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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
JANUARY 19, 2000
Auspex Systems, Inc.
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(Exact name of registrant as specified in its charter)
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Delaware 0-21432 93-0963760
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(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation
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2300 Central Expressway, Santa Clara, California 95050
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 566-2000
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Item 5. Other Events
On January 18, 2000, Auspex Systems, Inc. ("Auspex") issued 25,000
shares of Series B Convertible Preferred Stock and related Warrants in
a private placement to institutional investors. Auspex estimates the
net proceeds of the offering, after expenses, to be approximately
$24,900,000. The Series B Convertible Preferred Stock is subject to
the terms and conditions of the Certificate of Designations,
Preferences and Rights attached hereto as Exhibit 3.1. The Warrants
are subject to the terms and conditions of the form of Warrant
attached hereto as Exhibit 4.1. Pursuant to a Registration Rights
Agreement attached as Exhibit 10.1, Auspex has agreed to prepare and
file with the Securities and Exchange Commission a registration
statement covering the resale of the shares of Common Stock issuable
pursuant to the terms of the Series B Preferred Stock and the related
Warrants. The terms of the private placement are more fully set forth
in the Securities Purchase Agreement attached hereto as Exhibit 10.2.
Item 7. Financial Statements. Pro Form Financial Information and Exhibits
(c) Exhibits
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Exhibit Number Description
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Exhibit 3.1 - Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of Auspex as filed with the Secretary of
State of the state of Delaware on January 18, 2000.
Exhibit 4.1 - Form of Warrant to Purchase Common Stock of Auspex, dated January 18,
2000, issued to certain investors.
Exhibit 10.1 - Registration Rights Agreement, dated as of January 18, 2000, by and among
Auspex and the investors named therein.
Exhibit 10.2 - Securities Purchase Agreement, dated as of January 18, 2000, by and among
Auspex and the investors listed on the Schedule of Buyers
attached thereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 19, 2000
AUSPEX, INC.
/s/ R. Marshall Case
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R. Marshall Case
Vice President of Finance and
Chief Financial Officer
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INDEX TO EXHIBITS
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Exhibit Number Description
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Exhibit 3.1 - Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of Auspex as filed with the Secretary of
State of the state of Delaware on January 18, 2000.
Exhibit 4.1 - Form of Warrant to Purchase Common Stock of Auspex, dated January 18,
2000, issued to certain investors.
Exhibit 10.1 - Registration Rights Agreement, dated as of January 18, 2000, by and among
Auspex and the investors named therein.
Exhibit 10.2 - Securities Purchase Agreement, dated as of January 18, 2000, by and among
Auspex and the investors listed on the Schedule of Buyers
attached thereto.
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EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
AUSPEX SYSTEMS, INC.
Auspex Systems, Inc. (the "COMPANY"), a corporation organized and existing under
the General Corporation Law of the State of Delaware, does hereby certify that,
pursuant to authority conferred upon the Board of Directors of the Company by
the Certificate of Incorporation, as amended, of the Company, and pursuant to
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Company at a meeting duly held, adopted resolutions (i)
authorizing a series of the Company's previously authorized preferred stock, par
value $0.001 per share, and (ii) providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of Twenty-Five Thousand (25,000) shares of
Series B Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 25,000 shares of
Series B Convertible Preferred Stock (the "PREFERRED SHARES"), par value
$0.001 per share, which shall have the following powers, designations,
preferences and other special rights:
(1) Dividends. The holders of the Preferred Shares shall be
entitled to receive dividends ("DIVIDENDS") at a rate of 7.0% per annum, which
shall be cumulative, accrue daily from the Issuance Date (as defined below) and
be payable on the last day of each Calendar Quarter (as defined below) beginning
on the earlier of (i) the last day of the Calendar Quarter in which the
Registration Statement (as defined below) is declared effective by the SEC (as
defined below) and (ii) March 31, 2000 (each a "DIVIDEND DATE"). If a Dividend
Date is not a Business Day (as defined below) then the Dividend shall be due and
payable on the Business Day immediately following the Dividend Date. Dividends
shall be payable in shares of Common Stock (as defined below) ("DIVIDEND
SHARES") or, at the option of the Company, in cash, provided that the Dividends
which accrued during any period shall be payable in cash only if the Company
provides written notice ( "DIVIDEND ELECTION NOTICE") to each holder of
Preferred
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Shares at least ten (10) Business Days prior to the Dividend Date. Dividends to
be paid in shares of Common Stock shall be paid in a number of fully paid and
nonassessable shares (rounded to the nearest whole share in accordance with
Section 2(b)) of Common Stock equal to the quotient of (a) the Additional Amount
(as defined below) divided by (b) the Conversion Price (as defined below) on the
date which is two (2) trading days immediately prior to the applicable Dividend
Date. Notwithstanding the foregoing, the Company shall not be entitled to pay
Dividends in shares of Common Stock and shall be required to pay such Dividends
in cash if (a) any event constituting a Triggering Event (as defined in Section
3(b)), or an event that with the passage of time and without being cured would
constitute a Triggering Event, has occurred and is continuing on the Dividend
Date or the date which is 10 Business Days prior to the Dividend Date, unless
otherwise consented to in writing by the holder of Preferred Shares entitled to
receive such Dividend or (b) the Registration Statement (as defined below) is
not effective and available for the resale of all of the Registrable Securities
(as defined in the Registration Rights Agreement), including, without
limitation, the Dividend Shares, on the Dividend Date or the date which is 10
Business Days prior to the Dividend Date. Any accrued and unpaid Dividends which
are not paid within five (5) Business Days of such accrued and unpaid dividends'
Dividend Date shall bear interest at the rate of 18.0% per annum from such
Dividend Date until the same is paid in full (the "DEFAULT INTEREST").
(2) Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Company's common stock, par value $0.001 per
share (the "COMMON STOCK"), on the terms and conditions set forth in this
Section 2.
(a) Certain Defined Terms. For purposes of this
Certificate of Designations, the following terms shall have the following
meanings:
(i) "ADDITIONAL AMOUNT" means, on a per share
basis, the sum of (A) unpaid Default Interest through the date of determination
plus (B) the result of the following formula: (0.07)(N/365)($1,000).
(ii) "APPROVED STOCK PLAN" shall mean any employee
benefit plan which has been approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer, director or consultant for services provided to the Company.
(iii) "APPLICABLE DAILY PRICE" means, as of any
date, 92% of the lowest Closing Sale Price of the Common Stock during the four
(4) consecutive trading days ending on and including such date of determination.
(iv) "BUSINESS DAY" means any day other than
Saturday, Sunday or other day on which commercial banks in the city of New York
are authorized or required by law to remain closed.
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(v) "CALENDAR QUARTER" means each of the period
beginning on and including January 1 and ending on and including March 31, the
period beginning on and including April 1 and ending on and including June 30,
the period beginning on and including July 1 and ending on and including
September 30, and the period beginning on and including October 1 and ending on
and including December 31.
(vi) "CLOSING SALE PRICE" means, for any security
as of any date, the last closing trade price for such security on the Principal
Market (as defined below) as reported by Bloomberg Financial Markets
("BLOOMBERG"), or if the Principal Market begins to operate on an extended hours
basis, and does not designate the closing trade price, then the last trade price
at 4:00 p.m. Eastern Time as reported by Bloomberg, or if the foregoing do not
apply, the last closing trade price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the last closing ask price of such security as reported by Bloomberg,
or, if no last closing ask price is reported for such security by Bloomberg, the
average of the lowest ask price and highest bid price of any market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Sale Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Sale Price of such security on
such date shall be the fair market value as mutually determined by the Company
and the holders of the Preferred Shares. If the Company and the holders of
Preferred Shares are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 2(d)(iii) below.
All such determinations shall be appropriately adjusted for any stock dividend,
stock split or other similar transaction during such period.
(vii) "CLOSING PRICE" means, with respect to any
Preferred Share, that price which shall be computed as the arithmetic average of
the Closing Sale Prices of the Common Stock on each of the 10 consecutive
trading days immediately preceding the Issuance Date (appropriately adjusted for
stock dividends, stock splits, stock combinations or similar transactions).
(viii) "CONVERSION AMOUNT" means the sum of (1) the
Additional Amount (as defined above), and (2) $1,000.
(ix) "CONVERSION PRICE" means, as of any Conversion
Date (as defined below) or other date of determination, the Applicable Daily
Price; provided that in no event shall the Conversion Price exceed the Fixed
Conversion Price (as defined below), each in effect as of such date and subject
to adjustment as provided herein; and further provided, that a Conversion Notice
(as defined in Section 2(d)(i)) which is delivered to the Company prior to 4:00
p.m. Eastern Time on a given date shall, solely for the purposes of calculating
the Conversion Price pursuant to this Section 2(a)(ix), be deemed to have been
given after 4:00 p.m. Eastern Time on the trading date immediately preceding the
date such notice was delivered to the Company.
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(x) "CONVERTIBLE SECURITIES" means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(xi) "EXCLUDED SECURITIES" means any issuance by
the Company of securities in connection with a strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital).
(xii) "FIXED CONVERSION PRICE" means, with respect
to any Preferred Share, as of any Conversion Date or other date of determination
(A) prior to and including the date which is ten trading days after the date
which is the Company's Conversion Termination Date (as defined in Section 7)
with respect to the holder of such Preferred Share, 180% of the Closing Price on
the applicable Issuance Date and (B) after the date which is ten trading days
after the Company's Conversion Termination Date with respect to the holder of
such Preferred Share, the lower of (I) the Fixed Conversion Price in effect on
the date which is ten trading days after the Company's Conversion Termination
Date with respect to the holder of such Preferred Share and (II) the arithmetic
average of the Closing Sale Price of the Common Stock on the 10 consecutive
trading days immediately following the Company's Conversion Termination Date
with respect to the holder of such Preferred Share, in each case subject to
adjustment as provided herein.
(xiii) "ISSUANCE DATE" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
(xiv) "MATURITY DATE" means the date which is two
(2) years after the Issuance Date, unless extended pursuant to Section
2(d)(vii).
(xv) "N" means the number of days from, but
excluding, the last Dividend Date with respect to which dividends, along with
any Default Interest, have been paid by the Company on the applicable Preferred
Share, or the Issuance Date if no Dividend Date has occurred, through and
including the Conversion Date, the Maturity Date or other date of determination
for such Preferred Share, as the case may be, for which such determination is
being made.
(xvi) "OPTIONS" means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.
(xvii) "PERSON" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xviii)"PRINCIPAL MARKET" means the Nasdaq National
Market, or if the Common Stock is not traded on the Nasdaq National Market, then
the principal securities exchange or trading market for the Common Stock.
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(xix) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement between the Company and the initial
holders of the Preferred Shares relating to the filing of a registration
statement covering the resale of the shares of Common Stock issuable upon
conversion of the Preferred Shares and exercise of the Warrants.
(xx) "SECURITIES PURCHASE AGREEMENT" means that
certain securities purchase agreement between the Company and the initial
holders of the Preferred Shares.
(xxi) "STATED VALUE" means $1,000.
(xxii) "WARRANTS" means the warrants to purchase
shares of Common Stock issued by the Company pursuant to the Securities Purchase
Agreement.
(b) Holder's Conversion Right; Mandatory Conversion.
Subject to the provisions of Sections 5 and 8, at any time or times on or after
the Issuance Date, any holder of Preferred Shares shall be entitled to convert
any whole or fractional number of Preferred Shares into fully paid and
nonassessable shares of Common Stock in accordance with Section 2(d) at the
Conversion Rate (as defined below). If any Preferred Shares remain outstanding
on the Maturity Date, then, pursuant to Section 2(d)(vii), all such Preferred
Shares shall be converted at the Conversion Rate as of such date in accordance
with Section 2(d) or redeemed by the Company. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(c) Conversion. The number of shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to Section 2(b) shall
be determined according to the following formula (the "CONVERSION RATE"):
Conversion Amount
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Conversion Price
(d) Mechanics of Conversion. The conversion of Preferred
Shares shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert
Preferred Shares into shares of Common Stock on any date (the "CONVERSION
DATE"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., Eastern Time on such date, a
copy of an executed notice of conversion in the form attached hereto as Exhibit
I (the "CONVERSION NOTICE") to the Company and (B) if required by Section
2(d)(viii), surrender to a common carrier for delivery to the Company as soon as
practicable
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following such date the original certificates representing the Preferred Shares
being converted (or an indemnification undertaking with respect to such shares
in the case of their loss, theft or destruction) (the "PREFERRED STOCK
CERTIFICATES").
(ii) Company's Response. Upon receipt by the
Company of a copy of a Conversion Notice, the Company shall (1) as soon as
practicable, but in no event later than within one (1) Business Day, send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder
and the Company's designated transfer agent (the "TRANSFER AGENT"), which
confirmation shall constitute an instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms herein and (2) on or before
the second (2nd) Business Day following the date of receipt by the Company of
such Conversion Notice (the "SHARE DELIVERY DATE"), (A) issue and deliver to the
address as specified in the Conversion Notice, a certificate, registered in the
name of the holder or its designee, for the number of shares of Common Stock to
which the holder shall be entitled, or (B) provided the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program, upon the request of the holder, credit such aggregate number
of shares of Common Stock to which the holder shall be entitled to the holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system. If the number of Preferred Shares represented by the
Preferred Stock Certificate(s) submitted for conversion, as may be required
pursuant to Section 2(d)(viii), is greater than the number of Preferred Shares
being converted, then the Company shall, as soon as practicable and in no event
later than three Business Days after receipt of the Preferred Stock
Certificate(s) (the "PREFERRED STOCK DELIVERY DATE") and at its own expense,
issue and deliver to the holder a new Preferred Stock Certificate representing
the number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute
as to the determination of the Closing Sale Price or the arithmetic calculation
of the Conversion Rate, the Company shall instruct the Transfer Agent to issue
to the holder the number of shares of Common Stock that is not disputed and
shall transmit an explanation of the disputed determinations or arithmetic
calculations to the holder via facsimile within one (1) Business Day of receipt
of such holder's Conversion Notice. If such holder and the Company are unable to
agree upon the determination of the Closing Sale Price or arithmetic calculation
of the Conversion Rate within two (2) Business Days of such disputed
determination or arithmetic calculation being transmitted to the holder, then
the Company shall within one (1) Business Day submit via facsimile (A) the
disputed determination of the Closing Sale Price to an independent, reputable
investment bank selected by the Company and approved by the holders of a
majority of the Preferred Shares then outstanding or (B) the disputed arithmetic
calculation of the Conversion Rate to the Company's independent, outside
accountant. The Company shall cause the investment bank or the accountant, as
the case may be, to perform the determinations or calculations and notify the
Company and the holder of the results no later than forty-eight (48) hours from
the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent error.
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(iv) Record Holder. The person or persons entitled
to receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
(A) Cash Damages. If (I) within five (5)
Business Days after the Company's receipt of the facsimile copy of a Conversion
Notice the Company shall fail to issue and deliver a certificate to a holder or
credit such holder's balance account with DTC for the number of shares of Common
Stock to which such holder is entitled upon such holder's conversion of
Preferred Shares or (II) within five (5) Business Days of the Company's receipt
of a Preferred Stock Certificate the Company shall fail to issue and deliver a
new Preferred Stock Certificate representing the number of Preferred Shares to
which such holder is entitled pursuant to Section 2(d)(ii), then in addition to
all other available remedies which such holder may pursue hereunder and under
the Securities Purchase Agreement (including indemnification pursuant to Section
8 thereof), the Company shall pay additional damages to such holder for each day
after the Share Delivery Date such conversion is not timely effected and/or each
day after the Preferred Stock Delivery Date such Preferred Stock Certificate is
not delivered in an amount equal to 0.5% of the product of (I) the sum of the
number of shares of Common Stock not issued to the holder on or prior to the
Share Delivery Date and to which such holder is entitled and, in the event the
Company has failed to deliver a Preferred Stock Certificate to the holder on or
prior to the Preferred Stock Delivery Date, the number of shares of Common Stock
issuable upon conversion of the Preferred Shares represented by such Preferred
Stock Certificate as of the Preferred Stock Delivery Date and (II) the Closing
Sale Price of the Common Stock on the Share Delivery Date, in the case of the
failure to deliver Common Stock, or the Preferred Stock Delivery Date, in the
case of failure to deliver a Preferred Stock Certificate. If the Company fails
to pay the additional damages set forth in this Section 2(d)(v) within five
Business Days of the date incurred, then the holder entitled to such payments
shall have the right at any time, so long as the Company continues to fail to
make such payments, to require the Company, upon written notice, to immediately
issue, in lieu of such cash damages, the number of shares of Common Stock equal
to the quotient of (X) the aggregate amount of the damages payments described
herein divided by (Y) the Conversion Price in effect on such Conversion Date as
specified by the holder in the Conversion Notice.
(B) Void Conversion Notice; Adjustment of
Conversion Price. If for any reason a holder has not received all of the shares
of Common Stock prior to the tenth (10th) Business Day after the Share Delivery
Date with respect to a conversion of Preferred Shares, then the holder, upon
written notice to the Company, may void its Conversion Notice with respect to,
and retain or have returned, as the case may be, any Preferred Shares that have
not been converted pursuant to such holder's Conversion Notice; provided that
the voiding of a holder's Conversion Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such
notice pursuant to Section 2(d)(v)(A) or otherwise.
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Thereafter, the Fixed Conversion Price of any Preferred Shares returned or
retained by the holder for failure to timely convert shall be adjusted to the
lesser of (I) the Fixed Conversion Price as in effect on the date on which the
holder voided the Conversion Notice and (II) the lowest Closing Sale Price
during the period beginning on the Conversion Date and ending on the date such
holder voided the Conversion Notice, subject to further adjustment as provided
in this Certificate of Designations.
(C) Conversion Failure. If for any reason a
holder has not received all of the shares of Common Stock prior to the tenth
(10th) Business Day after the Share Delivery Date with respect to a conversion
of Preferred Shares (a "CONVERSION FAILURE"), then the holder, upon written
notice to the Company, may require that the Company redeem all Preferred Shares
held by such holder, including the Preferred Shares previously submitted for
conversion and with respect to which the Company has not delivered shares of
Common Stock, in accordance with Section 3.
(vi) Pro Rata Conversion. In the event the Company
receives a Conversion Notice from more than one holder of Preferred Shares for
the same Conversion Date and the Company can convert some, but not all, of such
Preferred Shares, the Company shall convert from each holder of Preferred Shares
electing to have Preferred Shares converted at such time a pro rata amount of
such holder's Preferred Shares submitted for conversion based on the number of
Preferred Shares submitted for conversion on such date by such holder relative
to the number of Preferred Shares submitted for conversion on such date.
