Document:

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                                                              Exhibit 10.30

                          SECURITIES PURCHASE AGREEMENT

        SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 25,
2001, by and among GADZOOX NETWORKS, INC., a corporation organized under the
laws of the State of Delaware (the "COMPANY"), and the purchasers (the
"PURCHASERS") set forth on the execution pages hereof (the "EXECUTION PAGES").

        WHEREAS:

        A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions 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 "SECURITIES ACT").

        B. Each Purchaser desires to purchase, severally and not jointly,
subject to the terms and conditions stated in this Agreement, an aggregate of
5,600,000 shares of the Company's common stock, $.005 par value per share, at a
purchase price of $2.65 per share (the "COMMON STOCK").

        C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit A (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.

        NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:

1. CERTAIN DEFINITIONS.

        For purposes of this Agreement, the following terms shall have the
meanings ascribed to them as provided below:

        "BUSINESS DAY" shall mean any day on which the principal United States
securities exchange or trading market on which the Common Stock is listed or
traded is open for trading.

        "INVESTMENT AMOUNT" shall mean the dollar amount to be invested in the
Company at the Closing pursuant to this Agreement by a Purchaser, as set forth
on the Execution Page hereto executed by such Purchaser.

        "MATERIAL ADVERSE EFFECT" shall mean any material adverse effect on (i)
the ability of the Company to perform its obligations hereunder (including the
issuance of the Shares) or under the Registration Rights Agreement or (ii) the
business, operations, properties, prospects or financial condition of the
Company.

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        "PRO RATA PERCENTAGE" shall mean, with respect to any Purchaser, a
percentage computed by dividing such Purchaser's Investment Amount by the
aggregate Investment Amounts of all Purchasers.

        "SHARES" means the shares of Common Stock to be issued and sold by the
Company and purchased by the Purchasers at the Closing.

        "TRADING DAY" shall mean a Business Day on which at least 5,000 shares
of the Company's Common Stock are traded on the principal United States
securities exchange or trading market on which such security is listed or
traded.

2. PURCHASE AND SALE OF SHARES.

        a. Generally. Except as otherwise provided in this Section 2 and subject
to the satisfaction (or waiver) of the conditions set forth in Section 6 and
Section 7 below, each Purchaser shall purchase the number of Shares determined
as provided in this Section 2, and the Company shall issue and sell such number
of Shares to each Purchaser for such Purchaser's Investment Amount as provided
below.

        b. Number of Closing Shares; Form of Payment; Closing Date.

               i. On the Closing Date (as defined below), the Company shall sell
and each Purchaser shall buy the number of Shares as is equal to the quotient of
(I) such Purchaser's Investment Amount divided by (II) $2.65, as shown on the
Schedule of Purchasers attached hereto as Exhibit C. On the Closing Date, each
Purchaser shall pay the Company an amount equal to such Purchaser's Investment
Amount.

               ii. On the Closing Date, each Purchaser shall pay its Investment
Amount by wire transfer of immediately available funds to the Escrow Holder (as
defined in the Escrow Agreement dated May 25, 2001 by and among the Company, the
Purchasers, Shoreline Pacific (as defined below) and the Escrow Holder (as
defined therein) (the "Escrow Agreement")), against delivery of certificates
representing the Shares, and the Company shall deliver such Shares to the Escrow
Holder against delivery of the such Purchaser's Investment Amount.

               iii. Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 6 and Section 7 below, the date and time of the
sale of the Shares pursuant to this Agreement (the "CLOSING") shall be 1:00 p.m.
California time on May 25, 2001, or such other date or time as Shoreline Pacific
Institutional Finance, the Institutional Division of Financial West Group
("SHORELINE PACIFIC"), the Purchasers and the Company may mutually agree
("CLOSING DATE").

3. THE PURCHASER'S REPRESENTATIONS AND WARRANTIES.

        Each Purchaser severally and not jointly represents and warrants to the
Company as follows:

        a. Purchase for Own Account. The Purchaser is purchasing the Shares for
the Purchaser's own account and not with a present view towards the distribution
thereof. The

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Purchaser understands that the Purchaser must bear the economic risk of this
investment indefinitely, unless the Shares are registered pursuant to the
Securities Act and any applicable state securities or blue sky laws or an
exemption from such registration is available, and that the Company has no
present intention of registering the Shares other than as contemplated by the
Registration Rights Agreement. Notwithstanding anything in this Section 3(a) to
the contrary, by making the foregoing representation, the Purchaser does not
agree to hold the Shares for any minimum or other specific term and reserves the
right to dispose of the Shares at any time in accordance with or pursuant to a
registration statement or an exemption from registration under the Securities
Act and any applicable state securities laws. The Purchaser further represents
that it does not have any contract, undertaking, agreement or arrangement with
any person or entity to sell, transfer or grant participation to any third
person or entity with respect to any of the Shares.

        b Information. The Purchaser has been furnished all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Shares which have been requested by the Purchaser.
The Purchaser has been afforded the opportunity to ask questions of the Company
and has received what the Purchaser believes to be satisfactory answers to any
such inquiries. The Purchaser understands that its investment in the Shares
involves a high degree of risk. Neither such inquiries nor any other due
diligence investigation conducted by the Purchaser or its counsel or any of its
representatives shall modify, amend or affect the Purchaser's right to rely on
the Company's representations and warranties contained in Section 4 below.

        c. Experience. The Purchaser is experienced in evaluating companies such
as the Company, is able to fend for itself in transactions such as the one
contemplated by this Agreement, has such knowledge and experience in financial
and business matters that such Purchaser is capable of evaluating the merits and
risks of such Purchaser's prospective investment in the Company, and has the
ability to bear the economic risks of the investment.

        d. Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Shares.

        e. Organization and Existence. To the extent indicated on the signature
pages hereto, each Purchaser is either (i) a limited partnership duly organized
and validly existing under the laws of its respective state of formation, (ii) a
limited liability company duly organized and validly existing under the laws of
its respective state of formation, (iii) a corporation duly organized and
validly existing under the laws of its respective state of incorporation or (iv)
an individual. Such Purchaser represents that it was not organized solely for
the purpose of making an investment in the Company.

        f.. Authorization; Enforcement. The Purchaser has the requisite power
and authority to enter into and perform its obligations under this Agreement and
to purchase the Shares in accordance with the terms hereof. This Agreement, the
Registration Rights Agreement and the Escrow Agreement have been duly and
validly authorized, executed and delivered on behalf of the Purchaser and are
each a valid and binding agreement of the Purchaser enforceable against the
Purchaser in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization,

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moratorium, fraudulent transfer and other laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).

        g. Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Shares have not been and are
not being registered under the Securities Act or any state securities laws, and
may not be transferred unless (a) subsequently registered thereunder, or (b) the
Purchaser shall have delivered to the Company an opinion of counsel reasonably
acceptable to the Company (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Shares to be sold or transferred may be sold or transferred under an
exemption from such registration, or (c) sold under Rule 144 promulgated under
the Securities Act (or a successor rule), or (d) sold or transferred to an
affiliate of the Purchaser pursuant to an exemption under the Securities Act;
and (ii) neither the Company nor any other person is under any obligation to
register the Shares under the Securities Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder, in each case,
other than pursuant to the Registration Rights Agreement.

        h. Legends. The Purchaser understands that until such time as the Shares
have been registered under the Securities Act as contemplated by the
Registration Rights Agreement or otherwise may be sold by the Purchaser under
Rule 144, the certificates for the Shares may bear a restrictive legend in
substantially the following form:

             THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
             REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
             (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
             TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
             REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL
             IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
             THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE
             OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

        The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any security upon which it is
stamped, if (a) the sale of such security is registered under the Securities Act
or (b) in connection with the resale of such security, such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such security may be made without registration under the
Securities Act. The Purchaser agrees to sell the Shares, including those
represented by a certificate(s) from which the legend has been removed, pursuant
to an effective registration statement or under an exemption from the
registration requirements of the Securities Act. The legend shall be removed
when such security is sold pursuant to an effective registration statement or
may be sold by a Purchaser who is not an "affiliate" of the Company under Rule
144(k).

        i. Compliance with Securities Laws. Each Purchaser will observe and
comply with the Securities Act and the General Rules and Regulations thereunder,
as now in effect and as from time

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to time amended and including those hereafter enacted or promulgated, in
connection with any offer, sale, exchange, transfer, pledge or other disposition
of the Shares or any part thereof.

        j. Accredited Investor Status. The Purchaser is an "ACCREDITED INVESTOR"
as that term is defined in Rule 501(a) of Regulation D. The Purchaser is not
registered as a broker or dealer under Section 15(a) of the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), affiliated with any broker or
dealer registered under Section 15(a) of the Exchange Act or a member of the
NASD (as defined below).

        k. Representation. The Purchaser has had an opportunity to consult with
an attorney in connection with the Purchaser's investment in the Company.

4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

        The Company represents and warrants to each Purchaser as follows, except
as otherwise set forth in the disclosure schedules attached hereto as the
"Company Disclosure Schedules":

        a. Organization and Qualification. The Company is a corporation duly
organized and existing under the laws of the jurisdiction in which it is
incorporated, and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. Schedule 4(a) sets forth the Company's jurisdiction of incorporation.
The Company has no significant subsidiary as such term is defined in Rule 405
under the Securities Act.

        b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement and the Escrow Agreement, to
issue and sell the Shares in accordance with the terms hereof; (ii) the
execution, delivery and performance of this Agreement, the Registration Rights
Agreement and the Escrow Agreement by the Company and the consummation by it of
the transactions contemplated hereby and thereby (including, without limitation,
the reservation for issuance and issuance of the Shares) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors or its shareholders is
required; (iii) this Agreement, has been duly executed and delivered by the
Company; and (iv) this Agreement, the Registration Rights Agreement and the
Escrow Agreement constitute, and, upon execution and delivery by the Company and
the other parties thereto, to the extent required, such agreements will
constitute, valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other laws affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).

        c. Capitalization. The capitalization of the Company as of the date
hereof is set forth on Schedule 4(c), including the authorized capital stock,
the number of shares issued and outstanding, the number of shares issuable and
reserved for issuance pursuant to the Company's

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stock option plans, the number of shares issuable and reserved for issuance
pursuant to securities exercisable for, or convertible into or exchangeable for
any shares of capital stock. All of such outstanding shares of the Company's
capital stock have been, or upon issuance will be, validly issued, fully paid
and nonassessable. Except as set forth on Schedule 4(c), no shares of capital
stock of the Company (including the Shares) are subject to preemptive rights or
any other similar rights of the shareholders of the Company or any liens or
encumbrances. Except as disclosed in Schedule 4(c), as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever to which the
Company is a party relating to the issuance by the Company of securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company, and
(ii) there are no agreements or arrangements under which the Company is
obligated to register the sale of any of its or their securities under the
Securities Act (except the Registration Rights Agreement). The Company has made
available to each Purchaser through its filings with the SEC true and correct
copies of the Company's Amended and Restated Certificate of Incorporation as in
effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's
By-laws as in effect on the date hereof (the "BY-LAWS") and all other
instruments and agreements governing securities convertible into or exercisable
or exchangeable for capital stock of the Company, except for stock options
granted under any employee benefit plan or director stock option plan of the
Company.

        d. Issuance of Shares. The Shares are duly authorized and when issued
and paid for in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
(other than those imposed through acts or omissions of the Purchaser thereof),
and will not be subject to preemptive rights or other similar rights of
shareholders of the Company and will not impose personal liability upon the
holder thereof.

        e. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Escrow Agreement by the
Company, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the reservation for issuance
and issuance of the Shares) will not (i) conflict with or result in a violation
of the Certificate of Incorporation or By-laws or (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 is a party, or result in a violation of any law,
rule, regulation, order, judgment or decree (including (assuming the accuracy of
the representations and warranties of the Purchasers) the United States federal
and state securities laws and regulations) applicable to the Company or by which
any property or asset of the Company is bound or affected (except, with respect
to clause (ii), for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). The Company is not in violation of
its Certificate of Incorporation, By-laws and other organizational documents and
the Company is not in default (and no event has occurred which, with notice or
lapse of time or both, would put the Company in default) under, nor has there
occurred any event giving others (with notice or lapse of time or both) any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, except for
actual or possible violations, defaults or rights as would not, individually or
in the aggregate, have a Material Adverse Effect. The businesses of the

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Company are not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for actual or possible violations, if any,
the sanctions for which either singly or in the aggregate would not have a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the Securities Act and any applicable state securities
laws, the Company is not required to obtain any consent, approval, 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 this Agreement (including
without limitation the issuance and sale of the Shares) or the Registration
Rights Agreement or the Escrow Agreement, in each case in accordance with the
terms hereof or thereof. The Company is not in violation of the listing
requirements of the Nasdaq National Market and, assuming completion of the
transactions contemplated by this Agreement, does not reasonably anticipate that
the Common Stock will be delisted by the Nasdaq National Market in the
foreseeable future based on its rules (and interpretations thereof) as currently
in effect.

        f. SEC Documents; Financial Statements. Since March 31, 2000, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the Exchange Act,
and has filed all registration statements and other documents required to be
filed by it with the SEC pursuant to the Securities 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 herein as the "SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act or the Securities Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and 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. Any statements made in any such SEC Documents that are or
were required to be updated or amended under applicable law have been so updated
or amended. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC applicable with respect thereto. Such financial statements have been
prepared in accordance with United States 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 not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company as
of the dates thereof and the results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal and
recurring year-end audit adjustments). Except as set forth in the SEC Documents,
the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such SEC Documents and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in such SEC Documents, which
liabilities and obligations referred to in clauses (i) and (ii), individually or
in the aggregate, would not have a Material Adverse Effect.

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        g. Absence of Certain Changes. Except as disclosed in the SEC Documents,
since March 31, 2000, there has been no change or development which individually
or in the aggregate has had or could have a Material Adverse Effect.

        h. Absence of Litigation. Except as disclosed in the SEC Documents,
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, threatened against or affecting the
Company or any of its directors or officers in their capacities as such which
would have a Material Adverse Effect.

        i. Intellectual Property. The Company owns or is licensed to use all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, permits, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "INTANGIBLES") necessary for the conduct of
its business as now being conducted and as proposed to be conducted, except
where the failure to own or be licensed to use such Intangibles does not have a
Material Adverse Effect. The Company has not received written notice that it is
infringing upon or in conflict with any third party Intangibles. The Company has
not entered into any consent, indemnification, forbearance to sue or settlement
agreements with respect to the validity of the Company's ownership or right to
use its Intangibles. The Intangibles are valid and enforceable in all material
respects, and no material registration relating thereto has lapsed, expired or
been abandoned or canceled or is the subject of cancellation or other
adversarial proceedings, and all material applications therefor are pending and
in good standing. The Company has complied in all material respects with its
contractual obligations relating to the protection of the Intangibles used
pursuant to licenses. To the Company's knowledge, no person is infringing on or
violating the Intangibles owned or used by the Company, which infringement or
violation, individually or in the aggregate, would have a Material Adverse
Effect.

        j. Environment. Except as disclosed in the SEC Documents and to the best
of the Company's knowledge (i) there is no environmental liability, nor factors
likely to give rise to any environmental liability, affecting any of the
properties of the Company that, individually or in the aggregate, would have a
Material Adverse Effect and (ii) the Company has not violated any environmental
law applicable to it now or previously in effect, other than such violations or
infringements that, individually or in the aggregate, have not had and will not
have a Material Adverse Effect.

        k. Title. Except as disclosed in the SEC documents, the Company has good
title to all personal property owned by it which is material to its business,
free and clear of all liens, encumbrances and defects except for such defects in
title that, individually or in the aggregate, could not have a Material Adverse
Effect. Any real property and facilities held under lease by the Company are
held by the Company under valid, subsisting and enforceable leases with such
exceptions which have not had and will not have a Material Adverse Effect.

        l. Insurance. The Company maintains such insurance relating to its
business, operations, assets, key-employees and officers and directors as is
appropriate to its business, assets and operations, in such amounts and against
such risks as are customarily carried and insured against

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by owners of comparable businesses, assets and operations, and such insurance
coverages will be continued in full force and effect to and including the
Closing Date other than those insurance coverages in respect of which the
failure to continue in full force and effect could not reasonably be expected to
have a Material Adverse Effect.

        m. Acknowledgment Regarding the Purchasers' Purchase of the Shares. The
Company acknowledges and agrees that no Purchaser is acting as a financial
advisor or is acting as a fiduciary of the Company (or in any similar capacity)
with respect to this Agreement or the transactions contemplated hereby, and the
relationship between the Company and the Purchasers is "arms length" and that
any statement made by any Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to such Purchaser's purchase
of the Shares and, except for the representations, warranties and covenants of
Purchaser expressly contained in this Agreement, has not been relied upon by the
Company, its officers or directors in any way. The Company further represents to
the Purchaser that the Company's decision to enter into this Agreement has been
based solely on an independent evaluation by the Company and its
representatives.

        n. No Brokers. The Company has not engaged any person to which or to
whom brokerage commissions, finder's fees, financial advisory fees or similar
payments are or will become due in connection with this Agreement or the
transactions contemplated hereby except for Shoreline Pacific, whose commissions
and fees will be paid by the Company.

        o. Tax Status. The Company has made or filed all material federal, state
and local income and all other tax returns, tax reports and tax declarations
required by any jurisdiction to which it is subject (unless and only to the
extent that the Company has set aside on its books provisions 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 and payable on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provisions adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
material unpaid taxes claimed to be due by the taxing authority of any
jurisdiction. The Company has not executed a waiver with respect to any statute
of limitations relating to the assessment or collection of any federal, state or
local tax.

        p. No General Solicitation. Neither the Company nor any person
participating on the Company's behalf in the transactions contemplated hereby
has conducted any "general solicitation" or "general advertising" as such terms
are used in Regulation D, with respect to any of the Shares being offered
hereby.

        q. Securities Laws. 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 the Shares being offered
hereby under the Securities Act or cause this offering of Shares to be
integrated with any prior offering of securities of the Company for purposes of
the Securities Act or any applicable stockholder approval provisions, including,
without limitation, Rule 4310(25)(h) of the National Association of Securities
Dealers ("NASD") or any similar rule.

