investor.
SECTION 4.04. TRADING GUIDELINES. The Investor has the right to sell
shares of Common Stock during the Commitment Period. The Investor agrees,
however, that from the date hereof until the end of the Commitment Period,
neither the Investor nor any of its affiliates will intentionally, directly or
indirectly, offer to sell, contract to sell or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of Common Stock other than
the shares of Common Stock which the Investor has purchased under this Agreement
(including for this purpose, in the case of a Draw Down Notice that has been
delivered, the number of Draw Down Shares issuable in connection with such Draw
Down Notice (assuming that the number of Draw Down Shares to be issued pursuant
to such Draw Down Notice equals the Investment Amount specified in such Draw
Down Notice divided by ninety-four percent (94%) of the Floor Price set forth in
such Draw Down Notice)). The Investor further agrees to use commercially
reasonable efforts to ensure that its affiliates comply with the foregoing
restrictions.
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ARTICLE V
COVENANTS
SECTION 5.01. EXEMPTION FROM REGISTRATION; LIMITATION ON ISSUANCE OF
SECURITIES.
The Company will not make any offer to sell, solicit any offer to buy,
agree to sell or sell any security or right to acquire any security, except at
such time and in such manner so as not to cause the loss of any of the
exemptions for the offer and sale of the Common Shares from the registration
requirements under the Securities Act or under the securities or "blue sky" laws
of any jurisdiction in which such offer, sale or issuance is made.
SECTION 5.02. TRANSFER RESTRICTIONS.
The Investor acknowledges that any proposed offer, sale, pledge or other
transfer of Common Shares prior to the date that is two (2) years from the date
of issuance (or such other date as may be required pursuant to Rule 144 under
the Securities Act (or similar successor provision) as in effect from time to
time), in the absence of registration under the Securities Act, is limited.
Accordingly, prior to such passage of time or such registration, the Common
Shares may be offered, sold, pledged or otherwise transferred only (i) to the
Company, (ii) in an offshore transaction in accordance with Rule 904 under the
Securities Act, (iii) pursuant to any other exemption from registration provided
by the Securities Act, (iv) pursuant to Rule 144 under the Securities Act or (v)
pursuant to an effective registration statement under the Securities Act; in the
case of any transfer pursuant to clause (ii), (iii) or (iv), the Company shall
be entitled to receive an opinion of the selling Investor's counsel, in form and
substance reasonably satisfactory to the Company, to the effect that
registration is not required in connection with such disposition.
SECTION 5.03. RULES 144; CURRENT INFORMATION. For so long as any Common
Shares constituting Registrable Securities are outstanding, the Company will (i)
cause its Common Stock to continue to be registered under Section 12 of the
Exchange Act, file all reports required to be filed by it under the Securities
Act and the Exchange Act and will take such further actions as the Investor may
reasonably request, all to the extent required from time to time to enable the
Investor to sell Common Shares without registration under the Securities Act
pursuant to the safe harbors and exemptions provided by Rule 144 under the
Securities Act (to the extent applicable), as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the Commission,
and (ii) furnish the Investor with all reports, proxy statements and
registration statements that the Company files with the Commission or
distributes to its securityholders pursuant to the Securities Act and the
Exchange Act at the times of such filings and distributions (unless such
documents are available electronically from the Commission or elsewhere without
charge and within a period reasonably contemporaneous with the filing thereof
with the Commission, in which case such documents need not be provided to the
Investor). Upon the request of the Investor, the Company will deliver to the
Investor a written statement as to whether it has complied with the foregoing
requirements.
SECTION 5.04. RESERVATION OF COMMON SHARES. The Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued shares
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of Common Stock or its issued shares of Common Stock held in its treasury, or
both, sufficient shares of Common Stock to provide for the issuance of the
Common Shares in an amount equal to the balance of the maximum number of Common
Shares issuable under this Agreement (assuming issuance at the Floor Price) not
then yet issued.
SECTION 5.05. STOCK LISTING. The Company shall have the Common Shares in
an amount equal to the maximum number of Common Shares issuable under this
Agreement (assuming issuance at the Floor Price) approved for quotation or
listing, prior to issuance, upon the Principal Market upon which the Common
Stock is listed or traded at the time of issuance of such Common Shares and
shall use its commercially reasonably efforts to maintain such listing.
SECTION 5.06. STOCKHOLDER APPROVAL. In order to satisfy Nasdaq's
stockholder approval requirements, the Company will use its best efforts to hold
a stockholders meeting as soon as reasonably practicable to obtain stockholder
approval to allow for the issuance to the Investor of the maximum number of
shares of Common Stock which the Investor could acquire in accordance with the
terms hereof (based on the Floor Price), which maximum amount could be deemed,
if integrated with certain prior issuances of securities, to be in excess of 20%
of the currently outstanding shares of Common Stock of the Company.