(vii) Mandatory Conversion or Redemption at
Maturity at Company's Option. If any Preferred Shares remain outstanding on the
Maturity Date, then all such Preferred Shares, at the Company's option, either
(i) shall be converted at the Maturity Date Conversion Price (as defined below)
for such Preferred Shares as of such date without the holders of such Preferred
Shares being required to give a Conversion Notice on the Maturity Date (a
"MATURITY DATE MANDATORY CONVERSION"), or (ii) shall be redeemed as of such date
for an amount in cash per Preferred Share (the "MATURITY DATE REDEMPTION PRICE")
equal to the Liquidation Preference (as defined in Section 11) (a "MATURITY DATE
MANDATORY REDEMPTION"). The Company shall be deemed to have elected a Maturity
Date Mandatory Conversion unless it delivers written notice to each holder of
Preferred Shares at least 35 Business Days prior to the Maturity Date of its
election to effect a Maturity Date Mandatory Redemption. If the Company elects a
Maturity Date Mandatory Redemption, then on the Maturity Date the Company shall
pay to each holder of Preferred Shares outstanding on the Maturity Date, by wire
transfer of immediately available funds, an amount per Preferred Share equal to
the Maturity Date Redemption Price. If the Company elects a Maturity Date
Mandatory Redemption and fails to redeem all of the Preferred Shares outstanding
on the Maturity Date by payment of the Maturity Date Redemption Price, then in
addition to any remedy such holder of Preferred Shares may have under this
Certificate of Designations, the Securities Purchase Agreement and the
Registration Rights Agreement, (X) the applicable Maturity Date Redemption Price
payable in respect of such unredeemed Preferred Shares shall bear interest at
the rate of
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2.0% per month, prorated for partial months, until paid in full, and (Y) any
holder of Preferred Shares shall have the option to require the Company to
convert any or all of such holder's Preferred Shares that the Company elected to
redeem under this Section 2(d)(vii) and for which the Maturity Date Redemption
Price (together with any interest thereon) has not been paid into the number of
shares of Common Stock such holder would have received if such holder had
converted such Preferred Shares at a conversion price equal to the lesser of (I)
the Applicable Daily Price on the Maturity Date and (II) the Fixed Conversion
Price on the Maturity Date. Promptly following the Maturity Date, all holders of
Preferred Shares shall surrender all Preferred Stock Certificates, duly endorsed
for cancellation, to the Company or the Transfer Agent. If the Company has
elected a Maturity Date Mandatory Conversion, has failed to give notice to elect
a Maturity Date Mandatory Redemption at least 35 Business Days prior to the
Maturity Date or has failed to pay the Maturity Date Redemption Price in a
timely manner as described above, then the Maturity Date shall be extended for
any Preferred Shares for as long as (A) the conversion of such Preferred Shares
would violate the provisions of Section 5, (B) a Triggering Event shall have
occurred and be continuing, or (C) an event shall have occurred and be
continuing which with the passage of time and the failure to cure would result
in a Triggering Event. For purposes of this Section 2(d)(vii), "MATURITY DATE
CONVERSION PRICE" means 95% of the arithmetic average of the Closing Sale Prices
of the Common Stock on the 30 consecutive trading days immediately preceding the
Maturity Date.
(viii) Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion of Preferred Shares in accordance
with the terms hereof, the holder thereof shall not be required to physically
surrender the certificate representing the Preferred Shares to the Company
unless the full number of Preferred Shares represented by the certificate are
being converted. The holder and the Company shall maintain records showing the
number of Preferred Shares so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the holder and the
Company, so as not to require physical surrender of the certificate representing
the Preferred Shares upon each such conversion. In the event of any dispute or
discrepancy, such records of the Company shall be controlling and determinative
in the absence of manifest error. Notwithstanding the foregoing, if Preferred
Shares represented by a certificate are converted as aforesaid, the holder may
not transfer the certificate representing the Preferred Shares unless the holder
first physically surrenders the certificate representing the Preferred Shares to
the Company, whereupon the Company will forthwith issue and deliver upon the
order of the holder a new certificate of like tenor, registered as the holder
may request, representing in the aggregate the remaining number of Preferred
Shares represented by such certificate. The holder and any assignee, by
acceptance of a certificate, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of any Preferred Shares, the
number of Preferred Shares represented by such certificate may be less than the
number of Preferred Shares stated on the face thereof. Each certificate for
Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE
TERMS OF THE
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COMPANY'S CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED
SHARES REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION
2(d)(viii) THEREOF. THE NUMBER OF PREFERRED SHARES REPRESENTED BY
THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF PREFERRED SHARES
STATED ON THE FACE HEREOF PURSUANT TO SECTION 2(d)(viii) OF THE
CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE.
(e) Taxes. The Company shall pay any and all taxes that
may be payable with respect to the issuance and delivery of Common Stock upon
the conversion of Preferred Shares.
(f) Adjustments to Conversion Price. The Conversion Price
will be subject to adjustment from time to time as provided in this Section
2(f).
(i) Adjustment of Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Fixed
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(ii) Holder's Right of Alternative Conversion Price
Following Issuance of Convertible Securities. If the Company in any manner
issues or sells Convertible Securities or Options that are convertible into or
exchangeable for Common Stock at a price which varies or may vary with the
market price of the Common Stock, including by way of one or more reset(s) to a
fixed price (each of the formulations for such variable price being herein
referred to as, a "VARIABLE PRICE"), and such Variable Price is not calculated
using the same formula used to calculate the Applicable Daily Price in effect
immediately prior to the time of such issue or sale, the Company shall provide
written notice thereof via facsimile and overnight courier to each holder of the
Preferred Shares ("VARIABLE NOTICE") on the date of issuance of such Convertible
Securities or Options. If a holder of the Preferred Shares then outstanding
provides written notice to the Company via facsimile and overnight courier (the
"VARIABLE PRICE ELECTION NOTICE") within 10 Business Days of receiving a
Variable Notice that such holder desires to replace the Applicable Daily Price
then in effect with the Variable Price described in such Variable Notice, then,
from and after the date of the Company's receipt of the Variable Price Election
Notice, the Applicable Daily Price will automatically be replaced with the
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<PAGE> 11
Variable Price for the Preferred Shares held by such holder. In the event that a
holder of Preferred Shares delivers a Conversion Notice after the Company's
issuance of Convertible Securities with a Variable Price but before such
holder's receipt of the Company's Variable Notice, then such holder shall have
the option by written notice to the Company to rescind such Conversion Notice or
to have the Conversion Price be equal to such Variable Price for the conversion
effected by such Conversion Notice.
(iii) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 2(f) but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(f).
(iv) Notices.
(A) Immediately upon any adjustment of the
Conversion Price pursuant to this Section 2(f), the Company will give written
notice thereof to each holder of Preferred Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment.
(B) The Company will give written notice to
each holder of Preferred Shares at least ten (10) Business Days prior to the
date on which the Company closes its books or takes a record (I) with respect to
any dividend or distribution upon the Common Stock, (II) with respect to any pro
rata subscription offer to holders of Common Stock or (III) for determining
rights to vote with respect to any Organic Change (as defined in Section 4(a)),
dissolution or liquidation, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to such
holder.
(C) The Company will also give written
notice to each holder of Preferred Shares at least ten (10) Business Days prior
to the date on which any Organic Change, dissolution or liquidation will take
place, provided that such information shall be made known to the public prior to
or in conjunction with such notice being provided to such holder.
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Triggering Event. In addition
to all other rights of the holders of Preferred Shares contained herein, after a
Triggering Event (as defined below), each holder of Preferred Shares shall have
the right, at such holder's option, to require the Company to redeem all or a
portion of such holder's Preferred Shares at a price per Preferred Share equal
to the greater of (i) 118% of the Liquidation Preference and (ii) the product of
(A) the Conversion Rate in effect at such time as such holder delivers a Notice
of Redemption at Option of Buyer (as defined below) and (B) the Closing Sale
Price of the Common Stock on
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<PAGE> 12
the trading day immediately preceding such Triggering Event on which the
Principal Market is open for trading (the "REDEMPTION PRICE").
(b) "Triggering Event". A "TRIGGERING EVENT" shall be
deemed to have occurred at such time as any of the following events:
(i) the failure of the applicable Registration
Statement to be declared effective by the Securities and Exchange Commission
(the "SEC") on or prior to the date that is 30 days after the applicable
Effectiveness Deadline (as defined in the Registration Rights Agreement);
(ii) while the Registration Statement is required
to be maintained effective pursuant to the terms of the Registration Rights
Agreement, except for days during any Allowable Grace Period (as defined in the
Registration Rights Agreement), the effectiveness of the Registration Statement
lapses for any reason (including, without limitation, the issuance of a stop
order) or is unavailable to the holder of the Preferred Shares for sale of all
of the Registrable Securities (as defined in the Registration Rights Agreement)
in accordance with the terms of the Registration Rights Agreement, and such
lapse or unavailability continues for a period of five consecutive trading days
or for more than an aggregate of 10 trading days in any 365-day period;
(iii) the suspension from trading or failure of the
Common Stock to be listed on the Nasdaq National Market or The New York Stock
Exchange, Inc. for a period of five (5) consecutive trading days or for more
than an aggregate of 10 trading days in any 365-day period;
(iv) the Company's notice or the Transfer Agent's
notice, at the Company's direction, to any holder of Preferred Shares, including
by way of public announcement, at any time, of its intention not to comply with
a request for conversion of any Preferred Shares into shares of Common Stock
that is tendered in accordance with the provisions of this Certificate of
Designations;
(v) a Conversion Failure (as defined in Section
2(d)(v)(C));
(vi) upon the Company's receipt of a Conversion
Notice, the Company shall not be obligated to issue shares of Common Stock upon
such Conversion due to the provisions of Section 15; or
(vii) the Company breaches any representation,
warranty, covenant or other term or condition of the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrants, this Certificate of
Designations or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated thereby and hereby,
except to the extent that such breach would not have a Material Adverse Effect
(as defined in Section 3(a) of the Securities Purchase Agreement) and
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<PAGE> 13
except, in the case of a breach of a covenant which is curable other than
pursuant to Section 4(f) of the Securities Purchase Agreement, only if such
breach continues for a period of at least 15 days and further except, in the
case of a breach of Section 4(f) of the Securities Purchase Agreement, only if
such breach continues for a period of at least 60 days.
(c) Mechanics of Redemption at Option of Buyer. Within one
(1) Business Day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("NOTICE OF
TRIGGERING EVENT") to each holder of Preferred Shares. At any time after the
earlier of a holder's receipt of a Notice of Triggering Event and such holder
becoming aware of a Triggering Event, any holder of Preferred Shares then
outstanding may require the Company to redeem up to all of such holder's
Preferred Shares by delivering written notice thereof via facsimile and
overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER") to the Company,
which Notice of Redemption at Option of Buyer shall indicate the number of
Preferred Shares that such holder is electing to redeem.
(d) Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Buyer from any holder of
Preferred Shares, the Company shall immediately notify each holder of Preferred
Shares by facsimile of the Company's receipt of such notice(s). The Company
shall deliver the applicable Redemption Price to a holder which delivers a
Notice of Redemption at Option of Buyer within five Business Days after the
Company's receipt of a Notice of Redemption at Option of Buyer; provided that,
if required by Section 2(d)(viii), a holder's Preferred Stock Certificates shall
have been delivered to the Transfer Agent. If the Company is unable to redeem
all of the Preferred Shares submitted for redemption, the Company shall (i)
redeem a pro rata amount from each holder of Preferred Shares based on the
number of Preferred Shares submitted for redemption by such holder relative to
the total number of Preferred Shares submitted for redemption by all holders of
Preferred Shares and (ii) in addition to any remedy such holder of Preferred
Shares may have under this Certificate of Designations and the Securities
Purchase Agreement, pay to each holder interest at the rate of 2.0% per month
(prorated for partial months) in respect of each unredeemed Preferred Share
until paid in full.
(e) Void Redemption. In the event that the Company does
not pay the Redemption Price within the time period set forth in Section 3(d),
at any time thereafter and until the Company pays such unpaid applicable
Redemption Price in full, a holder of Preferred Shares shall have the option
(the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption, require the
Company to promptly return to such holder any or all of the Preferred Shares
that were submitted for redemption by such holder under this Section 3 and for
which the applicable Redemption Price (together with any interest thereon) has
not been paid, by sending written notice thereof to the Company via facsimile
(the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of such Void
Optional Redemption Notice, (i) the Notice of Redemption at Option of Buyer
shall be null and void with respect to those Preferred Shares subject to the
Void Optional Redemption Notice, (ii) the Company shall immediately return any
Preferred Shares subject to the Void Optional Redemption Notice, and (iii) the
Fixed Conversion Price of
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<PAGE> 14
such returned Preferred Shares shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Void Optional Redemption
Notice is delivered to the Company and (B) the lowest Closing Sale Price of the
Common Stock during the period beginning on the date on which the Notice of
Redemption at Option of Buyer is delivered to the Company and ending on the date
on which the Void Optional Redemption Notice is delivered to the Company.
(f) Disputes; Miscellaneous. In the event of a dispute as
to the determination of the arithmetic calculation of the Redemption Price, such
dispute shall be resolved pursuant to Section 2(d)(iii) above with the term
"Redemption Price" being substituted for the term "Conversion Rate". A holder's
delivery of a Void Optional Redemption Notice and exercise of its rights
following such notice shall not effect the Company's obligations to make any
payments which have accrued prior to the date of such notice. In the event of a
redemption pursuant to this Section 3 of less than all of the Preferred Shares
represented by a particular Preferred Stock Certificate, the Company shall
promptly cause to be issued and delivered to the holder of such Preferred Shares
a preferred stock certificate representing the remaining Preferred Shares which
have not been redeemed.
(4) Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "ACQUIRING ENTITY") a written agreement (in form and substance
reasonably satisfactory to the holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding) to deliver to each holder of Preferred Shares
in exchange for such shares, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to the Preferred
Shares, including, without limitation, having a stated value and liquidation
preference equal to the Stated Value and the Liquidation Preference of the
Preferred Shares held by such holder, and reasonably satisfactory to the holders
of at least two-thirds (2/3) of the Preferred Shares then outstanding. Prior to
the consummation of any other Organic Change, the Company shall make appropriate
provision (in form and substance reasonably satisfactory to the holders of a
majority of the Preferred Shares then outstanding) to insure that each of the
holders of the Preferred Shares will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable
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<PAGE> 15
and receivable upon the conversion of such holder's Preferred Shares such shares
of stock, securities or assets that would have been issued or payable in such
Organic Change with respect to or in exchange for the number of shares of Common
Stock which would have been acquirable and receivable upon the conversion of
such holder's Preferred Shares as of the date of such Organic Change (without
taking into account any limitations or restrictions on the convertibility of the
Preferred Shares).
(b) Optional Redemption Upon Change of Control. In
addition to the rights of the holders of Preferred Shares under Section 4(a),
upon a Change of Control (as defined below) of the Company each holder of
Preferred Shares shall have the right, at such holder's option, to require the
Company to redeem all or a portion of such holder's Preferred Shares at a price
per Preferred Share equal to 108% of the Liquidation Preference ("CHANGE OF
CONTROL REDEMPTION PRICE"). No sooner than 20 days nor later than 10 days prior
to the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written notice
thereof via facsimile and overnight courier (a "NOTICE OF CHANGE OF CONTROL") to
each holder of Preferred Shares. At any time during the period beginning after
receipt of a Notice of Change of Control (or, in the event a Notice of Change of
Control is not delivered at least 10 days prior to a Change of Control, at any
time on or after the date which is 10 days prior to a Change of Control) and
ending on the date of such Change of Control, any holder of the Preferred Shares
then outstanding may require the Company to redeem all or a portion of the
holder's Preferred Shares then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "NOTICE OF REDEMPTION UPON CHANGE OF
CONTROL") to the Company, which Notice of Redemption Upon Change of Control
shall indicate (i) the number of Preferred Shares that such holder is submitting
for redemption, and (ii) the applicable Change of Control Redemption Price, as
calculated pursuant to this Section 4(b). Upon the Company's receipt of a
Notice(s) of Redemption Upon Change of Control from any holder of Preferred
Shares, the Company shall promptly, but in no event later than one (1) Business
Day following such receipt, notify each holder of Preferred Shares by facsimile
of the Company's receipt of such Notice(s) of Redemption Upon Change of Control.
The Company shall deliver the applicable Change of Control Redemption Price
simultaneously with the consummation of the Change of Control; provided that, if
required by Section 2(d)(viii), a holder's Preferred Stock Certificates shall
have been so delivered to the Company. Payments provided for in this Section
4(b) shall have priority to payments to other stockholders in connection with a
Change of Control. For purposes of this Section 4(b), "CHANGE OF CONTROL" means
(i) the consolidation, merger or other business combination of the Company with
or into another Person (other than (A) a consolidation, merger or other business
combination in which holders of the Company's voting power immediately prior to
the transaction continue after the transaction to hold, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company), (ii) the sale or transfer of all or substantially
all of the Company's assets, or (iii) a purchase, tender or exchange offer made
to and accepted by the holders of more than 50% of the outstanding shares of
Common Stock.
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<PAGE> 16
(c) Forced Delisting. If a redemption voided pursuant to
Section 3(e) was caused by a Triggering Event involving the Company's inability
to issue Conversion Shares because of the Exchange Cap (as defined in Section
15), and if so directed in a Void Mandatory Redemption Notice by the holders of
at least two-thirds (2/3) of the Preferred Shares then outstanding, including
Preferred Shares submitted for redemption pursuant to Section 3 with respect to
which the applicable Redemption Price has not been paid, the Company shall
promptly as practicable delist the Common Stock from the exchange or automated
quotation system on which the Common Stock is traded and have the Common Stock,
at such holders' option, traded on the electronic bulletin board or the "pink
sheets."
