EXHIBIT 1.1
Digital Island, Inc.
__% Convertible Subordinated Notes due ______, 2005
___________
Underwriting Agreement
----------------------
______________, 2000
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co.,
Bear ▇▇▇▇▇▇▇ & Co., Inc.
▇▇▇▇▇▇ Brothers, Inc.
▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ &
▇▇▇▇▇ Incorporated
▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners LLC
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
Ladies and Gentlemen:
Digital Island, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
$175,000,000 principal amount of the Convertible Subordinated Notes, convertible
into Common Stock ("Stock") of the Company, specified above (the "Firm
Securities") and, at the election of the Underwriters, up to an aggregate of
$26,250,000 additional aggregate principal amount (the "Optional Securities")
(the Firm Securities and the Optional Securities which the Underwriters elect to
purchase pursuant to Section 2 hereof are herein collectively called the
"Securities").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, and may have filed an
amendment or amendments thereto, on Form S-1 (No. 333-_______), for the
registration of the Securities and shares of the Stock issuable upon
conversion thereof under the Securities Act of 1933, as amended (the
"Act"). Such registration statement, including the prospectus, financial
statements and schedules, exhibits and all other documents filed as a part
thereof (excluding Form T-1), as amended at the time of effectiveness of
the registration statement, including any information
deemed to be a part thereof as of the time of effectiveness pursuant to
paragraph (b) of Rule 430A or Rule 434 of the Rules and Regulations of the
Commission under the Act (the "Regulations"), is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the Regulations is herein called the "462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The prospectus, in the form
first filed with the Commission pursuant to Rule 424(b) of the Regulations
or filed as a part of the Registration Statement at the time of
effectiveness if no Rule 424(b) or Rule 434 filing is required, is herein
called the "Prospectus." The term "preliminary prospectus" as used herein
means a preliminary prospectus as described in Rule 430 of the Regulations.
For purposes of this Agreement, all references to the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment,
supplement or term sheet with respect to any of the foregoing shall be
deemed to include the copy of such documents filed with the Commission
pursuant to its statement for the registration of the Securities and shares
of the Stock issuable upon conversion thereof or any amendment thereto or
pursuant to Rule 424(a) of the Regulations) and when any amendment or
supplement thereto was first filed with the Commission, such preliminary
prospectus and any amendments and supplements thereto complied in all
material respects with the applicable provisions of the Act, the Electronic
Data Gathering, Analysis and Retrieval system ("▇▇▇▇▇") and the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Neither the
Commission nor the Blue Sky or securities authority of any state or other
jurisdiction has issued a stop order suspending the effectiveness of the
Registration Statement, preventing or suspending the use of any preliminary
prospectus, the Prospectus, the Registration Statement or any amendment or
supplement or term sheet thereto, refusing to permit the effectiveness of
the Registration Statement or suspending the registration or qualification
of the Securities and shares of the Stock issuable upon conversion thereof,
nor has any of such authorities instituted or threatened to institute nor,
to the Company's knowledge, contemplated instituting, any proceedings with
respect to a stop order.
(b) At the respective time of the effectiveness of the Registration
Statement or any 462(b) Registration Statement or the effectiveness of any
post-effective amendment to the Registration Statement, when the Prospectus
is first filed with the Commission pursuant to Rule 424(b) or Rule 434 of
the Regulations, when any supplement to or amendment of the Prospectus is
filed with the Commission and at the Closing Date and the Additional
Closing Date, if any (as hereinafter respectively defined), the
Registration Statement and the Prospectus and any amendments and
supplements thereto complied or will comply in all material respects with
the applicable provisions of the Act, the Regulations and the Trust
Indenture Act and the rules and regulations of the Commission thereunder
and do not or will not contain an untrue statement of a material fact and
do not or will not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein (i) in the
case of the Registration Statement, not misleading and (ii) in the case of
the Prospectus, in light of the circumstances under which they were made,
not misleading. When any related preliminary prospectus was first filed
with the Commission (whether filed as part of the registration statement
for the registration of the Securities and shares of the Stock issuable
upon conversion thereof or any amendment thereto or pursuant to Rule 424(a)
of the Regulations) and when any amendment or supplement thereto was first
filed with the Commission, such preliminary prospectus and any amendments
and supplements thereto complied in all material respects with the
applicable provisions of the Act, the Regulations and the Trust Indenture
Act and did not contain an untrue statement of a material fact and did not
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omit to state any 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. In addition, each preliminary
prospectus and the Prospectus delivered to the Underwriters for use in
connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to ▇▇▇▇▇,
except to the extent permitted by Regulation S-T. No representation and
warranty is made in this subsection (b), however, with respect to any
information contained in or omitted from the Registration Statement or the
Prospectus or any related preliminary prospectus or any amendment or
supplement thereto in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Underwriter
through you as herein stated expressly for use in connection with the
preparation thereof. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectus shall not be "materially
different," as such term is used in Rule 434, from the Prospectus included
in the Registration Statement at the time it became effective.
(c) PricewaterhouseCoopers, LLP, who have certified certain financial
statements of the Company and its subsidiaries and certain supporting
schedules included in the Registration Statement and Ernst & Young LLP, who
have certified certain financial statements of Sandpiper Networks, Inc. and
certain supporting schedules included in the Registration Statement, are
each independent public accountants as required by the Act and the
Regulations.
(d) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth
in the Registration Statement and the Prospectus, (i) there has been no
material adverse change or any development involving a prospective material
adverse change in the general affairs, management, the current or future
consolidated financial position, business prospects, stockholders' equity
or results of operations of the Company and its subsidiaries taken as a
whole (a "Material Adverse Effect"), including but not limited to
relationships with customers and suppliers of the Company; (ii) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries taken as a
whole; (iii) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock;
and (iv) since the date of the latest balance sheet presented in the
Registration Statement and the Prospectus, neither the Company nor any of
its subsidiaries has incurred or undertaken any liabilities or obligations,
direct or contingent, which are material to the Company and its
subsidiaries taken as a whole, except for liabilities or obligations which
are reflected in the Registration Statement and the Prospectus.