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        r. Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. To the Company's knowledge, there exist no facts or
circumstances (including without limitation any required approvals or waivers of
any circumstances that may delay or prevent the obtaining of accountant's
consents) that would prohibit the timely preparation and filing of a
registration statement on Form S-3 with respect to the Registrable Securities
(as defined in the Registration Rights Agreement).

        s. Disclosure. The information relating to or concerning the Company set
forth in this Agreement or provided to the Purchaser pursuant to Section 3(b)
hereof and otherwise in connection with the transactions contemplated hereby
does not contain an untrue statement of material fact nor omit to state a
material fact necessary in order to make the statements made herein or therein,
in light of the circumstances under which they were made, not misleading. Except
as otherwise indicated in writing with a particular purchaser, the Company has
not disclosed or provided, and without such Purchaser's consent thereto, will
not hereafter disclose or provide to any Purchaser, any information that (i) if
disclosed, would, or could reasonably be expected to have, a material effect on
the price of the Common Stock or (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been disclosed.

5. COVENANTS.

        a. Satisfaction of Conditions. The parties shall use their commercially
reasonable efforts to satisfy in a timely manner each of the conditions set
forth in Section 6 and Section 7 of this Agreement.

        b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Shares as required under Regulation D. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Shares for sale to the Purchasers pursuant
to this Agreement under applicable securities or "blue sky" laws of the states
of the United States or obtain exemption therefrom.

        c. Reporting Status. So long as a Purchaser beneficially owns any Shares
or has the right to acquire any Shares pursuant to this Agreement, the Company
shall timely file all reports required to be filed with the SEC pursuant to the
Exchange Act, and shall not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination.

        d. Expenses. At the Closing, the Company shall reimburse Shoreline
Pacific for the out-of-pocket expenses reasonably incurred by Shoreline Pacific
and its affiliates and advisors in connection with the negotiation, preparation,
execution and delivery of this Agreement, the Registration Rights Agreement and
the other agreements to be executed in connection herewith, including, without
limitation, in conducting Shoreline Pacific's and its affiliates' and advisors'
reasonable due diligence and Shoreline Pacific's and its affiliates' reasonable
attorneys' fees and expenses (the "EXPENSES"). Notwithstanding the foregoing,
the Company shall not be obligated to reimburse Shoreline Pacific for more than
$25,000.00 of Expenses pursuant to this Section 5(d).

                                       10
<PAGE>   11

        e. Financial Information. For a period of two (2) years following the
Closing, the Company agrees to send to each Purchaser within ten days after the
filing with the SEC, to the extent not available through the SEC's EDGAR system,
a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q,
its proxy and information statements and any Current Reports on Form 8-K.

        f. Reservation of Shares. The Company has and shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the issuance of the Shares as provided in
Section 2 hereof. The Company shall not reduce the number of shares of Common
Stock reserved for issuance under this Agreement (except as a result of the
issuance of the Shares hereunder)or the Registration Rights Agreement (except as
a result of the termination), without the consent of the Purchasers.

        g. Listing. On the Closing Date, the Company shall have applied for the
listing of the Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed or
quoted and shall maintain, so long as any other shares of Common Stock shall be
so listed, such listing of all Shares from time to time issuable hereunder. The
Company shall use its commercially reasonable efforts to continue the listing
and trading of its Common Stock on The Nasdaq Stock Market and to comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of NASDAQ or any exchanges, as applicable.

        h. No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Shares) under circumstances that would
require registration of the Shares being offered or sold hereunder under the
Securities Act or cause this offering of Shares to be integrated with any other
offering of securities by the Company for purposes of any state securities or
blue sky law.

6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

        The obligation of the Company hereunder to issue and sell Shares to a
Purchaser at the Closing hereunder is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions thereto; provided,
however, that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.

        a. The applicable Purchaser shall have executed the signature page to
this Agreement, the Registration Rights Agreement and the Escrow Agreement, and
delivered the same to the Company and Shoreline Pacific.

        b. The applicable Purchaser shall have delivered such Purchaser's
Investment Amount in accordance with Section 2(b) above.

        c. The representations and warranties of the applicable Purchaser 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, which representations and warranties shall be true and
correct as of such date), and the applicable Purchaser shall have performed,
satisfied

                                       11
<PAGE>   12

and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Purchaser at or prior to the Closing Date.

        d. No statute, rule, regulation, executive order, decree, ruling,
injunction, action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the matters contemplated hereby which
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.

7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE SHARES.

        The obligation of each Purchaser hereunder to purchase Shares to be
purchased by it hereunder is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in such Purchaser's sole discretion:

        a. The Company shall have executed the signature pages to this
Agreement, the Registration Rights Agreement and the Escrow Agreement, and
delivered the same to the Purchaser and Shoreline Pacific.

        b. The Company shall have delivered duly executed certificates
representing the number of Shares as provided in Section 2(b) above.

        c. The additional listing application shall have been filed to authorize
the Shares for quotation on NASDAQ and trading in the Common Stock (or on NASDAQ
generally) shall not have been suspended or be under threat of suspension by the
SEC or NASDAQ.

        d. The representations and warranties of the Company 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, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. The Purchaser shall have received a certificate, executed
on behalf of the Company by its President and Chief Executive Officer, dated as
of the Closing Date, to the foregoing effect and attaching true and correct
copies of the resolutions adopted by the Company's Board of Directors
authorizing the execution, delivery and performance by the Company of its
obligations under this Agreement and the Registration Rights Agreement.

        e. No statute, rule, regulation, executive order, decree, ruling,
injunction, action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the matters contemplated hereby which
questions

                                       12
<PAGE>   13

the validity of, or challenges or prohibits the consummation of, any of the
transactions contemplated by this Agreement.

        f. The Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, relating to the matters set forth in
Exhibit B attached hereto.

        g. From the date of this Agreement through the Closing Date, there shall
not have occurred any Material Adverse Effect.

8. GOVERNING LAW MISCELLANEOUS.

        a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed in the State of California. Each of the
parties irrevocably consents to the jurisdiction of the United States federal
courts and the state courts located in the State of California in any suit or
proceeding based on or arising under this Agreement and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. Each of the parties, irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. Each of the parties further
agrees that service of process upon such party mailed by first class mail to the
address set forth in Section 8(f) shall be deemed in every respect effective
service of process upon such party in any such suit or proceeding. Nothing
herein shall affect the right of any Purchaser to serve process in any other
manner permitted by law. Each of the parties, agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.

        b. Counterparts. This Agreement may be executed in two or more
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 party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof.

        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 or the
validity or enforceability of this Agreement in any other jurisdiction.

        e. Entire Agreement; Amendments; Waiver. 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 the Purchasers
make any representation, warranty, covenant or undertaking with respect to such
matters.

                                       13
<PAGE>   14

No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the Company and, by the Purchasers as provided
in Section 8(o) hereof. Any waiver by the Purchasers, on the one hand, or the
Company, on the other hand, of a breach of any provision of this Agreement shall
not operate as or be construed to be a waiver of any other breach of such
provision of or any breach of any other provision of this Agreement. The failure
of the Purchasers, on the one hand, or the Company, on the other hand to insist
upon strict adherence to any term of this Agreement on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.

        f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:

                If to the Company:

                      Gadzoox Networks, Inc.
                      5850 Hellyer Avenue
                      San Jose, CA 95138

                      Telephone No.: (408) 360-4950
                      Facsimile No.:  (408) 360-4951
                      Attention:    Michael Parides, President
                                   and Chief Executive Officer

               With a copy to:

                      Wilson Sonsini Goodrich & Rosati
                      650 Page Mill Road
                      Palo Alto, CA

                      Telephone No.  (650) 320-4706
                      Facsimile No.:  (650) 496-4367
                      Attention:    Bruce M. McNamara, Esq.

If to the Purchaser, to the address set forth under the Purchaser's name on the
Execution Page hereto executed by such Purchaser, with a copy to:

                      Shoreline Pacific
                      3 Harbor Drive, Suite 211
                      Sausalito, CA 94965
                      Telephone No.:  (415) 332-7800
                      Facsimile No.:   (415) 332-7808

                                       14
<PAGE>   15

                      Attention:    Harlan P. Kleiman
                                    Chief Executive Officer

Each party hereto may from time to time change its address or facsimile number
for notices under this Section 8 by giving at least ten (10) days' prior written
notice of such changed address or facsimile number, in the case of the
Purchasers to the Company, and in the case of the Company to all of the
Purchasers.

        g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers, such consent not to be
unreasonably withheld or delayed. No Purchaser shall assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
Company, such consent not to be unreasonably withheld or delayed, except to an
affiliate of such Purchaser, and provided further, that any such assignee shall
agree in writing with the Company to be bound by the terms and conditions hereof
and of the Registration Rights Agreement.

        h. 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. The representations and warranties of the Company shall
survive for three (3) years from the Closing Date and the agreements and
covenants of the Company shall survive the Closing subject to any applicable
statute of limitations notwithstanding any due diligence investigation conducted
by or on behalf of the Purchasers. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies a Purchaser may have under applicable federal or state securities laws.
The Company agrees to indemnify and hold harmless each Purchaser and each of
such Purchaser's officers, directors, employees, partners, members, agents and
affiliates for loss or damage relating to the Shares purchased hereunder arising
as a result of or related to any breach by the Company of any of its
representations or covenants set forth herein, including advancement of expenses
as they are incurred.

        j. 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.

        k. Termination. In the event that the Closing Date shall not have
occurred on or before June 1, 2001, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date.

        l. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Registration
Rights Agreement and the Escrow

                                       15
<PAGE>   16

Agreement. As such, the language used herein and therein shall be deemed to be
the language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction will be applied against any party to this Agreement,
the Registration Rights Agreement and the Escrow Agreement.

        m. Equitable Relief. Each party acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the other parties by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, each party acknowledges that the remedy at law for a breach of its
obligations hereunder will be inadequate and agrees, in the event of a breach or
threatened breach by such party of the provisions of this Agreement, that the
other parties 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.

        n. Determinations. Except as otherwise expressly provided herein, all
consents, approvals and other determinations to be made by the Purchasers
pursuant to this Agreement shall be made by the Purchasers holding at least a
majority of the Shares then held by all Purchasers.

        o. Public Disclosure. The Company shall have the right to approve the
issuance of any press release (including any "tombstone" advertisement) or any
other public statements with respect to the transactions contemplated hereby.

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

        q. Aggregation of Shares. All of the Shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of rights under this Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       16
<PAGE>   17

        IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.

                                       COMPANY:

                                       GADZOOX NETWORKS, INC.

                                       By:
                                           -------------------------------------
                                       Name:
                                             -----------------------------------
                                       Title:
                                              ----------------------------------
                                       DATE:
                                            ------------------------------------

                                       THE PURCHASERS:

                                       BALCH HILL PARTNERS, L.P.
                                       By: Balch Hill Capital, LLC
                                             General Partner

                                       By:
                                           -------------------------------------
                                       Name: Simon Michael
                                             -----------------------------------
                                       Title:  Manager
                                              ----------------------------------
                                           DATE:
                                                --------------------------------

                                       BALBOA FUND, L.P.

                                       By:
                                           -------------------------------------
                                       Name:
                                             -----------------------------------
                                       Title:
                                              ----------------------------------
                                           DATE:
                                                --------------------------------

                                       GALLEON TECHNOLOGY PARTNERS, L.P.

                                       By:
                                           -------------------------------------
                                       Name:
                                             -----------------------------------
                                       Title:
                                              ----------------------------------
                                           DATE:
                                                --------------------------------

                                       17
<PAGE>   18

                                       GALLEON TECHNOLOGY PARTNERS II, L.P.

                                       By:
                                           -------------------------------------
                                       Name:
                                             -----------------------------------
                                       Title:
                                              ----------------------------------
                                           DATE:
                                                --------------------------------

                                       GALLEON TECHNOLOGY OFFSHORE, LTD.

                                       By:
                                           -------------------------------------
                                       Name:
                                             -----------------------------------
                                       Title:
                                              ----------------------------------
                                           DATE:
                                                --------------------------------

                                       ADMIRALS, L.P.

                                       By:
                                           -------------------------------------
                                       Name:
                                             -----------------------------------
                                       Title:
                                              ----------------------------------
                                           DATE:
                                                --------------------------------

                                       GALLEON MANAGEMENT, LP

                                       By:
                                           -------------------------------------
                                       Name:
                                             -----------------------------------
                                       Title:
                                              ----------------------------------
                                           DATE:
                                                --------------------------------

                                       18
<PAGE>   19

                                                                       EXHIBIT A
                                                TO SECURITIES PURCHASE AGREEMENT

                          REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of May 25,
2001, by and among GADZOOX NETWORKS, INC., a corporation organized under the
laws of the State of Delaware (the "COMPANY"), and the undersigned (the "INITIAL
INVESTORS").

         WHEREAS:

         A. The Company and the Initial Investors have entered into a Securities
Purchase Agreement dated the date hereof (the "SECURITIES PURCHASE AGREEMENT");
capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement. In
connection with the Securities Purchase Agreement, the Company has agreed, upon
the terms and subject to the conditions contained therein, to issue and sell to
the Initial Investors shares of the Company's common stock, $0.005 par value per
share (the "COMMON STOCK"). The shares of Common Stock issued on the Closing
Date under the Securities Purchase Agreement are referred to herein as the
"SHARES".

         B. To induce the Initial Investors 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
"SECURITIES 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 the
Initial Investors, intending to be legally bound, hereby agree as follows:

        1. DEFINITIONS.

                As used in this Agreement, the following terms shall have the
following meanings:

                        (i) "INVESTORS" means the Initial Investors and any
transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Section 9 hereof, provided that neither such person
nor any affiliate of such person is registered as a broker or dealer under
Section 15(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or a member of the National Association of Securities Dealers, Inc.
("NASD").

                                      -1-
<PAGE>   20

                        (ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer
to a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").

                        (iii) "REGISTRABLE SECURITIES" means (i) the Shares and
(ii) any shares of capital stock issued or issuable, from time to time (with any
adjustments), as a distribution on or in exchange for or otherwise with respect
to any of the foregoing.

                        (iv) "REGISTRATION STATEMENT" means one or more
registration statements of the Company under the Securities Act registering all
of the Registrable Securities, including the Initial Registration Statement, any
Uncovered Shares Amendments and Uncovered Shares Registration Statements (each,
as defined below).

        2. REGISTRATION.

                a. Mandatory Registration. Within 45 days following the Closing
Date (the "FILING DEADLINE"), the Company shall file with the United States
Securities and Exchange Commission ("SEC") a Registration Statement on Form S-3
(or, if Form S-3 is not then available, on such form of Registration Statement
as is then available to effect a registration of all of the Registrable
Securities, covering the resale of at least 5,600,00 shares of Common Stock,
which Registration Statement, to the extent allowable under the Securities Act
and the rules promulgated thereunder shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable to prevent dilution resulting from stock splits,
stock dividends or similar transactions (the "INITIAL REGISTRATION STATEMENT").
The Registrable Securities included in the Initial Registration Statement shall
be registered on behalf of the Investors as set forth in Section 11(k) hereof.
The Initial Registration Statement (and each amendment or supplement thereto,
and each request for acceleration of effectiveness thereof) shall be provided to
(and subject to the review by) the Initial Investors and their counsel at least
five (5) business days prior to its filing or other submission. If for any
reason (including, but not limited to, a determination by the staff of the SEC
that all or any portion of the Shares or any other Registrable Securities cannot
be included in the Initial Registration Statement (an "SEC DETERMINATION")) the
Initial Registration Statement declared effective by the SEC does not include
all of the Registrable Securities (any such shares that are not included being
the "UNCOVERED SHARES"), the Company shall prepare and file with the SEC, as
soon as practicable, but in any event within 30 days after becoming aware of the
existence of any Uncovered Shares (such date referred to herein as the
"UNCOVERED SHARE FILING DEADLINE"), either (a) an amendment (the "UNCOVERED
SHARES AMENDMENT") to the Initial Registration Statement effecting a
registration of the Uncovered Shares or (b) a registration statement which
registers the Uncovered Shares (the "UNCOVERED SHARES REGISTRATION STATEMENT").
The Uncovered Shares Amendment or the Uncovered Shares Registration Statement
(and each amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to the Initial Investors and their
counsel for review and comment at least three (3)

                                      -2-
<PAGE>   21

business days prior to its filing or other submission. The Company shall use
commercially reasonable efforts to cause each of the Initial Registration
Statement and the Uncovered Shares Amendment or the Uncovered Shares
Registration Statement to become effective as soon as practicable after the
filing thereof.

                b. Underwritten Offering. The Investors may offer and sell the
Registrable Securities pursuant to a Registration Statement filed in accordance
with Section 2(a) in an underwritten offering. In any such underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, shall have the right to select
one legal counsel to represent the Investors and an investment banker or bankers
and manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the Company.
In the event that any Investors elect not to participate in such underwritten
offering, the Registration Statement covering all of the Registrable Securities
shall contain appropriate plans of distribution reasonably satisfactory to the
Investors participating in such underwritten offering and the Investors electing
not to participate in such underwritten offering (including, without limitation,
the ability of nonparticipating Investors to sell from time to time and at any
time during the effectiveness of such Registration Statement). In the event the
Investors elect to offer and sell the Registrable Securities pursuant to a
Registration Statement filed in accordance with Section 2(a) in an underwritten
offering, the provisions of the Section 2(c) shall be inapplicable to such
Registration Statement.

                c. Payments by the Company.