(d) Purchase Rights. If at any time the Company grants,
issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "PURCHASE RIGHTS"), then the holders of Preferred
Shares will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Preferred Shares (without taking into account any
limitations or restrictions on the convertibility of the Preferred Shares)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(5) Limitation on Beneficial Ownership. The Company shall not
effect any conversion of Preferred Shares and no holder of Preferred Shares
shall have the right to convert Preferred Shares in excess of that number of
Preferred Shares which, upon giving effect to such conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by such holder and
its affiliates to exceed 4.99% of the total outstanding shares of Common Stock
following such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by such holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of the Preferred Shares with respect to which the determination of
such proviso is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining, nonconverted
Preferred Shares beneficially owned by the holder and its affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any warrants or
convertible preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the holder
and its affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 5, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
of this Section 5, in determining the number of outstanding shares of Common
Stock a holder may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company's most recent Form 10-Q, Form 10-K or other public
filing with the SEC, as the case may be, (2) a more recent public announcement
by the Company, or (3) any other notice by the Company or its transfer agent
setting forth the
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<PAGE> 17
number of shares of Common Stock outstanding. Upon the written request of any
holder, the Company shall promptly, but in no event later than one (1) Business
Day following the receipt of such notice, confirm in writing to any such holder
the number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to
conversions of Preferred Shares and exercise of Warrants (as defined below) by
such holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
(6) Redemption at the Company's Election. At any time or times
during the period beginning on the date the Registration Statement is declared
effective by the SEC and ending on and including the date which is one (1) year
after the Issuance Date, the Company shall have the right, in its sole
discretion, to require that some or all of the outstanding Preferred Shares be
redeemed ("REDEMPTION AT COMPANY'S ELECTION"), for consideration per Preferred
Share equal to 108% of the Conversion Amount for such Preferred Share (the
"COMPANY'S ELECTION REDEMPTION PRICE"); provided that the Conditions to
Redemption at the Company's Election (as set forth below) are satisfied as of
the Company's Election Redemption Date (as defined below). The Company may
exercise its right to Redemption at Company's Election only by providing each
holder of Preferred Shares written notice ("NOTICE OF REDEMPTION AT COMPANY'S
ELECTION") at least 10 Business Days but not more than 20 Business Days prior to
the date of consummation of such redemption ("COMPANY'S ELECTION REDEMPTION
DATE"). If the Company elects to require redemption of some, but not all, of the
Preferred Shares then outstanding, the Company shall require redemption of the
pro rata amount from each holder of such Preferred Shares based on the number of
Preferred Shares purchased by such holder relative to the total number of
Preferred Shares purchased on the Issuance Date (such amount with respect to
each holder being referred to herein as its "PRO RATA REDEMPTION AMOUNT"). The
Company's Notice of Redemption at Company's Election shall indicate (x) the
aggregate number of Preferred Shares the Company has elected to redeem from all
holders of Preferred Shares, (y) the date selected by the Company for the
Company's Election Redemption Date, and (z) each holder's Pro Rata Redemption
Amount of the Preferred Shares selected for redemption. If the Company has
exercised its right of Redemption at Company's Election and the conditions of
this Section 6, including the Conditions to Redemption at Company's Election,
have been satisfied, then each holder's Pro Rata Redemption Amount of the
Preferred Shares selected for redemption which remain outstanding on the
Company's Election Redemption Date shall be redeemed as of the Company's
Election Redemption Date by payment by the Company to each such holder of
Preferred Shares of the Company's Election Redemption Price. If required by
Section 2(d)(viii), all such holders of the Preferred Shares being redeemed
shall thereupon and within two (2) Business Days after the Company's Election
Redemption Date, or such earlier date as the Company and each such holder of
Preferred Shares mutually agree, surrender all Preferred Shares being redeemed
on such date to the Company. If the Company fails to pay the full Company's
Election Redemption Price on the Company's Election Redemption Date with respect
to a Preferred Share selected for redemption, then the Redemption at Company's
Election shall be null and void with respect to such Preferred Share and the
Holder shall be entitled to all the rights of a holder of outstanding Preferred
Shares. "CONDITIONS TO REDEMPTION AT THE
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<PAGE> 18
COMPANY'S ELECTION" means the following conditions: (i) during the period
beginning on the Issuance Date and ending on and including the Company's
Election Redemption Date, the Company shall have delivered Conversion Shares
upon conversion of the Preferred Shares to the holders of the Preferred Shares
on a timely basis as set forth in Section 2(d)(ii); (ii) on each day during the
period beginning 30 days prior to the date of Notice of Redemption at Company's
Election and ending on and including the Company's Election Redemption Date, the
Registration Statement shall be effective and available for the sale of at least
all of the Registrable Securities (as defined in the Registration Rights
Agreement); (iii) on each day during the period beginning 30 days prior to the
date of Notice of Redemption at Company's Election and ending on and including
the Company's Election Redemption Date, the Common Stock is designated for
quotation on the Nasdaq National Market or listed on The New York Stock
Exchange, Inc. and is not suspended from trading (excluding suspensions of not
more than one day resulting from business announcements by the Company); (iv)
during the period beginning on and including the Issuance Date and ending on and
including the Company's Election Redemption Date, there shall not have occurred
a Triggering Event or an event that with the passage of time and without being
cured would constitute a Triggering Event; (v) during the period beginning on
the Issuance Date and ending on and including the Company's Election Redemption
Date, there shall not have occurred the consummation of a Change of Control or
the public announcement of a pending, proposed or intended Change of Control;
(vi) the Company otherwise shall have been in compliance in all material
respects with this Certificate of Designations, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement and shall not have
breached in any material respect any provision of this Certificate of
Designations, the Securities Purchase Agreement, the Warrants or the
Registration Rights Agreement; (vii) the Company shall not have delivered a
Notice of Redemption at Company's Election and the Company's Election Redemption
Date shall not occur during a Company's Mandatory Conversion Period (as defined
in Section 7); (viii) the Company's Election Redemption Date is not later than
the date which is one (1) year after the Issuance Date; and (ix) if the
Company's Election Redemption Date occurs after the Stockholder Meeting
Deadline, then the Company shall have received the Stockholder Approval.
Notwithstanding the above, but subject to Section 5 and Section 8, any holder of
Preferred Shares may convert any Preferred Shares (including Preferred Shares
selected for redemption) into Common Stock pursuant to Section 2 on or prior to
the date immediately preceding the Company's Election Redemption Date. If the
Company fails to timely pay any Company's Election Redemption Price in
accordance with this Section 6, then the Company shall not be permitted to
submit another Notice of Redemption at Company's Election without the prior
written consent of the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding.
(7) Conversion at the Company's Election. On any date during the
period beginning on the date which is 20 Business Days after the Registration
Statement has been declared effective by the SEC and ending on and including,
with respect to a holder of Preferred Shares, the Company's Conversion
Termination Date (as defined below), the Company shall have the right, in its
sole discretion, to require that some or all of the outstanding Preferred Shares
be converted ("COMPANY'S CONVERSION ELECTION") at the applicable Conversion
Rate;
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<PAGE> 19
provided that the Conditions to Conversion at the Company's Election (as set
forth below) are satisfied as of the Company's Election Conversion Date (as
defined below) or waived by all the holders of the Preferred Shares then
outstanding. The Company shall exercise its right to Company's Conversion
Election by providing each holder of Preferred Shares written notice ("COMPANY'S
CONVERSION ELECTION NOTICE") on such date by facsimile and overnight courier.
The date on which each of such holders of the Preferred Shares actually receives
the Company's Conversion Election Notice is referred to herein as the "COMPANY'S
CONVERSION ELECTION NOTICE DATE." If the Company elects to require conversion of
some, but not all, of such Preferred Shares then outstanding, the Company shall
require conversion of the pro rata amount from each holder of such Preferred
Shares based on the number of Preferred Shares purchased by such holder relative
to the total number of Preferred Shares purchased on the Issuance Date (such
amount with respect to each holder of such Preferred Shares being referred to
herein as its "PRO RATA CONVERSION AMOUNT"). The Company's Conversion Election
Notice shall indicate (x) the aggregate number of such Preferred Shares the
Company has selected for conversion, (y) the date selected by the Company for
conversion ("COMPANY'S ELECTION CONVERSION DATE"), which date shall be not less
than 10 Business Days or more than 60 Business Days after the Company's
Conversion Election Notice Date, and (z) each holder's Pro Rata Conversion
Amount. Subject to the satisfaction of all the conditions of this Section 7 and
provided that the Company does not deliver a Company's Mandatory Conversion
Period Termination Notice (in the manner described below) with an effective date
prior to the applicable Company's Election Conversion Date and except to the
extent restricted by Section 5, on the Company's Election Conversion Date each
holder of Preferred Shares selected for conversion will be deemed to have
submitted a Conversion Notice in accordance with Section 2(d)(i) for a number of
Preferred Shares equal to the result of (a) such holder's Pro Rata Conversion
Amount, minus (b) the number of such Preferred Shares converted by such holder
during the Company's Mandatory Conversion Period (as defined below); provided,
however, in no event shall any holder of Preferred Shares be required to convert
a number of Preferred Shares during any Company's Mandatory Conversion Period
into a number of shares of Common Stock in excess of such holder's pro rata
portion (determined in the same manner as the Pro Rata Conversion Amount above)
of 15% of the aggregate trading volume of the Common Stock on the Principal
Market (as reported by Bloomberg) during the Company's Mandatory Conversion
Period; provided, further, however, if the Principal Market modifies the method
by which it calculates or reports the trading volume, then such percentage will
be modified accordingly. The Company may terminate a Conversion at Company's
Election prior to the Company's Election Conversion Date with respect to any
Preferred Shares not submitted for conversion prior to the effective date of
such termination by delivering written notice ("COMPANY'S MANDATORY CONVERSION
PERIOD TERMINATION NOTICE") to each holder of Preferred Shares not later than
8:00 a.m., Eastern Time, on the Business Day prior to the effective time and
date of such termination, provided that the Company has not previously delivered
two Company's Mandatory Conversion Period Termination Notices. "CONDITIONS TO
CONVERSION AT THE COMPANY'S ELECTION" means the following conditions: (i) on
each day during the period beginning on and including the date the Registration
Statement is declared effective by the SEC and ending on and including the
Company's Election Conversion Date, the Registration Statement which includes
the Registrable Securities relating to the
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<PAGE> 20
Preferred Shares selected for conversion shall be effective and available for
the sale of no less than all the Registrable Securities required to be included
in such Registration Statement; (ii) on each day during the period beginning on
the Issuance Date and ending on and including the Company's Election Conversion
Date, the Common Stock is designated for quotation on the Nasdaq National Market
or listed on The New York Stock Exchange, Inc. and shall not have been suspended
from trading on such exchanges nor shall delisting or suspension by such
exchanges (other than suspensions of not more than one day and occurring prior
to the Company's Conversion Election Notice Date due to business announcements
by the Company) have been threatened either (A) in writing by such exchanges or
(B) by falling below the minimum listing maintenance requirements of such
exchanges; (iii) during the period beginning on the Issuance Date and ending on
and including the Company's Election Conversion Date, there shall not have
occurred (A) an event constituting a Change of Control or a Triggering Event,
(B) an event that with the passage of time and without being cured would
constitute a Triggering Event, or (C) the public announcement of a pending,
proposed or intended Change of Control; (iv) the aggregate number of Preferred
Shares selected for conversion by the Company as reflected in the Company's
Conversion Election Notice is at least 1,000; (v) during the period beginning on
the Issuance Date and ending on and including the Company's Election Conversion
Date, the Company shall have delivered shares of Common Stock upon conversion of
the Preferred Shares and upon exercise of the Warrants to the holders on a
timely basis as set forth in Section 2(d)(ii) hereof and Sections 2(a) and 2(b)
of the Warrants, respectively; (vi) the Company otherwise shall have been in
compliance in all material respects with this Certificate of Designations, the
Securities Purchase Agreement, the Warrants and the Registration Rights
Agreement and shall not have breached in any material respect any provision of
this Certificate of Designations, the Securities Purchase Agreement, the
Warrants or the Registration Rights Agreement; (vii) the Company shall not have
delivered a Company's Conversion Election Notice during any Company's Mandatory
Conversion Period; (viii) the Company's Election Conversion Date is not later
than the date which is one (1) year after the Issuance Date; and (ix) if the
Company's Election Conversion Date occurs after the Stockholder Meeting
Deadline, then the Company shall have received the Stockholder Approval.
"COMPANY'S MANDATORY CONVERSION PERIOD" means, with respect to any Company's
Conversion Election, the period beginning on and including the Company's
Conversion Election Notice Date and ending on and including the earlier of (i)
the Company's Election Conversion Date and (ii) 6:00 p.m., Eastern Time, on the
effective date of the Company's Mandatory Conversion Period Termination Notice,
which effective date shall not be fewer than one Business Day after the receipt
of such notice by each holder of Preferred Shares. "COMPANY'S CONVERSION
TERMINATION DATE" means, with respect to a holder of Preferred Shares, the date
which is one year after the Issuance Date plus one (1) day for each day (an
"Extension Day"), if any, during any Company's Mandatory Conversion Period where
(I) such holder of Preferred Shares is not permitted to convert any of such
holder's Preferred Shares on such Extension Day due to the limitations set forth
in Section 5 and (II) such holder of Preferred Shares did not convert all of its
Pro Rata Conversion Amount on or prior to the Company's Election Conversion Date
during which such Extension Day occurred.
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<PAGE> 21
(8) Restrictions on Conversions. The right of a holder of
Preferred Shares to convert Preferred Shares pursuant to Section 2(b) shall be
limited as set forth below. Subject to the exceptions described below, without
the prior consent of the Company, no holder of Preferred Shares shall be
entitled to convert any Preferred Shares during the period beginning on the
Issuance Date and ending on and including the date which is one year after the
Issuance Date. Notwithstanding the foregoing, the conversion restrictions set
forth in this Section 8 shall not apply: (a) during a Company's Mandatory
Conversion Period, but only with respect to the number of Preferred Shares set
forth in a Company's Election Conversion Notice for such holder with respect to
such Company Mandatory Conversion Period; (b) on and after any date on which the
Common Stock is not listed or quoted on the Nasdaq National Market or The New
York Stock Exchange, Inc. or has been suspended from trading on any such
exchange (excluding suspensions of not more than one day resulting from business
announcements by the Company), or any such delisting or suspension is threatened
or pending either (I) in writing by such exchanges or (II) by falling below the
minimum listing maintenance requirements of such exchanges; (c) on or after any
date on which there shall have occurred an event constituting a Change of
Control or a Triggering Event or an event that with the passage of time and
without being cured would constitute a Triggering Event; (d) on or after any
date on which there shall have been an announcement of a pending, proposed or
intended Change of Control; (e) on or after any date on which the Company issues
or sells or is deemed to have issued or sold any Convertible Securities or
Options that are convertible into or exercisable or exchangeable for shares of
Common Stock at a conversion or exercise price which varies or may vary with the
market price of the Common Stock, including by way of one or more reset(s) to a
fixed price; (f) on or after any date on which the Company fails to pay the
Company's Election Redemption Price for any Preferred Shares in a timely manner
in accordance with a Redemption at Company's Election pursuant to Section 6; (g)
on or after the date the Company issues or sells any shares of Common Stock or
any Convertible Securities or Options (other than Excluded Securities or upon
conversion of the Preferred Shares or exercise of the Warrants or in connection
with any Approved Stock Plan or shares of Common Stock issuable pursuant to
warrants or options outstanding prior to the Issuance Date, provided such
warrants or options are not amended in any material respect after the Issuance
Date), with respect to a number of Preferred Shares representing an aggregate
Conversion Amount equal to the lesser of (I) each holder's pro rata portion
(determined in the same manner as Pro Rata Conversion Amount in Section 7) of
the consideration received by the Company in connection with such issuance or
sale and (II) the aggregate Conversion Amount represented by such holder's
Preferred Shares; (h) at any time after the first date after the Issuance Date
on which the Closing Sale Price of the Common Stock is greater than 125% of the
Closing Sale Price of the Common Stock on the Issuance Date (equitably adjusted
for stock splits, stock dividends, stock combinations and other similar
transactions) for any 15 trading days during the 20 consecutive trading days
immediately preceding such date of determination, but only with respect to a
number of Preferred Shares of each holder equal to the lesser of (I) such
holder's pro rata portion (determined in the same manner as Pro Rata Conversion
Amount in Section 7) of 6,250 Preferred Shares, and (II) the aggregate number of
Preferred Shares then held by such holder of Preferred Shares; (i) at any time
after the first date after the Issuance Date on which the Closing Sale Price of
the Common
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<PAGE> 22
Stock is less than the greater of $4.00 and 50% of the Closing Sale Price of the
Common Stock on the Issuance Date (equitably adjusted for stock splits, stock
dividends, stock combinations and other similar transactions) for any 10 trading
days during the 15 consecutive trading days immediately preceding such date of
determination; (j) with respect to any conversion of Preferred Shares at a price
equal to the Fixed Conversion Price then in effect; (k) on or after the first
date on which the Company fails to comply with its obligations under Section
4(m) of the Securities Purchase Agreement; or (l) on or after the Stockholder
Meeting Deadline if the Company fails to receive the Stockholder Approval (as
defined in Section 4(g) of the Securities Purchase Agreement) on or before the
Stockholder Meeting Deadline.
(9) Reservation of Shares. The Company shall, so long as any of
the Preferred Shares are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversions of the Preferred Shares, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding; provided that the
number of shares of Common Stock so reserved shall at no time be less than 200%
of the number of shares of Common Stock for which the Preferred Shares are at
any time convertible (without regard to any limitations on conversions). The
initial number of shares of Common Stock reserved for conversions of the
Preferred Shares and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Preferred Shares based on the number
of Preferred Shares held by each holder at the time of issuance of the Preferred
Shares or increase in the number of reserved shares, as the case may be. In the
event a holder shall sell or otherwise transfer any of such holder's Preferred
Shares, each transferee shall be allocated a pro rata portion of the number of
reserved shares of Common Stock reserved for such transferor. Any shares of
Common Stock reserved and allocated to any Person which ceases to hold any
Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holders.
(10) Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
Delaware General Corporation Law, and as expressly provided in this Certificate
of Designations.
(11) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "LIQUIDATION FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
distributions and payments on the liquidation, dissolution and winding up of the
Company, an amount per Preferred Share equal to the sum of (i) the Stated Value
and (ii) the Additional Amount for such Preferred Share (such sum being referred
to as the "LIQUIDATION PREFERENCE"); provided that, if the Liquidation Funds are
insufficient to pay the full amount due to the holders of Preferred Shares and
holders of shares of other classes or series of preferred stock of the Company
that are
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<PAGE> 23
of equal rank with the Preferred Shares as to payments of Liquidation Funds (the
"PARI PASSU SHARES"), then each holder of Preferred Shares and Pari Passu Shares
shall receive a percentage of the Liquidation Funds equal to the full amount of
Liquidation Funds payable to such holder as a liquidation preference, in
accordance with their respective Certificate of Designations, Preferences and
Rights, as a percentage of the full amount of Liquidation Funds payable to all
holders of Preferred Shares and Pari Passu Shares. The purchase or redemption by
the Company of stock of any class, in any manner permitted by law, shall not,
for the purposes hereof, be regarded as a liquidation, dissolution or winding up
of the Company. Neither the consolidation or merger of the Company with or into
any other Person, nor the sale or transfer by the Company of less than
substantially all of its assets, shall, for the purposes hereof, be deemed to be
a liquidation, dissolution or winding up of the Company.
(12) Preferred Rank. All shares of Common Stock shall be of
junior rank to all Preferred Shares with respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. The rights of the shares of Common Stock shall be subject to the
preferences and relative rights of the Preferred Shares. Without the prior
express written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Company shall not hereafter authorize or
issue additional or other capital stock that is of senior or equal rank to the
Preferred Shares in respect of the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than two-thirds (2/3)
of the then outstanding Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Certificate of Incorporation or
bylaws, or file any resolution of the board of directors of the Company with the
Secretary of State of the State of Delaware or enter into any agreement
containing any provisions, which would adversely affect or otherwise impair the
rights or relative priority of the holders of the Preferred Shares relative to
the holders of the Common Stock or the holders of any other class of capital
stock. In the event of the merger or consolidation of the Company with or into
another corporation, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.
(13) Participation. Subject to the rights of the holders, if any,
of the Pari Passu Shares, the holders of the Preferred Shares shall, as holders
of Preferred Stock, be entitled to such dividends paid and distributions made to
the holders of Common Stock to the same extent as if such holders of Preferred
Shares had converted the Preferred Shares into Common Stock (without regard to
any limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(14) Restriction on Redemption and Cash Dividends. Until all of
the Preferred Shares have been converted or redeemed as provided herein, the
Company shall not, directly or indirectly, redeem, or declare or pay any cash
dividend or distribution on, its capital stock (other
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<PAGE> 24
than the Preferred Shares) without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding Preferred
Shares.