SECTION 5.07. REPORTING STATUS. The Company's Common Stock is registered
under Section 12(g) of the Exchange Act. So long as the Investor beneficially
owns any of the Securities, the Company shall timely file all reports required
to be filed with the SEC pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination.
SECTION 5.08. NO INTEGRATION. The Company shall not make any offers or
sales of any security (other than the Common Shares) under circumstances that
would require registration of the Common Shares being offered or sold hereunder
under the Securities Act or cause the offer and sale of Common Shares to be
integrated with any other offering of securities by the Company for the purpose
of any stockholder approval provision applicable to the Company or its
securities.
SECTION 5.09. REGISTRATION RIGHTS. The Company shall cause the
Registration Rights Agreement to remain in full force and effect during its term
and the Company shall comply in all respects with the terms thereof.
SECTION 5.10. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION;
SUSPENSION OF RIGHT TO DELIVER A DRAW DOWN NOTICE. The Company will immediately
notify the Investor upon the occurrence of any of the following events in
respect of the Registration Statement or related prospectus in respect of the
resale of the Registrable Securities: (i) receipt of any request for additional
information from the Commission or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement, the
response to which would require any amendments or supplements to the
Registration Statement or related prospectus; (ii) the issuance by the
Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the
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suspension of the qualification or exemption from qualification of any of the
Securities for sale in any jurisdiction or the initiation of any proceeding for
such purpose or the threatening of any proceeding for such purpose which the
Company acting in good faith and based upon consideration of all relevant
factors believes will imminently result in a proceeding for such purpose; (iv)
the happening of any event that makes any statement made in the Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
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; (v) a post-effective amendment or supplement to the Registration to
reflect events covered by the Company's annual report on Form 10-K, quarterly
report or Form 10-Q or current report on Form 8-K is necessary or will be
necessary during the subsequent ten Trading Days, (vi) the withdrawal of any
relevant Comfort Letter or Periodic Accountant's Report; and (vii) the Company's
reasonable determination that a post-effective amendment or supplement to the
Registration Statement would otherwise be appropriate; and the Company will
promptly make available to the Investor any such supplement or amendment to the
related prospectus. The Company shall not deliver to the Investor any Draw Down
Notice during the continuation of any of the foregoing events and shall cancel
an existing Draw Down by delivering a Draw Down Cancellation Notice in the
manner required by Section 6.04 of this Agreement.
SECTION 5.11. ISSUANCE OF DRAW DOWN SHARES. The sale and issuance of the
Draw Down Shares shall be made in accordance with the provisions and
requirements of Section 4(2) of the Securities Act and any applicable state law.
ARTICLE VI
CONDITIONS TO DELIVERY OF DRAW DOWN
NOTICES AND CONDITIONS TO SETTLEMENT
SECTION 6.01. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
ISSUE AND SELL COMMON STOCK. The obligation hereunder of the Company to issue
and sell the Draw Down Shares to the Investor incident to each Settlement is
subject to the satisfaction, at or before each such Settlement, of each of the
conditions set forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date when made and as of the date of each such
Settlement as though made at each such time (except for representations and
warranties specifically made as of a particular date which shall be true and
correct in all material respects as of the date when made).
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this
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Agreement to be performed, satisfied or complied with by the Investor at or
prior to such Settlement.
SECTION 6.02. CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO
DELIVER A DRAW DOWN NOTICE. The right of the Company to deliver a Draw Down
Notice hereunder is subject to the satisfaction, on the date of delivery of such
Draw Down Notice, of each of the following conditions:
(a) Effective Registration Statement. As set forth in the Registration
Rights Agreement, the Registration Statement shall have previously been declared
effective and shall remain effective and sales of all of the Registrable
Securities (including all of the Draw Down Shares issued with respect to all
prior Draw Downs and all of the Draw Down Shares expected to be issued in
connection with the Draw Down specified by the current Draw Down Notice
(assuming for such purpose that the Purchase Price applicable to such Draw Down
is the Floor Price)) may be made by the Investor thereunder and (i) neither the
Company nor the Investor shall have received notice that the Commission has
issued or intends to issue a stop order with respect to the Registration
Statement or that the Commission otherwise has suspended or withdrawn the
effectiveness of the Registration Statement either, temporarily or permanently,
or intends to do so, (ii) no other suspension of the use or withdrawal of the
effectiveness of the Registration Statement or related prospectus shall exist
and (iii) no event specified in Section 5.10 shall have occurred and be
continuing.