                The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities required to be
registered pursuant to Section 2(a) (but in no event later than the Filing
Deadline) and use its commercially reasonable efforts to cause such Registration
Statement to become effective as soon as possible after such filing (but in no
event later than the ninetieth (90th) day after the Closing Date (the
"REGISTRATION DEADLINE"), and as to any Uncovered Shares Amendment or Uncovered
Shares Registration Statement, in no event later than the ninetieth (90th) day
after the Uncovered Share Filing Deadline (the "UNCOVERED SHARE REGISTRATION
DEADLINE")). If (i) the Registration Statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
is not filed with the SEC by the Filing Deadline or the Uncovered Share Filing
Deadline, as applicable, or, declared effective by the SEC on or before the
Registration Deadline or the Uncovered Share Registration Deadline, as
applicable, or if, after a Registration Statement has been declared effective by
the SEC, sales of all the Registrable Securities (including any Registrable
Securities required to be registered pursuant to Section 3(b) hereof) required
to be included therein (except, in the case of the Initial Registration
Statement, for Uncovered Shares which are the subject of an SEC Determination)
cannot be made pursuant to the Registration Statement (by reason of a stop
order, the Company's failure to update a Registration Statement, any reason
resulting in Uncovered Shares or any other reason outside the control of the
Investors) or (ii) the Common Stock is not listed or included for quotation on
the Nasdaq National Market or Small Cap Market (the "NASDAQ MARKETS"), the New
York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") at
any time after the Registration Deadline, then the Company will make payments to
the Investors in such amounts and

                                      -3-
<PAGE>   22

at such times as shall be determined pursuant to this Section 2(c) as damages to
the Investors by reason of any such delay in or reduction of their ability to
sell the Registrable Securities. The damages described in the following
paragraph are the Investors' sole and exclusive remedy for the failure to comply
with the timelines set forth in this section.

        On the first day of each thirty (30) day period after the Filing
Deadline, the Uncovered Filing Deadline, the Registration Deadline or the
Uncovered Share Registration Deadline, as applicable, the Company will pay each
Investor a penalty until such time that the Registration Statement is filed with
the SEC or declared effective by the SEC, as applicable. The amount of each
payment shall equal the product of (A) one-half of one percent (0.5%) for the
first thirty (30) day period and one (1%) percent for each thirty (30) day
period thereafter, multiplied by (B) the Investment Amount (as defined in the
Securities Purchase Agreement) paid by such Investor (or if such Investor is not
an Initial Investor, the Investment Amount paid by such Investor's transferor or
assignor of such Shares) for the Shares purchased by such Investor (or such
Investor's transferor or assignor) pursuant to the Securities Purchase Agreement
(the "AGGREGATE PURCHASE PRICE"). In the event that such Registration Statement
is not declared effective by the SEC within 270 days after the Registration
Deadline, either the Investors or the Company shall have the right at any time
prior to the effectiveness of the Registration Statement to require redemption
of any or all of the Shares at a price equal to 110% of the Aggregate Purchase
Price. Such amounts shall be paid in cash. If the Company is unable to pay all
amounts due and payable with respect to the penalties, the Company will pay the
Investors such amounts pro rata based upon the total amounts payable to each
Investor as a percentage of the total amounts payable to all Investors.

                d. Eligibility for Form S-3. The Company represents and warrants
that it is currently eligible to register the resale of Registrable Securities
on a registration statement on Form S-3 under the Securities Act, and that it
knows of no facts or circumstances (including without limitation any required
approvals or waivers or any circumstances that may delay or prevent the
obtaining of accountant's consents) that would prohibit or delay the preparation
and filing of a registration statement on Form S-3 with respect to the
Registrable Securities within the time periods required herein. The Company
shall file all reports required to be filed by the Company with the SEC in a
timely manner so as to maintain or, if applicable, regain its eligibility for
the use of Form S-3.

        3. OBLIGATIONS OF THE COMPANY.

        In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:

                a. The Company shall prepare and file with the SEC, on or before
the Filing Deadline or the Uncovered Share Filing Deadline, as applicable, the
applicable Registration Statement required by Section 2(a) and shall use its
commercially reasonable efforts to cause such Registration Statement to become
effective as soon as practicable after such filing (but in no event later than
the Registration Deadline or the Uncovered Share Registration Deadline, as
applicable). The Company shall keep such Registration Statement effective
pursuant to Rule 415 at all times

                                      -4-
<PAGE>   23

until the date on which all of the outstanding Registrable Securities may (in
the reasonable opinion of counsel experienced in securities matters representing
at least a majority of the Initial Investors and, if none, to counsel to the
Company) be immediately sold to the public without registration or restriction
pursuant to Rule 144(k) under the Securities Act (the "REGISTRATION PERIOD"). In
the event that the sale of Registrable Securities by one or more Investors is
determined by the SEC to constitute a primary offering, upon the written request
from time to time of any such Investor, the Company shall as promptly as
practicable: cause a Registration Statement to be amended and/or one or more
additional Registration Statements (which may be requested on a sequential
basis) to be filed (as specified by the applicable Investors) and to be declared
effective; and take all other actions reasonably requested by such Investors to
effectuate the offering of Registrable Securities. If the Initial Registration
Statement is not filed on Form S-3, the Company shall, as soon as it is eligible
to do so, file a post-effective amendment on Form S-3 to the Initial
Registration Statement to the extent permitted by the SEC or, if not so
permitted, file a post-effective amendment on an appropriate form or a new
Registration Statement on Form S-3 to permit sales of the Registrable Securities
under the Securities Act; and the Company shall use its best efforts to cause
such post-effective amendment or Registration Statement to become effective as
soon as possible. Each Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein and all documents
incorporated by reference therein) filed pursuant to this Agreement (i) shall
comply in all material respects with the requirements of the Securities Act and
the rules and regulations of the SEC promulgated thereunder and (ii) 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
financial statements of the Company included in the Registration Statement or
incorporated by reference therein will comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC applicable with respect thereto. Such financial
statements shall be prepared in accordance with U.S. 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 not include footnotes or may be condensed or summary statements) and shall
fairly present in all material respects the consolidated financial position of
the Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to immaterial or recurring
year-end adjustments).

                b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the Registration
Statement until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statement. Notwithstanding
the foregoing, the Company's obligations hereunder to file a Registration
Statement and to keep a registration statement continuously in effect under the
Securities Act shall be suspended without

                                      -5-
<PAGE>   24

penalty as provided in Section 2 (c) of this Agreement if the fulfillment of
such obligations would require the Company to make a disclosure that would, in
the reasonable judgment of the Company's Board of Directors, have a Material
Adverse Effect (as such term is defined in the Securities Purchase Agreement) on
the Company or a material adverse effect on the future prospects of the Company
or its stockholders; provided, that the Registration Statement shall be
suspended for a total of no more than forty-five (45) days during any twelve
(12) month period.

                c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and legal counsel, if any,
representing Investors holding at least a majority of the Registrable Securities
(i) promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each prospectus and each amendment or supplement thereto (ii)
on the date of effectiveness of the Registration Statement or any amendment
thereto, a notice stating that the Registration Statement or amendment has been
declared effective, and (iii) such number of copies of a prospectus and all
amendments and supplements thereto and such other documents as such Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor. In responding to comments from the staff of
the SEC, the Company shall cooperate with any Investor that notifies the Company
that it desires to be consulted with respect to such process. To the extent that
issues raised by the staff of the SEC have an impact primarily on any such
Investor rather than the Company, the Company shall give reasonable deference to
such Investor's requests with respect to the process and substance of responses
with respect to such issues. In the event that the Company is unable to meet the
Filing Deadline, the Uncovered Share Filing Deadline, the Registration Deadline
or the Uncovered Share Registration Deadline due to delays caused by requests of
any Investor to be consulted or due to changes to the Registration Statement or
prospectus requested by any Investor or its representative, the Company shall
have no obligation to pay any penalties set forth in Section 2(c).

                d. The Company shall use commercially reasonable efforts to (i)
register and qualify the Registrable Securities covered by the Registration
Statement under such other securities or "blue sky" laws of such jurisdictions
in the United States as each Investor who holds Registrable Securities being
offered reasonably requests, (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 (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its articles of incorporation or bylaws,
which in each case the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its stockholders.

                                      -6-
<PAGE>   25

                e. In the event the Investors who hold a majority in interest of
the Registrable Securities being offered in an offering select underwriters for
the offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.

                f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor by telephone, facsimile or e-mail
of the happening of any event, of which the Company has knowledge, as a result
of which the prospectus included in the Registration Statement, as then in
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 not misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct such untrue
statement or omission and deliver such number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request.

                g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable date (including in each
case by amending or supplementing such Registration Statement) and to notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance of such
order and the resolution thereof (and if such Registration Statement is
supplemented or amended, deliver such number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request).

                h. The Company shall permit a single firm of counsel designated
by the Initial Investors to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to their filing with
the SEC.

                i. At the request of the Initial Investors whose Registrable
Securities are included in a Registration Statement, the Company shall furnish,
on the date of effectiveness of the Registration Statement (i) an opinion, dated
as of such date, from counsel representing the Company addressed to the
Investors to the effect that the Registration Statement and related prospectus
comply as to form in all material respects with the requirements of the
Securities Act and the applicable rules and regulations thereunder (except that
no opinion need be expressed with respect to the financial statements, including
the notes and schedules thereto, or any other financial, statistical or
accounting information, or information relating to the Investors or any
underwriters or the method of distribution of the Registrable Securities by the
Investors and any underwriters included therein), and (ii) a letter (the "Cold
Comfort Letter"), dated as of such date, from the Company's independent
certified public accountants (the "Auditors") in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the Initial Investors and the
underwriters, if any, provided, however, that such Investors requesting the Cold
Comfort Letter shall, as a condition precedent to receiving the Cold Comfort
Letter, furnish the Auditors with such information as the Auditors may
reasonably request in order to render the Cold Comfort Letter.

                                      -7-
<PAGE>   26

                j. The Company shall make available for inspection by (i) any
Investor who holds at least 20% of the Shares initially purchased by that
Investor and whose Registrable Securities are included in a Registration
Statement, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (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 to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence.

                k. The Company and each Investor shall hold in confidence and
not make any disclosure of information concerning an Investor and the Company,
respectively, provided to the Company or an Investor 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 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 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 notice to such Investor prior to making such disclosure, and allow
the Investor, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.

                l. The Company shall use reasonable efforts to promptly either
(i) secure the designation and quotation, of all the Registrable Securities
covered by the Registration Statement on The Nasdaq National Market, or (ii)
cause all the Registrable Securities covered by the Registration Statement to be
listed on the NYSE or the AMEX or another national securities exchange and on
each additional national 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.

                m. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.

                n. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing

                                      -8-
<PAGE>   27

underwriter or underwriters, if any, or the Investors may request, and, if
required by the transfer agent for the Registrable Securities, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in a form customary for such transactions.

                o. At the request of an Initial Investor or Investors who holds
a majority-in-interest of the Registrable Securities, 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 the Registration Statement as may be reasonably necessary in order to
change the plan of distribution set forth in such Registration Statement.

                p. The Company shall comply with applicable federal and state
securities laws and regulations related to a Registration Statement and offering
and sale of securities.

                q. The Company shall take all such other actions as any Investor
or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.

        4. OBLIGATIONS OF THE INVESTORS.

        In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:

                a. 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. At least five (5)
business days prior to the first anticipated filing date of the Initial
Registration Statement and at least three (3) business days prior to the
anticipated filing date of any Uncovered Shares Registration Statement or other
registration statement, the Company shall notify each Investor to be included in
such registration statement of any information the Company requires from each
such Investor.

                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 the
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 the Registration Statement.

                c. In the event Investors holding a majority in interest of the
Registrable

                                      -9-
<PAGE>   28

Securities being offered determine to engage the services of an underwriter,
each Investor agrees to enter into and perform such Investor's obligations under
an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriter(s) of such offering and the Company and take such other actions as
are reasonably required in order to expedite or facilitate the disposition of
the Registrable Securities, unless such Investor has notified the Company in
writing of such Investor's election not to participate in such underwritten
distribution.

                d. No Investor may participate in any underwritten distribution
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below. Notwithstanding anything in this Section
4(d) to the contrary, this Section 4(d) is not intended to limit an Investor's
rights under Section 2(a) or 3(b) hereof.

                e. Each Investor will enter into customary lock-up agreements
(not to exceed ninety (90) days (or such shorter period of time as may be
required of the directors and executive officers)) with the underwriters of a
public offering of the capital stock of the Company if so requested by such
underwriters; provided, however, that such lock-up shall not apply to shares
registered on Form S-3.

        5. EXPENSES OF REGISTRATION.

        All reasonable expenses incurred by the Company or the Investors in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3 above (excluding brokers' fees, underwriting discounts and commissions,
and similar selling expenses), including, without limitation, all registration,
listing and qualifications fees, printers and accounting fees and the fees and
disbursements of counsel for the Company, up to a maximum of $25,000 incurred by
the Investors, shall be borne by the Company. In addition, the Company shall pay
all of the Investors' costs and expenses (including reasonable legal fees)
incurred in connection with the enforcement of the rights of the Investors
hereunder.

        6. INDEMNIFICATION.

        In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

                a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, and (ii) the directors, officers, partners, members, employees and
agents of such Investor and each person who controls any Investor within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
if any

                                      -10-
<PAGE>   29

(each, an "INDEMNIFIED PERSON"), against any joint or several losses, claims,
damages, liabilities or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened, in respect thereof, "CLAIMS") to which any of
them may become subject insofar as such Claims arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state therein a
material fact required to be stated 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 Company
of the Securities Act, the Exchange Act, any state securities law, or any rule
or regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Investors and each other Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees 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 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 the Registration
Statement or any such amendment thereof or supplement thereto; (ii) 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; and (iii) with respect to any prospectus, shall not inure
to the benefit of any Indemnified Person if the untrue statement or omission of
material fact contained in such prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented, if such corrected prospectus
was timely made available by the Company pursuant to Section 3(c) hereof, and
the Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. 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.

                b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim to which any of

                                      -11-
<PAGE>   30

them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is 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(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
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) 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 Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds actually
received by 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 contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact by the
Investor contained in the preliminary prospectus was corrected on a timely basis
in the prospectus, as then amended or supplemented, and the Indemnified Party
failed to utilize such corrected prospectus.

                c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is 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 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 such indemnifying
party shall not be entitled to assume such defense and an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel with the
reasonable fees and expenses 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
conflicts of interest between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding or the actual or
potential defendants in, or targets of, any such action include both the
Indemnified Person or the Indemnified Party and the indemnifying party and any
such Indemnified Person or Indemnified Party reasonably determines that there
may be legal defenses available to such Indemnified Person or Indemnified Party
which are in conflict with those available to such indemnifying party. The
indemnifying party shall pay for only one separate legal counsel for the
Indemnified Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by Investors holding a majority-in-interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates (with the approval of the Initial Investors if any of them holds
Registrable Securities included in such Registration Statement), if the
Investors are entitled to indemnification hereunder, or by the Company, if the
Company is entitled to

                                      -12-
<PAGE>   31

indemnification hereunder, as applicable. 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 actually prejudiced in its ability to
defend such action. 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 such expense, loss, damage or liability is incurred
and is due and payable.

        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 contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation, and (iii) contribution (together with any indemnification or
other obligations under this Agreement) 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.

        8. REPORTS UNDER THE EXCHANGE ACT.

        With a view to making available to the Investors the benefits of Rule
144 promulgated under the Securities Act or any other 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"), the Company agrees to:

                a. file with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under the
Securities Act and the Exchange 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 5(c) of the Securities Purchase Agreement)
and the filing and availability of such reports and other documents as is
required for the applicable provisions of Rule 144; and

                b. 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
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.

                                      -13-
<PAGE>   32

        9. ASSIGNMENT OF REGISTRATION RIGHTS.

        The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
assignable by each Investor to any permitted transferee of the Registrable
Securities (i) in the case of an assignment of all Registrable Securities held
by such Investor without the consent of the Company and (ii) in the case of an
assignment of less than all Registrable Securities held by such Investor with
the consent of the Company (which consent shall not be unreasonably withheld),
if: (a) 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 after such
assignment, (b) the Company is furnished with written notice of (x) the name and
address of such transferee or assignee and (y) the securities with respect to
which such registration rights are being transferred or assigned, (c) following
such transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, (d) the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein and applicable
provisions of the Securities Purchase Agreement relating to the transfer of any
Securities, and (e) such transfer shall have been made in accordance with the
applicable requirements of the Securities Purchase Agreement. In addition, and
notwithstanding anything to the contrary contained in this Agreement or the
Securities Purchase Agreement, the Shares may be pledged, and all rights of the
Investors under this Agreement or any other agreement or document related to the
transaction contemplated hereby may be assigned, without further consent of the
Company, to a bona fide pledgee in connection with an Investor's margin or
brokerage accounts.

        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), by the Company and Investors (excluding
Investors who are affiliates of the Company) who hold a majority in interest of
the Registrable Securities (excluding Registrable Securities held by affiliates
of the Company) or, in the case of a waiver, with the written consent of the
party charged with the enforcement of any such provision. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.

