EXHIBIT 1.1
DATAWAVE SYSTEMS INC.
UNDERWRITING AGREEMENT
_________ __, 1998
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc.
▇▇▇▇▇▇▇ Global Securities Inc.
As Representative of the Several
Underwriters Named in Schedule A hereto
c/o ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
DataWave Systems Inc., a British Columbia corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule A
----------
(collectively, the "Underwriters") an aggregate of 2,500,000 Common Shares, no
par value per share (the "Common Stock"), of the Company (the "Firm Company
Shares") and the selling shareholders of the Company named in Schedule B (the
----------
"Selling Shareholders") propose to sell to the Underwriters an aggregate of
185,000 shares of Common Stock (the "Firm Selling Shareholder Shares" and,
together with the Firm Company Shares, the "Firm Shares"). The Firm Shares are
to be sold to each Underwriter, acting severally and not jointly, in such
amounts as are set forth in Schedule A opposite the name of such Underwriter.
----------
The Company also grants to the Underwriters, severally and not jointly, the
option described in Section 3 to purchase, on the same terms as the Firm Shares,
up to 402,750 additional shares of Common Stock (the "Option Shares") solely to
cover over-allotments. The Firm Shares, together with all or any part of the
Option Shares, are collectively herein called the "Shares."
Section 1. Representations and Warranties of the Company. The Company
---------------------------------------------
and each of ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ (each a "Principal Shareholder")
jointly and severally represents and warrants to and agrees with each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-__________)
with respect to the Shares, including a preliminary form of prospectus, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the applicable
rules and regulations (the "1933 Act Regulations") of the Securities and
Exchange Commission (the "Commission"), and has been filed with the
Commission; and such amendments to such registration statement as may have
been
required prior to the date hereof have been filed with the Commission,
and such amendments have been similarly prepared. Copies of such
registration statement and amendment or amendments and of each related
preliminary prospectus, and the exhibits, financial statements and
schedules, as finally amended and revised, have been delivered to you. The
Company has prepared in the same manner, and proposes so to file with the
Commission, one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of
final prospectus, (ii) if the Company does not rely on Rule 434 of the 1933
Act, a final prospectus in accordance with Rules 430A and 424(b) of the 1933
Act Regulations or (iii) if the Company relies on Rule 434 of the 1933 Act,
a term sheet relating to the Shares that shall identify the preliminary
prospectus that it supplements containing such information as is required or
permitted by Rules 434, 430A and 424(b) of the 1933 Act. The Company also
may file a related registration statement with the Commission pursuant to
Rule 462(b) of the 1933 Act for the purpose of registering certain
additional shares of Common Stock, which registration statement will be
effective upon filing with the Commission. As filed, such amendment, any
registration statement filed pursuant to Rule 462(b) of the 1933 Act and any
term sheet and form of final prospectus, or such final prospectus, shall
include all Rule 430A Information (as defined below) and, except to the
extent that you shall agree in writing to a modification, shall be in all
respects in the form furnished to you prior to the date and time that this
Agreement was executed and delivered by the parties hereto, or, to the
extent not completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest preliminary prospectus) as the Company shall have previously advised
you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the Closing Time (as hereinafter defined), shall also
mean such registration statement as so amended; provided, however, that such
term shall also include all Rule 430A Information contained in any
Prospectus and any Term Sheet (as hereinafter defined) and deemed to be
included in such registration statement at the time such registration
statement becomes effective as provided by Rule 430A of the 1933 Act
Regulations. The term "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in the preceding paragraph and any preliminary
prospectus included in the Registration Statement at the time it becomes
effective that omits Rule 430A Information. The term "Prospectus" as used
in this Agreement shall mean (a) if the Company relies on Rule 434 of the
1933 Act, the Term Sheet relating to the Shares that is first filed pursuant
to Rule 424(b)(7) of the 1933 Act, together with the Preliminary Prospectus
identified therein that such Term Sheet supplements or (b) if the Company
does not rely on Rule 434 of the 1933 Act, the prospectus relating to the
Shares in the form in which it is first filed with the Commission pursuant
to Rule 424(b) of the 1933 Act Regulations or, if no filing pursuant to Rule
424(b) of the 1933 Act Regulations is required, shall mean the form of final
prospectus included in the Registration Statement at the time such
Registration Statement
2
becomes effective. The term "Rule 430A Information" means information with
respect to the Shares and the offering thereof permitted pursuant to Rule
430A of the 1933 Act Regulations to be omitted from the Registration
Statement when it becomes effective. The term "462(b) Registration
Statement" means any registration statement filed with the Commission
pursuant to Rule 462(b) under the 1933 Act (including the Registration
Statement and any Preliminary Prospectus or Prospectus incorporated
therein at the time such registration statement becomes effective). The
term "Term Sheet" means any term sheet that satisfies the requirements of
Rule 434 of the 1933 Act. Any reference to the "date" of a Prospectus that
includes a Term Sheet shall mean the date of such Term Sheet.