(b) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the applicable Draw Down
Date (with such representations and warranties to be appropriately updated to
reflect the passage of time, e.g., the definition of SEC Reports shall be deemed
to include reports filed subsequent to the date of this Agreement and Section
3.08 shall be deemed to also relate to the most recent publicly available
financial statements of the Company) as though made at such time (except for
representations and warranties specifically made as of a particular date which
shall be true and correct in all material respects as of the date when made).
(c) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to such
date, nor shall there have occurred an Event of Default under this Agreement.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby that prohibits or directly and adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced that
may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
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(e) Material Adverse Changes. For the thirty (30) days preceding the
date of delivery of such Draw Down Notice, no event that had or is reasonably
likely to have a Material Adverse Effect shall have occurred (provided that any
changes resulting from general economic conditions or the computer storage
industry in general or fluctuations in the market price of the Company's Common
Stock shall not be deemed to constitute a "Material Adverse Effect" for purposes
hereof).
(f) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including without limitation the Draw Down Shares)
shall not have been suspended by the Commission, the Principal Market or the
NASD and the Common Stock (including without limitation the Draw Down Shares)
shall have been approved for listing or quotation on and shall not have been
delisted from the Principal Market.
(g) Comfort Letter; Periodic Accountant's Report. The Comfort Letter(s)
in respect of the Registration Statement or any Form 8-K containing substantial
financial information incorporated by reference into the Registration Statement
shall have been delivered prior to the date of delivery of such Draw Down
Notice, reasonably satisfactory in form and substance to the Investors, and
shall not have been rescinded, and a Periodic Accountant's Report covering the
Company's most recently completed fiscal quarter (other than the fourth fiscal
quarter) in respect of which the Company has its results of operations shall
have been delivered prior to the date of delivery of such Draw Down Notice,
satisfactory in form and substance to the Investor, covering customary matters,
and shall not have been rescinded.
(h) No Knowledge. The Company shall have no knowledge of any event that
would reasonably be expected to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective (which event is more likely
than not to occur within the five (5) Trading Days following the Trading Day on
which such Draw Down Notice is deemed delivered).
(i) Trading Cushion. A period of five Trading Days shall have elapsed
since the delivery of the preceding Draw Down Notice.
(j) Maximum Share Amount. Unless the Company has obtained the requisite
approval of its stockholders in accordance with the applicable rules of the
Principal Market, in no event may the Company issue a Draw Down Notice to sell
an Investment Amount to the extent that the sum of (x) the number of shares of
Common Stock represented by the quotient of (i) the requested Investment Amount,
divided by (ii) the Floor Price set forth in such Draw Down Notice, plus (y) the
cumulative total of all Common Shares issued under all previous Draw Downs
effected pursuant to this Agreement, would exceed the Maximum Share Amount.
(k) Investment Amount Limitation. On each Draw Down Date, the Investment
Amount specified in the applicable Draw Down Notice may not exceed the dollar
amount which would result in a number of Draw Down Shares then to be purchased
by the Investor (for purposes of this Section 6.02(k), assuming that such number
of Draw Down Shares to be issued pursuant to such Draw Down Notice equals the
Investment Amount specified in such Draw Down Notice, divided by the Floor
Price) which would cause the Investor not to satisfy the conditions set forth in
the following two sentences. Notwithstanding any other provision of this
Agreement, the aggregate number of Common Shares issuable to the Investor in
respect of a
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Draw Down, together with the shares of Common Stock then beneficially owned (as
defined in the Exchange Act) by the Investor and its affiliates, shall not
exceed 4.9% of the total outstanding shares of Common Stock as of such date (the
"4.9% Limitation"). The Investor agrees promptly to notify the Company if its
determines, based on its good faith estimate that the maximum number of Draw
Down Shares it may be required to purchase pursuant to a Draw Down Notice (based
upon the then current market price of the Common Stock and the Investor's good
faith estimate of the Maximum Draw Down Amount) would cause the Investor to
exceed the 4.9% Limitation. In addition, notwithstanding any other provision of
this Agreement during any consecutive 61-day period the Investor (together with
its affiliates) may not be issued Common Shares to the extent such purchase,
would in the aggregate exceed a number of shares of Common Stock exceeding 9.9%
of the Company's issued and outstanding shares of Common Stock as of the first
of such 61-day period nor may the Investor sell shares of Common Stock (whether
acquired) pursuant to this Agreement or otherwise) in excess of 9.9% of the
Company's issued and outstanding shares of Common Stock as of the first day of
such 61-day period (the "9.9% Limitation"). The foregoing limitations may not be
waived, amended or modified. The Company shall have no obligation to monitor
compliance with the foregoing limitations. In the event the issuance of the full
number of Common Shares pursuant to a Draw Down Notice (assuming the Common
Shares were to be issued based on the Floor Price specified in such Draw Down
Notice) would cause the Investor to be in violation of the foregoing
limitations, the Investor shall within one Business Day of receiving such Draw
Down Notice notify the Company and on the Settlement Date, the Investor shall
only be required to purchase such number of Common Shares (pro rated over the
Valuation Period) which would not cause the Investor to be in violation of such
limitations.