(e) This Agreement and the transactions contemplated herein and the
Indenture, to be dated __________, 2000 (the "Indenture") have been duly
and validly authorized by all necessary corporate action, and this
Agreement and the Indenture have been duly and validly executed and
delivered by the Company. Assuming due authorization, execution and
delivery by the Representatives, this Agreement and the Indenture
constitute valid and binding obligations of the Company, enforceable in
accordance with their terms.
(f) The execution, delivery, and performance of this Agreement and
the Indenture and the consummation of the transactions contemplated hereby
or thereby, including the issuance, sale and delivery of the Securities to
be issued, sold and delivered by the Company hereunder and the compliance
by the Company with all the provisions of the Securities, do not and will
not (i) conflict with or result in a breach of any of the terms and
provisions of, or constitute a default (or an event which with notice or
lapse of time, or both, would constitute a
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default) under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, any debenture, note, contract, indenture,
mortgage, deed of trust, lease, joint venture or other agreement,
instrument, franchise, license or permit to which the Company or any of its
subsidiaries is a party or by which any of their respective properties or
assets may be bound, other than any conflict, breach, default, lien, change
or encumbrance which would not have a Material Adverse Effect or prevent
the consummation by the Company of the transactions contemplated by this
Agreement, (ii) violate or conflict with any provision of the certificate
of incorporation or by-laws of the Company or any of its subsidiaries, or
(iii) violate or conflict with any judgment, writ, decree, order, law,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their respective properties, assets or
operations, other than any violation or conflict which would not have a
Material Adverse Effect or prevent the consummation by the Company of the
transactions contemplated by this Agreement. No consent, approval,
authorization, order, registration, filing, qualification, license or
permit of or with any court or any public, governmental or regulatory
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties or assets is necessary
or required for the execution, delivery and performance of this Agreement
or the Indenture or the consummation of the transactions contemplated
hereby or thereby, including the issuance, sale and delivery of the
Securities to be issued, sold and delivered by the Company hereunder and
the compliance by the Company with all the provisions of the Securities,
except the registration under the Act of the Securities and shares of the
Stock issuable upon conversion thereof, such as have been obtained under
the Trust Indenture Act and such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses and permits as may
be required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Securities by the Underwriters.
(g) All of the outstanding shares of capital stock of the Company are
duly and validly authorized and issued, fully paid and nonassessable, and
none of such shares was issued in violation of or is now subject to any
preemptive right, co-sale rights, registration rights, rights of first
refusal or similar rights granted by the Company. All of the shares of
Stock initially issuable upon conversion of the Securities have been duly
and validly authorized and reserved for issuance and, when issued and
delivered in accordance with the provisions of the Securities and the
Indenture, will be duly and validly issued, fully paid and non-assessable
and will conform in all material respects to the description of the Stock
contained in the Prospectus. All of the outstanding shares of capital stock
and all other outstanding securities of the Company have been issued in
compliance in all material respects with applicable Federal and state laws.
The Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued, delivered and
sold in accordance with this Agreement, will be duly and validly executed,
authenticated, issued and delivered, free and clear of all liens,
encumbrances or claims, will not have been issued in violation of or be
subject to any preemptive rights, co-sale rights, registration rights,
rights of first refusal or similar rights and no holder of Securities will
be subject to personal liability by reason of being such a holder. The
Securities will constitute valid and legally binding obligations of the
Company entitled to the benefits provided by the Indenture between the
Company and State Street Bank and Trust Company, as Trustee (the
"Trustee"), under which they are to be issued, which Indenture will be
substantially in the form filed as an exhibit to the Registration
Statement. The Indenture has been duly authorized and duly qualified under
the Trust Indenture Act and, when executed and
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delivered by the Company and the Trustee, will constitute a valid and
legally binding instrument, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors'
rights and to general equity principles; and the Securities and the
Indenture will conform in all material respects to the descriptions thereof
in the Prospectus. The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus in the column entitled
"Actual" under the caption "Capitalization", and, after giving effect to
the offering will be as set forth in the column entitled "As Adjusted," and
the number of authorized, issued and outstanding options is set forth in
the Prospectus under the caption "Capitalization." The authorized capital
stock of the Company, including the Stock, the Firm Securities and the
Optional Securities, and the Indenture, conform in all material respects to
the descriptions thereof contained in the Registration Statement and the
Prospectus and such descriptions conform in all material respects to the
rights set forth in the instruments defining the same. Except as disclosed
in the Registration Statement and the Prospectus, there are no outstanding
shares of capital stock, options, warrants or other securities or other
rights calling for the issuance of, and no commitments, obligations, plans
or arrangements to issue, any securities of the Company or any of its
subsidiaries. The outstanding stock options relating to the Stock have been
duly authorized and validly issued and each of the Plan and stock options
granted by the Company conform in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus.
(h) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation. Each of the Company
and its subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its
business makes such qualification necessary, except for those failures to
be so qualified or in good standing which could not in the aggregate have a
Material Adverse Effect. All of the outstanding capital stock of each of
the Company's subsidiaries has been duly authorized and validly issued, is
fully paid and nonassessable and is owned by the Company free and clear of
any liens, mortgages, pledges, charges, security interests, claims,
encumbrances or other defects in title whatsoever and none of the
outstanding shares of capital stock of any of the Company's subsidiaries
was issued in violation of the preemptive rights, co-sale rights,
registration rights, rights of first refusal or similar rights, in each
case granted by the Company, that have not been waived in writing, of any
security holder of any such subsidiary or other party. Except as described
in the Prospectus, the Company has no agreements, commitments, or
understandings with respect to acquiring or selling the business, stock or
material assets, except those assets acquired in the ordinary course of
business, of the Company, its subsidiaries or any other person or entity.
The only subsidiaries of the Company are the subsidiaries listed on Exhibit
21.1 to the Registration Statement. None of the Company or any of its
subsidiaries owns any capital stock or any other interest in any other
corporation or entity (other than such subsidiaries) other than non-
controlling interests acquired in the ordinary course of business.