(15) Limitation on Number of Conversion Shares. The Company shall
not be obligated to issue any shares of Common Stock upon conversion of the
Preferred Shares if the issuance of such shares of Common Stock would exceed
that number of shares of Common Stock which the Company may issue upon
conversion of the Preferred Shares (the "EXCHANGE CAP") without breaching the
Company's obligations under the rules or regulations of the Principal Market, or
the market or exchange where the Common Stock is then traded, except that such
limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market (or any successor rule or regulation) for issuances of Common
Stock in excess of such amount, (b) obtains a written opinion from outside
counsel to the Company that such approval is not required, which opinion shall
be reasonably satisfactory to the holders of a majority of the Preferred Shares
then outstanding or (c) the required number of the holders of the Preferred
Shares have exercised their rights pursuant to Section 4(c) to have the Company
remove the Common Stock from the Principal Market. Until such approval or
written opinion is obtained or such action has been taken by the required number
of holders of Preferred Shares, no purchaser of Preferred Shares pursuant to the
Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon
conversion of Preferred Shares, shares of Common Stock in an amount greater than
the product of (i) the Exchange Cap amount multiplied by (ii) a fraction, the
numerator of which is the number of Preferred Shares issued to such Purchaser
pursuant to the Securities Purchase Agreement and the denominator of which is
the aggregate amount of all the Preferred Shares issued to the Purchasers
pursuant to the Securities Purchase Agreement (the "CAP ALLOCATION AMOUNT"). In
the event that any Purchaser shall sell or otherwise transfer any of such
Purchaser's Preferred Shares, the transferee shall be allocated a pro rata
portion of such Purchaser's Cap Allocation Amount. In the event that any holder
of Preferred Shares shall convert all of such holder's Preferred Shares into a
number of shares of Common Stock which, in the aggregate, is less than such
holder's Cap Allocation Amount, then the difference between such holder's Cap
Allocation Amount and the number of shares of Common Stock actually issued to
such holder shall be allocated to the respective Cap Allocation Amounts of the
remaining holders of Preferred Shares on a pro rata basis in proportion to the
number of Preferred Shares then held by each such holder.
(16) Vote to Change the Terms of or Issue Additional Preferred
Shares. The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares, shall be required for (a) any
change to this Certificate of Designations or the Company's Certificate of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Preferred Shares and (b) the
issuance of Preferred Shares other than pursuant to the Securities Purchase
Agreement.
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<PAGE> 25
(17) Lost or Stolen Certificates. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(18) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief). No remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy.
Nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(19) Specific Shall Not Limit General; Construction. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and all Buyers and shall
not be construed against any person as the drafter hereof.
(20) Failure or Indulgence Not Waiver. No failure or delay on the
part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
(21) Notice. Whenever notice is required to be given under this
Certificate of Designations, unless otherwise provided herein, such notice shall
be given in accordance with Section 9(f) of the Securities Purchase Agreement.
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<PAGE> 26
(22) Transfer of Preferred Shares. A holder of Preferred Shares
may assign some or all of its rights hereunder or the Preferred Shares held by
such holder without the consent of the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS.]
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<PAGE> 27
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to
be signed by Bruce N. Moore, its President and Chief Executive Office, as of
January 18, 2000.
AUSPEX SYSTEMS, INC.
By: /s/ Bruce N. Moore
--------------------------------------
Name: Bruce N. Moore
Its: President and Chief Executive Officer
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<PAGE> 28
EXHIBIT I
AUSPEX SYSTEMS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Auspex Systems, Inc. for its Series ____ Convertible Preferred Stock (the
"CERTIFICATE OF DESIGNATIONS"). In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to convert the number
of shares of Series ___ Convertible Preferred Stock, par value $____ per share
(the "PREFERRED SHARES"), of Auspex Systems, Inc., a Delaware corporation (the
"COMPANY"), indicated below into shares of Common Stock, par value $0.001 per
share (the "COMMON STOCK"), of the Company, as of the date specified below.
Date of Conversion:_____________________________________________________
Number of Preferred Shares to be converted:_____________________________
Stock certificate no(s). of Preferred Shares to be converted:___________
Please confirm the following information:
Conversion Price:_______________________________________________________
Number of shares of Common Stock to be issued:__________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:_______________________________________________________________
Facsimile Number:_______________________________________________________
Authorization:__________________________________________________________
By:_______________________________________________________
Title:____________________________________________________
Dated:__________________________________________________________________
Account Number (if electronic book entry transfer):_____________________
Transaction Code Number (if electronic book entry transfer):____________
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<PAGE> 29
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated January ___, 2000 from
the Company and acknowledged and agreed to by [TRANSFER AGENT].
AUSPEX SYSTEMS, INC.
By:______________________________________
Name:____________________________________
Title:___________________________________
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<PAGE> 1
EXHIBIT 4.1
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THIS WARRANT.
AUSPEX SYSTEMS, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: ________________ Number of Shares: ____________
Date of Issuance: January __, 2000
Auspex Systems, Inc., a Delaware corporation (the "COMPANY"), hereby certifies
that, for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
____________________, the registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time or times on or after the date
hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as defined
herein) ___________________ (________) [INSERT 64.20544 SHARES OF COMMON STOCK
FOR EACH PREFERRED SHARE] fully paid nonassessable shares of Common Stock (as
defined herein) of the Company (the "WARRANT SHARES") at the purchase price per
share provided in Section 1(b) below; provided, however, that in no event shall
the holder be entitled to exercise this Warrant for a number of Warrant Shares
in excess of that number of Warrant Shares which, upon giving effect to such
exercise, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such exercise. For purposes of
the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such proviso is being made, but shall exclude shares
of Common Stock which would be issuable upon (i) exercise of the remaining,
unexercised Warrants beneficially owned by the holder and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted
<PAGE> 2
portion of any other securities of the Company beneficially owned by the holder
and its affiliates (including, without limitation, any convertible notes or
preferred stock) subject to a limitation on conversion or exercise analogous to
the limitation contained herein. Except as set forth in the preceding sentence,
for purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Warrant, in determining the number of outstanding
shares of Common Stock a holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company's most recent Form 10-Q, Form 10-K
or other public filing with the Securities and Exchange Commission, as the case
may be, (2) a more recent public announcement by the Company or (3) any other
notice by the Company or its transfer agent setting forth the number of shares
of Common Stock outstanding. Upon the written request of any holder, the Company
shall promptly, but in no event later than one (1) Business Day following the
receipt of such notice, confirm in writing to any such holder the number of
shares of Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to conversions of
Preferred Shares and exercise of Warrants (as defined below) by such holder and
its affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
Warrants (the "PREFERRED SHARE WARRANTS") issued pursuant to Section 1 of that
certain Securities Purchase Agreement dated as of January 18, 2000, among the
Company and the Buyers referred to therein (the "SECURITIES PURCHASE
AGREEMENT").
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "APPROVED STOCK PLAN" shall mean any employee benefit
plan which has been approved by the Board of Directors of the Company, pursuant
to which the Company's securities may be issued to any employee, officer,
director or consultant for services provided to the Company.
(ii) "CERTIFICATE OF DESIGNATIONS" means the Company's
Certificate of Designations, Preferences and Rights for its Series B Convertible
Preferred Stock.
(iii) "BUSINESS DAY" means any day other than Saturday,
Sunday or any other day on which commercial banks in the City of New York are
authorized or required by law to remain closed.
(iv) "CLOSING BID PRICE" means, for any security as of any
date, the last closing bid price for such security on the Principal Market (as
defined below) as reported by Bloomberg Financial Markets ("BLOOMBERG"), or if
the Principal Market begins to operate on an extended hours basis, and does not
designate the closing bid price, then the last bid price at 4:00 p.m. Eastern
Time as reported by Bloomberg, or, if the foregoing do not apply, the last
closing
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<PAGE> 3
bid price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no last
closing bid price is reported for such security by Bloomberg, the last closing
trade price of such security as reported by Bloomberg, or, if no last closing
trade price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually determined by the Company and the holder of this Warrant. If the
Company and the holder of this Warrant are unable to agree upon the fair market
value of the Common Stock, then such dispute shall be resolved pursuant to
Section 2(a) below with the term "Closing Bid Price" being substituted for the
term "Market Price." All such determinations to be appropriately adjusted for
any stock dividend, stock split or other similar transaction during such period.
(v) "COMMON STOCK" means (i) the Company's common stock,
par value $0.001 per share, and (ii) any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
(vi) "CONVERTIBLE SECURITIES" means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(vii) "EXCLUDED SECURITY" means any of the following: (a)
any issuance by the Company of securities in connection with a strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital) or (b) any issuance by the Company of securities as
consideration for a merger or consolidation or the acquisition of a business,
product, license or other asset of another Person.
(viii) "EXPIRATION DATE" means the date four (4) years
after the Issuance Date of this Warrant or, if such date falls on a Saturday,
Sunday or other day on which banks are required or authorized to be closed in
the City of New York or the State of New York or on which trading does not take
place on the Principal Market (a "HOLIDAY"), the next date that is not a
Holiday.
(ix) "ISSUANCE DATE" means, with respect to each Warrant,
the date of issuance of the applicable Warrant.
(x) "MARKET PRICE" means, with respect to any security for
any date of determination, that price which shall be computed as the arithmetic
average of the Closing Bid Prices for such security on each of the 10
consecutive trading days immediately preceding such date of determination (all
such determinations to be appropriately adjusted for any stock dividend, stock
split or similar transaction during the pricing period).
(xi) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
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(xii) "OTHER SECURITIES" means (i) those options and
warrants of the Company issued prior to, and outstanding on, the date of
issuance of this Warrant, (ii) the shares of Common Stock issued upon exercise
of such options and warrants, provided such options and warrants are not amended
in any material way after the issuance date of this Warrant, (iii) the Preferred
Shares and (iv) the shares of Common Stock issued upon conversion of the
Preferred Shares or the exercise of the Preferred Share Warrants.
(xiii) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xiv) "PREFERRED SHARES" means the shares of the Company's
Series B Convertible Preferred Stock, par value $0.001 per share, issued
pursuant to the Securities Purchase Agreement.
(xv) "PRINCIPAL MARKET" means the Nasdaq National Market
or if the Common Stock is not traded on the Nasdaq National Market, then the
principal securities exchange or trading market for the Common Stock.
(xvi) "REGISTRATION RIGHTS AGREEMENT" means that Agreement
dated January 18, 2000 by and among the Company and the Buyers referred to
therein.
(xvii) "SECURITIES ACT" means the Securities Act of 1933,
as amended.
(xviii) "WARRANT" means this Warrant and all Warrants
issued in exchange, transfer or replacement hereof.
(xix) "WARRANT EXERCISE PRICE" shall be equal to, with
respect to any Warrant Share, $8.5663, subject to adjustment as hereinafter
provided.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's successors
and (B) to any applicable law defined or referred to herein, shall be deemed
references to such applicable law as the same may have been or may be amended or
supplemented from time to time.
(ii) When used in this Warrant, the words "HEREIN,"
"HEREOF," and "HEREUNDER," and words of similar import, shall refer to this
Warrant as a whole and not to any provision of this Warrant, and the words
"SECTION," "SCHEDULE," and "EXHIBIT" shall refer to Sections of, and Schedules
and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plural,
and vice versa.
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Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may
be exercised by the holder hereof then registered on the books of the Company,
in whole or in part, at any time on any Business Day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Eastern Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "EXERCISE NOTICE"), of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an
amount equal to the applicable Warrant Exercise Price multiplied by the number
of Warrant Shares as to which this Warrant is being exercised (the "AGGREGATE
EXERCISE PRICE") in cash or wire transfer of immediately available funds or (B)
by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 2(f)) and (iii) the surrender to a
common carrier for overnight delivery to the Company, as soon as practicable
following such date, of this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction). In the
event of any exercise of the rights represented by this Warrant in compliance
with this Section 2(a), the Company shall on the second Business Day following
the date of receipt of the Exercise Notice, the Aggregate Exercise Price (or
notice of a Cashless Exercise) and this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) (the "EXERCISE DELIVERY DOCUMENTS"), credit such aggregate number
of shares of Common Stock to which the holder shall be entitled to the holder's
or its designee's balance account with The Depository Trust Company; provided,
however, if the holder who submitted the Exercise Notice requested physical
delivery of any or all of the Warrant Shares, then the Company shall, on or
before the second Business Day following receipt of the Exercise Delivery
Documents issue and surrender to a common carrier for overnight delivery to the
address specified in the Exercise Notice, a certificate, registered in the name
of the holder, for the number of shares of Common Stock to which the holder
shall be entitled pursuant to such request. Upon delivery of the Exercise Notice
and Aggregate Exercise Price referred to in clause (ii)(A) above or notification
to the Company of a Cashless Exercise referred to in Section 2(f), the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of this Warrant as required
by clause (iii) above or the certificates evidencing such Warrant Shares. In the
case of a dispute as to the determination of the Warrant Exercise Price or the
Market Price of a security or the arithmetic calculation of the Warrant Shares,
the Company shall promptly issue to the holder the number of shares of Common
Stock that is not disputed and shall transmit an explanation of the disputed
determinations or arithmetic calculations to the holder via facsimile within one
Business Day of receipt of the holder's subscription notice. If the holder and
the Company are unable to agree upon the determination of the Warrant Exercise
Price or the Market Price or arithmetic calculation of the Warrant Shares within
two (2) Business Days of such disputed determination or arithmetic calculation
being transmitted to the holder, then the Company shall within one (1) Business
Day transmit via facsimile (i) the disputed determination of the Warrant
Exercise Price or the Market Price to an independent, reputable investment
banking firm or (ii) the disputed arithmetic calculation of the Warrant Shares
to its independent, outside accountant. The Company shall cause the investment
banking firm or the accountant, as the case
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may be, to perform the determinations or calculations and notify the Company and
the holder of the results no later than forty-eight (48) hours from the time it
receives the disputed determinations or calculations. Such investment banking
firm's or accountant's determination or calculation, as the case may be, shall
be deemed conclusive absent manifest error.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five (5) Business Days after any exercise
and at its own expense, issue a new Warrant identical in all respects to this
Warrant except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant, less
the number of Warrant Shares with respect to which such Warrant is exercised.
(c) No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock
issued upon exercise of this Warrant shall be rounded up or down to the nearest
whole number.
(d) If the Company shall fail for any reason or for no reason to
issue to the holder within five (5) Business Days of receipt of the Exercise
Delivery Documents, a certificate for the number of shares of Common Stock to
which the holder is entitled or to credit the holder's balance account with The
Depository Trust Company for such number of shares of Common Stock to which the
holder is entitled upon the holder's exercise of this Warrant, the Company
shall, in addition to any other remedies under this Warrant or the Securities
Purchase Agreement or otherwise available to such holder, including any
indemnification under Section 8 of the Securities Purchase Agreement, pay as
additional damages in cash to such holder on each day the issuance of such
Common Stock certificate is not timely effected an amount equal to 0.5% of the
product of (A) the sum of the number of shares of Common Stock not issued to the
holder on a timely basis and to which the holder is entitled, and (B) the
average of the Closing Bid Price of the Common Stock for the three consecutive
trading days immediately preceding the last possible date which the Company
could have issued such Common Stock to the holder without violating this
Section 2.
(e) If within five (5) Business Days after the Company's receipt
of the Exercise Delivery Documents, the Company fails to deliver a new Warrant
to the holder for the number of shares of Common Stock to which such holder is
entitled pursuant to Section 2(b) hereof, then, in addition to any other
available remedies under this Warrant or the Securities Purchase Agreement
including indemnification pursuant to Section 8 thereof or otherwise available
to such holder, the Company shall pay as additional damages in cash to such
holder on each day after such fifth (5th) Business Day that such delivery of
such new Warrant is not timely effected an amount equal to 0.5% of the product
of (A) the number of shares of Common Stock represented by the portion of this
Warrant which is not being exercised and (B) the average of the Closing Bid
Prices of the Common Stock for the three consecutive trading days immediately
preceding the last possible date which the Company could have issued such
Warrant to the holder without violating this Section 2.
(f) If, despite the Company's obligations under the Securities
Purchase Agreement and the Registration Rights Agreement, the Warrant Shares to
be issued are not
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<PAGE> 7
registered and available for resale pursuant to a registration statement
(excluding during an Allowable Grace Period (as defined in the Registration
Rights Agreement)) in accordance with the Registration Rights Agreement, then
notwithstanding anything contained herein to the contrary, the holder of this
Warrant may, in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to receive upon such exercise the "Net Number" of shares of Common Stock
determined according to the following formula (a "CASHLESS EXERCISE"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A = the total number of shares with respect to which this
Warrant is then being exercised.
B = the closing sale price of the Common Stock (as
reported by Bloomberg) on the date immediately preceding
the date of the subscription notice.
C = the Warrant Exercise Price then in effect for the
applicable Warrant Shares at the time of such exercise.
(g) Subject to the following sentence, the holder of this Warrant
shall not be entitled to exercise this Warrant prior to the date which is 183
days after the Issuance Date. Notwithstanding the foregoing, the exercise
restriction set forth in the preceding sentence shall not apply: (i) on or after
any date on which there shall have occurred an event constituting a Change of
Control (as defined in the Certificate of Designations) or a Triggering Event
(as defined in the Certificate of Designations) or an event that with the
passage of time and without being cured would constitute a Triggering Event, or
(ii) on or after any date on which there shall have been an announcement of a
pending, proposed or intended Change of Control.
Section 3. Covenants as to Common Stock. The Company hereby covenants
and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for
or replacement of this Warrant will upon issuance be, duly authorized and
validly issued.
(b) All Warrant Shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then
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<PAGE> 8
represented by this Warrant and the par value of said shares will at all times
be less than or equal to the applicable Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares
of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. No impairment of the designations, preferences and rights of the
Preferred Shares contained in the Company's Certificate of Designations or any
waiver thereof which has an adverse effect on the rights granted hereunder shall
be given effect until the Company has taken appropriate action (satisfactory to
the holders of Preferred Share Warrants representing at least two-thirds (2/3)
of the shares of Common Stock issuable upon the exercise of such Preferred Share
Warrants then outstanding) to avoid such adverse effect with respect to this
Warrant. Without limiting the generality of the foregoing, the Company (i) will
not increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Warrant Exercise Price then in effect, and
(ii) will take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
Section 4. Taxes. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase
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<PAGE> 9
any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "ACCREDITED INVESTOR"). Upon exercise of this
Warrant, other than pursuant to a Cashless Exercise, the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale and that such holder is an
Accredited Investor. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
exercise of this Warrant, other than pursuant to a Cashless Exercise, that the
Company receive such other representations as the Company considers reasonably
necessary to assure the Company that the issuance of its securities upon
exercise of this Warrant shall not violate any United States or state securities
laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) This Warrant and the rights granted hereunder shall be
assignable by the holder hereof without the consent of the Company.
(c) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
and the initial holder of this Warrant (and certain assignees thereof) is
entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.
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Section 8. Adjustment of Warrant Exercise Price and Number of Shares.
The Warrant Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares
upon Issuance of Common Stock. If and whenever on or after the date of issuance
of this Warrant and prior to the date which is two (2) years after the date of
issuance of this Warrant, the Company issues or sells, or is deemed to have
issued or sold, any shares of Common Stock (other than shares of Common Stock
which are issued or deemed to have been issued by the Company in connection with
an Approved Stock Plan or Excluded Security or upon the issuance, exercise or
conversion of the Other Securities) for a consideration per share less than a
price (the "APPLICABLE PRICE") equal to the Warrant Exercise Price in effect
immediately prior to such issuance or sale, then immediately after such issue or
sale the Warrant Exercise Price then in effect shall be reduced to an amount
equal to such consideration per share.