(l) Prospectus Supplement. To the extent required by rules and
regulations of the Commission, a supplement to the prospectus included in the
Registration Statement (the "Prospectus Supplement"), in form and substance to
be agreed upon by the parties, setting forth information regarding the Draw Down
including, without limitation, the Draw Down Date, the Investment Amount, the
number of shares sold to the Investor in connection with all previous Draw
Downs, if not previously disclosed in an SEC Document, and any additional
information required by rules and regulations of the Commission, including Item
507 of Regulation S-K, shall have been filed with the Commission and sufficient
copies thereof delivered to the Investor on the Trading Day immediately
following the delivery of the Draw Down Notice.
(m) Outside Counsel Letter. A letter of outside counsel with respect to
the Registration Statement, rendered in form and substance in which "10b-5"
letters are typically delivered, shall have been delivered, dated as of the date
of delivery, which date shall not be earlier than the later to occur of (i) the
effective date of the Registration Statement or any post-effective amendment or
any supplement thereto, (ii) the date of any filing of a Form 8-K by the Company
subsequent to the effective date of the Registration Statement, (iii) the date
of any filing of a Form 10-Q by the Company subsequent to the effective date of
the Registration Statement, (iv) the date of filing by the Company subsequent to
the effective date of the Registration Statement of an Annual Report on Form
10-K and (v) the date of delivery of a Draw Down Notice covering an Investment
Amount, when combined with the Investment Amount under all prior Draw Down
Notices since the last 10b-5 letter was rendered, exceeds $2,500,000.
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SECTION 6.03. DOCUMENTS REQUIRED TO BE DELIVERED ON EACH DRAW DOWN DATE.
The Investor's obligation to purchase Common Shares pursuant to a Draw Down
hereunder shall additionally be conditioned upon the delivery to the Investor of
a certificate in form and substance satisfactory to the Investor, executed by an
executive officer of the Company and to the effect that all the conditions to
such Draw Down Notice shall have been satisfied as at the date of such
certificate.
SECTION 6.04. DRAW DOWN CANCELLATION.
(a) Mechanics of Draw Down Cancellation. If at any time during a
Valuation Period, (i) any of the events specified in Section 5.10 of this
Agreement shall occur, (ii) any of the conditions precedent to a Draw Down set
forth in Section 6.02 shall no longer be satisfied as of any date during the
Valuation Period or (iii) the Company discovers that a document set forth in
Section 6.03(a) or (b) or the most recent applicable Comfort Letter(s) or
Periodic Accountant's Report(s) would not be deliverable in the precise form so
delivered if delivered as of such date during the Valuation Period, then the
Company shall cancel the Draw Down (a "Draw Down Cancellation") immediately by
delivering written notice to the Investor specifying the reasons therefor (the
"Draw Down Cancellation Notice"), by facsimile and overnight courier. The Draw
Down Cancellation Notice shall be deemed delivered on (i) the Trading Day it is
received by facsimile or otherwise by the Investor if such notice is received
prior to 5:00 p.m., New York City time, or (ii) the immediately succeeding
Trading Day if it is received by facsimile or otherwise after 5:00 p.m., New
York City time, on a Trading Day, or at any time on a day which is not a Trading
Day. No Draw Down Cancellation Notice may be deemed delivered on a day that is
not a Trading Day. "Draw Down Cancellation Date" shall be the date the Draw Down
Cancellation Notice is deemed delivered pursuant to the preceding sentence;
notwithstanding the foregoing, the Company shall not deliver Draw Down Shares
with respect to the non-canceled portion of the Investment Amount it would
otherwise be required to deliver on the applicable Settlement Date but shall be
required to compensate the Investor for its actual damages in respect of such
non-delivery as provided in Section 2.05(a).
(b) Effect of Draw Down Cancellation. If a Draw Down Cancellation Notice
has been delivered to the Investor after a Draw Down Date, the Valuation Period
for such Draw Down shall (except as provided in the proviso to the succeeding
sentence) end on the Trading Day immediately preceding the Draw Down
Cancellation Date. In such event, the Investment Amount relating to such Draw
Down shall be reduced by one-fifth (1/5) with respect to each Trading Day during
the period beginning on and including the Draw Down Cancellation Date and ending
on the last Trading Day of such Valuation Period. Anytime a Draw Down
Cancellation Notice is delivered to the Investor, such Draw Down shall remain
effective as to the portion of the Investment Amount not canceled pursuant to
the preceding sentence.