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and no proceedings for that
purpose have been instituted or threatened by the Commission or the state
securities or blue sky authority of any jurisdiction, and each Preliminary
Prospectus and any amendment or supplement thereto, at the time of filing
thereof, conformed in all material respects to the requirements of the 1933
Act and the 1933 Act Regulations, and did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information furnished
in writing to the Company by an Underwriter expressly for use in the
Registration Statement or any 462(b) Registration Statement.
(c) When the Registration Statement and any 462(b) Registration
Statement shall become effective, or any Term Sheet that is part of the
Prospectus is filed with the Commission pursuant to Rule 434, when the
Prospectus is first filed pursuant to Rule 424(b) of the 1933 Act
Regulations, when any amendment to the Registration Statement or any 462(b)
Registration Statement becomes effective, and when any supplement to the
Prospectus or any Term Sheet is filed with the Commission and at the Closing
Time and Date of Delivery (as hereinafter defined), (i) the Registration
Statement, the 462(b) Registration Statement, the Prospectus, the Term Sheet
and any amendments thereof and supplements thereto will conform in all
material respects with the applicable requirements of the 1933 Act and the
1933 Act Regulations, and (ii) neither the Registration Statement, the
462(b) Registration Statement, the Prospectus, any Term Sheet nor any
amendment or supplement thereto will contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading;
provided, however, that this representation and warranty shall not apply to
any statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter expressly
for use in the Registration Statement or any 462(b) Registration Statement.
(d) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of British Columbia with all
requisite
3
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus. The Company is duly qualified to transact business as a
foreign corporation and is in good standing in each of the jurisdictions
in which the ownership or leasing of its properties or the nature or
conduct of its business as described in the Registration Statement and the
Prospectus requires such qualification, except where the failure to do so
would not have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of the
Company and the Subsidiaries (as hereinafter defined) taken as a whole.
(e) All of the Company's subsidiaries are named on an exhibit to the
Registration Statement (each a "Subsidiary" and collectively the
"Subsidiaries"). Each of the Subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
state or jurisdiction of its incorporation with all requisite corporate
power and authority to own, lease and operate its properties and conduct its
business as described in the Registration Statement and the Prospectus. Each
such entity is duly qualified to do business and is in good standing as a
foreign corporation in each other jurisdiction in which the ownership or
leasing of its properties or the nature or conduct of its business as
described in the Registration Statement and the Prospectus conducted
requires such qualification, except where the failure to do so would not
have a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the Company and
the Subsidiaries.
(f) The Company has full corporate right, power and authority to enter
into this Agreement, to issue, sell and deliver the Shares as provided
herein and to consummate the transactions contemplated herein. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding agreement of the Company, enforceable in
accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization or other laws
of general applicability relating to or affecting creditors' rights, or by
general principles of equity whether considered at law or at equity and
except to the extent enforcement of the indemnification provisions set forth
in Section 8 of this Agreement may be limited by federal or state securities
laws or the public policy underlying such laws. The agreements to which the
Company or any of its subsidiaries is a party described in the Registration
Statement and Prospectus are valid agreements, enforceable by the Company
and its Subsidiaries (as applicable), except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally
or by general equitable principles and, to the best of the Company's
knowledge, the other contracting party or parties thereto are not in
material breach or material default under any of such agreements.
(g) Each consent, approval, authorization, order, license,
certificate, permit, registration, designation or filing by or with any
governmental agency or body necessary
4
for the valid authorization, issuance, sale and delivery of the Shares,
the execution, delivery and performance of this Agreement and the
consummation by the Company of the transactions contemplated hereby has
been made or obtained and is in full force and effect, except as may be
required under applicable state securities laws.