(i) Each of the Company and its subsidiaries has all requisite
corporate power and corporate authority, and all necessary consents,
approvals, authorizations, orders, registrations, qualifications, licenses
and permits (collectively, "Governmental Licenses") of and from all
appropriate Federal, state, local or foreign public, regulatory or
governmental agencies and bodies, to own, lease and operate its properties
and conduct its business as now being conducted, or as presently proposed
to be conducted, and as described in the Registration
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Statement and the Prospectus, except for such Governmental Licenses, the
absence of which would not have a Material Adverse Effect. Each such
Governmental License is valid and in full force and effect, the Company and
its subsidiaries are in material compliance with the terms and conditions
of all such Governmental Licenses, and no such Governmental License
contains a materially burdensome restriction not disclosed in the
Registration Statement and the Prospectus, and neither the Company nor any
of its subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses.
(j) Neither the Company nor any of its subsidiaries is (i) in
violation of any provision of its certificate of incorporation or by-laws,
as the case may be, (ii) in breach of any of the terms or provisions of or
in default (or would be in default with notice or lapse of time, or both)
under any debenture, note, contract, indenture, mortgage, deed of trust,
lease, joint venture or other agreement, instrument, franchise, license or
permit to which the Company or any of its subsidiaries is a party or by
which any of their respective properties, assets or operations may be
bound, which breach, violation, default or defaults could have,
individually or in the aggregate, a Material Adverse Effect, or (iii) in
violation of any judgment, writ, decree, order, law, statute, rule or
regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over the Company or any of its subsidiaries or any
of their respective properties, assets or operations, the violation of
which could have, individually or in the aggregate, a Material Adverse
Effect.
(k) Except as described in the Registration Statement and the
Prospectus, there is no litigation, action, suit, proceeding, inquiry or
governmental proceeding or investigation to which the Company or any of its
subsidiaries is a party or to which any property of the Company or any of
its subsidiaries is subject that would otherwise be required to be
described therein or which is pending or, to the best knowledge of the
Company, threatened or contemplated against the Company or any of its
subsidiaries.
(l) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the
Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of the dates indicated and the results of
their operations, stockholders' equity and cash flows for the periods
specified; said financial statements have been prepared in conformity in
all material respects with generally accepted accounting principles
("GAAP") applied on a consistent basis through the periods involved
(except, with respect to the quarterly and interim financial statements
included in the Registration Statement and the Prospectus, to the extent
such financial statements are subject to normal and recurring year-end
adjustments); the supporting schedules included in the Registration
Statement present fairly in all material respects the information required
to be stated therein; and the selected consolidated financial data, the
summary consolidated financial information, pro forma financial
information, and the capitalization information included in the
Registration Statement and the Prospectus present fairly in all material
respects in accordance with GAAP and the Regulations the information shown
therein and have been compiled on a basis consistent with that of the
financial statements included in the Registration Statement and the
Prospectus. No financial statements are required to be included in the
Registration Statement that have not been so included.
(m) All material Federal, state and local tax returns required to be
filed by the Company and its subsidiaries have been filed and all such
returns are true, complete, and correct in all material respects. All
material taxes that are due or claimed to be due from the Company and its
subsidiaries have been paid other than those (i) currently payable without
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penalty or interest or (ii) being contested in good faith and by
appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP. Except as disclosed in the
Registration Statement and the Prospectus, there is no material tax
deficiency that has been, or may reasonably be expected to be, asserted
against the Company or any of its subsidiaries.
(n) Either the Company or its subsidiaries maintains insurance with
insurers of recognized financial responsibility of the types and in the
amounts purchased by similarly situated companies and generally deemed
adequate for its respective businesses, including, without limitation,
insurance coverage for real and personal property owned or leased by them
against theft, damage, destruction, acts of vandalism, and all other
material risks customarily insured against, all of which insurance is in
full force and effect. Neither the Company nor any of its subsidiaries has
any reason to believe that it will not be able to renew existing insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its respective
business. The officers and directors of the Company are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary for officers and directors
liability insurance of a public company and as would cover claims which
could be made in connection with the issuance of the Shares; and the
Company has no reason to believe that it will not be able to renew its
existing directors and officers liability insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to cover its officers and directors.
(o) Each of the Company and its subsidiaries has good and marketable
title to all personal property and assets owned by it, free and clear of
all mortgages, pledges, security interests, claims, restriction, liens,
encumbrances and defects, except as do not, individually or in the
aggregate, interfere in any material respect with the use made or proposed
to be made of such property by the Company or its subsidiaries, as the case
may be. Any real property and buildings held under lease by the Company or
any of its subsidiaries are held under valid, existing and enforceable
leases in full force and effect with such exceptions as are not material
and which do not interfere in any material respect with the use made or
proposed to be made of such property and buildings by the Company or its
subsidiaries, as the case may be, and neither the Company or any of its
subsidiaries has any notice of any claims of any sort that has been
asserted by anyone adverse to the rights of the Company or any subsidiary
under any such leases.
(p) Except as described in the Registration Statement and the
Prospectus, either the Company or its subsidiaries owns or possesses legal
and valid rights to use all patents, inventions, copyrights, software,
databases, know-how, Internet domain names, trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures, trademarks, service marks, trade names, rights of
publicity pertaining to the name, likeness, voice, signatures, and/or
biographical information of real persons and other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
of the Company and its subsidiaries as currently conducted, and as
presently proposed to be conducted and described in the Prospectus, free
and clear of all liens, claims and encumbrances, subject to such exceptions
as would not have a Material Adverse Effect. Except as described in the
Registration Statement and the Prospectus, neither the Company nor any of
its subsidiaries has received any notice or is otherwise aware of (i) any
claim, action or demand of any person in the United States or elsewhere or
any proceeding in the United States or
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elsewhere, pending or threatened, that (A) challenges the ownership of the
Company or any of its subsidiaries in or its right to use any Intellectual
Property, or (B) alleges that any product or service of the Company or any
of its subsidiaries infringes or misappropriates the Intellectual Property
rights of others or constitutes unfair competition, or (ii) any facts or
circumstances that would render any Intellectual Property owned or used by
the Company or any Intellectual Property license agreement to which the
Company or any of its subsidiaries is a party, invalid or inadequate to
protect the interests of the Company or any of its subsidiaries therein or
thereunder, subject to such exceptions as would not, individually or in the
aggregate, have a Material Adverse Effect. The Company has taken reasonable
steps to protect, maintain and safeguard its rights in all material
Intellectual Property owned or used by the Company or its subsidiaries and
to maintain the secrecy of all such Intellectual Property as to which
improper or unauthorized disclosure would impair its value or validity,
including the execution of appropriate nondisclosure and confidentiality
agreements.