ARTICLE VII
TERMINATION
SECTION 7.01. TERM; TERMINATION BY MUTUAL CONSENT. Subject to the
provisions of Section 7.02, the term of this Agreement shall run until the end
of the Commitment Period; provided that the right of the Company to effect any
Draw Downs under this Agreement may be terminated at any time by mutual consent
of the parties. Notwithstanding the foregoing, the
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Company may terminate this Agreement at any time provided that, simultaneously
with such termination, it shall make any payment required by Section 9.13.
SECTION 7.02. TERMINATION BY THE INVESTOR. The Investor may terminate
the right of the Company to effect any Draw Downs under this Agreement upon one
(i) Trading Day's notice if any of the following events (each, an "Event of
Default") shall occur:
(a) The Company (i) fails to issue shares of Common Stock to the
Investor on any Settlement Date as provided herein, (ii) fails to remove any
restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate or any shares of Common Stock issued to the Investor
as and when required by this Agreement or the Registration Rights Agreement, or
(iii) fails to fulfill its obligations pursuant to this Agreement (or makes any
announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph), and, in each of the cases described in
clauses (i) through (iii) above, any such failure shall continue uncured (or any
announcement, statement or threat not to honor its obligations shall not be
rescinded in writing) for five (5) Trading Days after the Company shall have
been notified thereof in writing by the Investor;
(b) The Company fails to obtain effectiveness of the Registration
Statement within 180 days from the Closing Date, or fails to obtain the
effectiveness of any additional Registration Statement required to be filed
pursuant to the Registration Rights Agreement within ninety (90) days after the
occurrence of the event that requires such filing, or any such Registration
Statement, after its initial effectiveness, lapses in effect or sales of all of
the Registrable Securities otherwise cannot be made thereunder (whether by
reason of the Company's failure to amend or supplement the prospectus included
therein in accordance with the Registration Rights Agreement, the Company's
failure to file and obtain effectiveness with the Commission of an additional
Registration Statement required pursuant to the Registration Rights Agreement or
otherwise) for more than twenty (20) consecutive Trading Days or more than
eighty (80) Trading Days in any twelve (12) month period after such Registration
Statement becomes effective;
(c) The Company or any subsidiary shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for all or substantially all of its property or business;
or such a receiver or trustee shall otherwise be appointed;
(d) Bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company or any subsidiary of
the Company;
(e) The Company shall fail to maintain the listing of the Common Stock
on a Principal Market or trading in such Common Stock shall otherwise be halted
or suspended for a period of ten (10) consecutive Trading Days;
(f) The sale, conveyance or disposition of all or substantially all of
the assets of the Company, the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of (excluding a transaction or series of related
transactions in which such voting power is broadly disseminated
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and no person or group of related persons acquires more than 20% of such voting
power pursuant to such transaction or series of related transactions so long as
the aggregate voting power held by the person or group of related persons as a
result thereof does not exceed 30% of the voting power of the Company), or the
consolidation, merger or other business combination of the Company with or into
any other Person or Persons when the Company is not the survivor;
(g) The Company breaches any material representation, warranty
or covenant contained in this Agreement or the other Transaction
Documents; or
(h) Since the date hereof, the Company's Common Stock shall have traded
below the Minimum Floor Price for a period of 30 consecutive Trading Days.
ARTICLE VIII
NON-DISCLOSURE OF MATERIAL NON-PUBLIC INFORMATION
SECTION 8.01. NON-DISCLOSURE OF MATERIAL NON-PUBLIC INFORMATION.
(a) The Company covenants and agrees that it shall refrain from
disclosing, and shall cause its officers, directors, employees and agents to
refrain from disclosing, any material non-public information to the Investor,
unless prior to disclosure of such information the Company identifies such
information as being material non-public information and provides the Investor
and its advisors and representatives with the opportunity to accept or refuse to
accept such material non-public information for review.
(b) The Company acknowledges and understands that the Investor is
entering into this Agreement and the Registration Rights Agreement at the
request of the Company and in good faith reliance on (i) the Company's
representation set forth in this Agreement that neither it nor its agents have
disclosed to the Investor any material non-public information; and (ii) the
Company's covenant set forth in this Agreement that if the Company comes into
possession of any material non-public information, the Company shall timely make
full and complete public disclosure of such information in accordance with all
applicable securities laws.