(h) Neither the issuance, sale and delivery by the Company of the
Shares, nor the execution, delivery and performance of this Agreement, nor
the consummation of the transactions contemplated hereby will conflict with
or result in a breach or violation of any of the terms and provisions of, or
(with or without the giving of notice or the passage of time or both)
constitute a default under the charter documents of the Company or the
Subsidiaries, or under any indenture, mortgage, deed of trust, any of that
loan agreement, note, lease or other agreement or instrument to which the
Company or any of the Subsidiaries is a party or to which the Company or
the Subsidiaries, any of their properties or any of their other assets is
subject; or any applicable statute, judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to any of
the foregoing or any of their respective properties; or result in the
creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Company or the Subsidiaries.
(i) The Shares to be issued and sold to the Underwriters hereunder
have been validly authorized by the Company. When issued and delivered
against payment therefor as provided in this Agreement, the Shares will be
duly and validly issued, fully paid and nonassessable. No preemptive rights
of shareholders exist with respect to any of the Shares which have not been
satisfied or waived. No person or entity holds a right to require or
participate in the registration under the 1933 Act of the Shares pursuant to
the Registration Statement which has not been satisfied or waived; and,
except as set forth in the Prospectus, no person holds a right to require
registration under the 1933 Act of any shares of Common Stock of the Company
at any other time which has not been satisfied or waived.
(j) The Company's authorized, issued and outstanding capital stock is
as disclosed in the Prospectus. All of the issued shares of capital stock
of the Company have been duly authorized and validly issued, are fully paid
and nonassessable and conform to the description of the Company's capital
stock contained in the Prospectus.
(k) All of the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned directly, or indirectly through another
Subsidiary, by the Company free and clear of all liens, security interests,
pledges, charges, encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever. Other than the
Subsidiaries, the Company does not own, directly or indirectly, any capital
stock or other equity securities of any other corporation or any ownership
interest in any partnership, joint venture or other association except for
PhoneLine Cardcall International, Inc., a British Columbia
5
corporation in which the Company owns a 40% equity interest and DCI
Telecommunications, Inc. owns a 60% equity interest.
(l) Except as disclosed in the Prospectus, there are no outstanding
(i) securities or obligations of the Company or any of its Subsidiaries
convertible into or exchangeable for any capital stock of the Company or any
such Subsidiary, (ii) warrants, rights or options to subscribe for or
purchase from the Company or any such Subsidiary any such capital stock or
any such convertible or exchangeable securities or obligations, or (iii)
obligations of the Company or any such Subsidiary to issue any shares of
capital stock, any such convertible or exchangeable securities or
obligation, or any such warrants, rights or options.
(m) The Company and the Subsidiaries have good and marketable title in
fee simple to all real property, if any, and good title to all personal
property owned by them, in each case free and clear of all liens, security
interests, pledges, charges, encumbrances, mortgages and defects, except
such as are disclosed in the Prospectus or such as do not materially and
adversely affect the value of such property and do not interfere with the
use made or proposed to be made of such property by the Company and the
Subsidiaries; and any real property and buildings held under lease by the
Company or any Subsidiary are held under valid, existing and enforceable
leases, with such exceptions as are disclosed in the Prospectus or are not
material and do not interfere with the use made or proposed to be made of
such property and buildings by the Company or such Subsidiary.
(n) The financial statements of the Company and its consolidated
Subsidiaries included in the Registration Statement and Prospectus present
fairly the financial position of the Company and its consolidated
Subsidiaries as of the dates indicated and the results of operations and
cash flows for the Company and its consolidated Subsidiaries for the periods
specified, all in conformity with United States generally accepted
accounting principles applied on a consistent basis. The financial
statement schedules included in the Registration Statement and the amounts
in the Prospectus under the captions "Prospectus Summary -- Summary
Consolidated Financial Information", "Capitalization", "Dilution", "Selected
Consolidated Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" fairly present
the information shown therein and have been compiled on a basis consistent
with the financial statements included in the Registration Statement and the
Prospectus. The unaudited pro forma financial information (including the
related notes) included in the Prospectus or any Preliminary Prospectus
complies as to form in all material respects to the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations, and management of
the Company believes that the assumptions underlying the pro forma
adjustments are reasonable. Such pro forma adjustments have been properly
applied to the historical amounts in the compilation of the information and
such information fairly presents with respect to the Company and the
Subsidiaries, the
6
financial position, results of operations and other information purported
to be shown therein at the respective dates and for the respective periods
specified.