(b) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Section 8(a)
above, the following shall be applicable:
(i) Issuance of Options. If the Company in any manner
grants any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" shall be equal to the sum
of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the granting or sale
of the Option, upon exercise of the Option and upon conversion or exchange of
any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon the conversion or
exchange thereof is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share. For the purposes of this Section 8(b)(ii), the "lowest
price per share for which one share of Common Stock is issuable upon the
conversion or exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion or exchange of such Convertible Security. No further adjustment
of the Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock upon
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conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or is to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment pursuant to this Section 8(b) shall be made if such
adjustment would result in an increase of the Warrant Exercise Price then in
effect.
(c) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Sections 8(a)
and 8(b), the following shall be applicable:
(i) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the Market Price of such securities on the date of receipt of such
securities. If any Common Stock, Options or Convertible Securities are issued to
the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration therefor will
be deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the Company and the
holders of Preferred Share Warrants representing at least two-thirds (2/3) of
the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the
"VALUATION EVENT"), the fair value of such consideration will be determined
within five Business Days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Preferred Share Warrants representing at least two-thirds (2/3)
of the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding. The
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determination of such appraiser shall be final and binding upon all parties and
the fees and expenses of such appraiser shall be borne jointly by the Company
and the holders of Preferred Share Warrants.
(ii) Integrated Transactions. In case any Option is issued
in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01.
(iii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock unless such shares are
cancelled.
(iv) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, any Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased. Any adjustment under this Section 8(d) shall become effective at the
close of business on the date the subdivision or combination becomes effective.
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(e) Distribution of Assets. If the Company shall declare or make
any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(i) any Warrant Exercise Price in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Warrant Exercise Price by a fraction of which (A) the
numerator shall be the Closing Bid Price of the Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (B) the denominator shall be the Closing Bid Price of
the Common Stock on the trading day immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable
upon exercise of this Warrant shall be increased to a number of shares equal to
the number of shares of Common Stock obtainable immediately prior to the close
of business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
(f) Certain Events. If any event occurs of the type contemplated
by the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Preferred
Share Warrants; provided that no such adjustment pursuant to this Section 8(f)
will increase the Warrant Exercise Price or decrease the number of shares of
Common Stock obtainable as otherwise determined pursuant to this Section 8.
(g) One Year Adjustment of Warrant Exercise Price. If on the
first day after the tenth trading day after the date which is one (1) year after
the Issuance Date (the "ONE YEAR ADJUSTMENT DATE") 110% of the arithmetic
average of the Closing Bid Prices of the Common Stock on the 10 consecutive
trading days immediately preceding such date (appropriately adjusted for any
stock dividend, stock split or similar transaction during the pricing period)
(the "ONE
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YEAR ADJUSTED PRICE") is less than the Warrant Exercise Price in effect on the
date immediately preceding the One Year Adjustment Date, then from and after the
One Year Adjustment Date the Warrant Exercise Price shall be equal to the One
Year Adjusted Price of the Common Stock on the One Year Adjustment Date, subject
to further adjustment as provided in this Warrant.
(h) Notices.
(i) Immediately upon any adjustment of a Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least ten (10) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the
holder of this Warrant at least ten (10) days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8 above,
if at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of Common Stock (the "PURCHASE
RIGHTS"), then the holder of this Warrant will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction in each case which is effected in such a
way that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "ORGANIC CHANGE." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such
-14-
<PAGE> 15
Organic Change (in each case, the "ACQUIRING ENTITY") a written agreement (in
form and substance reasonably satisfactory to the holders of Preferred Share
Warrants representing at least two-thirds (2/3) of the shares of Common Stock
obtainable upon exercise of the Preferred Share Warrants then outstanding) to
deliver to each holder of Preferred Share Warrants in exchange for such
Warrants, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant and reasonably
satisfactory to the holders of two-thirds (2/3) of the Preferred Share Warrants
then outstanding (including, an adjusted warrant exercise price equal to the
value for the Common Stock reflected by the terms of such consolidation, merger
or sale, and exercisable for a corresponding number of shares of Common Stock
acquirable and receivable upon exercise of the Preferred Share Warrants (without
regard to any limitations or exercise), if the value so reflected is less than
any Warrant Exercise Price in effect immediately prior to such consolidation,
merger or sale). Prior to the consummation of any other Organic Change, the
Company shall make appropriate provision (in form and substance reasonably
satisfactory to the holders of Preferred Share Warrants representing at least
two-thirds (2/3) of the shares of Common Stock obtainable upon exercise of the
Preferred Share Warrants then outstanding) to insure that each of the holders of
the Preferred Share Warrants will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the exercise of
such holder's Preferred Share Warrants (without regard to any limitations or
exercise), such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the exercise of such holder's Warrant as of the date of such Organic Change
(without taking into account any limitations or restrictions on the
exercisability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on
receipt of an indemnification undertaking (or, in the case of a mutilated
Warrant, the Warrant), issue a new Warrant of like denomination and tenor as
this Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
-15-
<PAGE> 16
If to the Company:
Auspex Systems, Inc.
2300 Central Expressway
Santa Clara, California 95050-2515
Telephone: (408) 566-2000
Facsimile: (408) 566-2020
Attention: Chief Executive Officer
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
Attention: Henry P. Massey, Jr., Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12. Date. The date of this Warrant is January __, 2000. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7(c) shall continue in full force
and effect after such date as to any Warrant Shares or other securities issued
upon the exercise of this Warrant.
Section 13. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Preferred Share Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of Preferred Share Warrants representing at least
two-thirds (2/3) of the shares of Common Stock obtainable upon exercise of the
Preferred Share Warrants then outstanding; provided that no such action may
increase the Warrant Exercise Price of any Preferred Share Warrant or decrease
the number of shares or class of stock obtainable upon exercise of any Preferred
Share Warrant without the written consent of the holder of such Preferred Share
Warrant.
-16-
<PAGE> 17
Section 14. Descriptive Headings; Governing Law. The descriptive
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York, or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
___________________, its ____________________________, as of the ___ day of
January, 2000.
AUSPEX SYSTEMS, INC.
By: /s/ Bruce N. Moore
----------------------------------------
Name: Bruce N. Moore
Title: President and Chief Executive Officer
<PAGE> 19
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
AUSPEX SYSTEMS, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Auspex
Systems, Inc., a Delaware corporation (the "COMPANY"), evidenced by the attached
Warrant (the "WARRANT"). Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to ________________
Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to ____________
Warrant Shares (to the extent permitted by the
terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
Name of Registered Holder
By: ____________________________
Name:
Title:
<PAGE> 20
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated January ___, 2000 from
the Company and acknowledged and agreed to by [TRANSFER AGENT].
AUSPEX SYSTEMS, INC.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE> 21
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Auspex Systems, Inc., a Delaware
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated: _________, ____
_________________________________________
By: _____________________________________
Its: ____________________________________
<PAGE> 1
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of January
18, 2000, by and among Auspex Systems, Inc., a Delaware corporation, with
headquarters located at 2300 Central Expressway, Santa Clara, California
95050-2515 (the "COMPANY"), and the undersigned Buyers (individually a "BUYER"
and collectively the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and among the parties hereto (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers (i) 25,000 shares
of the Company's Series B Convertible Preferred Stock, par value $0.001 per
share (the "PREFERRED SHARES"), which will be convertible into shares (as
converted, the "CONVERSION SHARES") of the Company's common stock, par value
$0.001 per share (the "COMMON STOCK"), in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of its Series B
Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"), and (ii)
warrants to purchase shares of Common Stock (the "WARRANTS" and, as exercised,
the "WARRANT SHARES").
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
b. "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, a government or any department or agency thereof.
<PAGE> 2
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for the offering for
resale of securities on a continuous or delayed basis ("RULE 415"), and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means (i) the Conversion Shares
issued or issuable upon conversion of the Preferred Shares, (ii) the Dividend
Shares (as defined in the Certificate of Designations) relating to the Preferred
Shares, (iii) Warrant Shares issued or issuable upon exercise of the Warrants,
and (iv) any shares of capital stock issued or issuable with respect to the
Conversion Shares, the Preferred Shares, the Dividend Shares relating to the
Preferred Shares, the Warrant Shares or the Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of the Preferred Shares or
exercises of Warrants; provided, however, that "Registrable Securities" shall
not include any securities that have been sold pursuant to a Registration
Statement or pursuant to Rule 144 promulgated under the 1933 Act, or any similar
rule or regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("RULE 144") .
e. "REGISTRATION STATEMENT" means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
Registrable Securities.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
soon as practicable, but in no event later than the date which is 30 days after
the Closing Date (as defined in the Securities Purchase Agreement) (the "FILING
DEADLINE"), file with the SEC a Registration Statement or Registration
Statements (as necessary) on Form S-3 covering the resale of all of the
Registrable Securities. In the event that Form S-3 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration, subject to the provisions of Section 2(d). Any first Registration
Statement prepared pursuant hereto shall register for resale at least that
number of shares of Common Stock equal to the sum of (y) the product of (i) 2
and (ii) the number of Conversion Shares issuable upon conversion of the
Preferred Shares (without regard to any limitations on conversions) as of the
date immediately preceding the date the Registration Statement is initially
filed with the SEC, subject to adjustment as provided in Section 2(f), plus (z)
100% of the number of Warrant Shares issuable upon exercise of the Warrants
(without regard to any limitations on exercise) as of the date immediately
preceding the date the Registration Statement is initially filed with the SEC,
subject to adjustment as provided in Section 2(f). The Company shall cause such
Registration Statement to be declared effective by the SEC as soon as possible,
but in no event later than the date which is 120 days after the Closing Date
(the "EFFECTIVENESS DEADLINE").
b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable
2
<PAGE> 3
Securities included therein shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
the Registration Statement covering such initial number of Registrable
Securities or increase thereof is declared effective by the SEC. In the event
that an Investor sells or otherwise transfers any of such Investor's Registrable
Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor. Any shares of Common Stock included in a
Registration Statement and which remain allocated to any Person which ceases to
hold any Registrable Securities covered by such Registration Statement shall be
allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement.
c. Legal Counsel. Subject to Section 5 hereof, the Buyers holding
a majority of the Registrable Securities shall have the right to select one
legal counsel to review and oversee any offering pursuant to this Section 2
("LEGAL COUNSEL"), which shall be Katten Muchin & Zavis or such other counsel as
thereafter designated by the holders of a majority of Registrable Securities.
The Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations under this Agreement.
d. Ineligibility for Form S-3. In the event that Form S-3 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form and (ii) undertake to register the resale
of the Registrable Securities on Form S-3 as soon as such form is available,
provided that the Company shall maintain the effectiveness of the Registration
Statement then in effect until such time as a Registration Statement on Form S-3
covering the Registrable Securities has been declared effective by the SEC.
e. Effect of Failure to File and Obtain and Maintain
Effectiveness of Registration Statement. If (i) a Registration Statement
covering all the Registrable Securities and required to be filed by the Company
pursuant to this Agreement is not (A) filed with the SEC on or before the
applicable Filing Deadline or (B) declared effective by the SEC on or before the
applicable Effectiveness Deadline or (ii) on any day after the Registration
Statement has been declared effective by the SEC, sales of all the Registrable
Securities required to be included on such Registration Statement cannot be made
pursuant to the Registration Statement (including, without limitation, because
of a failure to keep the Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to the Registration
Statement, to register sufficient shares of Common Stock), then, as partial
relief for the damages to any holder by reason of any such delay in or reduction
of its ability to sell the underlying shares of Common Stock (which remedy shall
not be exclusive of any other remedies available at law or in equity), the
Company shall pay to each holder of Preferred Shares an amount in cash per
Preferred Share held equal to the product of (i) $1,000 multiplied by (ii) the
sum of (A) 0.015, if the Registration Statement is not filed by the Filing
Deadline, plus (B) 0.015, if the Registration Statement is not declared
effective by the Effectiveness Deadline, plus, (C) the product of (I) .0005
multiplied by (II) the sum of (x) the number of days after the Filing Deadline
that such Registration Statement is not filed with the SEC, plus (y) the number
of days after the Effectiveness Deadline that the Registration Statement is not
declared effective by the SEC, plus (z) the number of days after the
Registration Statement has been declared effective by the SEC that such
Registration Statement is
3
<PAGE> 4
not available for the sale of at least all the Registrable Securities required
to be included on such Registration Statement. The payments to which a holder
shall be entitled pursuant to this Section 2(e) are referred to herein as
"REGISTRATION DELAY PAYMENTS." Registration Delay Payments shall be paid on the
earlier of (I) the last day of the calendar month during which such Registration
Delay Payments are incurred and (II) the third business day after the event or
failure giving rise to the Registration Delayed Payments is cured. In the event
the Company fails to make Registration Delay Payments in a timely manner, such
Registration Delay Payments shall bear interest at the rate of 2.0% per month
(prorated for partial months) until paid in full.
f. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities which
such Registration Statement is required to cover or an Investor's allocated
portion of the Registrable Securities pursuant to Section 2(b), the Company
shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefor, if applicable), or both, so as to cover at
least that number of shares of Common Stock equal to the sum of (x) the product
of (i) 2 and (ii) the number of Conversion Shares issuable upon conversion of
the Preferred Shares (without regard to any limitations on conversions) as of
the date immediately preceding the date such amendment or new Registration
Statement is filed with the SEC, plus (y) the number of Warrant Shares issuable
upon exercise of the Warrants (without regard to any limitations on exercise )
as of the date immediately preceding the date such amendment or new Registration
Statement is filed with the SEC, plus (z) the number of Conversion Shares and
Warrant Shares held by the Investors as of the date immediately preceding the
date such amendment or new Registration Statement is filed with the SEC , in
each case, as soon as practicable, but in any event not later than fifteen (15)
business days after the necessity therefor arises. The Company shall cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if the
number of Registrable Securities issued or issuable upon conversion of the
Preferred Shares and exercise of the Warrants covered by such Registration
Statement is greater than the sum of (a) the quotient determined by dividing (i)
the number of shares of Common Stock available for resale under the Registration
Statement to cover shares issued or issuable upon conversion of the Preferred
Shares by (ii) 1.5 and (b) the number of shares of Common Stock available for
resale under the Registration Statement to cover shares issued or issuable upon
exercise of the Warrants. For purposes of the calculation set forth in the
foregoing sentence, any restrictions on the convertibility of the Preferred
Shares or exercise of the Warrants shall be disregarded and such calculation
shall assume that the Preferred Shares are then convertible into, and the
Warrants are then exercisable for, shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Certificate of Designations) or Exercise
Price (as defined in the Warrants), respectively.
3. RELATED OBLIGATIONS.
4
<PAGE> 5
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a) or 2(f), the Company will effect
the registration of the Registrable Securities in accordance with the intended
method of disposition thereof and, pursuant thereto, the Company shall have the
following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the applicable Registrable Securities
(but in no event later than the Filing Deadline) and cause such Registration
Statement relating to the Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the applicable
Effectiveness Deadline). The Company shall keep each Registration Statement
effective pursuant to Rule 415 at all times until the earlier of (i) the date as
of which the Investors may sell all of the Registrable Securities covered by
such Registration Statement without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) or (ii) the date on which
the Investors shall have sold all the Registrable Securities covered by such
Registration Statement (the "REGISTRATION Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The Company shall submit to the SEC, within three business days
after the Company learns that no review of a particular Registration Statement
will be made by the staff of the SEC or that the staff has no further comments
on the Registration Statement, as the case may be, a request for acceleration of
effectiveness of such Registration Statement to a time and date not later than
48 hours after the submission of such request.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form
10-Q or Form 8-K or any analogous report under the Securities Exchange Act of
1934, as amended (the "1934 ACT"), the Company shall have incorporated such
report by reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend
or supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and
comment upon those sections of (i) the Registration Statement at least five (5)
business days prior to its filing with the SEC, and (ii) all other Registration
Statements and all amendments and supplements to all Registration Statements,
which are applicable to the Buyers (except for Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any similar or
successor
5
<PAGE> 6
report and registration statements on Form S-8) at least four (4) business days
prior to the their filing with the SEC and (b) not file any document in a form
to which Legal Counsel reasonably objects. The Company shall not submit a
request for acceleration of the effectiveness of a Registration Statement or any
amendment or supplement thereto without the prior approval of Legal Counsel,
which consent shall not be unreasonably withheld. The Company shall furnish to
Legal Counsel, without charge, (i) any correspondence from the SEC or the staff
of the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto. The
Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations pursuant to this Section 3.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, and all exhibits and each preliminary prospectus, (ii)
upon the effectiveness of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including copies of any
preliminary or final prospectus, as such Investor may reasonably request from
time to time in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
e. The Company shall (i) register and qualify, unless an
exemption from registration and qualification applies, the Registrable
Securities covered by a Registration Statement under all jurisdiction's
securities or "blue sky" laws in the United States, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change in the Company's Certificate of Incorporation or
by-laws that the Company's board of directors determines in good faith to be
contrary to the best interests of the Company and its shareholders, (x) qualify
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(e), (y) subject itself to general taxation in any
such jurisdiction, or (z) file a general consent to service of process in any
such jurisdiction. The Company shall promptly notify Legal Counsel and each
Investor who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.
f. As promptly as practicable after becoming aware of such event
or development, the Company shall notify Legal Counsel and each Investor in
writing of the happening of any event as a result of which the prospectus
included in a Registration Statement, as then in
6
<PAGE> 7
effect, includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (provided that in no event shall such notice contain any material,
nonpublic information), and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to Legal Counsel and each
Investor (or such other number of copies as Legal Counsel or such Investor may
reasonably request). The Company shall also promptly notify Legal Counsel and
each Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to Legal Counsel and each Investor by facsimile
on the same day of such effectiveness), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
g. The Company shall prevent the issuance of any stop order or
other suspension of effectiveness of a Registration Statement, or the suspension
of the qualification of any of the Registrable Securities for sale in any
jurisdiction, however, if such an order or suspension is issued, the Company
shall obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
h. At the reasonable request of any Investor and at the expense
of such Investor, the Company shall furnish to such Investor, on the date of the
effectiveness of the Registration Statement and thereafter from time to time on
such dates as an Investor may reasonably request (i) a letter, dated such date,
from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, and (ii) an opinion, dated as
of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the Investors.
i. The Company shall make available for inspection, at the
expense of the Investor acting pursuant to this Section 3(i), by (i) any
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall agree, and each Investor hereby
agrees, to hold in strict confidence and shall not make any disclosure (except
to an Investor) or use of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than
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<PAGE> 8
by disclosure in violation of this or any other agreement of which the Inspector
has knowledge. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such Inspector
shall have entered into confidentiality agreements with the Company with respect
thereto, substantially in the form of this Section 3(i). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential.
j. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement, or (v) such Investor consents to the form and content of any such
disclosure. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
k. The Company shall either (i) cause all the Registrable
Securities covered by a Registration Statement to be listed on each securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure designation and
quotation of all the Registrable Securities covered by the Registration
Statement on the Nasdaq National Market or The New York Stock Exchange, Inc.,
or, if the Company is unsuccessful in satisfying the preceding clause (i) or
(ii), the Company shall secure the inclusion for quotation on The American Stock
Exchange, Inc., or The Nasdaq SmallCap Market, for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities. The
Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(k).
l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered, and to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request.
m. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
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<PAGE> 9
n. If requested by an Investor, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information as an Investor requests to be included therein relating to the
sale and distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; (ii) as soon
as practicable make all required filings of such prospectus supplement or
post-effective amendment after being notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment; and (iii) supplement
or make amendments to any Registration Statement if reasonably requested by an
Investor of such Registrable Securities.
o. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
p. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement, provided that the
Company shall be deemed to satisfy its obligations under this Section 3(p) if it
timely makes all required filings under the 1934 Act and does not change its
fiscal year.
q. The Company shall otherwise comply with all applicable rules
and regulations of the SEC in connection with any registration hereunder.
r. Within two (2) business days after a Registration Statement
which covers applicable Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
s. Intentionally Left Blank.
t. Notwithstanding anything to the contrary in Section 3(f), at
any time after the applicable Registration Statement has been declared effective
by the SEC, the Company may delay the disclosure of material non-public
information concerning the Company the disclosure of which at the time is not,
in the good faith opinion of the Board of Directors of the Company and its
counsel, in the best interest of the Company and, in the opinion of counsel to
the Company, otherwise required (a "GRACE PERIOD"); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the Investors in writing of the date on which the Grace Period
ends; and, provided further, that no
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<PAGE> 10
Grace Period shall exceed (I) 15 consecutive days for a Grace Period beginning
prior to or on the date which is one year after the Closing Date and (II) 15
consecutive business days for a Grace Period beginning after the date which is
one year after the Closing Date and provided that during any 365 day period such
Grace Periods shall not exceed an aggregate of 30 days (an "ALLOWABLE GRACE
PERIOD"). For purposes of determining the length of a Grace Period above, the
Grace Period shall begin on and include the date the holders receive the notice
referred to in clause (i) and shall end on and include the later of the date the
holders receive the notice referred to in clause (ii) and the date referred to
in such notice. The provisions of 3(g) hereof shall not be applicable during the
period of any Allowable Grace Period. Upon expiration of the Grace Period, the
Company shall again be bound by the first sentence of Section 3(f) with respect
to the information giving rise thereto unless such material non-public
information is no longer applicable.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) business days prior to the first
anticipated filing date of a Registration Statement, the Company shall notify
each Investor in writing of the information the Company reasonably requires from
each such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in such Registration Statement. It shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g),
Section 3(t) or the first sentence of Section 3(f), such Investor will
immediately discontinue disposition of Registrable Securities pursuant to any
Registration Statement(s) covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(g) or the first sentence of Section 3(f) or receipt of
notice that no supplement or amendment is required or that a Grace Period has
ended. Notwithstanding anything to the contrary, the Company shall, upon
Conversion of the Preferred Shares, exercise of the Warrants or receipt from an
Investor of relevant stock certificates for cancellation, cause its transfer
agent to deliver unlegended shares of Common Stock to a transferee of an
Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities pursuant to the Registration
Statement or Rule 144 with respect to which an Investor has entered into a
contract for sale prior to the Investor's receipt of a notice from the Company
of the happening of any event of the kind described in Section 3(g), Section
3(t) or the first sentence of Section 3(f) and for which the Investor has not
yet settled.
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<PAGE> 11
d. Each Investor agrees, in connection with any sale or other
disposition by such Investor of any Registrable Securities pursuant to the
Registration Statement, that such Investor will deliver the most recent version
of the prospectus received by such Investor from the Company prior to such sale
or disposition in accordance with and in the manner required by the 1933 Act and
all applicable regulations of the Securities and Exchange Commission.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees
shall be paid by the Company. In addition, the Company shall reimburse the
Investors for the reasonable fees and disbursements of Legal Counsel in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3 of this Agreement which amount shall be limited to $10,000.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 ACT") (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts
paid in settlement or expenses, joint or several, (collectively, "CLAIMS")
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("BLUE SKY FILING"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the
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<PAGE> 12
Company of the 1933 Act, the 1934 Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i) through (iii)
being, collectively, "VIOLATIONS"). Subject to Section 6(c), the Company shall
reimburse the Investors and each such controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or
disbursements or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto; (ii) shall not be
available to the extent such Claim is based on a failure of the Investor to
deliver or to cause to be delivered the prospectus made available by the
Company, if such prospectus was timely made available by the Company pursuant to
Section 3(d); and (iii) shall not apply to amounts paid in settlement of any
Claim, if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) with respect to any prospectus shall not inure to
the benefit of an Indemnified Person if the untrue statement or omission of
material fact contained in the prospectus was corrected in the prospectus and
such new prospectus was delivered to each Investor prior to such Investor's use
of the prospectus to which the Claim relates.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement and each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each an "INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which
any of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(d), such Investor will
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the
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<PAGE> 13
contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any prospectus shall not inure to the benefit of
any Indemnified Party if the untrue statement or omission of material fact
contained in the prospectus was corrected and such new prospectus was delivered
to each Investor prior to such Investor's use of the prospectus to which the
Claim relates.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or Claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
d. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
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<PAGE> 14
e. The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities pursuant to such
Registration Statement.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144, the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required by the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents as may be necessary
to qualify under Rule 144, and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant to Rule 144
without registration.
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<PAGE> 15
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable
by the Investors to any transferee of all or any portion of Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
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If to the Company:
Auspex Systems, Inc.
2300 Central Expressway
Santa Clara, California 95050-2515
Telephone: (408) 566-2000
Facsimile: (408) 566-2020
Attention: Chief Executive Officer
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
Attention: Henry P. Massey, Jr., Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a courier or overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State
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<PAGE> 17
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
e. This Agreement, the Securities Purchase Agreement, the
Warrants and the Certificate of Designations constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the
Securities Purchase Agreement, the Warrants and the Certificate of Designations
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
17
<PAGE> 18
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares and the Warrants then
outstanding have been converted into or exercised for Registrable Securities
without regard to any limitations on conversion of the Preferred Shares or
exercise of the Warrants.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * *
18
<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
AUSPEX SYSTEMS, INC. HFTP INVESTMENT L.L.C.
By: Promethean Asset Management, L.L.C.
Its:Investment Manager
By: /s/ Bruce Moore By:
------------------------------- ------------------------------------
Name: Bruce N. Moore James F. O'Brien, Jr.
Its: President and Chief Managing Member
Executive Officer
FISHER CAPITAL LTD.
By:
------------------------------------
Kenneth A. Simpler
Its: Vice President
WINGATE CAPITAL LTD.
By:
------------------------------------
Kenneth A. Simpler
Its: Vice President
LEONARDO, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
<PAGE> 20
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER AND FACSIMILE NUMBER
------------- -------------------- -----------------------------------
<S> <C> <C>
HFTP Investment L.L.C. c/o Promethean Asset Management, L.L.C. Promethean Investment Group, L.L.C.
750 Lexington Avenue, 22nd Floor 750 Lexington Avenue, 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
John M. Floegel John M. Floegel
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Residence: New York
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
Fisher Capital Ltd. c/o Citadel Investment Group, L.L.C. Katten Muchin Zavis
225 West Washington Street 525 W. Monroe Street, Suite 1600
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Kenneth A. Simpler Attn: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Residence: Illinois
Wingate Capital Ltd. c/o Citadel Investment Group, L.L.C. Katten Muchin Zavis
225 West Washington Street 525 W. Monroe Street, Suite 1600
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Kenneth A. Simpler Attn: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Residence: Illinois
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Attn: Gary Wolf or Ari Storch
Ari Storch Facsimile: (212) 867-6449
Facsimile: (212) 867-6449 Telephone: (212) 692-2035
Telephone: (212) 692-2035
Residence: Cayman Islands
</TABLE>
<PAGE> 21
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
ATTN: ______________
Re: AUSPEX SYSTEMS, INC.
Ladies and Gentlemen:
We are counsel to Auspex Systems, Inc., a Delaware corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by and
among the Company and the Buyers named therein (collectively, the "HOLDERS")
pursuant to which the Company issued to the Holders shares of its Series ___
Convertible Preferred Stock, par value $_____ per share (the "PREFERRED SHARES")
convertible into shares of the Company's common stock, par value $0.001 per
share (the "COMMON STOCK"), and the related Warrants (the "WARRANTS") to acquire
shares of Common Stock. Pursuant to the Purchase Agreement, the Company also has
entered into a Registration Rights Agreement with the Holders (the "REGISTRATION
RIGHTS AGREEMENT") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Preferred Shares and upon exercise of the Warrants, under the Securities Act of
1933, as amended (the "1933 ACT"). In connection with the Company's obligations
under the Registration Rights Agreement, on ____________ ____, the Company filed
a Registration Statement on Form S-3 (File No. 333-_____________) (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By: ____________________________________
cc: [LIST NAMES OF HOLDERS]
<PAGE> 1
EXHIBIT 10.2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of January 18,
2000, by and among Auspex Systems, Inc., a Delaware corporation, with
headquarters located at 2300 Central Expressway, Santa Clara, California
95050-2515 (the "COMPANY"), and the investors listed on the Schedule of Buyers
attached hereto (individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT");
B. The Company has authorized a new series of its Preferred Stock, par
value $0.001 per share, which shall be called the Company's Series B Convertible
Preferred Stock (the "PREFERRED STOCK"), which shall be convertible into shares
of the Company's common stock, par value $0.001 per share (the "COMMON STOCK")
(as converted, the "CONVERSION SHARES"), in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Preferred
Stock in the form attached hereto as Exhibit A (the "CERTIFICATE OF
DESIGNATIONS");
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, (i) the number of shares of the Preferred Stock set forth
opposite such Buyer's name on the Schedule of Buyers (which number of shares to
be issued to all the Buyers in the aggregate shall equal 25,000 shares of
Preferred Stock, collectively, the "PREFERRED SHARES"), and (ii) warrants (the
"WARRANTS") to purchase up to 64.20544 shares of Common Stock (as exercised
collectively, the "WARRANT SHARES") for each Preferred Share purchased by such
Buyer on the Closing Date (as defined below) (as set forth opposite such Buyer's
name on the Schedule of Buyers), such Warrants to be substantially in the form
attached hereto as Exhibit B;
D. Contemporaneously with the execution and delivery of this Agreement,
the Company and each Buyer is executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit C (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
<PAGE> 2
NOW THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7, the Company shall issue
and sell to each Buyer and each Buyer agrees to purchase from the Company the
number of Preferred Shares set forth opposite such Buyer's name on the Schedule
of Buyers, along with the related Warrants (the "CLOSING"). The purchase price
(the "PURCHASE PRICE") of each Preferred Share and the related Warrants at the
Closing shall be an aggregate of $1,000. "BUSINESS DAY" means any day other than
Saturday, Sunday or other day on which commercial banks in the city of New York
are authorized or required by law to remain closed.
b. The Closing Date. The date and time of the Closing (the
"CLOSING DATE") shall be 10:00 a.m., Pacific Time, within one (1) Business Day
following the date hereof, subject to satisfaction (or waiver) of the conditions
to the Closing set forth in Sections 6 and 7 (or such later date as is mutually
agreed to by the Company and the Buyer). The Closing shall occur on the Closing
Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite
1600, Chicago, Illinois 60661-3693.
c. Form of Payment. On the Closing Date (i) each Buyer shall pay
the Purchase Price to the Company for the Preferred Shares and the related
Warrants to be issued and sold to such Buyer by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, and
(ii) the Company shall deliver to each Buyer stock certificates (in the
denominations as such Buyer shall request) (the "STOCK CERTIFICATES")
representing such number of the Preferred Shares which such Buyer is then
purchasing along with the related Warrants, duly executed on behalf of the
Company and registered in the name of such Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the Preferred
Shares and the Warrants, (ii) upon conversion of the Preferred Shares, will
acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof (the
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares,
collectively are referred to herein as the "SECURITIES"), for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
2
<PAGE> 3
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a form reasonably satisfactory to the Company,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("RULE 144"); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption
3
<PAGE> 4
thereunder. Notwithstanding the foregoing, the Securities may be pledged in
connection with a bona fide margin account or other loan secured by the
Securities.
g. Legends. Such Buyer understands that the certificates or other
instruments representing the Preferred Shares and the Warrants and, until such
time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY SATISFACTORY TO THE
ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, SUCH SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the 1933 Act, (ii)
in connection with a sale, assignment or transfer of such securities, such
holder provides the Company with an opinion of counsel, in a form reasonably
satisfactory to the Company, to the effect that such sale, assignment or
transfer may be made without registration under the 1933 Act or (iii) such
holder provides the Company with reasonable assurance that such Securities can
be sold pursuant to Rule 144. Such Buyer acknowledges, covenants and agrees to
sell Securities represented by a certificate(s) from which the legend has been
removed, only pursuant to (i) a registration statement effective under the 1933
Act or (ii) advice of counsel to such holder that such sale is exempt from the
registration requirements of Section 5 of the 1933 Act, provided that the Buyer
gives written notice to the Company specifying the amount of securities sold and
the exemption relied on and, provided further, that for sales pursuant to Rule
144 such notice will be satisfied by the Buyer providing the Company with a copy
of its Form 144.
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and are valid and binding agreements of
such Buyer enforceable against such Buyer in accordance with their terms,
subject as to enforceability to general principles of equity and to applicable
4
<PAGE> 5
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that jurisdiction
specified on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
"SUBSIDIARIES" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns the capital stock or holds an equity
or similar interest) (a complete list of which is set forth in Schedule 3(a))
are corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the business, properties, assets,
operations, results of operations or financial condition of the Company and its
Subsidiaries taken as a whole, or on the transactions contemplated hereby or by
the agreements and instruments to be entered into in connection herewith, or on
the authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below) or the Certificate of Designations.
b. Authorization; Enforcement; Compliance with Other Instruments.
The Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Registration Rights Agreement,
the Irrevocable Transfer Agent Instructions (as defined in Section 5), the
Warrants and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "TRANSACTION DOCUMENTS"), and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of the Transaction
Documents by the Company and the execution and filing of the Certificate of
Designations by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
the Preferred Shares and the Warrants and the reservation for issuance and the
issuance of the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise thereof, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders. The Transaction Documents have been
duly executed and delivered by the Company. This Agreement and the Registration
Rights Agreement and, when executed and delivered, the other Transaction
Documents, constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium,
5
<PAGE> 6
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies.
c. Capitalization. The authorized capital stock of the Company
consists of (i) 50,000,000 shares of Common Stock, of which as of the date
hereof 27,951,035 shares are issued and outstanding, 6,308,285 shares are
issuable and reserved for issuance pursuant to the Company's stock option and
purchase plans and 0 shares are issuable and reserved for issuance pursuant to
securities (other than the Preferred Shares and the Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii) 5,000,000
shares of preferred stock, of which 50,000 shares are designated as Series A
Participating Preferred Stock, none of which are outstanding as of the date
hereof and 25,000 shares are designated as Series B Convertible Preferred Stock,
none of which are outstanding as of the date hereof. All of such outstanding
shares have been and are, or upon issuance will be, validly issued, fully paid
and nonassessable. Except as disclosed in Schedule 3(c): (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (ii)
there are no outstanding debt securities issued by the Company; (iii) there are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement); (v) there are no
outstanding securities of the Company or any of its Subsidiaries which contain
any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; and (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement. The Company has furnished to each Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the
Company's By-laws, as in effect on the date hereof (the "BY-LAWS"), and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issuance thereof and (iii) entitled to the
rights and preferences set forth in the Certificate of Designations. At least
9,101,388 shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance upon conversion of the Preferred Shares and exercise
of the Warrants. Upon conversion or exercise
6
<PAGE> 7
in accordance with the Certificate of Designations or the Warrants, as the case
may be, the Conversion Shares and the Warrant Shares will be validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. The issuance by the Company of the
Securities is exempt from registration under the 1933 Act. The offer and sale by
the Company of the Preferred Shares and the Warrants is being made in reliance
upon the exemption from registration set forth in Rule 506 of Regulation D under
the 1933 Act and is only being made to "accredited investors" that meet the
requirements of Rule 501(a) of Regulation D and similar exemptions under state
law.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares) will
not (I) result in a violation of the Certificate of Incorporation, any
certificate of designations of any outstanding series of preferred stock of the
Company or the By-laws; (II) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party; or (III) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the principal
market or exchange on which the Common Stock is traded or listed) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e): neither the Company nor its Subsidiaries is in violation of any
term of (i) its Certificate of Incorporation, any certificate of designations of
any outstanding series of preferred stock or its By-laws or their organizational
charter or by-laws, respectively, or (ii) any statute, rule or regulation
applicable to the Company or its Subsidiaries and neither the Company nor its
Subsidiaries is in default under any contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order, except for such
violations or defaults which would not, individually or in the aggregate, have a
Material Adverse Effect. The business of the Company and its Subsidiaries is not
being conducted, and shall not be conducted, in violation of any law, ordinance
or regulation of any governmental entity except for such violations the
sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and except such as have been obtained as of the date hereof, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents or the
Certificate of Designations in accordance with the terms hereof or thereof.
Except as disclosed in Schedule 3(e), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof and such consents shall have been obtained prior to the Closing. The
Company and its Subsidiaries are unaware of any facts or circumstances which
might reasonably be expected to give rise to any of the foregoing. The Company
is not in
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violation of the listing requirements of the Nasdaq National Market as in effect
on the date hereof and on the Closing Date and has no actual knowledge of any
facts which would reasonably lead to delisting or suspension of the Common Stock
by the Nasdaq National Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since June 30, 1998, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). A complete list of the Company's SEC Documents is set forth on
Schedule 3(f). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents.