(c) Nothing herein shall require the Company to disclose material
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts; provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the Investor and its advisors and
representatives and, if any, underwriters, of the existence of any event or
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements therein, in light
of the circumstances in which they were made, not misleading.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.01. PRESS RELEASES AND DISCLOSURE. The Company shall as soon
as practicable following the Closing Date but in no event more than five (5)
days following the Closing Date, shall file with the Commission a Current Report
on Form 8-K (or otherwise include in an Annual Report on Form 10-K) describing
the material terms of the transactions contemplated hereby. No party hereto
shall issue any press release or make any other public disclosure related to
this Agreement or any of the transactions contemplated hereby without the prior
written approval of the other party hereto, except as may be necessary or
appropriate in the opinion of the party seeking to make disclosure to comply
with the requirements of applicable law or stock exchange rules. If any such
press release or public disclosure is so required, the party making such
disclosure shall consult with the other party prior to making such disclosure,
and the parties shall use all reasonable efforts, acting in good faith, to agree
upon a text for such disclosure that is satisfactory to all parties.
SECTION 9.02. EXPENSES. The Company will pay all of the Investor's
expenses (including reasonable attorneys' fees and expenses) in connection with
the negotiation of the Transaction Documents subject to a maximum of $35,000,
which shall be payable at the Closing.
SECTION 9.03. NOTICES. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
that are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid or delivered by reputable air courier service
with charges prepaid, or transmitted by hand delivery, telegram, telex or
facsimile, addressed as set forth below, or to such other address as such party
shall have specified most recently by written notice: (i) if to the Company, to:
Gadzoox Networks, Inc., 0000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000 Attention: Xxxxx
Xxxxxxx, Facsimile No.: (000) 000-0000, with copies (which shall not constitute
notice) to: Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, XX
00000, Attention: Xxxxx XxXxxxxx, Facsimile No.: (000) 000-0000; and (ii) if to
the Investor, Societe Generale c/o XX Xxxxx Securities Corporation, 0000 Xxxxxx
xx xxx Xxxxxxxx, Xxx Xxxx, XX 00000 Attention: Xxxxxxxxx Xxxxxx, Facsimile No.:
(000) 000-0000, with copies (which shall not constitute notice) to: Xxxxx, Day,
Xxxxxx & Xxxxx, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000, Attention: J. Xxxx
Xxxx, Facsimile No.: (000) 000-0000. Notice shall be deemed given on the date of
service or transmission if personally served or transmitted by telegram, telex
or facsimile. Notice otherwise sent as provided herein shall be deemed given on
the third business day following the date mailed or on the next business day
following delivery of such notice to a reputable air courier service.
SECTION 9.04. ENTIRE AGREEMENT. This Agreement (together with the other
Transaction Documents and all other documents delivered pursuant hereto and
thereto) constitutes the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
representations, understandings, negotiations and discussions between the
parties, whether oral or written, with respect to the subject matter hereof.
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SECTION 9.05. AMENDMENT AND WAIVER. This Agreement may not be amended,
modified, supplemented, restated or waived except by a writing executed by the
party against which such amendment, modification or waiver is sought to been
enforced. Waivers may be made in advance or after the right waived has arisen or
the breach or default waived has occurred. Any waiver may be conditional. No
waiver of any breach of any agreement or provision herein contained shall be
deemed a waiver of any preceding or succeeding breach thereof nor of any other
agreement or provision herein contained. No waiver or extension of time for
performance of any obligations or acts shall be deemed a waiver or extension of
the time for performance of any other obligations or acts.
SECTION 9.06. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights, duties and obligations hereunder may not be assigned or
delegated by the Company or the Investor. Any purported assignment or delegation
of rights, duties or obligations hereunder made without the prior written
consent of the other party hereto shall be void and of no effect. This Agreement
and the provisions hereof shall be binding upon and shall inure to the benefit
of each of the parties and their respective successors. This Agreement is not
intended to confer any rights or benefits on any Persons other than as set forth
above.
SECTION 9.07. SEVERABILITY. This Agreement shall be deemed severable,
and the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.
SECTION 9.08. FURTHER ASSURANCES. Each party hereto, upon the request of
any other party hereto, shall do all such further acts and execute, acknowledge
and deliver all such further instruments and documents as may be reasonably
necessary or desirable to carry out the transactions contemplated by this
Agreement.
SECTION 9.09. TITLES AND HEADINGS. Titles, captions and headings of the
sections of this Agreement are for convenience of reference only and shall not
affect the construction of any provision of this Agreement.
SECTION 9.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
INTERPRETED UNDER, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WITHIN THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.
SECTION 9.11. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, all of which taken
together shall constitute one and the same instrument.
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SECTION 9.12. REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the VWAP, trading price or trading
volume of the Common Stock on any given Trading Day for the purposes of this
Agreement shall be Bloomberg Financial.