(o) Deloitte & Touche, LLP, which has examined and are reporting upon
the audited financial statements and schedules included in the Registration
Statement, are, and were during the periods covered by their reports
included in the Registration Statement and the Prospectus, independent
public accountants within the meaning of the 1933 Act and the 1933 Act
Regulations.
(p) None of the Company or the Subsidiaries has sustained, since March
31, 1998 any material loss or interference with its business from fire,
explosion, flood, hurricane, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or arbitrators' or court or
governmental action, order or decree; and, since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
and except as otherwise stated in the Registration Statement and Prospectus,
there has not been (i) any material change in the capital stock, long-term
debt, obligations under capital leases or short-term borrowings of the
Company or any Subsidiary, or (ii) any material adverse change, or any
development which could reasonably be seen as involving a prospective
material adverse change, in or affecting the business, prospects,
properties, assets, results of operations or condition (financial or other)
of the Company or any Subsidiary.
(q) Neither the Company nor its Subsidiaries is in violation of their
respective charter or by-laws, and no default exists, and no event has
occurred, nor state of facts exists, which, with notice or after the lapse
of time to cure or both, would constitute a default in the due performance
and observance of any obligation, agreement, term, covenant, consideration
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, note, lease or other agreement or instrument to which any such
entity is a party or to which any such entity or any of its properties is
subject. None of the Company or its Subsidiaries is in violation of, or in
default with respect to, any statute, rule, regulation, order, judgment or
decree, except as may be properly described in the Prospectus or such as in
the aggregate do not now have and will not in the future have a material
adverse effect on the financial position, results of operations or business
of each such entity, respectively.
(r) There is not pending or, to the Company's knowledge, threatened
any action, suit, proceeding, inquiry or investigation against the Company,
the Subsidiaries or any of their respective officers and directors or to
which the properties, assets or rights of any such entity are subject,
before or brought by any court or governmental agency or body or board of
arbitrators that (i) might result in any material adverse change in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its Subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets
or rights, (ii) might prevent consummation of the
7
transactions contemplated hereby or (iii) is required to be described in
the Registration Statement or the Prospectus but are not described as
required.
(s) The descriptions in the Registration Statement and the Prospectus
of the contracts, leases and other legal documents therein described present
fairly the information required to be shown, and there are no contracts,
leases, or other documents of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement which are not described or filed as required.
(t) Each of the Company and the Subsidiaries owns, possesses or has
obtained all material permits, licenses, franchises, certificates, consents,
orders, approvals and other authorizations of governmental or regulatory
authorities or other entities as are necessary to own or lease, as the case
may be, and to operate its properties and to carry on its business as
presently conducted, or as contemplated in the Prospectus to be conducted,
and the Company or the Subsidiaries have not received any notice of
proceedings relating to revocation or modification of any such licenses,
permits, franchises, certificates, consents, orders, approvals or
authorizations.
(u) Each of the Company and the Subsidiaries owns or possesses
adequate license or other rights to use all patents, patent rights,
inventions, trademarks, service marks, trade names, copyrights, software and
design licenses, trade secrets, manufacturing processes, other intangible
property rights and know-how (collectively "Intangibles") necessary to
conduct its business as described in the Prospectus, and neither the Company
nor any Subsidiary has received notice of infringement of or conflict with
(and the Company knows of no such infringement of or conflict with) asserted
rights of others with respect to any Intangibles which could materially and
adversely affect the business, prospects, properties, assets, results of
operations or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole.
(v) The Company's and each Subsidiary's respective systems of internal
accounting controls taken as a whole is sufficient to meet the objectives of
internal accounting control insofar as those objectives pertain to the
prevention or detection of errors or irregularities in amounts that would be
material in relation to the Company's or the Subsidiary's financial
statements; and, none of the Company, the Subsidiaries or any employee or
agent thereof has made any payment of funds of the Company or the
Subsidiaries, or received or retained any funds and no funds of the Company
or the Subsidiaries have been set aside to be used for any payment, in each
case in violation of any law, rule or regulation.
(w) The Company and each Subsidiary has filed on a timely basis all
necessary federal, provincial, state, local and foreign income and franchise
tax returns required to be filed through the date hereof and have paid all
taxes shown as due thereon; and no tax deficiency has been asserted against
any such entity, nor does the Company
8
know of any tax deficiency which is likely to be asserted against any such
entity which if determined adversely to any such entity, could materially
adversely affect the business, prospects, properties, assets, results of
operations or condition (financial or otherwise) of any such entity,
respectively. All tax liabilities are adequately provided for on the
respective books of such entities.