None of the SEC Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Neither the Company
nor any of its Subsidiaries nor any of their officers, directors, employees or
agents have provided the Buyers with any material, nonpublic information other
than the Material Information (as defined below). The Company meets the
requirements for the use of Form S-3 for registration of the resale of the
Registrable Securities (as defined in the Registration Rights Agreement) by each
Buyer.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g), since June 30, 1999 there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, liabilities or results of operations of the Company or its
Subsidiaries, taken as a whole. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge that its creditors intend to initiate involuntary bankruptcy
proceedings or any knowledge of any fact which would reasonably lead a creditor
to do so.
h. Absence of Litigation. Except as disclosed in Schedule 3(h),
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Common Stock or any of the
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Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, except as expressly set forth
in Schedule 3(h). Except as set forth in Schedule 3(h), to the knowledge of the
Company none of the directors or officers of the Company have been involved in
securities related litigation during the past five years.
i. Acknowledgment Regarding the Buyer's Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the Certificate of Designations and the transactions contemplated
thereby. The Company further acknowledges that none of the Buyers is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the Certificate of Designations and the
transactions contemplated thereby and any advice given by any of the Buyers or
any of their respective representatives or agents in connection with the
Transaction Documents and the Certificate of Designations and the transactions
contemplated thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the issuance of the Preferred Shares and Warrants
contemplated by this Agreement and except for the disclosure of the Company's
quarterly financial results for the period ended December 31, 1999 (the
"Material Information"), no event, liability, development or circumstance has
occurred or exists with respect to the Company or its Subsidiaries or their
respective businesses, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on a
registration statement (including by way of incorporation by reference) filed
with the SEC relating to an issuance and sale by the Company of its Common Stock
and which has not been publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of its
affiliates, nor 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 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. 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, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of the Nasdaq National Market, nor will the
Company or any of its Subsidiaries take any action or steps that would require
registration of the Securities under the 1933 Act or cause the offering of the
Securities to be integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its
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Subsidiaries, is any such dispute threatened. None of the Company's or its
Subsidiaries' employees is a member of a union, neither the Company nor any of
its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has
notified the Company's Board of Directors that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company and
the Company does not have any plans, as of the date hereof, to terminate any
such officer during the six months following the date of this Agreement.
n. Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, issued patents,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. Except as set forth on Schedule 3(n), none of the Company's
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
government authorizations, trade secrets or other intellectual property rights
have expired or terminated, or are expected to expire or terminate within two
years from the date of this Agreement except where such expiration or
termination would not have, either individually or in the aggregate, a Material
Adverse Effect. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of trademarks, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, trade secrets or other similar rights
of others, or of any such development of similar or identical trade secrets or
technical information by others and, except as set forth on Schedule 3(n), no
claim, action or proceeding has been made or brought against, or to the
Company's knowledge, has been threatened against, the Company or its
Subsidiaries regarding trademarks, trade name rights, patents, patent rights,
inventions, copyrights, licenses, service names, service marks, service mark
registrations, trade secrets or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties except where the failure to do so would not have
either individually or in the aggregate a Material Adverse Effect.
o. Regulatory Permits. Except where the absence of which would
not have a Material Adverse Effect, the Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses. Neither the Company nor any such Subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
p. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient 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 accepted accounting principles and to maintain asset
accountability, (iii)
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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.
q. Tax Status. The Company and each of its Subsidiaries has made
or filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and for which the Company has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
r. Transactions With Affiliates and Employees. Except as set
forth on Schedule 3(r) or in the SEC Documents filed at least ten days prior to
the date hereof and other than the grant or exercise of stock options disclosed
on Schedule 3(c), none of the officers, directors or employees 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 otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
s. Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Preferred Shares
will increase in certain circumstances. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designations and
its obligation to issue the Warrant Shares in accordance with this Agreement and
the Warrants is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
t. Application of Takeover Protections. The Company and its board
of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result of the Buyers and the Company fulfilling their obligations under the
Transaction Documents and the Certificate of Designations, including, without
limitation, the Company's issuance of the Securities and the Buyers' ownership
of the Securities.
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u. Rights Agreement. The Company specifically represents,
warrants and agrees that, in accordance with Section 1 of the Rights Agreement
between the Company and the First National Bank of Boston, dated April 19, 1995
(the "RIGHTS PLAN"), regardless of the number of Conversion Shares and Warrant
Shares of which each Buyer is deemed the Beneficial Owner (as defined in the
Rights Plan), none of the Buyers is intended to be or will be deemed to be an
Acquiring Person as defined by the Rights Plan because of the acquisition of the
Securities (including the Conversion Shares and the Warrant Shares) pursuant to
this Agreement, and the acquisition of the Securities (including the Conversion
Shares and the Warrant Shares) pursuant to this Agreement, shall not, under any
circumstances, trigger a Distribution Date as defined by the Rights Plan;
provided, however, that only Securities (including the Conversion Shares and the
Warrant Shares) acquired pursuant to this Agreement shall be deemed excluded
from the number of shares of Common Stock deemed beneficially owned by each
Buyer in determining whether such Buyer is an Acquiring Person within the
meaning of the Rights Plan.
v. Year 2000 Compliance. The Company has initiated a review and
assessment of all areas within its and each Subsidiary's business and operations
that could be materially adversely affected by the "YEAR 2000 PROBLEM" (that is,
the risk that computer applications used by the Company or any of the
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999). Based on the foregoing, the Company believes that the computer
applications that are material to its or any Subsidiary's business and
operations are reasonably expected to be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000.
w. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(w) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
x. 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. Neither the Company nor any such Subsidiaries has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition, financial or otherwise,
or the earnings, business or operations of the Company and its Subsidiaries,
taken as a whole.
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y. Environmental Laws. The Company and its Subsidiaries (i) are
in compliance in all material respects with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses, except where the
failure to receive such permits, licenses or approvals would not, individually
or in the aggregate, have a Material Adverse Effect and (iii) are in compliance
in all material respects with all terms and conditions of any such permit,
license or approval, except where the failure to be in compliance or receive
such permits, licenses or approvals would not, individually or in the aggregate,
have a Material Adverse Effect.
z. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyer relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
aa. No Materially Adverse Contracts. Except as specifically
disclosed in the SEC Documents, or as set forth in Schedule 3(aa), neither the
Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the future
to have a Material Adverse Effect. Except as specifically disclosed in the SEC
Documents, or as set forth in Schedule 3(aa), neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
4. COVENANTS.
a. Best Efforts. Each party hereto shall use its best efforts to
satisfy timely each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to each Buyer at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to such Buyer on
or prior to the Closing Date. The Company shall make all filings and reports
relating to the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
c. Reporting Status. Until the earlier of (i) the date which is
one year after the date on which each Investor (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares acquired by such Investor without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto) and
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(ii) the date on which (A) each Investor shall have sold all the Conversion
Shares and the Warrant Shares acquired by such Investor and (B) none of the
Preferred Shares or Warrants is outstanding (the "REPORTING PERIOD"), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Investor during the Reporting Period: (i) unless filed and
available through the SEC's EDGAR system, within two (2) Business Days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments thereto filed
pursuant to the 1933 Act; (ii) on the same day as the release thereof, facsimile
copies of all press releases issued by the Company or any of its Subsidiaries
(or the day after, if released through a recognized wire service) and (iii)
copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than the sum of (A) 200% of the number of shares of Common
Stock needed to provide for the issuance of the Conversion Shares and (B) 100%
of the number of shares of Common Stock needed to provide for the issuance of
the Warrant Shares (without regard to any limitations on conversions or exercise
thereof).
g. Proxy Statement. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which
meeting shall occur on or before the earlier of (A) the date which is 75 days
after the Proxy Statement Triggering Date (as defined below) and (B) the date on
which the Company holds its next annual meeting of stockholders, which date
shall be no later than December 15, 2000 (the "STOCKHOLDER MEETING DEADLINE"), a
proxy statement, which has been previously reviewed by each Buyer and Legal
Counsel (as defined in the Registration Rights Agreement), soliciting each such
stockholder's affirmative vote at such stockholder meeting for approval of the
Company's issuance of all of the Securities as described in this Agreement (such
affirmative vote being referred to as the "STOCKHOLDER APPROVAL"), and the
Company shall use its best efforts to (i) solicit its stockholders' approval of
such issuance of the Securities and (ii) cause the Board of Directors of the
Company to recommend to the stockholders that they approve such proposal. If the
Company fails to hold a meeting of its stockholders by the Stockholder Meeting
Deadline, then, as partial relief (which remedy shall not be exclusive of any
other remedies available at law or in equity), the Company shall pay to each
holder of Preferred Shares an amount in cash per Preferred Share held by such
holder equal to the product of (i) $1,000; multiplied by (ii) 0.02; multiplied
by (iii) the quotient
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of (x) the number of days after the Stockholder Meeting Deadline that a meeting
of the Company's stockholders is not held, divided by (y) 30. The Company shall
make the payments referred to in the immediately preceding sentence within five
days of the earlier of (I) the holding of the meeting of the Company's
stockholders, the failure of which resulted in the requirement to make such
payments, and (II) the last day of each 30-day period beginning on the
Stockholder Meeting Deadline. In the event the Company fails to make such
payments in a timely manner, such payments shall bear interest at the rate of
2.0% per month (pro rated for partial months) until paid in full. "PROXY
STATEMENT TRIGGERING DATE" shall mean the first date after the date of this
Agreement on which during the five consecutive trading days ending on and
including such date of determination there are three trading days on which the
sum of (A) the number of shares of Common Stock previously issued upon
conversion of any Preferred Shares and (B) the number of shares of Common Stock
issuable upon conversion of all the outstanding Preferred Shares based on the
Conversion Price in effect on the date of such determination (without regard to
any limitation upon the conversion of any Preferred Shares), equals or exceeds
18% of the number of shares of Common Stock issued and outstanding immediately
prior to the Closing Date.
h. Listing. The Company shall promptly secure the listing of all
of the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system (including
the Nasdaq National Market), if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents and the Certificate of Designations. The Company shall use
its best efforts to maintain the Common Stock's authorization for listing on the
Nasdaq National Market or The New York Stock Exchange, Inc.("NYSE"). Neither the
Company nor any of its Subsidiaries shall take any action which may result in
the delisting or suspension of the Common Stock on the Nasdaq National Market or
NYSE (other than to switch listings from the Nasdaq National Market to NYSE).
The Company shall promptly, and in no event later than the following Business
Day, offer to provide to each Buyer copies of any notices it receives from the
Nasdaq National Market or NYSE regarding the continued eligibility of the Common
Stock for listing on such automated quotation system or securities exchange, but
only if such notices shall not contain any material nonpublic information. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(h).
i. Expenses. Subject to Section 9(l) below, at the Closing, the
Company shall pay an expense allowance of $50,000 to HFTP Investment L.L.C. (a
Buyer), which amount shall be withheld by such Buyer from its Purchase Price.
j. Transactions With Affiliates. So long as (i) at least 2,500
Preferred Shares are outstanding, (ii) or Warrants to purchase at least 151,975
shares of Common Stock are outstanding or (iii) any Buyer owns Conversion Shares
or Warrant Shares with a market value of at least $2,500,000, the Company shall
not, and shall cause each of its Subsidiaries not to, enter into, amend, modify
or supplement, or permit any Subsidiary to enter into, amend, modify or
supplement, any agreement, transaction, commitment or arrangement with any of
its or any Subsidiary's officers, directors, persons who were officers or
directors at any time during the
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previous two years, stockholders who beneficially own 5% or more of the Common
Stock, or Affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "RELATED Party"),
except for (a) customary employment arrangements, benefit programs and outside
director compensation arrangements on reasonable terms, (b) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company or (c) any agreement, transaction,
commitment or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party. For purposes hereof, any director who is also an officer of the
Company or any Subsidiary of the Company shall not be a disinterested director
with respect to any such agreement, transaction, commitment or arrangement.
"AFFILIATE" for purposes hereof means, with respect to any person or entity,
another person or entity that, directly or indirectly, (i) has a 5% or more
equity interest in that person or entity, (ii) has 5% or more common ownership
with that person or entity, (iii) controls that person or entity, or (iv) shares
common control with that person or entity. "CONTROL" or "controls" for purposes
hereof means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity.
k. Filing of Form 8-K. On or before the first (1st) Business Day
following the Closing Date, the Company shall file a Form 8-K with the SEC
describing the terms of the transaction contemplated by the Transaction
Documents and consummated at the Closing and including as exhibits to such Form
8-K this Agreement, the Certificate of Designations, the Registration Rights
Agreement and the Form of Warrant, in the form required by the 1934 Act.
l. Corporate Existence. So long as any Buyer beneficially owns
any Preferred Shares or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is listed for trading on the
Nasdaq National Market or NYSE.
m. Mandatory Conversion or Redemption. On or before the date
which is 183 days after the Closing Date, the Company (i) shall deliver to each
Buyer one or more Company's Conversion Election Notices or Notices of Redemption
at Company's Election (as each such term is defined in the Certificate of
Designations) for the conversion or redemption, respectively, of an aggregate of
at least 25% of the Preferred Shares purchased by such Buyer at the Closing,
subject to the satisfaction of the conditions set forth in Sections 7 and 6,
respectively, of the Certificate of Designations, (ii) shall comply with its
obligations under Sections 7 and 6 of the Certificate of Designations with
respect to the Company's Conversion Election Notices and Notices of Redemption
at Company's Election, respectively, referred to in the preceding clause (i),
and (iii) shall not have delivered any Company's Mandatory Conversion Period
Termination Notice (as defined in the Certificate of Designations) with respect
to a Company's Conversion Election Notice referred to in clause (i) above. On or
before the date which is 274 days after the Closing Date, the Company (A) shall
deliver to each Buyer one or more Company's Conversion Election Notices or
Notices of Redemption at Company's Election for the conversion or
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redemption, respectively, of an aggregate total, when cumulated with the number
of shares converted or redeemed pursuant to the first sentence of this Section
4(m) for such Buyer, of 50% of the Preferred Shares purchased by such Buyer at
the Closing, subject to the satisfaction of the conditions set forth in Sections
7 and 6, respectively, of the Certificate of Designations, (B) shall comply with
its obligations under Sections 7 and 6 of the Certificate of Designations with
respect to the Company's Conversion Election Notices and Notices of Redemption
at Company's Election, respectively, referred to in the preceding clause (A),
and (C) shall not have delivered any Company's Mandatory Conversion Period
Termination Notice with respect to a Company's Conversion Election Notice
referred to in clause (A) above. Notwithstanding the above, for every day that
the Company is unable to issue shares of Common Stock to a holder of Preferred
Shares as a result of the limitation contained in Section 5 of the Certificate
of Designations, the deadlines contained in the first two sentences of this
Section 4(m) shall be extended solely with respect to such holder by one (1)
day.
n. Material Information Disclosure. The Company will publicly
disclose the Material Information on or before January 20, 2000.
5. TRANSFER AGENT INSTRUCTIONS.
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The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of each Buyer or its respective nominee(s), for the Conversion Shares
and the Warrant Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Preferred Shares or exercise of the
Warrants (in the form attached hereto as Exhibit E, the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS") unless such issuance is prohibited by Section 5 or Section
15 of the Certificate of Designations. Prior to registration of the Conversion
Shares and the Warrant Shares under the 1933 Act, all such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and the
Warrant Shares, prior to registration of the Conversion Shares and the Warrant
Shares under the 1933 Act) will be given by the Company to its transfer agent
with respect to the Warrants Shares and Conversion Shares and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. If a Buyer provides the Company with an opinion of counsel, in
a form reasonably satisfactory to the Company, that registration of a resale by
such Buyer of any of such Securities is not required under the 1933 Act or such
Buyer provides the Company with reasonable assurance that the Securities can be
sold pursuant to Rule 144, the Company shall permit the transfer, and, in the
case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer and without any restrictive legends.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the affected Buyer by vitiating the intent and purpose
of the transactions contemplated hereby. Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Section 5
would be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Section 5, that the affected Buyer shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Preferred Shares and the related Warrants to each Buyer at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
(ii) Such Buyer shall have delivered to the Company the Purchase
Price (less, with respect to HFTP Investment L.L.C., the amounts
withheld pursuant to Section 4(i)) for the Preferred Shares and the
related Warrants being purchased by such Buyer at the
18
<PAGE> 19
Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer contained
herein shall be true and correct as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to the Closing
Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Preferred
Shares and the related Warrants at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for such Buyer's sole benefit and may be waived by
such Buyer at any time in its sole discretion by providing the Company and each
Buyer with prior written notice thereof:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
(ii) The Certificate of Designations shall have been filed with
the Secretary of State of the State of Delaware, and a copy thereof
certified by the Secretary of State of the State of Delaware shall have
been delivered to such Buyer.
(iii) The Common Stock shall be designated for quotation on the
Nasdaq National Market or listed on NYSE and shall not have been
suspended from trading on or delisted from such exchanges nor shall
delisting or suspension by such exchanges have been threatened either
(A) in writing by such exchanges or (B) by falling below the minimum
listing maintenance requirements of such exchanges. The Company shall
have complied with the listing requirements of the Nasdaq National
Market for the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise of the Preferred Shares and the related Warrants,
as the case may be.
(iv) The representations and warranties of the Company contained
herein shall be true and correct as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents and the Certificate of
Designations to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such
other matters as such Buyer may reasonably request, including, without
limitation, an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
19
<PAGE> 20
(v) Such Buyer shall have received the opinion of Wilson Sonsini
Goodrich & Rosati dated as of the Closing Date, in substantially the
form of Exhibit D, attached hereto.
(vi) The Company shall have executed and delivered to such Buyer
the Stock Certificates for the Preferred Shares and the related Warrants
being purchased by such Buyer at the Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b) above in a form reasonably
acceptable to such Buyer (the "RESOLUTIONS").
(viii) As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and exercise of the
Warrants, at least 9,101,388 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit E attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in such corporation's state of organization issued by the
Secretary of State of such state as of a date within ten days of the
Closing Date.
(xi) The Company shall have delivered to such Buyer a secretary's
certificate, dated as of the Closing Date, certifying as to (A) the
Resolutions, (B) the Certificate of Incorporation and (C) the By-laws,
each as in effect at the Closing Date.
(xii) The Company shall have delivered to such Buyer a certified
copy of its Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten days of the Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Closing
Date.
(xiv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by the Transaction
Documents as such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the
20
<PAGE> 21
Company's other obligations under the Transaction Documents and the Certificate
of Designations, the Company shall defend, protect, indemnify and hold harmless
each Buyer and each other holder of the Securities and all of their
stockholders, officers, directors, employees and direct or indirect investors
and any of the foregoing persons' agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "INDEMNITEES") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable and documented
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or Certificate of Designations or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or the Certificate of Designations or any other
certificate, instrument or document contemplated hereby or thereby or (c) any
cause of action, suit or claim brought or made against such Indemnitee (other
than a cause of action, suit or claim which is (x) brought or made by the
Company and (y) is not a shareholder derivative suit) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or the Certificate of Designations, (ii) any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Securities or (iii) solely the status of such
Buyer or holder of the Securities as an investor in the Company. To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws of
the State of Delaware shall govern all issues concerning the relative rights of
the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY
21
<PAGE> 22
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other parties; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between each Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein. This Agreement and the instruments referenced herein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and the
Buyers which purchased at least two-thirds (2/3) of the Preferred Shares on the
Closing Date, or their assigns or, if prior to the Closing Date, the Buyers
listed on the Schedule of Buyers as being obligated to purchase at least
two-thirds (2/3) of the Preferred Shares. No provision hereof may be waived
other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Preferred Shares or Warrants
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designations unless the same
consideration also is offered to all of the parties to the Transaction Documents
or holders of the Securities, as the case may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
22
<PAGE> 23
If to the Company:
Auspex Systems, Inc.
2300 Central Expressway
Santa Clara, California 95050-2515
Telephone: (408) 566-2000
Facsimile: (408) 566-2020
Attention: Chief Executive Officer
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
Attention: Henry P. Massey, Jr., Esq.
If to the Transfer Agent:
Boston EquiServe L.P.