(q) No relationship, direct or indirect, exists between or among the
Company or any of its affiliates, on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of its
subsidiaries, on the other hand, that is required by the Act to be
described in the Registration Statement and the Prospectus that is not so
described. Except as disclosed in the Registration Statement and the
Prospectus, there are no outstanding loans, advances, or guarantees or
indebtedness by the Company to or for the benefit of any of the executive
officers or directors of the Company or any of the members of the families
of any of them that would be required to be described in the Registration
Statement and the Prospectus.
(r) The Stock issuable upon conversion of the Securities has been
duly authorized for listing on the Nasdaq National Market, subject to
official notice of issuance.
(s) The Company is not, and upon consummation of the transactions
contemplated hereby and the application of the net proceeds of the offering
of the Securities as described in the Prospectus will not be, subject to
registration as an "investment company" or an entity "controlled" by an
"investment company" under the Investment Company Act of 1940, as amended.
(t) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent, and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its or any subsidiary's principal suppliers,
manufacturers, customers or contractors that are likely, individually or in
the aggregate, to have a Material Adverse Effect.
(u) There are no contracts or documents which are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto that have not been so described and filed as required. The
descriptions of contracts in the Registration Statement and the Prospectus
are accurate and complete in all material respects; except as described
therein, all contracts described in the Registration Statement and the
Prospectus are valid, binding and enforceable and are in full force and
effect, and neither the Company nor any of its subsidiaries or, to the
Company's knowledge, any other party is in breach of or default under any
provisions of such contracts, except for any such breach or default which
would not have a Material Adverse Effect. Neither the Company nor its
subsidiaries has experienced a material adverse change in its business
relationships with its material suppliers.
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(v) Each employee benefit plan, within the meaning of Section 3(3) of
the Employee Retirement Income Securities Act of 1974, as amended
("ERISA"), that is maintained, administered or contributed to by the
Company or any of its subsidiaries for employees or former employees of the
Company or any of its subsidiaries has been maintained in compliance in all
material respects with its respective terms and the requirements of any
applicable statutes, order, rules and regulations, including but not
limited to ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"). No prohibited transaction, within the meaning of Section 406 of
ERISA or Section 4975 of the Code, has occurred with respect to any such
plan, excluding transactions effected pursuant to a statutory or
administrative exemption. For each such plan that is subject to the funding
rules of Section 412 of the Code or Section 302 of ERISA, no "accumulated
funding deficiency", as defined in Section 412 of the Code, has been
incurred, whether or not waived, and the fair market value of the assets of
each such plan (excluding for these purposes accrued but unpaid
contributions) exceeded the present value of all benefits accrued under
such plan determined using reasonable actuarial assumptions. The
description of the Company's Plan and the options or other rights granted
and exercised thereunder set forth in the Registration Statement and the
Prospectus accurately and fairly describe, in all material respects, the
information required to be shown with respect to such Plan, options and
rights.
(w) Either the Company or its subsidiaries maintains a system of
internal accounting controls that are sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (iii) 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.
(x) The statistical and market-related data included in the
Registration Statement and the Prospectus are derived from sources that the
Company reasonably and in good faith believes to be accurate, reasonable
and reliable in all material respects, and such data agrees in all material
respects with the sources from which they were derived.
(y) The Company has not at any time during the last five (5) years in
any jurisdiction (i) made any unlawful contribution to any candidate for
office, or failed to disclose fully any contribution in violation of law,
or (ii) made any payment to any governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States.
(z) The statements set forth in the Prospectus under the caption
"Description of Notes", "Description of Capital Stock", insofar as they
purport to constitute a summary of the terms of the Securities and the
Stock, under the captions "Business--Intellectual Property Rights,"
"Business--Legal Matters," "Certain Transactions," "Management--Classified
Board," "Management--Board Committees," "Material United States Federal
Income Tax Consequences", and under the caption "Underwriting", insofar as
they purport to describe the provisions of the laws and documents referred
to therein, are accurate and fair in all material respects.
(aa) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to
9
evaluate the extent to which the business or operations of the Company or
any of its subsidiaries has been or will be affected by the Year 2000
Problem. As a result of such review, the Company has no reason to believe,
and does not believe, that the Year 2000 Problem has had or will have a
Material Adverse Effect or has resulted or will result in any material loss
or interference with the Company's business or operations. The "Year 2000
Problem" as used herein means any significant risk that computer hardware
or software used in the receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization of data or in the
operation of mechanical or electrical systems of any kind is not
functioning or will not function, in the case of dates or time periods
occurring after December 31, 1999, at least as effectively as in the case
of dates or time periods occurring prior to January 1, 2000.
Any certificate signed by any director or officer of the Company or any of
its subsidiaries delivered to any of the Underwriters or to the Underwriters'
Counsel (as herein defined) shall be deemed a representation and warranty by the
Company to each Underwriter as to the matters covered thereby.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price of .....% of the principal amount thereof, plus accrued
interest, if any, from ...................., 2000 to the First Time of Delivery
hereunder, the principal amount of Securities set forth opposite the name of
such Underwriter in Schedule I hereto, and (b) in the event and to the extent
that the Underwriters shall exercise the election to purchase Optional
Securities as provided below, the Company agrees to issue and sell to each of
the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the same purchase price set forth in
clause (a) of this Section 2, that portion of the aggregate principal amount of
the Optional Securities as to which such election shall have been exercised (to
be adjusted by you so as to eliminate fractions of $1,000,) determined by
multiplying such aggregate principal amount of Optional Securities by a
fraction, the numerator of which is the maximum aggregate principal amount of
Optional Securities which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum aggregate principal amount of Optional Securities which
all of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to $26,250,000 aggregate principal amount of Optional
Securities, at the purchase price set forth in clause (a) of the first paragraph
of this Section 2, for the sole purpose of covering sales of securities in
excess of the aggregate principal amount of Firm Securities. Any such election
to purchase Optional Securities may be exercised by written notice from you to
the Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate principal amount of Optional Securities
to be purchased and the date on which such Optional Securities are to be
delivered, as determined by you but in no event earlier than the First Time of
Delivery (as defined in Section 4 hereof) or, unless you and the Company
otherwise agree in writing, earlier than two or later than ten business days
after the date of such notice.