(x) The Company and each Subsidiary maintains insurance (issued by
insurers of recognized financial responsibility) of the types and in the
amounts generally deemed adequate for their respective businesses and,
consistent with insurance coverage maintained by similar companies in
similar businesses, including, but not limited to, insurance covering real
and personal property owned or leased by the Company and its Subsidiaries
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect.
(y) Each of the Company, the Subsidiaries, and their officers,
directors or affiliates has not taken and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in or constitute the stabilization or manipulation of any
security of the Company or to facilitate the sale or resale of the Shares.
(z) The Company is not, will not become as a result of the
transactions contemplated hereby, or will not conduct its respective
businesses in a manner in which the Company would become, "an investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
(aa) Except as set forth in the Registration Statement and
Prospectus, (i) the Company and each Subsidiary is in compliance with all
rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to its business, (ii) neither
the Company nor any Subsidiary has received notice from any governmental
authority or third party of an asserted claim under Environmental Laws,
which claim is required to be disclosed in the Registration Statement and
the Prospectus, (iii) neither the Company nor any Subsidiary will be
required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied
by the Company or any Subsidiary has been designated as a Superfund site
pursuant to the Comprehensive Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. (S) 9601, et seq.), or otherwise designated as a
-- ----
contaminated site under applicable federal, provincial, state or local law.
(bb) To the Company's knowledge, no labor disturbance by the
employees of the Company or any of its Subsidiaries exists or is imminent;
and the Company is not aware of any existing or imminent labor disturbance
by the employees of
9
any of its principal suppliers, value added resellers, subcontractors,
original equipment manufacturers, authorized dealers or international
distributors that might be expected to result in a material adverse change
in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its Subsidiaries considered as
one enterprise. No collective bargaining agreement exists with any of the
Company's or Subsidiaries' employees and, to the best of the Company's
knowledge, no such agreement is imminent.
(cc) Neither the Company nor the Principal Shareholders are aware
that (i) any executive, key employee or significant group of employees of
the Company or any of the Subsidiaries plans to terminate employment with
the Company or such Subsidiary or (ii) any such executive or key employee is
subject to any noncompetition, nondisclosure, confidentiality, employment,
consulting or similar agreement that would be violated by the present or
proposed activities of the Company or the Subsidiaries.
(dd) The Company has not and will not incur any liability for a
fee, commission or other compensation on account of the employment of a
broker or finder in connection with the transactions contemplated by this
Agreement other than specifically as contemplated hereby.
Section 2. Representations and Warranties of the Selling Shareholders.
----------------------------------------------------------
Each of the Selling Shareholders severally and not jointly represents and
warrants to, and agrees with, each of the several Underwriters and the Company
that:
(a) The Selling Shareholder has full right, power and authority to
enter into this Agreement, the Power of Attorney and the Custody Agreement
(as hereinafter defined) and to sell, assign, transfer and deliver to the
Underwriters the Shares to be sold by the Selling Shareholder hereunder; and
the execution and delivery of this Agreement, the Power of Attorney and the
Custody Agreement have been duly authorized by all necessary action of the
Selling Shareholder.
(b) The Selling Shareholder has duly executed and delivered this
Agreement, the Power of Attorney and the Custody Agreement, and each
constitutes the valid and binding agreement of the Selling Shareholder
enforceable against the Selling Shareholder in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general equitable
principles.
(c) All consents, approvals, authorizations, orders or declarations of
or from, or registration, qualification or filing with, any court or
governmental agency or body required for the sale of the Shares to be sold
by the Selling Shareholder or the consummation of the transactions
contemplated by this Agreement, the Power of Attorney or the Custody
Agreement, except the registration of such Shares under the 1933 Act
10
(which, if the Registration Statement is not effective as of the time of
execution hereof, shall be obtained as provided in this Agreement) and
such as may be required under state securities or blue sky laws in
connection with the offer, sale and distribution of such Shares by the
Underwriters, have been obtained and are in full force and effect; such
Selling Shareholder, if other than a natural person, has been duly
organized and is validly existing in good standing under the laws of the
jurisdiction of its organization as the type of entity that it purports to
be; and such Selling Shareholder has full legal right, power and authority
to enter into and perform its obligations under this Agreement and such
Power of Attorney and Custody Agreement, and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Shareholder under this
Agreement.