SECTION 9.13. COMMITMENT FEE PAYMENT. In the event Company shall not
issue Draw Down Shares for an aggregate Investment Amount of at least $5,000,000
prior to the termination of this Agreement, the Company shall pay the Investor
the amount of $300,000 (pro rated for issuances prior to the termination of this
Agreement), payable two business days following termination of this Agreement.
Notwithstanding the foregoing, if this Agreement is terminated by the Company
for Cause, the Company shall not be obligated to make any payments to the
Investor. "Cause" for purposes of this Section 9.13 shall mean breach by the
Investor of any representation, warranty, covenant or other obligation of the
Investor set forth in this Agreement or the Registration Rights Agreement.
SECTION 9.14. ADJUSTMENTS FOR STOCK SPLITS, ETC. The Maximum Share
Amount, the minimum Floor Price and calculations of the Average Daily Trading
Volume shall be equitably adjusted to reflect stock splits, stock dividends,
reverse stock splits and similar events.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
GADZOOX NETWORKS, INC.
By:
--------------------------------------------
Name: Xxxxxxx Xxxxxxx
Title: President and Chief Executive Officer
SOCIETE GENERALE
BY:
--------------------------------------------
Name: Xxxxxxxxx Xxxxxx
Title: Authorized Signatory
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EXHIBIT A
GADZOOX NETWORKS, INC.
DRAW DOWN NOTICE
[Date]
Societe Generale
c/o XX Xxxxx Securities Corporation
1221 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxxxx Xxxxxx/Xxxx Xxx
Reference is made to the Equity Line Financing Agreement between Gadzoox
Networks, Inc. (the "Company") and Societe Generale dated as of June 28, 2001.
The Company confirms that all conditions to the delivery of this Draw Down
Notice are satisfied as of the date hereof.
Effective Date of Delivery of Draw Down Notice (determined pursuant to Section
2.03(b)): .
----------
First Date of Valuation Period: .
-------------------
Last Date of Valuation Period: .
---------------------
Settlement Date: .
--------------------
Draw Down Amount (not to exceed Maximum Draw Down Amount): .
-------------------
Calculation of Maximum Draw Down Amount: .
------------------
Floor Price Limitation (if none specified, $1.00): .
------------------
GADZOOX NETWORK, INC.
By:
-----------------------------------
Name:
Title:
32
GADZOOX NETWORKS, INC.
DISCLOSURE SCHEDULES
These Disclosures Schedules have been prepared and delivered in
connection with the Equity Line Financing Agreement, dated as of June 28, 2001
(the "Agreement") between Gadzoox Networks, Inc., a Delaware corporation (the
"Company") and Societe Generale. Except as otherwise defined herein, capitalized
terms used herein have the meanings assigned thereto in the Agreement.
The descriptive headings herein are inserted for convenience of
reference only and shall in no way be construed to define, limit, describe,
explain, modify, amplify, or add to the interpretation, construction or meaning
of any matter disclosed in these Disclosure Schedules.
Certain matters are described in these Disclosure Schedules for
information purposes notwithstanding the fact that, because they do not rise
above applicable materiality thresholds or otherwise, they are not required to
be listed by the terms of the Agreement. In no event shall the inclusion of such
matters in these Disclosure Schedules be deemed or interpreted to broaden or
otherwise amplify the representations and warranties contained in the Agreement.
No inclusion of a matter on the Disclosure Schedules shall constitute an
admission that a matter is "material" or would have a Material Adverse Effect.
These Disclosure Schedules are arranged by schedule corresponding to the
numbered and lettered paragraphs of the Agreement and any matter described in
response to one section of the Agreement shall be deemed to be described in
response to all applicable sections of the Agreement, whether or not there is an
express cross-reference.
33
SCHEDULE 3.01
ORGANIZATION AND STANDING
The Company currently is not in good standing in the State of
Massachusetts because the Company did not pay its 2000 annual tax xxxx of $85.
The Company currently is in the process of refiling with the State of
Massachusetts.
-2-
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SCHEDULE 3.02
SECURITIES OF THE COMPANY
The Company issued a warrant to Mission West Properties, X.X. XX (the
Company's landlord) to purchase 50,000 shares of its common stock.
The Company issued a warrant to Shoreline Pacific Equity Partners to
purchase 168,000 shares of its common stock.
In May 2001, the Company sold 5,600,000 shares of its common stock in a
private placement transaction and received net proceeds of approximately $14.4
million. Under the terms of the purchase agreement, the Company is obligated to
register such shares of common stock on a Form S-3. In the event that the
registration statement is not declared effective on or before 360 days following
May 25, 2001, the Company shall be obligated to repurchase the shares from the
investors at 11% of the original purchase price.