        11. MISCELLANEOUS.

                a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities 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 required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five (5) days after being

                                      -14-
<PAGE>   33

placed in the mail, if mailed, or upon receipt or refusal of receipt, if
delivered personally or by courier confirmed telecopy or e-mail, in each case
addressed to a party. The addresses for such communications shall be:

                  If to the Company:

                           Gadzoox Networks, Inc.
                           5850 Hellyer Avenue
                           San Jose, CA 95138

                           Telephone No.:   (408) 360-6066
                           Facsimile No.:   (408) 360-6085
                           Attention:       Michael Parides, President and
                                            Chief Executive Officer
                  with a copy to:

                           Wilson Sonsini Goodrich and Rosati
                           650 Page Mill Road
                           Palo Alto, CA 94304-1050

                           Telephone No.:   (650) 320-4706
                           Facsimile No.:   (650) 496-4367
                           Attention:       Bruce M. McNamara, Esq.

If to an Investor, at such address as such Investor shall have provided in
writing to the Company or such other address as such Investor furnishes by
notice given in accordance with this Section 11(b), with a copy to:

                           Shoreline Pacific
                           3 Harbor Drive, Suite 211
                           Sausalito,  CA 94920
                           Telephone No.:  (415) 332-7800
                           Facsimile No.:   (415) 332-7808
                           Attention:       Harlan P. Kleiman
                                            Chief Executive Officer

        Each party hereto may from time to time change its address or facsimile
number for notices under this Section 11(b) by giving at least ten (10) days'
prior written notice of such changed address or facsimile number, in the case of
the Investors to the Company, and in the case of the Company to all of the
Investors.

                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

                                      -15-
<PAGE>   34

thereof.

                d. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and to be performed in the State of California. The Company irrevocably consents
to the jurisdiction of the United States federal courts and state courts located
in the State of California in any suit or proceeding based on or arising under
this Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the Company mailed by
first class mail to the address set forth in Section 11(b) shall be deemed in
every respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect an Investor's right to serve process in
any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.

                e. This Agreement and the Securities Purchase Agreement
(including all schedules and exhibits thereto) 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 and the
Securities Purchase Agreement supersede all prior agreements and understandings
among the parties hereto and thereto with respect to the subject matter hereof
and thereof.

                f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the 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 two or more 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.

                j. All consents, approvals and other determinations to be made
by the Investors pursuant to this Agreement shall be made by the Investors
holding at least a majority of the Registrable Securities then held by all
Investors.

                                      -16-
<PAGE>   35

                k. The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be registered on behalf of each Investor pro rata based
on the number of Registrable Securities held by each Investor at the time of
such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be deemed to have registered on its behalf a pro rata
portion of the number of Registrable Securities included on a Registration
Statement for such transferor. Any shares of Common Stock included on a
Registration Statement on behalf of any person or entity which does not hold any
Registrable Securities shall be deemed registered on behalf of the remaining
Investors, pro rata based on the number of shares of Registrable Securities then
held by such Investors. For the avoidance of doubt, no provision of this
subsection shall operate to reduce the number of Registrable Securities
registered on behalf of any Investor pursuant to the first sentence of this
subsection.

                l. For purposes of this Agreement, the term "business day" means
any day other than a Saturday or Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law, regulation or
executive order to close.

                m. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
holders of Registrable Securities and permitted assigns of Registrable
Securities any legal or equitable right, remedy or claim under this Agreement,
but this Agreement shall be for the sole and exclusive benefit of the Company,
the holder and the permitted assigns of this Agreement.

                n. Aggregation of Registrable Securities. All of the Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of rights
under this Agreement.

                o. Termination. Notwithstanding anything to the contrary herein,
the Company's obligations shall terminate as of the date which is five (5) years
from the date hereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -17-
<PAGE>   36

         IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.

GADZOOX NETWORKS, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------
DATE:
     -----------------------------------

INITIAL INVESTORS:

BALCH HILL PARTNERS, L.P.
  By:  Balch Hill Capital, LLC
         General Partner

By:
   -------------------------------------
Name:  Simon Michael
     -----------------------------------
Title:  Manager
      ----------------------------------
DATE:
     -----------------------------------

BALBOA FUND, L.P.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------
DATE:
     -----------------------------------

GALLEON TECHNOLOGY PARTNERS, L.P.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------
DATE:
     -----------------------------------

<PAGE>   37

GALLEON TECHNOLOGY PARTNERS II, L.P.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------
DATE:
     -----------------------------------

GALLEON TECHNOLOGY OFFSHORE, LTD.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------
DATE:
     -----------------------------------

ADMIRALS, L.P.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------
DATE:
     -----------------------------------

GALLEON MANAGEMENT, LP

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------
DATE:
     -----------------------------------

<PAGE>   38

                                                                       EXHIBIT B
                                                TO SECURITIES PURCHASE AGREEMENT

                        [Form of Wilson Sonsini Opinion]

        1. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware with all requisite corporate power and
authority to own or lease its property, to conduct its business as described in
its Annual Report on Form 10-K for the fiscal year ended March 31, 2000 as
presently conducted by it and to execute, deliver and perform its obligations
under the Transaction Documents.

        2. Each of the Transaction Documents has been duly authorized, executed
and delivered by the Company, is the valid and binding obligation of the Company
and is enforceable against the Company in accordance with its terms.

        3. The issuance, sale and delivery of the Shares have been duly
authorized by all requisite corporate action of the Company, and when the Shares
are issued, sold and delivered in accordance with the Agreement and on receipt
of the consideration to be paid on the Closing Date pursuant to the Agreement,
the Shares will be validly issued, fully paid, and nonassessable.

        4. To our knowledge, no consent, approval, authorization or order of any
governmental agency or body not obtained or in effect as of the date hereof is
required for the execution and delivery by the Company of the Transaction
Documents and the issuance of the Shares as contemplated by the Agreement,
except a filing under Regulation D under the Securities Act of 1933, as amended
(the "Securities Act"), and except for such consents, approvals, authorizations,
registration or qualification as may be required under applicable state
securities laws.

        5. The execution and delivery by the Company of the Transaction
Documents, the issuance by the Company of the Shares and the consummation of the
transactions contemplated thereby will not violate, contravene, or constitute a
default under, any provision of (i) applicable law or governmental regulation,
(ii) the Articles of Incorporation or the By-laws of the Company or (iii) to our
knowledge, any judgment, injunction, order, or decree binding upon the Company.

        6. The offer, issuance, sale and delivery of the Shares to the
Purchasers pursuant to, and in the manner contemplated by the Agreement do not
require registration under the Securities Act.

                                       -1-
<PAGE>   39

                                    EXHIBIT C
                             Schedule of Purchasers

Purchaser                                   Investment Amount & No. of Shares

Balboa Fund, L.P.                           $1,325,000          500,000 shares
c/o Banc of America Securities LLC
600 Montgomery Street
San Francisco, CA 94111
Attn:  Denise Genovese

Balch Hill Partners, L.P.                   $2,915,000          1,100,000 shares
c/o Goldman, Sachs & Company
One New York Plaza
48th Floor
New York, NY 10004
Attn: Kristin Roberts

Galleon Technology Partners, L.P.           $296,800            112,000 shares
135 East 57th Street, 16th Floor
New York, NY 10022

Galleon Technology Partners II, L.P.        $2,226,000          840,000 shares
135 East 57th Street, 16th Floor
New York, NY 10022

Galleon Technology Offshore, Ltd.           $5,321,200          2,008,000 shares
c/o The Bank of Bermuda Limited
6 Front Street
Hamilton HM 11
Bermuda

Admirals, L.P.                              $1,325,000          500,000 shares
217 Taconic Road
Greenwich, CT 06831

Galleon Management, LP                      $1,431,000          540,000 shares
135 East 57th Street, 16th Floor
New York, NY 10022

                                      -1-
<PAGE>   40

                                     COMPANY
                              DISCLOSURE SCHEDULES

         These Company Disclosures Schedules have been prepared and delivered in
connection with the Securities Purchase Agreement, dated as of May 25, 2001 (the
"Agreement") between Gadzoox Networks, Inc., a Delaware corporation (the
"Company") and the purchasers set forth on the execution pages of the Agreement.
Except as otherwise defined herein, capitalized terms used herein have the
meanings assigned thereto in the Agreement.

         The descriptive headings herein are inserted for convenience of
reference only and shall in no way be construed to define, limit, describe,
explain, modify, amplify, or add to the interpretation, construction or meaning
of any matter disclosed in these Company Disclosure Schedules.

         Certain matters are described in these Disclosure Schedules for
information purposes notwithstanding the fact that, because they do not rise
above applicable materiality thresholds or otherwise, they are not required to
be listed by the terms of the Agreement. In no event shall the inclusion of such
matters in these Disclosure Schedules be deemed or interpreted to broaden or
otherwise amplify the representations and warranties contained in the Agreement.
No inclusion of a matter on the Disclosure Schedules shall constitute an
admission that a matter is "material" or would have a Material Adverse Effect.
These Disclosure Schedules are arranged by schedule corresponding to the
numbered and lettered paragraphs of the Agreement and any matter described in
response to one section of the Agreement shall be deemed to be described in
response to all applicable sections of the Agreement, whether or not there is an
express cross-reference.

<PAGE>   41

                                  SCHEDULE 4(a)
                         ORGANIZATION AND QUALIFICATION

The Company is incorporated in the State of Delaware.

The Company currently is not in good standing in the State of Massachusetts
because the Company did not pay its 2000 annual tax bill of $85. The Company
currently is in the process of refiling with the State of Massachusetts.

                                      -2-
<PAGE>   42

                                  SCHEDULE 4(c)
                                 CAPITALIZATION

         See capitalization table attached hereto.

         There are certain restrictions on the disposition of shares held by
Seagate Technology, Inc. and 3Com Corporation and their acquisition of
additional shares of Gadzoox stock, as more particularly described in that
certain First Amended and Restated Series F, G and H Preferred Stockholders'
Agreement dated as of October 12, 1998 and filed as Exhibit 10.14 to the
Company's Registration Statement on Form S-1.

         The Company entered into a First Amended and Restated Registration and
Information Rights Agreement dated as of October 12, 1998 (the "Rights
Agreement") pursuant to which certain of the Company's stockholders have the
right to cause the Company to register its securities. Pursuant to the Rights
Agreement, the Company may not grant registration rights to any third party
unless such registration rights are subordinate to the registration right
granted under the Rights Agreement. Accordingly, the registration rights granted
hereunder are expressly made subordinate to the registration rights granted in
the Rights Agreement.

         The Company's current set of Bylaws are attached to the Secretary's
Certificate delivered to the Purchasers in connection with the Closing.

                                      -3-
<PAGE>   43

                                  SCHEDULE 4(e)
                                  NO CONFLICTS

         The Company entered into a First Amended and Restated Registration and
Information Rights Agreement dated as of October 12, 1998 (the "Rights
Agreement") pursuant to which certain of the Company's stockholders have the
right to cause the Company to register its securities. Pursuant to the Rights
Agreement, the Company may not grant registration rights to any third party
unless such registration rights are subordinate to the registration rights
granted under the Rights Agreement. Accordingly, the registration rights granted
hereunder are expressly made subordinate to the registration rights granted in
the Rights Agreement.

                                      -4-
<PAGE>   44

                                  SCHEDULE 4(l)
                                    INSURANCE

         The Company does not maintain "key employee" insurance.

                                      -5-
<PAGE>   45

                                  SCHEDULE 4(o)
                                   TAX STATUS

         The Company did not pay its Massachusetts 2000 annual tax bill of $85.

                                      -6-
<PAGE>   46

                                  SCHEDULE 4(s)
                                   DISCLOSURE

         The Company's independent auditors have not yet made a determination as
to whether they will issue a "going concern" qualification to their audit
opinion with respect to their audit report to be filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2001.

                                      -7-<PAGE>   1
                                                                   EXHIBIT 10.31

================================================================================

                         EQUITY LINE FINANCING AGREEMENT

                                     BETWEEN

                             GADZOOX NETWORKS, INC.

                                       AND

                                SOCIETE GENERALE

                                   DATED AS OF

                                  JUNE 28, 2001

================================================================================
<PAGE>   2
                         EQUITY LINE FINANCING AGREEMENT

        EQUITY LINE FINANCING AGREEMENT (this "Agreement"), dated as of June 28,
2001, between GADZOOX NETWORKS, INC., a Delaware corporation (the "Company"),
and SOCIETE GENERALE, a bank organized under the laws of France (the
"Investor").

                              W I T N E S S E T H:

        WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company may issue and sell to the Investor from
time to time as provided herein, and the Investor shall purchase from the
Company, shares of Common Stock for an aggregate purchase price up to
$20,000,000 on a private placement basis pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933; and

        WHEREAS, the Investor shall be entitled to resell shares of Common Stock
acquired hereunder pursuant to a resale registration statement established by
the Company pursuant to the terms of the Registration Rights Agreement between
the Company and the Investor which shall be declared effective by the Commission
prior to the delivery of a Draw Down Notice hereunder.

        NOW THEREFORE, in consideration of the premises, representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound hereby, the parties hereto agree as
follows:

                                    ARTICLE I

                                   DEFINITIONS

        SECTION 1.01. CERTAIN DEFINITIONS. For purposes of this Agreement,
capitalized terms used herein and not otherwise defined shall have the following
respective meanings:

        "Affiliate" of a Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first- mentioned Person. The term "control"
(including the terms "controlling," "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.

        "Average Daily Trading Volume" with respect to any Draw Down effected by
the Company shall mean the average daily volume of shares of Common Stock traded
on the Principal Market as reported by Bloomberg Financial during the thirty
(30) consecutive Trading Day period ending on the Trading Day immediately
preceding the date on which a Draw Down Notice is delivered pursuant to Section
2.03(b) hereof.

        "Bloomberg Financial" shall mean Bloomberg Financial Markets or an
equivalent reliable reporting service acceptable to the Company and hereafter
designated by the Investor.

<PAGE>   3
        "Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock, of such Person.

        "Closing" shall have the meaning set forth in Section 2.02.

        "Closing Date" shall mean the date on which the Closing occurs.

        "Comfort Letter" shall mean a letter from Arthur Andersen LLP or another
"Big Five" independent public accounting firm, in form and substance reasonably
satisfactory to the Investor, addressed to the Investor and dated as of the
Effective Date or the filing date of any Current Report on Form 8-K, if such
report contains substantial financial information, (i) confirming that they are
independent public accountants within the meaning of the Securities Act and are
in compliance with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission and (ii)
stating, as of the Effective Date or filing date, as applicable, the conclusions
and findings of such firm with respect to the financial information and other
matters ordinarily covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.

        "Commission" means the United States Securities and Exchange
Commission.

        "Commitment Period" shall mean the period commencing on the Effective
Date and expiring on the earliest to occur of (x) the date on which the Investor
shall have purchased Draw Down Shares pursuant to this Agreement for an
aggregate Purchase Price of $20,000,000, (y) the date this Agreement is
terminated pursuant to Article X and (z) the date occurring twenty-four (24)
months from the date hereof.

        "Common Stock" shall mean the Company's common stock, $0.005 par value
per share.

        "Common Shares" shall mean shares of the Company's Common Stock issued
or issuable pursuant to this Agreement.

        "Draw Down" shall mean each occasion the Company elects to exercise its
right to deliver a Draw Down Notice requiring the Investor to purchase the
Common Shares as specified in such Draw Down Notice, subject to the terms and
conditions of this Agreement.

        "Draw Down Cancellation" shall have the meaning set forth in Section
6.04(a).

        "Draw Down Cancellation Date" shall have the meaning set forth in
Section 6.04(a).

        "Draw Down Cancellation Notice" shall have the meaning set forth in
Section 6.04(a).

        "Draw Down Date" shall mean any Trading Day during the Commitment Period
that a Draw Down Notice to sell Common Stock to the Investor is deemed delivered
pursuant to Section 2.03(b) hereof.

        "Draw Down Notice" shall mean a written notice to the Investor delivered
in accordance with this Agreement in the form attached hereto as Exhibit A
setting forth the Investment

                                       2
<PAGE>   4
Amount that the Company intends to sell to the Investor pursuant to such Draw
Down and the Floor Price applicable to such Draw Down.

        "Draw Down Shares" shall mean all shares of Common Stock issued or
issuable pursuant to a Draw Down that has occurred or may occur in accordance
with the terms and conditions of this Agreement.

        "DWAC Transfer" shall have the meaning set forth in Section 2.04.

        "Effective Date" shall mean the date on which the Commission first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 6.02(a).

        "Exchange Act" means the Securities Exchange Act of 1934.

        "Floor Price" shall mean the lowest VWAP (before taking into account any
discount used to calculate the Purchase Price hereunder) at which the Company
will sell its Common Stock as specified in the Draw Down Notice delivered in
connection with any Draw Down effected pursuant to this Agreement, but in no
event shall the Floor Price be less than $1.00.

        "Governmental Authority" means any federal or state government or
political subdivision thereof and any agency or other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

        "Investment Amount" shall mean the aggregate dollar amount (within the
range specified in Section 2.03) of any Draw Down Shares to be purchased by the
Investor with respect to any Draw Down effected by the Company in accordance
with Section 2.03 hereof.

        "Irrevocable Transfer Agent Instructions" shall have the meaning set
forth in Article IX.

        "Material Adverse Effect" has the meaning set forth in Section 3.01.

        "Maximum Draw Down Amount" with respect to any Draw Down effected by the
Company in accordance with Section 2.03 hereof shall mean the lesser of (i)
$3,000,000 (subject to increase to $4,000,000 in the event the average VWAP for
the Common Stock for the five Trading Days immediately preceding the applicable
Draw Down Date, multiplied by the Average Daily Trading Volume of the Common
Stock applicable with respect to such Draw Down Date shall exceed $8,000,000 and
(ii) 10% of the product of (x) the average VWAP for the Common Stock for the
five Trading Days immediately preceding the applicable Draw Down Date,
multiplied by (y) the Average Daily Trading Volume of the Common Stock
applicable with respect to such Draw Down Date, multiplied by (z) 5.