3. Upon the authorization by you of the release of the Firm Securities,
the several Underwriters propose to offer the Firm Securities for sale upon the
terms and conditions set forth in the Prospectus.
10
4. (a) The Securities to be purchased by each Underwriter hereunder will
be represented by one or more definitive global Securities in book-entry form
which will be deposited by or on behalf of the Company with The Depository Trust
Company ("DTC") or its designated custodian. The Company will deliver the
Securities to ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co., for the account of each Underwriter, against
payment by or on behalf of such Underwriter of the purchase price therefor by
wire transfer of Federal (same-day) funds to the account specified by the
Company to ▇▇▇▇▇▇▇, Sachs & Co. at least forty-eight hours in advance, by
causing DTC to credit the Securities to the account of ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. at
DTC. The Company will cause the certificates representing the Securities to be
made available to ▇▇▇▇▇▇▇, Sachs & Co. for checking at least twenty-four hours
prior to the Time of Delivery (as defined below) at the office of DTC or its
designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be, with respect to the Firm Securities, 9:30 a.m.,
New York City time, on ................, 2000 or such other time and date as
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. and the Company may agree upon in writing, and, with
respect to the Optional Securities, 9:30 a.m., New York City time, on the date
specified by ▇▇▇▇▇▇▇, Sachs & Co. in the written notice given by ▇▇▇▇▇▇▇, ▇▇▇▇▇
& Co. of the Underwriters' election to purchase such Optional Securities, or
such other time and date as ▇▇▇▇▇▇▇, Sachs & Co. and the Company may agree upon
in writing. Such time and date for delivery of the Firm Securities is herein
called the "First Time of Delivery", such time and date for delivery of the
Optional Securities, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at the Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross-receipt
for the Securities and any additional documents requested by the Underwriters
pursuant to Section 7(l) hereof, will be delivered at the offices of ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, Two Embarcadero Place, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Closing Location"), and the Securities will be delivered
at the Designated Office, all at the Time of Delivery. A meeting will be held at
the Closing Location at 3:00 p.m., California time, on the New York Business Day
next preceding the Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York City are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be reasonably disapproved by you promptly after
reasonable notice thereof; to advise you, promptly after it receives notice
thereof, of the time when any amendment to the Registration Statement has
been filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you with copies thereof;
to advise you, promptly after it receives notice thereof, of the issuance
by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Securities or the shares of Stock
issuable upon conversion of the Securities for offering or sale in any
jurisdiction, of the initiation or threatening
11
of any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such qualification,
to promptly use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities and the shares of Stock
issuable upon conversion of the Securities for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Securities, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation, subject
itself to taxation or file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Securities and the shares of Stock issuable upon conversion
of the Securities and if at such time any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary during such same period to amend or supplement the Prospectus in
order to comply with the Act or the Trust Indenture Act, to notify you and
upon your request to prepare and furnish without charge to each Underwriter
and to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance; and in case any Underwriter is required to deliver a prospectus
in connection with sales of any of the Securities and the shares of Stock
issuable upon conversion of the Securities at any time nine months or more
after the time of issue of the Prospectus, upon your request but at the
expense of such Underwriter, to prepare and deliver to such Underwriter as
many copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)),
an earnings statement of the Company and its subsidiaries (which need not
be audited) complying with Section 11(a) of the Act and the rules and
regulations of the Commission thereunder (including, at the option of the
Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder any securities of the Company that are substantially similar to
the Securities or the Stock, including but not limited to any securities
that are convertible into or exchangeable for, or that represent the right
to receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option plans existing on, or upon the conversion
or exchange of convertible or exchangeable securities outstanding as
12
of, the date of this Agreement), without your prior written consent;
provided, however, that notwithstanding the foregoing, during such 90-day
period, the Company may issue, sell, offer or agree to sell up to ten
percent (10%) of its outstanding capital stock as of the date of this
Agreement in connection with any third party investment in the Company, or
in connection with any merger, acquisition or other business combination
involving the Company, at the higher of the initial public offering price
or the then current fair market value of such securities; provided that any
such shares which are issued or sold in accordance with the provisions set
forth above in this Section 5(e) during the period of 90 days from the date
of the Prospectus shall be subject to the restrictions set forth above in
this Section 5(e), and, in connection therewith, the Company shall cause
any holder of such shares or vested options to execute an appropriate Lock-
Up Agreement containing such provisions.
(f) To furnish to the holders of the Securities as soon as
practicable after the end of each fiscal year an annual report (including a
balance sheet and statements of income, stockholders' equity and cash flows
of the Company and its consolidated subsidiaries certified by independent
public accountants) and, as soon as practicable after the end of each of
the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of three years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which the Securities or any class of
securities of the Company is listed (to the extent not available via
▇▇▇▇▇); and (ii) such additional information concerning the business and
financial condition of the Company as you may from time to time reasonably
request (such financial statements to be on a consolidated basis to the
extent the accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds";
(i) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act;
(j) To reserve and keep available at all times, free of preemptive
rights, shares of Stock for the purpose of enabling the Company to satisfy
any obligations to issue shares of its Stock upon conversion of the
Securities; and
(k) To use its reasonable best efforts to list, subject to notice of
issuance, the shares of Stock issuable upon conversion of the Securities on
the Nasdaq National Market (the "Exchange").