(d) The sale of the Shares to be sold by such Selling Shareholder and
the performance of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with, or (with or without the giving of
notice or the passage of time or both) result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement, lease or other agreement
or instrument to which the Selling Shareholder is a party or to which any of
its properties or assets is subject, nor will such action conflict with or
violate any provision of the charter or bylaws or other governing
instruments of the Selling Shareholder, if any, or any statute, rule or
regulation or any order, judgment or decree of any court or governmental
agency or body having jurisdiction over the Selling Shareholder or any of
the Selling Shareholder's properties or assets.
(e) The Selling Shareholder has, and at the Closing Time (as defined
in Section 3 hereof) or, at the Date of Delivery, as the case may be, the
Selling Shareholder will have, good and valid title to the Shares to be sold
by the Selling Shareholder hereunder, free and clear of all liens, security
interests, pledges, charges, encumbrances, defects, shareholders'
agreements, voting trusts, equities or claims of any nature whatsoever; and,
upon delivery of such Shares against payment therefor as provided herein,
good and valid title to such Shares, free and clear of all liens, security
interests, pledges, charges, encumbrances, defects, shareholders'
agreements, voting trusts, equities or claims of any nature whatsoever, will
pass to the several Underwriters.
(f) The Selling Shareholder has not (i) taken, directly or indirectly,
any action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of
the Shares; (ii) since the filing of the Registration Statement (A) sold,
bid for, purchased or paid anyone any compensation for soliciting purchases
of, the Shares or (B) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company; or
(iii) has not distributed and will not distribute any Prospectus or other
offering material in connection with the offering and sale of the Shares.
11
(g) Each Selling Shareholder other than the Principal Shareholders
represents and warrants that (i) such Selling Shareholder has carefully
reviewed the Registration Statement and Prospectus and (ii) to the best
knowledge of such Selling Shareholder the Registration Statement or any
amendment thereto or any 462(b) Registration Statement or any amendment
thereto or the Prospectus did not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (g) do not
apply to statements or omissions made in the Registration Statement, any
462(b) Registration Statement or any amendment thereto or the Prospectus or
any amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through you
specifically for use therein.
(h) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986,
as amended, with respect to the transactions herein contemplated, each of
the Selling Shareholders agrees to deliver to you prior to or at the Closing
Time (as hereinafter defined) a properly completed and executed United
States Treasury Department form W-9 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof).
(i) Each of the Selling Shareholders represents and warrants that
certificates in negotiable form representing all of the Shares to be sold by
such Selling Shareholder hereunder have been placed in custody under a
custody agreement (the "Custody Agreement"), in the form heretofore
furnished to and approved by you, duly executed and delivered by such
Selling Shareholder to [INSERT NAME OF CUSTODIAN], as custodian (the
"Custodian"), and that such Selling Shareholder has duly executed and
delivered a Power of Attorney (the "Power of Attorney"), in the form
heretofore furnished to and approved by you, appointing [INSERT NAME(S) OF
ATTORNEYS-IN-FACT] as such Selling Shareholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement on
behalf of such Selling Shareholder, to determine the purchase price to be
paid by the Underwriters to the Selling Shareholders as provided in Section
3 hereof, to authorize the delivery of the Shares to be sold by such
Selling Shareholder hereunder and otherwise to act on behalf of such Selling
Shareholder in connection with the transactions contemplated by this
Agreement and the Custody Agreement.
(j) Each of the Selling Shareholders specifically agrees that the
Shares represented by the certificates held in custody for such Selling
Shareholder under the Custody Agreement are subject to the interests of the
Underwriters hereunder, and that the arrangements made by such Selling
Shareholder for such custody, and the appointment by such Selling
Shareholder of the Attorneys-in-Fact by the Power of Attorney, are
irrevocable. Each of the Selling Shareholders specifically agrees that the
obligations of the Selling Shareholders hereunder shall not be terminated by
operation of law, whether by the
12
death or incapacity of any individual Selling Shareholder or, in the case
of an estate or trust, by the death or incapacity of any executor or
trustee or the termination of such estate or trust, or in the case of a
partnership or corporation, by the dissolution of such partnership or
corporation, or by the occurrence of any other event.