        "Maximum Share Amount" shall have the meaning set forth in Section
2.01(c).

        "Minimum Draw Down Amount" shall mean $200,000.

        "Periodic Accountant's Report" shall mean a review report from Arthur
Andersen LLP or another "Big Five" independent public accounting firm, delivered
to the Investor within 45 days

                                       3
<PAGE>   5
of the end of each of the Company's fiscal quarters (other than the fourth
fiscal quarter) in conjunction with such accounting firm's issuance to the
Company of a SAS No. 71 review report with respect to each of the Company's
quarterly financial statements.

        "Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind.

        "Principal Market" shall mean the Nasdaq National Market, the American
Stock Exchange or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.

        "Prospectus Supplement" shall have the meaning set forth in Section
6.02(o).

        "Purchase Price" with respect to each Trading Day during a Valuation
Period shall mean 94% of the VWAP for such Trading Day.

        "Registrable Securities" shall mean the Draw Down Shares, and any other
shares of capital stock issued or issuable as a dividend on or in exchange for
or otherwise with respect to the Draw Down Shares and until (i) the Registration
Statement has been declared effective by the Commission and all such shares have
been disposed of pursuant to the Registration Statement, (ii) all such shares
have been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) are met, (iii) all such
shares have been otherwise transferred and the Company shall have delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend, (iv) such time as, in the opinion of counsel to the Company,
all such shares may be sold without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act or (v) any combination of the foregoing relating to all such
shares.

        "Registration Rights Agreement" shall mean the agreement regarding the
filing of the Registration Statement for the resale of the Registrable
Securities entered into between the Company and the Investor as of the Closing
Date.

        "Registration Statement" shall mean a registration statement on such
form promulgated by the Commission for which the Company then qualifies and
which counsel for the Company shall deem appropriate and which form shall be
available for the resale of the Registrable Securities to be registered
thereunder in accordance with the provisions of this Agreement and the
Registration Rights Agreement, and in accordance with the intended method of
distribution of such securities, for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.

        "SEC Reports" means, the Company's Annual Report on Form 10-K for the
year ended March 31, 2000, the Company's Reports on Form 10-Q for each of the
quarters ended June 30, 2000, September 30, 2000 and December 31, 2000, and each
of the Company's Current Reports on Form 8-K filed since March 31, 2000.

        "Securities Act" means the Securities Act of 1933.

                                       4
<PAGE>   6
        "Settlement Date" shall mean the sixth Trading Day following the Draw
Down Date.

        "Trading Day" shall mean any day during which the Principal Market shall
be open for trading.

        "Transaction Documents" means, collectively, this Agreement and
the Registration Rights Agreement.

        "Valuation Period" shall mean the period of five (5) consecutive Trading
Days following the Trading Day on which a Draw Down Notice is delivered or
deemed to be delivered pursuant to Section 2.03(b) hereof.

        "VWAP" for any given Trading Day shall mean the daily volume weighted
average price of the Common Stock on such date on the Principal Market as
reported by Bloomberg Financial using the AQR function.

                                   ARTICLE II

                        SALE AND PURCHASE OF COMMON STOCK

        SECTION 2.01. INVESTMENTS. (a) Purchase and Sale of Common Stock.
Subject to the terms and conditions of this Agreement, the Company, at its sole
and exclusive option, may issue and sell to the Investor, and the Investor shall
purchase from the Company shares of the Company's Common Stock (based upon each
of the five (5) Trading Days occurring during a Valuation Period), based on such
number of Draw Downs (subject to the Maximum Draw Down Amount and the Minimum
Draw Down Amount) as the Company, in its sole discretion, shall choose to
deliver during the Commitment Period until the aggregate Investment Amount with
respect to Common Shares purchased under this Agreement equals $20,000,000 or
this Agreement is otherwise terminated.

        (b) Draw Downs. Upon the terms and subject to the conditions set forth
herein, on any Trading Day as provided in Section 2.03(b) hereof during the
Commitment Period on which the conditions set forth in Section 6.02 and 6.03
hereof have been satisfied, the Company may exercise a Draw Down by the delivery
of a Draw Down Notice to the Investor. The aggregate number of Draw Down Shares
that the Investor shall be obligated to purchase pursuant to such Draw Down
shall be determined in accordance with Section 2.03(c). Each Draw Down will be
settled on the applicable Settlement Date following the Draw Down Date.

        (c) Maximum Amount of Draw Down Shares. Unless the Company obtains the
approval of its stockholders in accordance with the applicable rules of the
Principal Market, no more than 6,812,400 shares of Common Stock (the "Maximum
Share Amount") may be issued and sold pursuant to all Draw Downs hereunder.

        SECTION 2.02. EFFECTIVENESS. The effectiveness of this Agreement (the
"Closing") shall be deemed to take place concurrently with the execution and
delivery of this Agreement by the parties hereto and the completion of the
closing transactions set forth in the immediately following sentence. At the
Closing, the following closing transactions shall take place, each of

                                       5
<PAGE>   7
which shall be deemed to occur simultaneously with the Closing: (i) the Company
and the Investor shall execute and deliver the Registration Rights Agreement;
(ii) Company shall deliver to the Investor a certificate executed by the
Secretary of the Company, signing in such capacity, dated the date of the
Closing (A) certifying that attached thereto are true and complete copies of the
resolutions duly adopted by the Board of Directors of the Company authorizing
the execution and delivery of the Transaction Documents and the consummation of
the transactions contemplated thereby (including, without limitation, the
reservation and issuance of the Common Stock pursuant to this Agreement), which
authorization shall be in full force and effect on and as of the date of such
certificate and (B) certifying and attesting to the office, incumbency, due
authority and specimen signatures of each Person who executed any Transaction
Document for or on behalf of the Company; (iii) the Company shall deliver to the
Investor a certificate executed by an executive officer of the Company,
confirming the accuracy of the representations and warranties of the Company
contained in this Agreement; (iv) Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel to the Company, shall deliver to the Investor an opinion,
dated the date of the Closing and addressed to the Investor, covering customary
matters; and (iv) the Company shall pay the expenses set forth in Section 9.02
hereof by wire transfer to the account designated by the Investor in writing
prior to the Closing.

        SECTION 2.03. MECHANICS OF DRAW DOWNS. (a) Draw Down Notice. On any
Trading Day during the Commitment Period, the Company may deliver a Draw Down
Notice to the Investor, subject to the satisfaction of the conditions set forth
in Sections 6.02 and 6.03; provided, however, the Investment Amount for each
Draw Down as designated by the Company in the applicable Draw Down Notice shall
be neither less than the Minimum Draw Down Amount nor more than the Maximum Draw
Down Amount (as determined as of the applicable Draw Down Date); provided
further, however, that if the Maximum Draw Down Amount as of the applicable Draw
Down Date is less than the Minimum Draw Down Amount, the Company shall not be
entitled to deliver any such Draw Down Notice.

        (b) Delivery of Draw Down Notice. (i) A Draw Down Notice shall be deemed
delivered on a Trading Day if it is received by facsimile or otherwise (and the
Company confirms such delivery by e-mail notice or by telephone (including
voicemail message)) by the Investor prior to 3:00 p.m., New York City time on
such Trading Day, or (ii) in the event it is received by facsimile or otherwise
subsequent to 3:00 p.m., New York City time, on a Trading Day, then it shall be
deemed delivered on the immediately succeeding Trading Day. No Draw Down Notice
may be delivered other than on a Trading Day during the Commitment Period.

        (c) Determination of Draw Down Shares Issuable. Subject to Section
2.03(d) and (e) hereof, the number of Draw Down Shares to be purchased by the
Investor with respect to any Draw Down shall be determined on a daily basis on
each Trading Day during the applicable Valuation Period and shall equal with
respect to any such Trading Day the quotient of (x) one-fifth (1/5) of the
Investment Amount, divided by (y) the Purchase Price for such Trading Day. The
portion of the Investment Amount for which Draw Down Shares may be issued for
each Trading Day during the Valuation Period may not exceed one-fifth (1/5) of
the Investment Amount.

        (d) Floor Price Limitation. If the VWAP on any Trading Day during a
Valuation Period is less than the Floor Price specified in the applicable Draw
Down Notice, the Company

                                       6
<PAGE>   8
shall not sell and the Investor shall not purchase the Draw Down Shares
otherwise to be purchased for such Trading Day. In such case, the Investment
Amount shall be reduced by one-fifth (1/5) of the Investment Amount for each
such Trading Day.

        (e) Minimum Trading Hours Limitation. In the event that the Common Stock
is not listed and approved for trading on a Principal Market and free from any
halts or suspensions of trading (whether imposed generally on such Principal
Market or specifically with respect to the Common Stock) for a period of at
least six (6) hours on any Trading Day during a Valuation Period, then the
Company shall not sell and the Investor shall not purchase the Draw Down Shares
otherwise to be purchased in respect of such Trading Day. In such case, the
Investment Amount shall be reduced by one-fifth (1/5) of the Investment Amount
for each such Trading Day.

        (f) The Company shall not be subject to any penalty, liability for
damages or any other obligation to the Investor, including its affiliates,
successors and assigns, for any reduction of the Investment Amount or the Draw
Down Shares pursuant to this Section 2.03.

        SECTION 2.04. SETTLEMENTS. Subject to the provisions of Section 6.04, on
each Settlement Date the Company shall, unless otherwise instructed by the
Investor, cause the Transfer Agent to electronically transmit shares of Common
Stock to the Investor (by crediting the account of the Investor's Prime Broker,
as designated by the Investor, with the Depository Trust Company through its
Deposit Withdrawal Agent Commission system ("DWAC Transfer")) representing the
Draw Down Shares to be purchased by the Investor on such Settlement Date with
respect to the Draw Down Period immediately preceding such Settlement Date
pursuant to Section 2.03(c) hereof against delivery by the Investor of the
portion of the Investment Amount representing the Draw Down Shares to be
purchased on such Settlement Date by wire transfer immediately of available
funds to an account designated by the Company on or before the Settlement Date.
In addition, on or prior to each such Settlement Date, each of the Company and
the Investor shall deliver all documents, instruments and writings required to
be delivered by either of them pursuant to this Agreement in order to implement
and effect the transactions contemplated herein.

        The Investor acknowledges that although the Draw Down Shares acquired
from the Company pursuant to a DWAC Transfer do not bear a restrictive legend,
they constitute "restricted securities" within the meaning of the Securities Act
and the Investor agrees it will transfer the Draw Down Shares through the
facilities of The Depository Trust Company only pursuant to the Registration
Statement or pursuant to Rule 144 under the Securities Act.

        SECTION 2.05. DAMAGES FOR LATE DELIVERY OR NON-DELIVERY OF DRAW DOWN
SHARES; INVESTOR RIGHT TO VOID DRAW DOWN NOTICE. (a) In the event the Draw Down
Shares are not delivered by the Company on any Settlement Date (or are not
delivered at all, as contemplated by Section 6.04 or otherwise) other than as a
result of the fault of the Investor, the Company will pay the Investor, the
actual damages, if any, incurred by the Investor as a result of such late
delivery or non-delivery. For purposes of the foregoing, the actual damages of
the Investor shall mean the actual costs, penalties and interest expense
incurred by the Investor resulting from its failure to deliver on the Settlement
Date any Draw Down Shares it was entitled to receive from the Company on any
Settlement Date to any unaffiliated third party to whom it had agreed to

                                       7
<PAGE>   9
deliver shares of Common Stock. The Investor agrees to act in good faith and use
commercially reasonable efforts to minimize its actual damages in any such event
and shall provide the Company with a detailed calculation of its actual damages
and supporting documentation therefor. Such amount may be offset by the Investor
against the portion of the Investment Amount otherwise payable by the Investor
with respect to such Draw Down Shares or future payment obligations of the
Investor with respect to subsequent Draw Down Notices. No amounts shall be
payable in the event the Investor does not incur any actual damages. In the
event the Company does not deliver Draw Down Shares within five (5) Trading Days
of the Settlement Date, the Investor may, by written notice to the Company
cancel such transaction with respect to the Draw Down Shares not delivered.

        (b) The Company may not deliver a Draw Down Notice in the event (1) all
prior required deliveries of Draw Down Shares have not been made and the
Investor has not cancelled the transaction pursuant to Section 2.05(a) or (2)
the Company has not paid any amounts owed to the Investor pursuant to Section
2.05(a) unless, in connection with such notice, the Company shall have advised
the Investor in writing that the Investor may offset the amounts payable by the
Company (which amount shall be set forth in such notice and shall be consistent
with the Investor's calculation thereof) against the portion of the Investment
Amount otherwise payable by the Investor with respect to such Draw Down Notice.

                                   ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

        As a material inducement to the Investor to enter into this Agreement,
the Company hereby represents and warrants to the Investor that, except as set
forth in the Disclosure Schedules delivered by the Company to the Investor and
attached hereto, on and as of the date hereof:

        SECTION 3.01. ORGANIZATION AND STANDING. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority necessary for it to own its properties
and assets and to carry on its business as it is now being conducted (and, to
the extent described therein, as described in the SEC Reports) and proposed to
be conducted. The Company and each of its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
character of the properties owned or leased by it or the nature of its
businesses makes such qualification necessary, except where the failure to so
qualify or be in good standing would not have a material adverse effect on the
business, assets, operations or financial condition of the Company and its
subsidiaries, taken as a whole, or any adverse effect on the Company's ability
to consummate the transactions contemplated by, or to execute, deliver and
perform its obligations under, each of the Transaction Documents (a "Material
Adverse Effect").

        SECTION 3.02. SECURITIES OF THE COMPANY. The authorized Capital Stock of
the Company consists of 150,000,000 shares of Common Stock and 10,000,000 shares
of preferred stock; as of June , 2001, [         ] shares of common stock and no
shares of preferred stock were outstanding and [        ] shares of Common Stock
were reserved for issuance upon

                                       8
<PAGE>   10
exercise of outstanding convertible securities, warrants or pursuant to the
Company's Amended and Restated 1993 Stock Plan, 2000 Nonstatutory Stock Option
Plan, 1999 Employee Stock Purchase Plan, 1999 Director Stock Option Plan and
SmartSAN 1998 Equity Incentive Plan (collectively, the "Plans"). Except as set
forth in the SEC Reports and the Disclosure Schedules, the Company has no other
authorized, issued or outstanding equity securities or securities containing any
equity features, or any other securities convertible into, exercisable for,
exchangeable for or entitling any person to otherwise acquire any other
securities of the Company containing any equity features. The Company has no
stock option, incentive or similar plan other than the Plans under which the
issuance of [     ] shares of Common Stock may be issued. All of the outstanding
shares of Capital Stock of the Company have been duly and validly authorized and
issued, and are fully paid and nonassessable. The Common Shares in an amount up
to the Maximum Share Amount) have been duly and validly authorized and have been
duly reserved, and will remain available for issuance pursuant to this
Agreement. When issued against payment therefor as provided in this Agreement,
the Common Shares will be validly issued, fully paid and nonassessable, free and
clear of all preemptive rights, claims, liens, charges, encumbrances and
security interests of any nature whatsoever. Except as set forth in this Section
3.02, the SEC Reports or the Disclosure Schedules, there are no outstanding
options, warrants, conversion rights, subscription rights, preemptive rights,
rights of first refusal or other rights or agreements of any nature outstanding
to subscribe for or to purchase any shares of Capital Stock of the Company or
any other securities of the Company of any kind binding on the Company. The
issuance of the Common Shares pursuant to this Agreement is not subject to any
preemptive rights, rights of first refusal or other similar limitation. Except
as otherwise required by law, there are no restrictions upon the voting or
transfer of any shares of the Company's Capital Stock pursuant to the Company's
Certificate of Incorporation, bylaws or other documents. Except as provided
herein or in the other Transaction Documents, there are no agreements or other
obligations (contingent or otherwise) that may require the Company to repurchase
or otherwise acquire any shares of its Capital Stock.

        SECTION 3.03. AUTHORIZATION; ENFORCEABILITY. The Company has the
corporate power and authority to execute, deliver and perform the terms and
provisions of each of the Transaction Documents to be executed, delivered or
performed by it and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of, and the consummation of the
transactions contemplated by, the Transaction Documents. No other corporate
proceeding on the part of the Company is necessary, and no consent of any
shareholder of the Company is required, for the valid execution and delivery by
the Company of the Transaction Documents, and except as described in Section
5.06 hereof, the performance and consummation by the Company of the transactions
contemplated by the Transaction Documents to be performed by the Company. The
Company has duly executed and delivered, or concurrently herewith is executing
and delivering, each of the Transaction Documents. Assuming the due execution of
this Agreement and the Registration Rights Agreement by the Investor, this
Agreement and the Registration Rights Agreement constitute the valid and binding
obligations of the Company, enforceable against the Company in accordance with
each of their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).

                                       9
<PAGE>   11
        SECTION 3.04. NO VIOLATION; CONSENTS.

        (a) The execution, delivery and performance by the Company of the
Transaction Documents and the consummation of the transactions contemplated
thereby to be performed by the Company do not and will not (i) contravene the
applicable provisions of any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or Governmental Authority to or by
which the Company or any of its subsidiaries or any of its respective property
or assets is bound, (ii) violate, result in a breach of or constitute (with due
notice or lapse of time or both) a default or give rise to an event of
acceleration under any material contract, lease, loan or credit agreement,
mortgage, security agreement, trust indenture or other agreement or instrument
to which the Company is a party or by which it or any of its subsidiaries is
bound or to which any of its respective properties or assets is subject, nor
result in the creation or imposition of any lien, security interest, charge or
encumbrance of any kind upon any of the properties, assets or Capital Stock of
the Company or any of its subsidiaries, or (iii) violate any provision of the
organizational and other governing documents of the Company or any of its
subsidiaries.