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Securities and the shares of Stock
13
issuable upon conversion of the Securities under the Act and all other expenses
in connection with the preparation, printing and filing of the Registration
Statement, any preliminary prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing or producing any Agreement
among Underwriters, this Agreement, the Indenture, the Blue Sky and Legal
Investment Memoranda, closing documents (including any compilations thereof) and
any other documents in connection with the offering, purchase, sale and delivery
of the Securities; (iii) all expenses in connection with the qualification of
the Securities and the shares of Stock issuable upon conversion of the
Securities for offering and sale under state securities laws as provided in
Section 5(b) hereof, including the reasonable fees and disbursements of counsel
for the Underwriters in connection with such qualification and in connection
with the Blue Sky and legal investment surveys; (iv) any fees charged by
securities rating services for rating the Securities; (v) the filing fees
incident to, and the reasonable fees and disbursements of counsel for the
Underwriters in connection with, any required review by the National Association
of Securities Dealers, Inc. of the terms of the sale of the Securities; (vi) the
cost of preparing the Securities; (vii) the fees and expenses of the Trustee and
any agent of the Trustee and the fees and disbursements of counsel for the
Trustee in connection with the Indenture and the Securities; and (viii) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section. It
is understood, however, that, except as provided in this Section, and Sections 8
and 11 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, transfer taxes on resale of any of the
Securities by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Underwriters hereunder shall be subject, in
their discretion, to the condition that all representations and warranties and
other statements of the Company herein are, at and as of such Time of Delivery,
true and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions :
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions (a draft of each such
opinion is attached as Annex (III)(a) hereto), dated such Time of Delivery,
with respect to the matters covered in paragraphs (i), (ii), (vii) and (xi)
of subsection (c) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) ▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP, counsel for the Company, shall
have furnished to you their written opinion (a draft of such opinion is
attached as Annex III(b) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
14
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the outstanding shares of capital stock
of the Company have been duly and validly authorized and, to the
knowledge of such counsel, validly issued, fully paid and non-
assessable (provided that the knowledge limitation shall not apply to
Common Stock issued upon conversion of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock); and none of such shares were issued in violation of
or are now subject to any preemptive right, co-sale rights,
registration rights, rights of first refusal or similar rights granted
by the Company except for registration rights being exercised under
the Underwriting Agreement for the sale of Stock of the Company, dated
__________, 2000 ("Common Stock Underwriting Agreement") and rights
that have been duly waived; and the shares of Stock initially issuable
upon conversion of the Securities have been duly and validly
authorized and reserved for issuance and, when issued and delivered in
accordance with the provisions of the Securities and the Indenture,
will be duly and validly issued and fully paid and non-assessable, and
will conform to the description of the Stock contained in the
Prospectus;
(iii) To such counsel's knowledge, no holder of any securities
of the Company or any other person has the right, contractual or
otherwise, to cause the Company to sell or otherwise issue to them, or
to permit them to underwrite the sale of, any of the Securities or the
right to have any Stock or other securities of the Company included in
the Registration Statement or the right, as a result of the filing of
the Registration Statement, to require the Company to register under
the Act any shares of Stock or other securities of the Company, except
for registration rights being exercised under the Common Stock
Underwriting Agreement and rights that have been waived in writing.
(iv) The Company has been duly qualified and is in good
standing as a foreign corporation in California, Hawaii and New York;
(v) The form of certificate for the Stock issuable upon
conversion thereof conform in all material respects to the
requirements of the Delaware General Corporation Law and any
applicable requirements of the Certificate and Bylaws;
(vi) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; all of the outstanding
shares of capital stock of each such subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable, and
(except for directors' qualifying shares are owned directly or
indirectly by the Company, free and clear of all liens, mortgages,
pledges, charges, security interests, claims, encumbrances or other
defects in title known to such counsel (such counsel being entitled to
rely in respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates of
officers of the Company or its subsidiaries, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates); and none of
the outstanding shares of capital stock of any of the Company's
subsidiaries was issued in
15
violation of the preemptive rights, co-sale rights, registration
rights, rights of first refusal or similar rights known to such
counsel that have not been waived in writing;
(vii) To such counsel's knowledge (without conducting any
docket search or other inquiry) and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which
any property of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the current or future consolidated financial
position stockholders' equity or results of operations of the Company
and its subsidiaries; and, to such counsel's knowledge, no such
proceedings are threatened in writing by governmental authorities or
threatened by others;
(viii) To such counsel's knowledge there are no agreements,
contracts, indentures, leases or other instruments that are required
to be described in the Registration Statement or the Prospectus (or
any amendment or supplement thereto) or to be filed as an exhibit to
the Registration Statement that are not so described or filed, as the
case may be.
(ix) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to such
counsel's knowledge, no stop order suspending the effectiveness of the
Prospectus or the Registration Statement has been issued and no
proceedings for that purpose are pending before the Commission; and
any required filing of the Prospectus pursuant to Rule 424(b) has been
made in accordance with Rule 424(b);
(x) Based solely on the written advice of the NASD, the Stock
issuable upon conversion of the Securities has been approved for
quotation on the Nasdaq National Market, upon issuance as contemplated
by this Agreement;
(xi) The Company has the corporate power and corporate
authority to enter into this Agreement and to issue, sell and deliver
the Securities to the Underwriters as provided in this Agreement and
to comply with all the provisions of the Securities; and this
Agreement has been duly authorized, executed and delivered by the
Company;
(xii) The Securities have been duly authorized, executed,
authenticated, issued and delivered and constitute valid and legally
binding obligations of the Company entitled to the benefits provided
by the Indenture; and the Securities and the Indenture conform to the
descriptions thereof in the Prospectus;
(xiii) The Indenture has been duly authorized, executed and
delivered by the parties thereto and constitutes a valid and legally
binding instrument, enforceable in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors'
rights and to general equity principles; and the Indenture has been
duly qualified under the Trust Indenture Act;
(xiv) The issue and sale of the Securities being delivered at
such Time of Delivery to be sold by the Company and the compliance by
the Company with all of the provisions of the Securities, the
Indenture and this Agreement and the consummation of the transactions
herein and therein contemplated will not violate or conflict with the
16
certificate of incorporation or bylaws of the Company or any of its
subsidiaries, conflict with or result in a breach, of any of the terms
and provisions of, or constitute a default (or an event which with
notice or lapse of time, or both, would constitute a default) under,
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, any debenture, note, contract, indenture,
mortgage, deed of trust, lease, joint venture or other agreement,
instrument, franchise, license or permit filed or incorporated by
reference as an exhibit to the Registration Statement nor, to the
knowledge of such counsel, will such actions violate or conflict with
any judgment, writ, decree, order, law, statute, rule or regulation of
any United States Federal or California State court or any United
States Federal or California State public, governmental or regulatory
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties, assets or
operations;
(xv) No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any
United States Federal or California State court or any United States
Federal or California State public, governmental or regulatory agency
or body is necessary or required for the issue and sale of the
Securities being issued at such Time of Delivery, or the consummation