150 Royall Street
Canton, MA 02021
Telephone: (781) 575-4190
Facsimile: (781) 575-2054
Attention: Michael Simeoni
If to a Buyer, to it at the address and facsimile number set forth on
the Schedule of Buyers, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or at such other address and/or facsimile number
and/or to the attention of such other person(s) as the recipient party has
specified by written notice given to each other party five days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communications, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares and the related
Warrants. The Company shall not assign this Agreement or any rights or
obligations hereunder, including by merger or consolidation, except pursuant to
a Change of Control (as defined in Section 4(b) of the Certificate of
Designations) with respect
23
<PAGE> 24
to which the Company is in compliance with its obligations under Sections 4(a)
and 4(b) of the Certificate of Designations, Section 9(b) of the Warrant and
Section 4(l) of this Agreement without the prior written consent of the Buyers
which purchased at least two-thirds (2/3) of the Preferred Shares on the Closing
Date, or their assigns. The rights under this Agreement are assignable by a
Buyer without the consent of the Company; provided, however, that any such
assignment shall not release such Buyer from its obligations hereunder unless
such obligations are assumed by such assignee and the Company has consented to
such assignment and assumption, which consent shall not be unreasonably
withheld. Notwithstanding anything to the contrary contained in the Transaction
Documents or the Certificate of Designations, Buyers shall be entitled to pledge
the Securities in connection with a bona fide margin account or other loan
secured by the Securities.
h. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and each Buyer contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive the
Closing. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions as
the Company reasonably believes, after consulting with its counsel, to be
required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before one (1) Business Day after the
date hereof due to the Company's or a Buyer's failure to satisfy the conditions
set forth in Sections 6 and 7 above (and the non-breaching party's failure to
waive such unsatisfied condition(s)), the non-breaching party shall have the
option to terminate this Agreement with respect to such breaching party at the
close of business on such date without liability of any party to any other
party; provided, however, that if this Agreement is terminated pursuant to this
Section 9(l), the Company shall remain obligated
24
<PAGE> 25
to reimburse a non-breaching Buyer for expenses up to the amount described in
Section 4(i) above.
m. Placement Agent. The Company acknowledges that it has not
engaged a placement agent in connection with the sale of the Preferred Shares
and the Warrants. The Company shall be responsible for the payment of any
placement agent's fees or brokers' commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents and the
Certificate of Designations and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to any Buyer hereunder or pursuant to the Registration
Rights Agreement, the Certificate of Designations or the Warrants or such Buyer
enforces or exercises its rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company or to a trustee, receiver or any other person under any
law (including, without limitation, any bankruptcy law, state or federal law,
common law or equitable cause of action), then, to the extent of any such
restoration, the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
* * * * * *
25
<PAGE> 26
IN WITNESS WHEREOF, each Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
AUSPEX SYSTEMS, INC. HFTP INVESTMENT L.L.C.
By: Promethean Asset Management, L.L.C.
Its: Investment Manager
By: /s/ Bruce N. Moore
------------------------------
Name: Bruce N. Moore
Title: President and Chief By:
Executive Officer James F. O'Brien, Jr.
Managing Member
FISHER CAPITAL LTD.
By:
------------------------------------
Kenneth A. Simpler
Its: Vice President
WINGATE CAPITAL LTD.
By:
------------------------------------
Kenneth A. Simpler
Its: Vice President
LEONARDO, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:
------------------------------------
Name:
-----------------------------------
Its:
-----------------------------------
<PAGE> 27
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER
OF NUMBER OF
INVESTOR ADDRESS PREFERRED WARRANT INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES SHARES AND FACSIMILE NUMBER
- ---------------------- --------------------------------------- --------- --------- -----------------------------------
<S> <C> <C> <C> <C>
HFTP Investment L.L.C. c/o Promethean Asset Management, L.L.C. 6,000 385,233 Promethean Investment Group, L.L.C.
750 Lexington Avenue, 22nd Floor 750 Lexington Avenue, 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
John M. Floegel John M. Floegel
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Residence: New York
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
Fisher Capital Ltd. c/o Citadel Investment Group, L.L.C. 6,820 437,881 Katten Muchin Zavis
225 West Washington Street 525 W. Monroe Street, Suite 1600
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Kenneth A.Simpler Attn: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Residence: Illinois
Wingate Capital Ltd. c/o Citadel Investment Group, L.L.C. 4,180 268,379 Katten Muchin Zavis
225 West Washington Street 525 W. Monroe Street, Suite 1600
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Kenneth A. Simpler Attn: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Residence: Illinois
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. 8,000 513,643 c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attn: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: Cayman Islands
</TABLE>
<PAGE> 28
SCHEDULES
Schedule of Buyers
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(f) - SEC Documents
Schedule 3(g) - Material Changes
Schedule 3(h) - Litigation
Schedule 3(n) - Intellectual Property
Schedule 3(r) - Transactions with Affiliates
Schedule 3(w) - Liens
Schedule 3(aa) - Certain Agreements
Schedule 4(d) - Use of Proceeds
EXHIBITS
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Company Counsel Opinion
Exhibit E - Form of Irrevocable Transfer Agent Instructions
<PAGE> 29
SCHEDULE 3(a)
SUBSIDIARIES
<TABLE>
<CAPTION>
Name Date of Incorporation Place of Incorporation
------------------------------------------------------------------------------------------
<S> <C> <C>
Auspex Systems, Inc. 05/18/93 Delaware, USA
Auspex International, Inc. 07/19/93 California, USA
Auspex Systems, Inc. 07/02/93 Quebec, Canada
Auspex Systems Limited 08/23/93 Reading, United Kingdom
Auspex Systems GmbH 09/24/93 Munich, Germany
Auspex Systems S.A. 12/23/93 Paris, France
Auspex Foreign Sales Corporation 08/23/92 Barbados
Alphatronix, Inc. 08/24/87 North Carolina, USA
07/02/98 Tokyo, Japan
Auspex Kabushiki Kaisha (K.K.)
</TABLE>
The Company is in the process of qualifying to do business in the States of
Arizona, Maryland, Minnesota, North Carolina and Oregon. Auspex Systems sells
and markets its products, network data file servers, along with software and
service contracts in the States of Arizona, Maryland, Minnesota, North Carolina
and Oregon. In each of these states we have established sales offices with full
time sales and support personnel. Auspex leases the offices from a third party
in each of these states.
The Company is currently not in good standing in the Commonwealth of
Massachusetts as the required annual report was not filed with the Massachusetts
Secretary of State for the fiscal years ended June 30, 1998 and 1999. The
Company is in the process of filing such annual reports.
<PAGE> 30
SCHEDULE 3(c)
CAPITALIZATION
(i) Preemptive Rights: None
(ii) Outstanding Debt Securities: None
(iii) Outstanding options, warrants or other rights to purchase securities or
contracts, commitments or arrangements to issue additional shares of
capital stock:
Stock Options Issued and Outstanding 4,171,879
Stock Options Available to Issue 1,450,642
ESPP Options Available to Issue 685,764
(iv) Agreements or arrangements to register Company securities: None
(v) Outstanding securities containing any redemption or similar provisions
or contract or arrangement to redeem a security: Stockholder Rights Plan
(vi) Securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the securities: None
(vii) Stock appreciation rights or "phantom stock" plans or arrangements: None
<PAGE> 31
SCHEDULE 3(e)
CONFLICTS
Pursuant to the terms of Section 7 of the Company's Loan and Security Agreement
with Foothill Capital Corporation, dated as of December 22, 1999, as modified by
that certain consent and waiver letter by Foothill Capital Corporation to the
Company, dated January 12, 1999, the Company has agreed not to pay dividends in
cash or to redeem any of its capital stock (a) at any time during which an Event
of Default (as defined in the Loan and Security Agreement) has occurred and is
continuing, or (b) if, after any redemption of Series B Convertible Preferred
Stock or payment of cash dividends to the holders thereof, the Company shall
have less than $15,000,000 of "Excess Availability" as defined in the Loan and
Security Agreement and generally described as the aggregate of unrestricted cash
and cash equivalents, plus unused availability under the credit facility (the
lesser of the Borrowing Base or $15,000,000, less the amount of outstanding
advances and letters of credit), minus the amount of the Company's accounts
payable that are more than 60 days past due.
<PAGE> 32
SCHEDULE 3(f)
SEC DOCUMENTS
<TABLE>
<CAPTION>
TYPE OF FILING DATE OF FILING
- -------------------------------------------------------------------------------
<S> <C>
Annual Report on Form 10-K 9/24/98
10/16/98
Schedule 14(a) and Definitive Proxy Statement
11/12/98
Quarterly Report on Form 10-Q
2/12/99
Quarterly Report on Form 10-Q
5/12/99
Quarterly Report on Form 10-Q
9/27/99
Annual Report on Form 10-K
10/08/99
Schedule 14(a) and Definitive Proxy Statement
Quarterly Report on Form 10-Q 11/12/99
</TABLE>
<PAGE> 33
SCHEDULE 3(g)
MATERIAL CHANGES
None
<PAGE> 34
SCHEDULE 3(h)
PENDING OR THREATENED LITIGATION, ETC.
1. Pending or threatened litigation:
The Company is not aware of any pending or threatened material litigation. The
NASD has initiated an inquiry regarding trading activity preceding the Company's
October 15, 1999 announcement of lower than expected earnings for the quarter
ended September 30, 1999. The Company is responding to requests for information
regarding the events leading up to the announcement.
2. Certain securities litigation:
Stephen Cheyhel, a director of the Company, is one of several defendants named
in various shareholder lawsuits against Bay Networks, Inc. Mr. Cheyhel was the
Senior VP of Operations at Bay Networks.
Frank King, a director of the Company, is one of several defendants named in
various shareholder lawsuits against SystemsSoft, Inc. Mr. King was an officer
and director of SystemSoft, Inc.
<PAGE> 35
SCHEDULE 3(n)
INTELLECTUAL PROPERTY
1. Expired and expiring intellectual property rights:
Patent number 5053945, System and Method for Performing a Multi-File
Transfer Operation, will not expire within two years of this agreement
but the Company will allow it to lapse through nonpayment of annuity
fees as it has no perceived ongoing technological benefit.
2. Intellectual property claims:
None
<PAGE> 36
SCHEDULE 3(r)
TRANSACTIONS WITH AFFILIATES AND EMPLOYEES
None
<PAGE> 37
SCHEDULE 3(w)
LIENS
The Company has entered into a $15,000,000 revolving line of credit
agreement with Foothill Capital Corporation dated December 22, 1999. The line of
credit is secured by the assets of the Company and reflected on the attached
Uniform Commercial Code Search Financing Statement by Comerica Bank-California
(which has been terminated in favor of Foothill Capital Corporation). In
addition, the Company has several equipment operating leases with parties set
forth on the attached Uniform Commercial Code Search.
<PAGE> 38
THE STATE OF CALIFORNIA
BILL JONES
SECRETARY OF STATE
SACRAMENTO
CERTIFICATE REQUESTED ON: DECEMBER 01, 1999
AUSPEX SYSTEMS INC
@ANY ADDRESS
FINANCING STATEMENT FILED ON MAY 25, 1990 AT 0800 FILE NO. 90-136373
DEBTOR: AUSPEX SYSTEMS INC
###-##-####
2952 BUNKER HILL LANE
SANTA CLARA, CA
SECURED PARTY: ELLCO LEASING CORP
10251 VISTA SORRENTO PKWY
SAN DIEGO, CA'
CONTINUATION: FEB 02, 1995 AT 1252
FINANCING STATEMENT FILED ON JUL 26, 1996 AT 1610 FILE NO. 9621160396
DEBTOR: AUSPEX SYSTEMS INC.
###-##-####
5200 GREAT AMERICA PKWY
SANTA CLARA, CA 95054
SECURED PARTY: AT&T CAPITAL SERVICES CORP.
1830 W AIRFIELD OR
DALLAS FORT WORTH AIRPORT, TX 75261
FINANCING STATEMENT FILED ON SEP o4, 1996 AT 1519 FILE NO, 9624960418
DEBTOR: AUSPEX SYSTEMS, INC.
5200 GREAT AMERICA PARKWAY SANTA
CLARA, CA 95054
CERTIFICATE: 99340-R-0313 PAGE: 1
<PAGE> 39
THE STATE OF CALIFORNIA
BILL JONES
SECRETARY OF STATE
SACRAMENTO
(CONTINUED) SEP 04, 1996 AT 1519 FILE NO. 9624960418
SECURED PARTY: AT&T CAPITAL CORPORATION
1830 W AIRFIELD DR
DALLAS FORT WORTH AIRPORT, TX 75261
FINANCING STATEMENT FILED ON OCT 04, 1996 AT 0800 FILE NO. 9628260385
DEBTOR: AUSPEX SYSTEMS, INC.
5200 GREAT AMERICA PKWY.
SANTA CLARA, CA 95054
SECURED PARTY: HEWLETT-PACKARD COMPANY FINANCE &
REMARKETING DIVISION
333 LOGUE AVE., BLDG. 32
MOUNTAIN VIEW, CA 94043
FINANCING STATEMENT FILED ON DEC 14, 1998 AT 0800 FILE NO. 9835160752
DEBTOR: AUSPEX SYSTEMS, INC.
2300 CENTRAL EXPRESSWAY
SANTA CLARA, CA 95050
SECURED PARTY: LYON CREDIT CORPORATION
400 PERIMETER CENTER TERRACE, #155
ATLANTA, GA 30346
LYON CREDIT CORPORATION
400 PERIMETER CENTER TERRACE #155
ATLANTA, GA 30346
LYON CREDIT CORPORATION
400 PERIMETER CENTER TERRACE #155
ATLANTA, GA 30346
MERRIMAK CAPITAL COMPANY LLC
60 GALLI OR SUITE T
NOVATO, CA 94949
<PAGE> 40
CERTIFICATE: 99340-R-0313 PAGE: 2
<PAGE> 41
THE STATE OF CALIFORNIA
BILL JONES
SECRETARY OF STATE
SACRAMENTO
(CONTINUED) DEC 14, 1998 AT o8oo FILE NO. 9835160752
NEWCOURT FINANCIAL
USA INC. 111 ANZA BLVD #200
BURLINGAME, CA 94010
NEWCOURT FINANCIAL USA, INC.
III MONUMENT CR #2700
INDIANAPOLIS, IN 46204
US BANCORP LEASING & FINANCIAL
7659 SW MOHAWK
TUALATIN, OR 97o62
US BANCORP LEASING & FINANCIAL
7659 SW MOHAWK
TUALATIN, OR 97o62
ASSIGNMENT: JAN 26, 1999 AT 1606
ASSIGNMENT: FEB 19, 1999 AT 0800
ASSIGNMENT: MAR 18, 1999 AT 0800
ASSIGNMENT: MAR 18, 1999 AT 0800
ASSIGNMENT: JUN 09, 1999 AT 0800
ASSIGNMENT: JUN 09, 1999 AT 0800
ASSIGNMENT: JUL 16, 1999 AT 0800
RELEASE: AUG 04, 1999 AT 0800
FINANCING STATEMENT FILED ON FEB 01, 1999 AT 0800 FILE NO. 9904060630
DEBTOR: AUSPEX SYSTEMS, INC.
###-##-####
2300 CENTRAL EXPRESSWAY
SANTA CLARA, CA 95050
CERTIFICATE: 99340-R-0313 PAGE: 3
<PAGE> 42
THE STATE OF CALIFORNIA
BILL JONES
SECRETARY OF STATE
SACRAMENTO
(CONTINUED) FEB 01, 1999 AT 0800 FILE NO. 9904060630
SECURED PARTY: SUN MICROSYSTEMS FINANCE
1401 PEARL ST SUITE 200
BOULDER, CO 80302
FINANCING STATEMENT FILED ON MAR 01, 1999 AT 1534 FILE NO. 9906360832
DEBTOR: AUSPEX SYSTEMS, INC.
###-##-####
2800 SCOTT BLVD.
SANTA CLARA, CA 95050
SECURED PARTY: SUN MICROSYSTEMS FINANCE
5500 WAYZATA BLVD., SUITE 725
GOLDEN VALLEY, MN 55416
FINANCING STATEMENT FILED ON APR 01, 1999 AT 0800 FILE NO. 99098609l2
DEBTOR: AUSPEX SYSTEMS, INC.
###-##-####
2300 CENTRAL EXPRESSWAY
SANTA CLARA, CA 95050
SECURED PARTY: TRANSAMERICA EQUIPMENT FINANCIAL SERVICES
CORPORATION
10975 BENSON DR
OVERLAND, KS 66210
FINANCING STATEMENT FILED ON APR 13, 1999 AT 0800 FILE NO. 9911160972
DEBTOR: AUSPEX SYSTEMS, INC.
2300 CENTRAL EXPRESSWAY
SANTA CLARA, CA 95050
CERTIFICATE: 99340-R-0313 PAGE: 4
<PAGE> 43
THE STATE OF CALIFORNIA
BILL JONES
SECRETARY OF STATE
SACRAMENTO
(CONTINUED) APR 13, 1999 AT 0800 FILE NO. 9911160972
SECURED PARTY: COMERICA BANK-CALIFORNIA 55
ALMADEN BLVD M C 4043 SAN JOSE,
CA 95113
FINANCING STATEMENT FILED ON MAY 04, 1999 AT 1151 FILE NO. 9912660721
DEBTOR: AUSPEX SYSTEMS, INC.
###-##-####
2300 CENTRAL EXPRESSWAY
SANTA CLARA, CA 95050
SECURED PARTY: THIRD STREET SERVICES, INC.
1646 N CALIFORNIA BLVD SUITE 510
WALNUT CREEK, CA 94596
ASSIGNEE: THE CIT GROUP/EQUIPMENT FINANCING, INC.
900 ASHWOOD PKWY 6TH FL
ATLANTA, GA 30338
FINANCING STATEMENT FILED ON MAY 17, 1999 AT 1644 FILE NO. 9913860721
DEBTOR: AUSPEX SYSTEMS, INC.
###-##-####
2300 CENTRAL EXPRESSWAY
SANTA CLARA, CA 95050
SECURED PARTY: THIRD STREET SERVICES, INC.
1646 IN CALIFORNIA BLVD SUITE 510
WALNUT CREEK, CA 94596
ASSIGNEE: CAPITAL ASSOCIATES INTERNATIONAL, INC.
7175 W JEFFERSON AVE SUITE 4000
LAKEWOOD, CO 80235
CERTIFICATE: 99340-R-0313 PAGE: 5
<PAGE> 44
THE STATE OF CALIFORNIA
BILL JONES
SECRETARY OF STATE
SACRAMENTO
FINANCING STATEMENT FILED ON AUG 02, 1999 AT 0800 FILE NO. 9922660856
DEBTOR: AUSPEX SYSTEMS, INC.
###-##-####
2300 CENTRAL EXPRESSWAY
SANTA CLARA, CA 95050
SECURED PARTY: TRANSAMERICA EQUIPMENT FINANCIAL SERVICES
CORPORATION
10975 BENSON OR
OVERLAND PARK, Ks 66210
FINANCING STATEMENT FILED ON AUG 02, 1999 AT 0800 FILE NO. 9922660875
DEBTOR: AUSPEX SYSTEMS, INC.
###-##-####
2300 CENTRAL EXPRESSWAY
SANTA CLARA, CA 95050
SECURED PARTY: TRANSAMERICA EQUIPMENT FINANCIAL SERVICES
CORPORATION
10975 BENSON DR
OVERLAND PARK, Ks 66210
THE UNDERSIGNED FILING OFFICER HEREBY CERTIFIES THAT THE ABOVE LISTING IS A
RECORD OF ALL PRESENTLY EFFECTIVE FINANCING STATEMENTS, TAX LIENS, ATTACHMENT
LIENS AND JUDGMENT LIENS, INCLUDING ANY CHANGE DOCUMENTS RELATING TO THEM,
WHICH NAME THE ABOVE DEBTOR AND ARE ON FILE IN MY OFFICE AS OF NOVEMBER 19,
1999 AT 1700 HOURS.
BILL JONES
SECRETARY OF STATE
CERTIFICATE: 99340-R-0313 PAGE: 6
<PAGE> 45
SCHEDULE 3(a)(a)
MATERIALLY ADVERSE CONTRACTS
None
<PAGE> 46
SCHEDULE 4(d)
USE OF PROCEEDS
The Company will use the net proceeds of this transaction for working capital
and general corporate purposes. Pending such uses, the net proceeds to the
Company will be invested in investment-grade, interest-bearing securities.