        (b) No consent, approval, authorization or order of, or filing or
registration with, any court or Governmental Authority or other Person is
required to be obtained or made by the Company for the execution, delivery and
performance of the Transaction Documents or the consummation of any of the
transactions contemplated thereby (other than (i) the registration of the resale
of the Common Shares with the Commission and pursuant to any state "blue sky"
laws as contemplated by the Registration Rights Agreement, (ii) the stockholder
approval required by the rules applicable to companies whose common stock is
quoted on NASDAQ described in Section 5.06 hereof and (iii) the filing of a Form
D with the Commission), except for those consents or authorizations previously
obtained and those filings previously made.

        SECTION 3.05. SECURITIES ACT REPRESENTATIONS. The Company has not
offered or sold and will not offer or sell any shares of its Capital Stock in
this offering other than to the Investor. Assuming the accuracy of the
Investor's representations pursuant to Section 4.02 hereof, the sale of the
Common Shares hereunder will be, exempt from the registration requirements of
the Securities Act. Neither the Company, nor any of its Affiliates, or, to its
knowledge, any Person acting on its or their behalf has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) in connection with the offer or sale of the Common
Shares hereunder. Neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security other than
pursuant to this Agreement under circumstances that would require registration
under the Securities Act of the Common Shares to be issued under this Agreement.
As of the date of this Agreement, the Company is eligible to use Form S-3 under
the Securities Act to file the Registration Statement (as defined in the
Registration Rights Agreement).

        SECTION 3.06. SOLVENCY; NO DEFAULT. (a) The Company is, and upon giving
effect to the transactions contemplated hereby to be performed by it as of the
Closing will be, Solvent. "Solvent" means that, as of the date of determination,
(i) the then fair saleable value of the assets of the Company (on a consolidated
basis) exceeds the then total amount (on a consolidated basis) of its debts and
other liabilities, (including any guarantees and other contingent, subordinated,

                                       10
<PAGE>   12
unmatured or unliquidated liabilities whether or not reduced to judgment,
disputed or undisputed, secured or unsecured), (ii) the Company has sufficient
funds and cash flow to pay its liability on its existing debts as they become
absolute and matured, (iii) final judgments against the Company in pending or,
to the Company's knowledge, threatened actions for money damages will not be
rendered at a time when, or in an amount such that, the Company will be unable
to satisfy any such judgments promptly in accordance with their terms (taking
into account (a) the maximum reasonable amount of such judgments in any such
actions (other than amounts that would be remote), (b) the earliest reasonable
time at which such judgments would be rendered and (c) any reasonably expected
insurance recovery with respect thereto), and (iv) the Company does not have
unreasonably small capital with which to engage in its present business.

        (b) The Company is not, and immediately after the consummation of the
transactions contemplated hereby to be performed by the Company will not be, in
default of (whether upon the passage of time, the giving of notice or both) its
organizational and other governing documents, or any provision of any security
issued by the Company, or of any agreement, instrument or other undertaking to
which the Company is a party or by which it or any of its property or assets is
bound, or the applicable provisions of any law, statute, rule, regulation,
order, writ, injunction, judgment or decree of any court or Governmental
Authority to or by which the Company or any of its property or assets is bound,
which default or violation, either individually or in the aggregate, is likely
to have a Material Adverse Effect.

        SECTION 3.07. NO BROKERS. Other than Shoreline Pacific Institutional
Finance, the Institutional Division of Financial West Group, no broker, finder,
agent or similar intermediary is entitled to any broker's, finder's, placement
or similar fee or other commission in connection with the transactions
contemplated hereby based on any agreement, arrangement or understanding with
the Company.

        SECTION 3.08. SEC REPORTS; FINANCIAL CONDITION; NO ADVERSE CHANGES. (a)
The unaudited consolidated financial statements of the Company as of March 31,
2001, copies of which are publicly available, present fairly the financial
condition and results of operations of the Company (on a consolidated basis) at
such date and for the periods set forth therein (such consolidated financial
statements, the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles as set
forth in the opinions and pronouncements of the Accounting Principles Board of
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board as in effect on the
date of filing of such documents with the Commission, applied on a consistent
basis (except for changes concurred in by the Company's independent public
accountants) unless otherwise expressly stated therein. Except as disclosed in
the SEC Reports, during the period from April 1, 2001 to and including the date
hereof, there has been no sale, transfer or other disposition by the Company of
any material part of the business, property or securities of the Company and no
purchase or other acquisition of any business, property or securities by the
Company material in relation to the financial condition of the Company.

        (b) Except as are fully reflected or reserved against in the Financial
Statements, there are no liabilities or obligations with respect to the Company
or any of its subsidiaries of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether or not due) which would have been required
to be disclosed in the balance sheets included in the Financial

                                       11
<PAGE>   13
Statements that, either individually or in the aggregate, after taking into
account (a) the maximum reasonable amount of any liability that may arise on
account of any litigation or any other contingent liability or obligation (other
than amounts that would be remote), (b) the earliest reasonable time at which
any such liability or obligation may become due and (c) any reasonably expected
insurance recovery with respect thereto, could reasonably be expected to have a
Material Adverse Effect.

        (c) Since March 31, 2001, except as set forth in the SEC Reports and the
Disclosure Schedules, there has been no development or event, nor any
prospective development or event known to the Company or any of its
subsidiaries, or any litigation, proceeding or other action seeking an
injunction or other restraining order, damages or other relief from a court or
administrative agency of competent jurisdiction pending, threatened or, to the
knowledge of the Company, contemplated, or any action of any Governmental
Authority, that has had or is likely to have a Material Adverse Effect (provided
that any changes resulting from general economic conditions or the computer
storage industry in general or fluctuations in the market price of the Company's
Common Stock shall not be deemed to constitute a "Material Adverse Effect" for
purposes hereof).

        SECTION 3.09. USE OF PROCEEDS; FEDERAL REGULATIONS. No part of the net
proceeds from the sale of the Common Stock issued hereunder will be used in a
manner that would violate the provisions of Regulation T, U or X of the Board of
Governors of the Federal Reserve System. The Company will not use such proceeds
other than for or in connection with general working capital purposes.

        SECTION 3.10. SUBSIDIARIES. As of the date hereof, the Company has no
subsidiaries other than those set forth in the SEC Reports.

        SECTION 3.11. NO INTEGRATED OFFERING. Neither the Company, nor any of
its Affiliates, nor to its knowledge any Person acting on its or their behalf,
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would require
registration under the Securities Act of the offer and sale of the Common Stock
hereunder.

        SECTION 3.12. NO LITIGATION. Except as set forth in the SEC Reports or
the Disclosure Schedules, no litigation or claim (including those for unpaid
taxes), or environmental proceeding against the Company or any of its
subsidiaries is pending, threatened or, to the Company's best knowledge,
contemplated that, if determined adversely, would (after taking into
consideration any reasonably expected insurance recovery with respect thereto)
have a Material Adverse Effect on the Company.

        SECTION 3.13. ENVIRONMENTAL MATTERS. The Company and each of its
subsidiaries is in compliance in all material respects with all applicable state
and federal environmental laws, and no event or condition has occurred that may
interfere in any material respect with the compliance by the Company or any of
its subsidiaries with any environmental law or that may give rise to any
liability under any environmental law that, individually or in the aggregate,
would have a Material Adverse Effect.

                                       12
<PAGE>   14
        SECTION 3.14. INTELLECTUAL PROPERTY. The Company (and/or its
subsidiaries) owns or has licenses to use certain patents, copyrights and
trademarks ("intellectual property") associated with its business. The Company
and its subsidiaries have all intellectual property rights that are needed to
conduct the business of the Company and its subsidiaries as it is now being
conducted as disclosed in the SEC Reports. To the Company's knowledge, the
intellectual property rights that the Company (and/or its subsidiaries) owns are
valid and enforceable. To the Company's knowledge, the use of such intellectual
property by the Company (and/or its subsidiaries') does not infringe upon or
conflict with any right of any third party, and neither the Company nor any of
its subsidiaries has received notice, written or otherwise, of any such
infringement or conflict. Except as set forth in the SEC Reports, the Company
has no knowledge of any infringement of its (and/or its subsidiaries)
intellectual property by any third party.

        SECTION 3.15. INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. The Company has no reason to believe that it and its
subsidiaries will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in
cost.

        SECTION 3.16. RELATED PARTY TRANSACTIONS. Except as disclosed in the SEC
Reports and the Disclosure Schedules none of the officers, directors, employees
or 5% or greater shareholders of the Company is presently a party to any
transaction with the Company or any of its subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or the advances of money or
otherwise requiring payments to or from any such officer, director, employee or
shareholder or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any such officer, director, employee or
shareholder has a substantial interest or is an officer, director, trustee or
partner.

        SECTION 3.17. PERMITS. The Company and each of its subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits except for such Company
Permits the failure of which to possess, or the cancellation or suspension of
which, would not, individually or in the aggregate, have a Material Adverse
Effect. To the best of its knowledge neither the Company nor any of its
subsidiaries is in material conflict with, or in material default or material
violation of, any of the Company Permits.

        SECTION 3.18. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally

                                       13
<PAGE>   15
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

        SECTION 3.19. TAX RETURNS. Except as set forth in the Disclosure
Schedules, the Company has filed or caused to be filed all Federal tax returns
and all material state and local tax returns required to have been filed by it
and has paid or caused to be paid all taxes shown to be due and payable by it on
such returns or on any assessments received by it, except any such tax, the
validity or amount of which is being contested in good faith by appropriate
proceedings and as to which the Company has set aside on its books adequate
reserves with respect thereto in accordance with generally accepted accounting
principles. Neither the Company nor its subsidiaries has received any tax
assessment, notice of audit, notice of proposed adjustment or deficiency notice
from any taxing authority.

        SECTION 3.20. DISCLOSURE. The representations and warranties of the
Company in this Agreement and the statements contained in the SEC Reports and
the Disclosure Schedules and the schedules, certificates and exhibits furnished
to the Investor by or on behalf of the Company in connection herewith do not
contain any untrue statement of a material fact and do not omit to state any
material fact necessary to make the statements herein or therein not misleading.
The SEC Reports contain all material information concerning the Company required
to be set forth therein, and no event or circumstance has occurred or exists
since December 31, 2000, that would require the Company to disclose such event
or circumstance in order to make the statements in the SEC Reports not
misleading as of the date of the Closing but that has not been so disclosed. The
Company hereby acknowledges that the Investor is and will be relying on the SEC
Reports and the Company's representations, warranties and covenants contained
herein in making an investment decision with respect to the Common Shares and
will be relying thereon (together with future reports filed with the Commission)
in connection with any transfer of Common Shares.

                                   ARTICLE IV

            REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

        The Investor hereby acknowledges, represents, warrants and covenants, to
the Company as follows:

        SECTION 4.01. AUTHORIZATION; ENFORCEABILITY; NO VIOLATIONS.

        (a) The Investor is duly organized, validly existing and in good
standing under the laws of its jurisdiction, has all requisite power and
authority to execute, deliver and perform the terms and provisions of this
Agreement and the Registration Rights Agreement and has taken all necessary
action to authorize the execution, delivery and performance by it of this
Agreement and the Registration Rights Agreement and to consummate the
transactions contemplated hereby and thereby to be performed by it.

                                       14
<PAGE>   16
        (b) The execution, delivery and performance by the Investor of this
Agreement and the Registration Rights Agreement and the consummation by the
Investor of the transactions contemplated hereby and thereby to be performed by
it do not and will not violate any provision of (i) the Investor's
organizational documents or (ii) any law, statute, rule, regulation, order,
writ, injunction, judgment or decree to which the Investor is subject. The
Investor has duly executed and delivered this Agreement and has executed and
delivered, or concurrently herewith is executing and delivering, the
Registration Rights Agreement. Assuming the due execution hereof and thereof by
the Company, each of this Agreement and the Registration Rights Agreement
constitutes the legal, valid and binding obligation of the Investor, enforceable
against the Investor in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).

        SECTION 4.02. SECURITIES ACT REPRESENTATIONS; LEGENDS.

        (a) The Investor understands that: (i) the offering and sale of the
Common Shares to be issued and sold hereunder is intended to be exempt from the
registration requirements of the Securities Act; (ii) the initial offer and sale
of the Common Shares issuable hereunder has not been registered under the
Securities Act or any other applicable securities laws and such securities may
be resold only if registered under the Securities Act and any other applicable
securities laws or if an exemption from such registration requirements is
available; and (iii) the Company is required to register any resale of the
Common Shares under the Securities Act and any other applicable securities laws
only to the extent provided in the Registration Rights Agreement.

        (b) The Investor represents that the Common Shares to be acquired by the
Investor pursuant to this Agreement are being acquired for its own account and
not with a view to, or for sale in connection with, any distribution thereof or
(other than the resale of such Common Shares pursuant to an effective
registration statement as contemplated by the Registration Rights Agreement) in
violation of the Securities Act or any other securities laws that may be
applicable.

        (c) The Investor represents that the Investor is not an affiliate (as
such term is defined in the Securities Act) of the Company.

        (d) The Investor (i) has sufficient knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of its investment in the Common Stock and is capable of bearing the
economic risks of such investment, including a complete loss of its investment
in the Common Shares; (ii) believes that its investment in the Common Shares is
suitable for it based upon its objectives and financial needs, and the Investor
has adequate means for providing for its current financial needs and business
contingencies and has no present need for liquidity of investment with respect
to the Common Shares; (iii) has no present plan, intention or understanding and
has made no arrangement to sell the Common Shares at any predetermined time or
for any predetermined price; (iv) has not purchased, sold or entered into any
put option, short position or similar arrangement with respect to the Common
Shares, and will not, for the term of this Agreement purchase, sell or enter
into any such put option, short

                                       15
<PAGE>   17
position or similar arrangement in any manner that violates the provisions of
the Securities Act or the Exchange Act.

        (e) The Investor acknowledges that no oral or written statements or
representations have been made to the Investor by or on behalf of the Company in
connection with the offering and sale of the Common Shares hereunder other than
those set forth in the SEC Reports, or as set forth herein or in the other
Transaction Documents, and the Investor represents that it is not subscribing
for the Common Shares as a result of, or in response to, any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media or broadcast over television or radio, or presented at any seminar
or meeting.

        (f) The Investor acknowledges that the Securities Act restricts the
transferability of securities, such as the Common Shares, issued in reliance
upon the exemption from the registration requirements of the Securities Act
provided by Section 4(2) thereunder, and that, unless sold pursuant to the
Registration Statement, the transfer of such Common Shares is restricted.

        (g) In the event that the Investor is required in the future to obtain
any third party approvals, governmental or otherwise, in connection with the
transactions contemplated by this Agreement, the Investor agrees it will use its
commercially reasonable efforts to obtain such approvals and the Company shall
not be penalized for any delays in obtaining, or the inability of the Investor
to obtain, such approvals; accordingly, the Commitment Period shall be extended
by the amount of any delays and the provisions of Section 9.13 shall not apply
if such approval is not obtained.

        SECTION 4.03. NO BROKERS. No broker, finder, agent or similar
intermediary is entitled to any broker's, finder's, placement or similar fee or
other commission in connection with the transactions contemplated hereby based
on any agreement, arrangement or understanding with the Investor.

        SECTION 4.04. TRADING GUIDELINES. The Investor has the right to sell
shares of Common Stock during the Commitment Period. The Investor agrees,
however, that from the date hereof until the end of the Commitment Period,
neither the Investor nor any of its affiliates will intentionally, directly or
indirectly, offer to sell, contract to sell or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of Common Stock other than
the shares of Common Stock which the Investor has purchased under this Agreement
(including for this purpose, in the case of a Draw Down Notice that has been
delivered, the number of Draw Down Shares issuable in connection with such Draw
Down Notice (assuming that the number of Draw Down Shares to be issued pursuant
to such Draw Down Notice equals the Investment Amount specified in such Draw
Down Notice divided by ninety-four percent (94%) of the Floor Price set forth in
such Draw Down Notice)). The Investor further agrees to use commercially
reasonable efforts to ensure that its affiliates comply with the foregoing
restrictions.

                                       16
<PAGE>   18
                                    ARTICLE V

                                    COVENANTS

        SECTION 5.01. EXEMPTION FROM REGISTRATION; LIMITATION ON ISSUANCE OF
SECURITIES.

        The Company will not make any offer to sell, solicit any offer to buy,
agree to sell or sell any security or right to acquire any security, except at
such time and in such manner so as not to cause the loss of any of the
exemptions for the offer and sale of the Common Shares from the registration
requirements under the Securities Act or under the securities or "blue sky" laws
of any jurisdiction in which such offer, sale or issuance is made.

        SECTION 5.02. TRANSFER RESTRICTIONS.

        The Investor acknowledges that any proposed offer, sale, pledge or other
transfer of Common Shares prior to the date that is two (2) years from the date
of issuance (or such other date as may be required pursuant to Rule 144 under
the Securities Act (or similar successor provision) as in effect from time to
time), in the absence of registration under the Securities Act, is limited.
Accordingly, prior to such passage of time or such registration, the Common
Shares may be offered, sold, pledged or otherwise transferred only (i) to the
Company, (ii) in an offshore transaction in accordance with Rule 904 under the
Securities Act, (iii) pursuant to any other exemption from registration provided
by the Securities Act, (iv) pursuant to Rule 144 under the Securities Act or (v)
pursuant to an effective registration statement under the Securities Act; in the
case of any transfer pursuant to clause (ii), (iii) or (iv), the Company shall
be entitled to receive an opinion of the selling Investor's counsel, in form and
substance reasonably satisfactory to the Company, to the effect that
registration is not required in connection with such disposition.