by the Company of the transactions contemplated by this Agreement or
the Indenture, except such as have been obtained under the Act and the
Trust Indenture Act, such as may be required under the Act in
connection with the shares of Stock issuable upon conversion of the
Securities and such consents, approvals, authorizations, orders,
registrations, filings, qualifications, licenses and permits as may be
required under state securities or Blue Sky laws in connection with
the purchase and distribution of the Securities by the Underwriters;
(xvi) The statements set forth in the Prospectus under the
caption "Description of Notes" "Description of Capital Stock", insofar
as they purport to constitute a summary of the terms of the Securities
and the Stock, under the captions "Business--Intellectual Property
Rights," "Business--Legal Matters," "Certain Transactions,"
"Management--Classified Board," "Management--Board Committees,"
"Material United States Federal Income Tax Consequences", and under
the caption "Underwriting", insofar as they purport to describe the
provisions of the laws and documents referred to therein, are
accurate, complete and fair in all material respects;
(xvii) To the knowledge of such counsel, the Company is not an
"investment company" or an entity controlled by an "investment
company", as such terms are defined in the Investment Company Act; and
(xviii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the Trust Indenture Act and the rules and
regulations thereunder; although they do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained
in the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (xvi) of this Section 7(c),
they have no reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by the
Company prior to
17
such Time of Delivery (other than the financial statements and related
schedules therein, and financial and statistical data therein, as to
which such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that, as of its date, the Prospectus or any
further amendment or supplement thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading or
that, as of such Time of Delivery, either the Registration Statement
or the Prospectus or any further amendment or supplement thereto made
by the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, and financial and
statistical data therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
and they do not know of any amendment to the Registration Statement
required to be filed;
(xix) To such counsel's knowledge, the Company has not received
any written notice of infringement of or conflict with asserted rights
of any third party's material patents, patent rights, licenses,
inventions, copyrights, know-how, (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential
information, system or procedures), trademarks, service marks and
trade names that, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
(d) ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP, regulatory counsel for
the Company, shall have furnished to you their written opinion (a draft of such
opinion is attached as Annex III(c) hereto), dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) No consent, approval, authorization, order, registration,
filing, qualification, license or permit of the FCC is necessary or
required to be obtained by the Company under the Act or the published
rules, regulations, and administrative orders promulgated thereunder
in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby,
including the issuance, sale and delivery of the Securities to be
issued, sold and delivered by the Company hereunder; and
(ii) The statements set forth in the Prospectus under the
captions "Risk Factors -- Government regulation and legal
uncertainties could limit our business or slow our growth" and
"Government Regulation," taken together, insofar as they are, or refer
to, published statements of law, legal conclusions, or summaries
relating to the Act and the published rules, regulations and
administrative orders promulgated thereunder, fairly reflect the
provisions purported to be summarized and are accurate, complete and
fair in all material respects;
18
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery,
PricewaterhouseCoopers LLP shall have furnished to you a letter or letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to you, to the effect set forth in Annex I hereto (the
executed copy of the letter delivered prior to the execution of this
Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto");
(f) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery, Ernst &
Young shall have furnished to you a letter or letters, dated the respective
dates of delivery thereof, in form and substance satisfactory to you, to
the effect set forth in Annex II hereto (the executed copy of the letter
delivered prior to the execution of this Agreement is attached as Annex
II(a) hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex II(b)
hereto;
(g) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or
any development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in the judgment of the Representatives
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Securities being
issued at such Time of Delivery on the terms and in the manner contemplated
in the Prospectus;
(h) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities or preferred
stock by any "nationally recognized statistical rating organization", as
that term is defined by the Commission for purposes of Rule 436(g)(2) under
the Act, and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative implications,
its rating of any of the Company's debt securities or preferred stock;
(i) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on the Nasdaq
National Market; (ii) a suspension or material limitation in trading in the
Company's securities on the Nasdaq National Market; (iii) a general
moratorium on commercial banking activities declared by either Federal or
New York or California State authorities; or (iv) the outbreak or
escalation of hostilities involving the United States or the declaration by
the United States of a national emergency or war, if the effect of any such
event specified in this clause (iv) in the judgment of the Representatives
makes it impracticable or
19
inadvisable to proceed with the public offering or the delivery of the
Securities being issued at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus; (20)
(j) The shares of Stock issuable upon conversion of the Securities
shall have been duly listed, subject to notice of issuance, on the
Exchange;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(l) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth
in subsections (a) and (g) of this Section and as to such other matters as
you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any preliminary
prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through ▇▇▇▇▇▇▇, Sachs & Co.
expressly for use therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof
20
is to be made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party otherwise than under such subsection. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Securities. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect
21
thereof) referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Securities which it has agreed to purchase hereunder, you may in your
discretion arrange for you or another party or other parties to purchase such
Securities on the terms contained herein at a Time of Delivery. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Securities, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Securities on such terms. In the
event that, within the respective prescribed periods, you notify the Company
that you have so arranged for the purchase of such Securities, or the Company
notifies you that it has so arranged for the purchase of such Securities, you or
the Company shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Securities.
(b) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate principal amount of such
Securities which remains unpurchased does not exceed one-eleventh of the
aggregate principal amount of all the Securities to be purchased at such Time of
Delivery, then the Company shall have the right to require each non-defaulting
Underwriter to purchase the principal amount of Securities which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the principal amount of Securities which such Underwriter agreed
to purchase hereunder) of the Securities of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
22
(c) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate principal amount of Securities
which remains unpurchased exceeds one-eleventh of the aggregate principal amount
of all the Securities to be purchased at such Time of Delivery, or if the
Company shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Securities of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligation of the Underwriters to purchase and of the
Company to sell the Optional Securities) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the Company, except
for the expenses to be borne by the Company and the Underwriters as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Securities.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any
Securities are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Securities, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of ▇▇▇▇▇▇▇, Sachs &
Co., ▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and
23
directors of the Company and each person who controls the Company or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Securities from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us one for the Company and each of the Representatives plus one for
each counsel counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
Digital Island, Inc.