(k) Such Selling Shareholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the
Closing Date and will advise one of its Attorneys-in-Fact and ▇▇▇▇▇▇ ▇▇▇▇▇▇
& Company, Inc. prior to the Closing Date if any statement to be made on
behalf of such Selling Shareholder in the certificate contemplated by
Section 6(e) would be inaccurate if made as of the Closing Date.
(l) Such Selling Shareholder does not have, or has waived prior to the
date hereof, any preemptive right, co-sale right or right of first refusal
or other similar right to purchase any of the Shares that are to be sold by
the Company or any of the other Selling Shareholders to the Underwriters
pursuant to this Agreement; such Selling Shareholder does not have, or has
waived prior to the date hereof, any registration right or other similar
right to participate in the offering made by the Prospectus, other than such
rights of participation as have been satisfied by the participation of such
Selling Shareholder in the transactions to which this Agreement relates in
accordance with the terms of this Agreement; and such Selling Shareholder
does not own any warrants, options or similar rights to acquire, and does
not have any right or arrangement to acquire, any capital stock, rights,
warrants, options or other securities from the Company, other than those
described in the Registration Statement and the Prospectus.
Section 3. Sale and Delivery of the Shares to the Underwriters; Closing.
------------------------------------------------------------
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the
Company agrees to issue and sell to each of the Underwriters the Firm
Company Shares, and the Selling Shareholders agree to sell to each of the
Underwriters the Firm Selling Shareholder Shares, and each Underwriter
agrees, severally and not jointly, to purchase from the Company and the
Selling Shareholders the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule A (the proportion which each Underwriter's
----------
share of the total number of the Firm Shares bears to the total number of
Firm Shares is hereinafter referred to as such Underwriter's "underwriting
obligation proportion"), at a purchase price of $__________ per share.
(b) In addition, on the basis of the representations and warranties
herein contained, and subject to the terms and conditions herein set forth,
the Company hereby grants an option to the Underwriters, severally and not
jointly, to purchase up to an additional 402,750 Option Shares at the same
purchase price as shall be applicable to the Firm Shares. The option hereby
granted will expire if not exercised within the thirty (30)
13
day period after the date of the Prospectus by giving written notice to
the Company. The option granted hereby may be exercised in whole or in
part (but not more than once), only for the purpose of covering over-
allotments that may be made in connection with the offering and
distribution of the Firm Shares. The notice of exercise shall set forth
the number of Option Shares as to which the several Underwriters are
exercising the option, and the time and date of payment and delivery
thereof. Such time and date of delivery (the "Date of Delivery") shall be
determined by you but shall not be later than three full business days
after the exercise of such option, nor in any event prior to the Closing
Time. If the option is exercised as to all or any portion of the Option
Shares, the Option Shares as to which the option is exercised shall be
purchased by the Underwriters, severally and not jointly, in their
respective underwriting obligation proportions.
(c) Payment of the purchase price for and delivery of certificates in
definitive form representing the Firm Shares shall be made at the offices of
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc., ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or
at such other place as shall be agreed upon by the Company and you, at 10:00
a.m., either (i) on the third full business day after the execution of this
Agreement, or (ii) at such other time not more than ten full business days
thereafter as you and the Company shall determine (unless, in either case,
postponed pursuant to the term hereof) (such date and time of payment and
delivery being herein called the "Closing Time"). In addition, in the event
that any or all of the Option Shares are purchased by the Underwriters,
payment of the purchase price for and delivery of certificates in definitive
form representing the Option Shares shall be made at the offices of ▇▇▇▇▇▇
▇▇▇▇▇▇ & Company, Inc. in the manner set forth above, or at such other place
as the Company and you shall determine, on the Date of Delivery as specified
in the notice from you to the Company. Payment for the Firm Shares and the
Option Shares shall be made to the Company and the Selling Shareholders,
respectively, by wire transfer in same-day funds to the accounts designated
to the Underwriters in writing by the Company and the Selling Shareholders,
respectively, against delivery to you for the respective accounts of the
Underwriters of the Shares to be purchased by them.
(d) The certificates representing the Shares to be purchased by the
Underwriters shall be in such denominations and registered in such names as
you may request in writing at least two full business days before the
Closing Time or the Date of Delivery, as the case may be. The certificates
representing the Shares will be made available at the offices of ▇▇▇▇▇▇
▇▇▇▇▇▇ & Company, Inc. or at such other place as ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company,
Inc. may designate for examination and packaging not later than 10:00 a.m.
at least one full business day prior to the Closing Time or the Date of
Delivery as the case may be.