        SECTION 5.03. RULES 144; CURRENT INFORMATION. For so long as any Common
Shares constituting Registrable Securities are outstanding, the Company will (i)
cause its Common Stock to continue to be registered under Section 12 of the
Exchange Act, file all reports required to be filed by it under the Securities
Act and the Exchange Act and will take such further actions as the Investor may
reasonably request, all to the extent required from time to time to enable the
Investor to sell Common Shares without registration under the Securities Act
pursuant to the safe harbors and exemptions provided by Rule 144 under the
Securities Act (to the extent applicable), as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the Commission,
and (ii) furnish the Investor with all reports, proxy statements and
registration statements that the Company files with the Commission or
distributes to its securityholders pursuant to the Securities Act and the
Exchange Act at the times of such filings and distributions (unless such
documents are available electronically from the Commission or elsewhere without
charge and within a period reasonably contemporaneous with the filing thereof
with the Commission, in which case such documents need not be provided to the
Investor). Upon the request of the Investor, the Company will deliver to the
Investor a written statement as to whether it has complied with the foregoing
requirements.

        SECTION 5.04. RESERVATION OF COMMON SHARES. The Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued shares

                                       17
<PAGE>   19
of Common Stock or its issued shares of Common Stock held in its treasury, or
both, sufficient shares of Common Stock to provide for the issuance of the
Common Shares in an amount equal to the balance of the maximum number of Common
Shares issuable under this Agreement (assuming issuance at the Floor Price) not
then yet issued.

        SECTION 5.05. STOCK LISTING. The Company shall have the Common Shares in
an amount equal to the maximum number of Common Shares issuable under this
Agreement (assuming issuance at the Floor Price) approved for quotation or
listing, prior to issuance, upon the Principal Market upon which the Common
Stock is listed or traded at the time of issuance of such Common Shares and
shall use its commercially reasonably efforts to maintain such listing.

        SECTION 5.06. STOCKHOLDER APPROVAL. In order to satisfy Nasdaq's
stockholder approval requirements, the Company will use its best efforts to hold
a stockholders meeting as soon as reasonably practicable to obtain stockholder
approval to allow for the issuance to the Investor of the maximum number of
shares of Common Stock which the Investor could acquire in accordance with the
terms hereof (based on the Floor Price), which maximum amount could be deemed,
if integrated with certain prior issuances of securities, to be in excess of 20%
of the currently outstanding shares of Common Stock of the Company.

        SECTION 5.07. REPORTING STATUS. The Company's Common Stock is registered
under Section 12(g) of the Exchange Act. So long as the Investor beneficially
owns any of the Securities, the Company shall timely file all reports required
to be filed with the SEC pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination.

        SECTION 5.08. NO INTEGRATION. The Company shall not make any offers or
sales of any security (other than the Common Shares) under circumstances that
would require registration of the Common Shares being offered or sold hereunder
under the Securities Act or cause the offer and sale of Common Shares to be
integrated with any other offering of securities by the Company for the purpose
of any stockholder approval provision applicable to the Company or its
securities.

        SECTION 5.09. REGISTRATION RIGHTS. The Company shall cause the
Registration Rights Agreement to remain in full force and effect during its term
and the Company shall comply in all respects with the terms thereof.

        SECTION 5.10. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION;
SUSPENSION OF RIGHT TO DELIVER A DRAW DOWN NOTICE. The Company will immediately
notify the Investor upon the occurrence of any of the following events in
respect of the Registration Statement or related prospectus in respect of the
resale of the Registrable Securities: (i) receipt of any request for additional
information from the Commission or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement, the
response to which would require any amendments or supplements to the
Registration Statement or related prospectus; (ii) the issuance by the
Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the

                                       18
<PAGE>   20
suspension of the qualification or exemption from qualification of any of the
Securities for sale in any jurisdiction or the initiation of any proceeding for
such purpose or the threatening of any proceeding for such purpose which the
Company acting in good faith and based upon consideration of all relevant
factors believes will imminently result in a proceeding for such purpose; (iv)
the happening of any event that makes any statement made in the Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; (v) a post-effective amendment or supplement to the Registration to
reflect events covered by the Company's annual report on Form 10-K, quarterly
report or Form 10-Q or current report on Form 8-K is necessary or will be
necessary during the subsequent ten Trading Days, (vi) the withdrawal of any
relevant Comfort Letter or Periodic Accountant's Report; and (vii) the Company's
reasonable determination that a post-effective amendment or supplement to the
Registration Statement would otherwise be appropriate; and the Company will
promptly make available to the Investor any such supplement or amendment to the
related prospectus. The Company shall not deliver to the Investor any Draw Down
Notice during the continuation of any of the foregoing events and shall cancel
an existing Draw Down by delivering a Draw Down Cancellation Notice in the
manner required by Section 6.04 of this Agreement.

        SECTION 5.11. ISSUANCE OF DRAW DOWN SHARES. The sale and issuance of the
Draw Down Shares shall be made in accordance with the provisions and
requirements of Section 4(2) of the Securities Act and any applicable state law.

                                   ARTICLE VI

                       CONDITIONS TO DELIVERY OF DRAW DOWN
                      NOTICES AND CONDITIONS TO SETTLEMENT

        SECTION 6.01. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
ISSUE AND SELL COMMON STOCK. The obligation hereunder of the Company to issue
and sell the Draw Down Shares to the Investor incident to each Settlement is
subject to the satisfaction, at or before each such Settlement, of each of the
conditions set forth below.

        (a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date when made and as of the date of each such
Settlement as though made at each such time (except for representations and
warranties specifically made as of a particular date which shall be true and
correct in all material respects as of the date when made).

        (b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this

                                       19
<PAGE>   21
Agreement to be performed, satisfied or complied with by the Investor at or
prior to such Settlement.

        SECTION 6.02. CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO
DELIVER A DRAW DOWN NOTICE. The right of the Company to deliver a Draw Down
Notice hereunder is subject to the satisfaction, on the date of delivery of such
Draw Down Notice, of each of the following conditions:

        (a) Effective Registration Statement. As set forth in the Registration
Rights Agreement, the Registration Statement shall have previously been declared
effective and shall remain effective and sales of all of the Registrable
Securities (including all of the Draw Down Shares issued with respect to all
prior Draw Downs and all of the Draw Down Shares expected to be issued in
connection with the Draw Down specified by the current Draw Down Notice
(assuming for such purpose that the Purchase Price applicable to such Draw Down
is the Floor Price)) may be made by the Investor thereunder and (i) neither the
Company nor the Investor shall have received notice that the Commission has
issued or intends to issue a stop order with respect to the Registration
Statement or that the Commission otherwise has suspended or withdrawn the
effectiveness of the Registration Statement either, temporarily or permanently,
or intends to do so, (ii) no other suspension of the use or withdrawal of the
effectiveness of the Registration Statement or related prospectus shall exist
and (iii) no event specified in Section 5.10 shall have occurred and be
continuing.

        (b) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the applicable Draw Down
Date (with such representations and warranties to be appropriately updated to
reflect the passage of time, e.g., the definition of SEC Reports shall be deemed
to include reports filed subsequent to the date of this Agreement and Section
3.08 shall be deemed to also relate to the most recent publicly available
financial statements of the Company) as though made at such time (except for
representations and warranties specifically made as of a particular date which
shall be true and correct in all material respects as of the date when made).

        (c) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to such
date, nor shall there have occurred an Event of Default under this Agreement.

        (d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby that prohibits or directly and adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced that
may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.

                                       20
<PAGE>   22
        (e) Material Adverse Changes. For the thirty (30) days preceding the
date of delivery of such Draw Down Notice, no event that had or is reasonably
likely to have a Material Adverse Effect shall have occurred (provided that any
changes resulting from general economic conditions or the computer storage
industry in general or fluctuations in the market price of the Company's Common
Stock shall not be deemed to constitute a "Material Adverse Effect" for purposes
hereof).

        (f) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including without limitation the Draw Down Shares)
shall not have been suspended by the Commission, the Principal Market or the
NASD and the Common Stock (including without limitation the Draw Down Shares)
shall have been approved for listing or quotation on and shall not have been
delisted from the Principal Market.

        (g) Comfort Letter; Periodic Accountant's Report. The Comfort Letter(s)
in respect of the Registration Statement or any Form 8-K containing substantial
financial information incorporated by reference into the Registration Statement
shall have been delivered prior to the date of delivery of such Draw Down
Notice, reasonably satisfactory in form and substance to the Investors, and
shall not have been rescinded, and a Periodic Accountant's Report covering the
Company's most recently completed fiscal quarter (other than the fourth fiscal
quarter) in respect of which the Company has its results of operations shall
have been delivered prior to the date of delivery of such Draw Down Notice,
satisfactory in form and substance to the Investor, covering customary matters,
and shall not have been rescinded.

        (h) No Knowledge. The Company shall have no knowledge of any event that
would reasonably be expected to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective (which event is more likely
than not to occur within the five (5) Trading Days following the Trading Day on
which such Draw Down Notice is deemed delivered).

        (i) Trading Cushion. A period of five Trading Days shall have elapsed
since the delivery of the preceding Draw Down Notice.

        (j) Maximum Share Amount. Unless the Company has obtained the requisite
approval of its stockholders in accordance with the applicable rules of the
Principal Market, in no event may the Company issue a Draw Down Notice to sell
an Investment Amount to the extent that the sum of (x) the number of shares of
Common Stock represented by the quotient of (i) the requested Investment Amount,
divided by (ii) the Floor Price set forth in such Draw Down Notice, plus (y) the
cumulative total of all Common Shares issued under all previous Draw Downs
effected pursuant to this Agreement, would exceed the Maximum Share Amount.

        (k) Investment Amount Limitation. On each Draw Down Date, the Investment
Amount specified in the applicable Draw Down Notice may not exceed the dollar
amount which would result in a number of Draw Down Shares then to be purchased
by the Investor (for purposes of this Section 6.02(k), assuming that such number
of Draw Down Shares to be issued pursuant to such Draw Down Notice equals the
Investment Amount specified in such Draw Down Notice, divided by the Floor
Price) which would cause the Investor not to satisfy the conditions set forth in
the following two sentences. Notwithstanding any other provision of this
Agreement, the aggregate number of Common Shares issuable to the Investor in
respect of a

                                       21
<PAGE>   23
Draw Down, together with the shares of Common Stock then beneficially owned (as
defined in the Exchange Act) by the Investor and its affiliates, shall not
exceed 4.9% of the total outstanding shares of Common Stock as of such date (the
"4.9% Limitation"). The Investor agrees promptly to notify the Company if its
determines, based on its good faith estimate that the maximum number of Draw
Down Shares it may be required to purchase pursuant to a Draw Down Notice (based
upon the then current market price of the Common Stock and the Investor's good
faith estimate of the Maximum Draw Down Amount) would cause the Investor to
exceed the 4.9% Limitation. In addition, notwithstanding any other provision of
this Agreement during any consecutive 61-day period the Investor (together with
its affiliates) may not be issued Common Shares to the extent such purchase,
would in the aggregate exceed a number of shares of Common Stock exceeding 9.9%
of the Company's issued and outstanding shares of Common Stock as of the first
of such 61-day period nor may the Investor sell shares of Common Stock (whether
acquired) pursuant to this Agreement or otherwise) in excess of 9.9% of the
Company's issued and outstanding shares of Common Stock as of the first day of
such 61-day period (the "9.9% Limitation"). The foregoing limitations may not be
waived, amended or modified. The Company shall have no obligation to monitor
compliance with the foregoing limitations. In the event the issuance of the full
number of Common Shares pursuant to a Draw Down Notice (assuming the Common
Shares were to be issued based on the Floor Price specified in such Draw Down
Notice) would cause the Investor to be in violation of the foregoing
limitations, the Investor shall within one Business Day of receiving such Draw
Down Notice notify the Company and on the Settlement Date, the Investor shall
only be required to purchase such number of Common Shares (pro rated over the
Valuation Period) which would not cause the Investor to be in violation of such
limitations.

        (l) Prospectus Supplement. To the extent required by rules and
regulations of the Commission, a supplement to the prospectus included in the
Registration Statement (the "Prospectus Supplement"), in form and substance to
be agreed upon by the parties, setting forth information regarding the Draw Down
including, without limitation, the Draw Down Date, the Investment Amount, the
number of shares sold to the Investor in connection with all previous Draw
Downs, if not previously disclosed in an SEC Document, and any additional
information required by rules and regulations of the Commission, including Item
507 of Regulation S-K, shall have been filed with the Commission and sufficient
copies thereof delivered to the Investor on the Trading Day immediately
following the delivery of the Draw Down Notice.

        (m) Outside Counsel Letter. A letter of outside counsel with respect to
the Registration Statement, rendered in form and substance in which "10b-5"
letters are typically delivered, shall have been delivered, dated as of the date
of delivery, which date shall not be earlier than the later to occur of (i) the
effective date of the Registration Statement or any post-effective amendment or
any supplement thereto, (ii) the date of any filing of a Form 8-K by the Company
subsequent to the effective date of the Registration Statement, (iii) the date
of any filing of a Form 10-Q by the Company subsequent to the effective date of
the Registration Statement, (iv) the date of filing by the Company subsequent to
the effective date of the Registration Statement of an Annual Report on Form
10-K and (v) the date of delivery of a Draw Down Notice covering an Investment
Amount, when combined with the Investment Amount under all prior Draw Down
Notices since the last 10b-5 letter was rendered, exceeds $2,500,000.

                                       22
<PAGE>   24
        SECTION 6.03. DOCUMENTS REQUIRED TO BE DELIVERED ON EACH DRAW DOWN DATE.
The Investor's obligation to purchase Common Shares pursuant to a Draw Down
hereunder shall additionally be conditioned upon the delivery to the Investor of
a certificate in form and substance satisfactory to the Investor, executed by an
executive officer of the Company and to the effect that all the conditions to
such Draw Down Notice shall have been satisfied as at the date of such
certificate.

        SECTION 6.04. DRAW DOWN CANCELLATION.

        (a) Mechanics of Draw Down Cancellation. If at any time during a
Valuation Period, (i) any of the events specified in Section 5.10 of this
Agreement shall occur, (ii) any of the conditions precedent to a Draw Down set
forth in Section 6.02 shall no longer be satisfied as of any date during the
Valuation Period or (iii) the Company discovers that a document set forth in
Section 6.03(a) or (b) or the most recent applicable Comfort Letter(s) or
Periodic Accountant's Report(s) would not be deliverable in the precise form so
delivered if delivered as of such date during the Valuation Period, then the
Company shall cancel the Draw Down (a "Draw Down Cancellation") immediately by
delivering written notice to the Investor specifying the reasons therefor (the
"Draw Down Cancellation Notice"), by facsimile and overnight courier. The Draw
Down Cancellation Notice shall be deemed delivered on (i) the Trading Day it is
received by facsimile or otherwise by the Investor if such notice is received
prior to 5:00 p.m., New York City time, or (ii) the immediately succeeding
Trading Day if it is received by facsimile or otherwise after 5:00 p.m., New
York City time, on a Trading Day, or at any time on a day which is not a Trading
Day. No Draw Down Cancellation Notice may be deemed delivered on a day that is
not a Trading Day. "Draw Down Cancellation Date" shall be the date the Draw Down
Cancellation Notice is deemed delivered pursuant to the preceding sentence;
notwithstanding the foregoing, the Company shall not deliver Draw Down Shares
with respect to the non-canceled portion of the Investment Amount it would
otherwise be required to deliver on the applicable Settlement Date but shall be
required to compensate the Investor for its actual damages in respect of such
non-delivery as provided in Section 2.05(a).

        (b) Effect of Draw Down Cancellation. If a Draw Down Cancellation Notice
has been delivered to the Investor after a Draw Down Date, the Valuation Period
for such Draw Down shall (except as provided in the proviso to the succeeding
sentence) end on the Trading Day immediately preceding the Draw Down
Cancellation Date. In such event, the Investment Amount relating to such Draw
Down shall be reduced by one-fifth (1/5) with respect to each Trading Day during
the period beginning on and including the Draw Down Cancellation Date and ending
on the last Trading Day of such Valuation Period. Anytime a Draw Down
Cancellation Notice is delivered to the Investor, such Draw Down shall remain
effective as to the portion of the Investment Amount not canceled pursuant to
the preceding sentence.

                                   ARTICLE VII
                                   TERMINATION

        SECTION 7.01. TERM; TERMINATION BY MUTUAL CONSENT. Subject to the
provisions of Section 7.02, the term of this Agreement shall run until the end
of the Commitment Period; provided that the right of the Company to effect any
Draw Downs under this Agreement may be terminated at any time by mutual consent
of the parties. Notwithstanding the foregoing, the

                                       23
<PAGE>   25
Company may terminate this Agreement at any time provided that, simultaneously
with such termination, it shall make any payment required by Section 9.13.