By: _________________________________
Name:
Title:
Accepted as of the date hereof:
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co.
Bear ▇▇▇▇▇▇▇ & Co. Inc.
▇▇▇▇▇▇ Brothers, Inc.
▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ &
▇▇▇▇▇ Incorporated
▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners LLC
By: _____________________________________
(▇▇▇▇▇▇▇, Sachs & Co.)
On behalf of each of the Underwriters
24
SCHEDULE I
Principal
Principal Amount of
Amount of Optional Securities
Firm Securities to be Purchased
To be If Maximum Option
Underwriter Purchased Exercised
----------- ------------------ -------------------
$ $
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co....................................
Bear ▇▇▇▇▇▇▇ & Co. Inc.................................
▇▇▇▇▇▇ Brothers, Inc...................................
▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ &
▇▇▇▇▇ Incorporated................................
▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners LLC.............................
__________________ ___________________
Total................................................... $ $
================== ===================
25
ANNEX I(b)
[FORM OF COMFORT LETTER FROM PRICEWATERHOUSECOOPERS, LLP]
Pursuant to Subsection 7(d)(i) of the Underwriting Agreement, the
accountants shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company, and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial forecasts
and/or pro forma financial information) examined by them and included in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the related
published rules and regulations thereunder; and, if applicable, they have made a
review in accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim financial
statements, selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter, as indicated
in their reports thereon, copies of which have been separately furnished to the
representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established by
the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus as indicated in
their reports thereon copies of which have been separately furnished to the
Representatives and on the basis of specified procedures including inquiries of
officials of the Company who have responsibility for financial and accounting
matters regarding whether the unaudited condensed consolidated financial
statements referred to in paragraph (vi)(A)(i) below comply as to form in all
material respects with the applicable accounting requirements of the Act and the
related published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company for the
five most recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years which were included
or incorporated by reference in the Company's Annual Reports on Form 10-K for
such fiscal years;
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the basis of
limited procedures specified in such letter nothing came to their attention as a
result of the foregoing procedures that caused them to believe that this
information does not conform in all material respects with the disclosure
requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an examination
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information referred to
below, a reading of the latest available interim financial statements of the
Company and its subsidiaries, inspection of the minute books of the Company and
its subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations, or (ii) any material modifications should be made to
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally accepted accounting
principles;
(B) any other unaudited income statement data and balance sheet items
included in the Prospectus do not agree with the corresponding items in the
unaudited consolidated financial statements from which such data and items
were derived, and any such unaudited data and items were not determined on
a basis substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included in the
Prospectus;
(C) the unaudited financial statements which were not included in the
Prospectus but from which were derived any unaudited condensed financial
statements referred to in clause (A) and any unaudited income statement
data and balance sheet items included in the Prospectus and referred to in
clause (B) were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included in the
Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in the consolidated capital
stock (other than issuances of capital stock upon exercise of options and
stock appreciation rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were outstanding
on the date of the latest financial statements included in the Prospectus)
or any increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the Representatives, or
any increases in any items specified by the Representatives, in each case
as compared with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
2
decreases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in clause (E)
there were any decreases in consolidated net revenues or operating profit
or the total or per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items specified
by the Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding length
specified by the Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and (vi)
above, they have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the Representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
3
ANNEX II(b)
[FORM OF COMFORT LETTER FROM ERNST & YOUNG]
Pursuant to Subsection 7(d)(ii) of the Underwriting Agreement, the
accountants shall furnish letters to the Underwriters to the effect that:
(i) They were independent certified public accountants with respect to
Sandpiper, Inc. ("Sandpiper"), and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial forecasts
and/or pro forma financial information) examined by them and included in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the related
published rules and regulations thereunder; and, if applicable, they have made a
review in accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim financial
statements, selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited financial
statements of Sandpiper for the periods specified in such letter, as indicated
in their reports thereon, copies of which have been separately furnished to the
representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established by
the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus as indicated in
their reports thereon copies of which have been separately furnished to the
Representatives and on the basis of specified procedures including inquiries of
officials of Sandpiper who have responsibility for financial and accounting
matters regarding whether the unaudited condensed consolidated financial
statements referred to in paragraph (vi)(A)(i) below comply as to form in all
material respects with the applicable accounting requirements of the Act and the
related published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of Sandpiper for the
five most recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years which were included
or incorporated by reference in Sandpiper's Annual Reports on Form 10-K for such
fiscal years;
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the basis of
limited procedures specified in such letter nothing came to their attention as a
result of the foregoing procedures that caused them to believe that this
information does not conform in all material respects with the disclosure
requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an examination
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information referred to
below, a reading of the latest available interim financial statements of
Sandpiper and its subsidiaries, inspection of the minute books of Sandpiper and
its subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of Sandpiper and its
subsidiaries responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations, or (ii) any material modifications should be made to
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally accepted accounting
principles;
(B) any other unaudited income statement data and balance sheet items
included in the Prospectus do not agree with the corresponding items in the
unaudited consolidated financial statements from which such data and items
were derived, and any such unaudited data and items were not determined on
a basis substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included in the
Prospectus;
(C) the unaudited financial statements which were not included in the
Prospectus but from which were derived any unaudited condensed financial
statements referred to in clause (A) and any unaudited income statement
data and balance sheet items included in the Prospectus and referred to in
clause (B) were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included in the
Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in the consolidated capital
stock (other than issuances of capital stock upon exercise of options and
stock appreciation rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were outstanding
on the date of the latest financial statements included in the Prospectus)
or any increase in the consolidated long-term debt of Sandpiper and its
subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the Representatives, or
any increases in any items specified by the Representatives, in each case
as compared with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
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decreases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in clause (E)
there were any decreases in consolidated net revenues or operating profit
or the total or per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items specified
by the Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding length
specified by the Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and (vi)
above, they have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the Representatives, which are derived from the general accounting records of
Sandpiper and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of Sandpiper and its
subsidiaries and have found them to be in agreement.
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