-3-
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SCHEDULE 3.04
NO VIOLATION; CONSENTS
The Company entered into a First Amended and Restated Registration and
Information Rights Agreement dated as of October 12, 1998 (the "Rights
Agreement") pursuant to which certain of the Company's stockholders have the
right to cause the Company to register its securities. Pursuant to the Rights
Agreement, the Company may not grant registration rights to any third party
unless such registration rights are subordinate to the registration rights
granted under the Rights Agreement. Accordingly, the registration rights granted
hereunder are expressly made subordinate to the registration rights granted in
the Rights Agreement.
-4-
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SCHEDULE 3.08(c)
SEC REPORTS; FINANCIAL CONDITION; NO ADVERSE CHANGE
On June 6, 2001, a putative securities class action, captioned Xxxxxx v.
Gadzoox Networks, Inc., et al., Civil Action No. 01-CV-5309-RO, was filed
against the Company, three of its former officers (Xxxx Xxxxxxx, Xxxxxxxxx
Xxxxxx and Xxxxxxxx Xxxxx), and Credit Suisse First Boston Corporation and
BancBoston Xxxxxxxxx Xxxxxxxx, Inc., two underwriters in the Company's initial
public offering, in the United States District Court for the Southern District
of New York. The complaint alleges violations of Section 11 of the Securities
Act of 1933 ("Securities Act") against all defendants, a violation of Section 15
of the Securities Act against Xxxxxxx, Xxxxxx and Black, and violations of
Section 12(a)(2) of the Securities Act and Section 10(b) of the Securities
Exchange Act of 1934 (and Rule 10b-5, promulgated thereunder) against the
underwriters. The complaint seeks unspecified damages on behalf of a purported
class of purchasers of common stock between July 19, 1999 and December 6, 2000.
As of June 18, 2001, various plaintiffs have filed similar actions asserting
virtually identical allegations against at least 45 other companies. To date,
there have been no significant developments in the litigation. As of June 26,
2001, the Company has received two substantially identical lawsuits and
anticipates that additional related lawsuits may be brought with substantially
identical allegations to the Xxxxxx lawsuit. The Company anticipates that all
such lawsuits will eventually be coordinated or consolidated with one another.
The Company intends to defend the lawsuit vigorously.
-5-
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SCHEDULE 3.12
NO LITIGATION
On June 6, 2001, a putative securities class action, captioned Xxxxxx v.
Gadzoox Networks, Inc., et al., Civil Action No. 01-CV-5309-RO, was filed
against the Company, three of its former officers (Xxxx Xxxxxxx, Xxxxxxxxx
Xxxxxx and Xxxxxxxx Xxxxx), and Credit Suisse First Boston Corporation and
BancBoston Xxxxxxxxx Xxxxxxxx, Inc., two underwriters in the Company's initial
public offering, in the United States District Court for the Southern District
of New York. The complaint alleges violations of Section 11 of the Securities
Act of 1933 ("Securities Act") against all defendants, a violation of Section 15
of the Securities Act against Xxxxxxx, Xxxxxx and Black, and violations of
Section 12(a)(2) of the Securities Act and Section 10(b) of the Securities
Exchange Act of 1934 (and Rule 10b-5, promulgated thereunder) against the
underwriters. The complaint seeks unspecified damages on behalf of a purported
class of purchasers of common stock between July 19, 1999 and December 6, 2000.
As of June 18, 2001, various plaintiffs have filed similar actions asserting
virtually identical allegations against at least 45 other companies. To date,
there have been no significant developments in the litigation. As of June 26,
2001, the Company has received two substantially identical lawsuits and
anticipates that additional related lawsuits may be brought with substantially
identical allegations to the Xxxxxx lawsuit. The Company anticipates that all
such lawsuits will eventually be coordinated or consolidated with one another.
The Company intends to defend the lawsuit vigorously.
-6-
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SCHEDULE 3.15
INSURANCE
The Company does not maintain "key employee" insurance.
-7-
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SCHEDULE 3.16
RELATED PARTY TRANSACTIONS
The Company extended loans to two executive officers in the aggregate
amount of $535,000 to finance a portion of the purchase price of their principal
residence. The notes bear interest at the rates of 6.0% and 6.3% and the
principal amounts due, plus interest, are forgiven over two and four year
periods, subject to certain conditions included in the terms of the notes.
-8-
40
SCHEDULE 3.19
TAX RETURNS
The Company did not pay its Massachusetts 2000 annual tax xxxx of $85.
-9-
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SCHEDULE 3.20
DISCLOSURE
The Company's independent auditors have not yet made a determination as
to whether they will issue a "going concern" qualification to their audit
opinion with respect to their audit report to be filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2001.
-10-