        SECTION 7.02. TERMINATION BY THE INVESTOR. The Investor may terminate
the right of the Company to effect any Draw Downs under this Agreement upon one
(i) Trading Day's notice if any of the following events (each, an "Event of
Default") shall occur:

        (a) The Company (i) fails to issue shares of Common Stock to the
Investor on any Settlement Date as provided herein, (ii) fails to remove any
restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate or any shares of Common Stock issued to the Investor
as and when required by this Agreement or the Registration Rights Agreement, or
(iii) fails to fulfill its obligations pursuant to this Agreement (or makes any
announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph), and, in each of the cases described in
clauses (i) through (iii) above, any such failure shall continue uncured (or any
announcement, statement or threat not to honor its obligations shall not be
rescinded in writing) for five (5) Trading Days after the Company shall have
been notified thereof in writing by the Investor;

        (b) The Company fails to obtain effectiveness of the Registration
Statement within 180 days from the Closing Date, or fails to obtain the
effectiveness of any additional Registration Statement required to be filed
pursuant to the Registration Rights Agreement within ninety (90) days after the
occurrence of the event that requires such filing, or any such Registration
Statement, after its initial effectiveness, lapses in effect or sales of all of
the Registrable Securities otherwise cannot be made thereunder (whether by
reason of the Company's failure to amend or supplement the prospectus included
therein in accordance with the Registration Rights Agreement, the Company's
failure to file and obtain effectiveness with the Commission of an additional
Registration Statement required pursuant to the Registration Rights Agreement or
otherwise) for more than twenty (20) consecutive Trading Days or more than
eighty (80) Trading Days in any twelve (12) month period after such Registration
Statement becomes effective;

        (c) The Company or any subsidiary shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for all or substantially all of its property or business;
or such a receiver or trustee shall otherwise be appointed;

        (d) Bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company or any subsidiary of
the Company;

        (e) The Company shall fail to maintain the listing of the Common Stock
on a Principal Market or trading in such Common Stock shall otherwise be halted
or suspended for a period of ten (10) consecutive Trading Days;

        (f) The sale, conveyance or disposition of all or substantially all of
the assets of the Company, the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of (excluding a transaction or series of related
transactions in which such voting power is broadly disseminated

                                       24
<PAGE>   26
and no person or group of related persons acquires more than 20% of such voting
power pursuant to such transaction or series of related transactions so long as
the aggregate voting power held by the person or group of related persons as a
result thereof does not exceed 30% of the voting power of the Company), or the
consolidation, merger or other business combination of the Company with or into
any other Person or Persons when the Company is not the survivor;

        (g) The Company breaches any material representation, warranty
or covenant contained in this Agreement or the other Transaction
Documents; or

        (h) Since the date hereof, the Company's Common Stock shall have traded
below the Minimum Floor Price for a period of 30 consecutive Trading Days.

                                  ARTICLE VIII
                NON-DISCLOSURE OF MATERIAL NON-PUBLIC INFORMATION

        SECTION 8.01. NON-DISCLOSURE OF MATERIAL NON-PUBLIC INFORMATION.

        (a) The Company covenants and agrees that it shall refrain from
disclosing, and shall cause its officers, directors, employees and agents to
refrain from disclosing, any material non-public information to the Investor,
unless prior to disclosure of such information the Company identifies such
information as being material non-public information and provides the Investor
and its advisors and representatives with the opportunity to accept or refuse to
accept such material non-public information for review.

        (b) The Company acknowledges and understands that the Investor is
entering into this Agreement and the Registration Rights Agreement at the
request of the Company and in good faith reliance on (i) the Company's
representation set forth in this Agreement that neither it nor its agents have
disclosed to the Investor any material non-public information; and (ii) the
Company's covenant set forth in this Agreement that if the Company comes into
possession of any material non-public information, the Company shall timely make
full and complete public disclosure of such information in accordance with all
applicable securities laws.

        (c) Nothing herein shall require the Company to disclose material
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts; provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the Investor and its advisors and
representatives and, if any, underwriters, of the existence of any event or
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements therein, in light
of the circumstances in which they were made, not misleading.

                                       25
<PAGE>   27
                                   ARTICLE IX

                                  MISCELLANEOUS

        SECTION 9.01. PRESS RELEASES AND DISCLOSURE. The Company shall as soon
as practicable following the Closing Date but in no event more than five (5)
days following the Closing Date, shall file with the Commission a Current Report
on Form 8-K (or otherwise include in an Annual Report on Form 10-K) describing
the material terms of the transactions contemplated hereby. No party hereto
shall issue any press release or make any other public disclosure related to
this Agreement or any of the transactions contemplated hereby without the prior
written approval of the other party hereto, except as may be necessary or
appropriate in the opinion of the party seeking to make disclosure to comply
with the requirements of applicable law or stock exchange rules. If any such
press release or public disclosure is so required, the party making such
disclosure shall consult with the other party prior to making such disclosure,
and the parties shall use all reasonable efforts, acting in good faith, to agree
upon a text for such disclosure that is satisfactory to all parties.

        SECTION 9.02. EXPENSES. The Company will pay all of the Investor's
expenses (including reasonable attorneys' fees and expenses) in connection with
the negotiation of the Transaction Documents subject to a maximum of $35,000,
which shall be payable at the Closing.

        SECTION 9.03. NOTICES. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
that are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid or delivered by reputable air courier service
with charges prepaid, or transmitted by hand delivery, telegram, telex or
facsimile, addressed as set forth below, or to such other address as such party
shall have specified most recently by written notice: (i) if to the Company, to:
Gadzoox Networks, Inc., 5850 Hellyer Avenue, San Jose, CA 95138 Attention: David
Eichler, Facsimile No.: (408) 360-4951, with copies (which shall not constitute
notice) to: Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA
94304, Attention: Bruce McNamara, Facsimile No.: (650) 496-4367; and (ii) if to
the Investor, Societe Generale c/o SG Cowen Securities Corporation, 1221 Avenue
of the Americas, New York, NY 10020 Attention: Guillaume Pollet, Facsimile No.:
(212) 278-5467, with copies (which shall not constitute notice) to: Jones, Day,
Reavis & Pogue, 599 Lexington Avenue, New York, NY 10022, Attention: J. Eric
Maki, Facsimile No.: (212) 755-7306. Notice shall be deemed given on the date of
service or transmission if personally served or transmitted by telegram, telex
or facsimile. Notice otherwise sent as provided herein shall be deemed given on
the third business day following the date mailed or on the next business day
following delivery of such notice to a reputable air courier service.

        SECTION 9.04. ENTIRE AGREEMENT. This Agreement (together with the other
Transaction Documents and all other documents delivered pursuant hereto and
thereto) constitutes the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
representations, understandings, negotiations and discussions between the
parties, whether oral or written, with respect to the subject matter hereof.

                                       26
<PAGE>   28
        SECTION 9.05. AMENDMENT AND WAIVER. This Agreement may not be amended,
modified, supplemented, restated or waived except by a writing executed by the
party against which such amendment, modification or waiver is sought to been
enforced. Waivers may be made in advance or after the right waived has arisen or
the breach or default waived has occurred. Any waiver may be conditional. No
waiver of any breach of any agreement or provision herein contained shall be
deemed a waiver of any preceding or succeeding breach thereof nor of any other
agreement or provision herein contained. No waiver or extension of time for
performance of any obligations or acts shall be deemed a waiver or extension of
the time for performance of any other obligations or acts.

        SECTION 9.06. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights, duties and obligations hereunder may not be assigned or
delegated by the Company or the Investor. Any purported assignment or delegation
of rights, duties or obligations hereunder made without the prior written
consent of the other party hereto shall be void and of no effect. This Agreement
and the provisions hereof shall be binding upon and shall inure to the benefit
of each of the parties and their respective successors. This Agreement is not
intended to confer any rights or benefits on any Persons other than as set forth
above.

        SECTION 9.07. SEVERABILITY. This Agreement shall be deemed severable,
and the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.

        SECTION 9.08. FURTHER ASSURANCES. Each party hereto, upon the request of
any other party hereto, shall do all such further acts and execute, acknowledge
and deliver all such further instruments and documents as may be reasonably
necessary or desirable to carry out the transactions contemplated by this
Agreement.

        SECTION 9.09. TITLES AND HEADINGS. Titles, captions and headings of the
sections of this Agreement are for convenience of reference only and shall not
affect the construction of any provision of this Agreement.

        SECTION 9.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
INTERPRETED UNDER, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WITHIN THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.

        SECTION 9.11. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, all of which taken
together shall constitute one and the same instrument.

                                       27
<PAGE>   29
        SECTION 9.12. REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the VWAP, trading price or trading
volume of the Common Stock on any given Trading Day for the purposes of this
Agreement shall be Bloomberg Financial.

        SECTION 9.13. COMMITMENT FEE PAYMENT. In the event Company shall not
issue Draw Down Shares for an aggregate Investment Amount of at least $5,000,000
prior to the termination of this Agreement, the Company shall pay the Investor
the amount of $300,000 (pro rated for issuances prior to the termination of this
Agreement), payable two business days following termination of this Agreement.
Notwithstanding the foregoing, if this Agreement is terminated by the Company
for Cause, the Company shall not be obligated to make any payments to the
Investor. "Cause" for purposes of this Section 9.13 shall mean breach by the
Investor of any representation, warranty, covenant or other obligation of the
Investor set forth in this Agreement or the Registration Rights Agreement.

        SECTION 9.14. ADJUSTMENTS FOR STOCK SPLITS, ETC. The Maximum Share
Amount, the minimum Floor Price and calculations of the Average Daily Trading
Volume shall be equitably adjusted to reflect stock splits, stock dividends,
reverse stock splits and similar events.

                                       28
<PAGE>   30
        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.

                               GADZOOX NETWORKS, INC.

                               By:
                                   --------------------------------------------
                                   Name:  Michael Parides
                                   Title: President and Chief Executive Officer

                               SOCIETE GENERALE

                               BY:
                                   --------------------------------------------
                                   Name:  Guillaume Pollet
                                   Title: Authorized Signatory

                                       29
<PAGE>   31
                                    EXHIBIT A

                             GADZOOX NETWORKS, INC.

                                DRAW DOWN NOTICE

[Date]

Societe Generale
c/o SG Cowen Securities Corporation
1221 Avenue of the Americas
New York, New York 10022
Attn: Guillaume Pollet/John Lee

        Reference is made to the Equity Line Financing Agreement between Gadzoox
Networks, Inc. (the "Company") and Societe Generale dated as of June 28, 2001.
The Company confirms that all conditions to the delivery of this Draw Down
Notice are satisfied as of the date hereof.

Effective Date of Delivery of Draw Down Notice (determined pursuant to Section
2.03(b)):          .
         ----------

First Date of Valuation Period:                    .
                                -------------------

Last Date of Valuation Period:                      .
                               ---------------------

Settlement Date:                     .
                 --------------------

Draw Down Amount (not to exceed Maximum Draw Down Amount):                    .
                                                          -------------------

Calculation of Maximum Draw Down Amount:                   .
                                         ------------------

Floor Price Limitation (if none specified, $1.00):                  .
                                                  ------------------

                                        GADZOOX NETWORK, INC.

                                        By:
                                             -----------------------------------
                                             Name:
                                             Title:

<PAGE>   32
                             GADZOOX NETWORKS, INC.
                              DISCLOSURE SCHEDULES

        These Disclosures Schedules have been prepared and delivered in
connection with the Equity Line Financing Agreement, dated as of June 28, 2001
(the "Agreement") between Gadzoox Networks, Inc., a Delaware corporation (the
"Company") and Societe Generale. Except as otherwise defined herein, capitalized
terms used herein have the meanings assigned thereto in the Agreement.

        The descriptive headings herein are inserted for convenience of
reference only and shall in no way be construed to define, limit, describe,
explain, modify, amplify, or add to the interpretation, construction or meaning
of any matter disclosed in these Disclosure Schedules.

        Certain matters are described in these Disclosure Schedules for
information purposes notwithstanding the fact that, because they do not rise
above applicable materiality thresholds or otherwise, they are not required to
be listed by the terms of the Agreement. In no event shall the inclusion of such
matters in these Disclosure Schedules be deemed or interpreted to broaden or
otherwise amplify the representations and warranties contained in the Agreement.
No inclusion of a matter on the Disclosure Schedules shall constitute an
admission that a matter is "material" or would have a Material Adverse Effect.
These Disclosure Schedules are arranged by schedule corresponding to the
numbered and lettered paragraphs of the Agreement and any matter described in
response to one section of the Agreement shall be deemed to be described in
response to all applicable sections of the Agreement, whether or not there is an
express cross-reference.

<PAGE>   33
                                  SCHEDULE 3.01
                            ORGANIZATION AND STANDING

        The Company currently is not in good standing in the State of
Massachusetts because the Company did not pay its 2000 annual tax bill of $85.
The Company currently is in the process of refiling with the State of
Massachusetts.

                                      -2-
<PAGE>   34
                                  SCHEDULE 3.02
                            SECURITIES OF THE COMPANY

        The Company issued a warrant to Mission West Properties, L.P. II (the
Company's landlord) to purchase 50,000 shares of its common stock.

        The Company issued a warrant to Shoreline Pacific Equity Partners to
purchase 168,000 shares of its common stock.

        In May 2001, the Company sold 5,600,000 shares of its common stock in a
private placement transaction and received net proceeds of approximately $14.4
million. Under the terms of the purchase agreement, the Company is obligated to
register such shares of common stock on a Form S-3. In the event that the
registration statement is not declared effective on or before 360 days following
May 25, 2001, the Company shall be obligated to repurchase the shares from the
investors at 11% of the original purchase price.

                                      -3-
<PAGE>   35
                                  SCHEDULE 3.04
                             NO VIOLATION; CONSENTS

        The Company entered into a First Amended and Restated Registration and
Information Rights Agreement dated as of October 12, 1998 (the "Rights
Agreement") pursuant to which certain of the Company's stockholders have the
right to cause the Company to register its securities. Pursuant to the Rights
Agreement, the Company may not grant registration rights to any third party
unless such registration rights are subordinate to the registration rights
granted under the Rights Agreement. Accordingly, the registration rights granted
hereunder are expressly made subordinate to the registration rights granted in
the Rights Agreement.

                                      -4-
<PAGE>   36
                                SCHEDULE 3.08(c)
               SEC REPORTS; FINANCIAL CONDITION; NO ADVERSE CHANGE

        On June 6, 2001, a putative securities class action, captioned Cooper v.
Gadzoox Networks, Inc., et al., Civil Action No. 01-CV-5309-RO, was filed
against the Company, three of its former officers (Bill Sickler, Christine
Munson and Alistair Black), and Credit Suisse First Boston Corporation and
BancBoston Robertson Stephens, Inc., two underwriters in the Company's initial
public offering, in the United States District Court for the Southern District
of New York. The complaint alleges violations of Section 11 of the Securities
Act of 1933 ("Securities Act") against all defendants, a violation of Section 15
of the Securities Act against Sickler, Munson and Black, and violations of
Section 12(a)(2) of the Securities Act and Section 10(b) of the Securities
Exchange Act of 1934 (and Rule 10b-5, promulgated thereunder) against the
underwriters. The complaint seeks unspecified damages on behalf of a purported
class of purchasers of common stock between July 19, 1999 and December 6, 2000.
As of June 18, 2001, various plaintiffs have filed similar actions asserting
virtually identical allegations against at least 45 other companies. To date,
there have been no significant developments in the litigation. As of June 26,
2001, the Company has received two substantially identical lawsuits and
anticipates that additional related lawsuits may be brought with substantially
identical allegations to the Cooper lawsuit. The Company anticipates that all
such lawsuits will eventually be coordinated or consolidated with one another.
The Company intends to defend the lawsuit vigorously.

                                      -5-
<PAGE>   37
                                  SCHEDULE 3.12
                                  NO LITIGATION

        On June 6, 2001, a putative securities class action, captioned Cooper v.
Gadzoox Networks, Inc., et al., Civil Action No. 01-CV-5309-RO, was filed
against the Company, three of its former officers (Bill Sickler, Christine
Munson and Alistair Black), and Credit Suisse First Boston Corporation and
BancBoston Robertson Stephens, Inc., two underwriters in the Company's initial
public offering, in the United States District Court for the Southern District
of New York. The complaint alleges violations of Section 11 of the Securities
Act of 1933 ("Securities Act") against all defendants, a violation of Section 15
of the Securities Act against Sickler, Munson and Black, and violations of
Section 12(a)(2) of the Securities Act and Section 10(b) of the Securities
Exchange Act of 1934 (and Rule 10b-5, promulgated thereunder) against the
underwriters. The complaint seeks unspecified damages on behalf of a purported
class of purchasers of common stock between July 19, 1999 and December 6, 2000.
As of June 18, 2001, various plaintiffs have filed similar actions asserting
virtually identical allegations against at least 45 other companies. To date,
there have been no significant developments in the litigation. As of June 26,
2001, the Company has received two substantially identical lawsuits and
anticipates that additional related lawsuits may be brought with substantially
identical allegations to the Cooper lawsuit. The Company anticipates that all
such lawsuits will eventually be coordinated or consolidated with one another.
The Company intends to defend the lawsuit vigorously.

                                      -6-
<PAGE>   38
                                  SCHEDULE 3.15
                                    INSURANCE

        The Company does not maintain "key employee" insurance.

                                      -7-
<PAGE>   39
                                  SCHEDULE 3.16
                           RELATED PARTY TRANSACTIONS

       The Company extended loans to two executive officers in the aggregate
amount of $535,000 to finance a portion of the purchase price of their principal
residence. The notes bear interest at the rates of 6.0% and 6.3% and the
principal amounts due, plus interest, are forgiven over two and four year
periods, subject to certain conditions included in the terms of the notes.

                                      -8-
<PAGE>   40
                                 SCHEDULE 3.19
                                  TAX RETURNS

        The Company did not pay its Massachusetts 2000 annual tax bill of $85.

                                      -9-
<PAGE>   41
                                  SCHEDULE 3.20
                                   DISCLOSURE

        The Company's independent auditors have not yet made a determination as
to whether they will issue a "going concern" qualification to their audit
opinion with respect to their audit report to be filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2001.

                                      -10-

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