(e) After the Registration Statement becomes effective, you intend to
offer the Shares to the public as set forth in the Prospectus, but after the
initial public offering of such Shares you may in your discretion vary the
public offering price.
14
(f) Subject to the terms and conditions herein set forth, on the
Closing Time the Company shall issue to the Representatives warrants in the
form attached hereto as Exhibit A (the "Representatives' Warrants") to
---------
purchase an aggregate of ______ shares of Common Stock at an exercise
price equal to 135% of the public offering price. The number of shares of
Common Stock subject to each Representative's Warrant is as set forth in
Schedule A.
Section 4. Certain Covenants of the Company. The Company covenants and
--------------------------------
agrees with each Underwriter as follows:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective (if not yet effective at the date and time
that this Agreement is executed and delivered by the parties hereto). If the
Company elects to rely upon Rule 430A of the 1933 Act Regulations or the
filing of the Prospectus is otherwise required under Rule 424(b) of the 1933
Act Regulations, the Company will comply with the requirements of Rule 430A
and will file the Prospectus, properly completed, pursuant to the applicable
provisions of Rule 424(b), or a Term Sheet pursuant to and in accordance
with Rule 434, within the time period prescribed. If the Company elects to
rely upon Rule 462(b), the Company shall file a 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. The Company will notify you immediately, and confirm
the notice in writing, (i) when the Registration Statement, 462(b)
Registration Statement or any post-effective amendment to the Registration
Statement, shall have become effective, or any supplement to the Prospectus
or any amended Prospectus shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission to
amend the Registration Statement or 462(b) Registration Statement or amend
or supplement the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or any 462(b) Registration Statement or of any
order preventing or suspending the use of any Preliminary Prospectus or the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, or of the institution or threatening of any proceeding for any
such purposes. The Company will use every reasonable effort to prevent the
issuance of any such stop order or of any order preventing or suspending
such use and, if any such order is issued, to obtain the withdrawal thereof
at the earliest possible moment.
(b) The Company will not at any time file or make any amendment to the
Registration Statement, or any amendment or supplement (i) to the
Prospectus, if the Company has not elected to rely upon Rule 430A, (ii) if
the Company has elected to rely upon Rule 430A, to either the Prospectus
included in the Registration Statement at the time it becomes effective or
to the Prospectus filed in accordance with Rule 424(b) or any Term Sheet
filed in accordance with Rule 434, or (iii) if the Company has elected to
rely upon
15
Rule 462(b), to any 462(b) Registration Statement in any case if you shall
not have previously been advised and furnished a copy thereof a reasonable
time prior to the proposed filing, or if you or counsel for the
Underwriters shall object to such amendment or supplement.
(c) The Company has furnished or will furnish to you, at its expense,
as soon as available, copies of the Registration Statement as originally
filed and of all amendments thereto, whether filed before or after the
Registration Statement becomes effective, copies of all exhibits and
documents filed therewith and signed copies of all consents and certificates
of experts, as you may reasonably request, and has furnished or will furnish
to each Underwriter, one conformed copy of the Registration Statement as
originally filed and of each amendment thereto.
(d) The Company will deliver to each Underwriter, at the Company's
expense, from time to time, as many copies of each Preliminary Prospectus as
such Underwriter may reasonably request, and the Company hereby consents to
the use of such copies for purposes permitted by the 1933 Act. The Company
will deliver to each Underwriter, at the Company's expense, as soon as the
Registration Statement shall have become effective and thereafter from time
to time as requested during the period when the Prospectus is required to be
delivered under the 1933 Act, such number of copies of the Prospectus (as
supplemented or amended) as each Underwriter may reasonably request. The
Company will comply to the best of its ability with the 1933 Act and the
1933 Act Regulations so as to permit the completion of the distribution of
the Shares as contemplated in this Agreement and in the Prospectus. 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 or any Term Sheet in
connection with the offering or sale of the Shares and if at such time any
events shall have occurred as a result of which the Prospectus or any Term
Sheet 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 or any Term Sheet is delivered not misleading, or,
if for any reason it shall be necessary during such same period to amend or
supplement the Prospectus or any Term Sheet in order to comply with the 1933
Act or the 1933 Act Regulations, the Company will notify you and upon your
request 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 any Term Sheet or a supplement to the
Prospectus or any Term Sheet or an amendment or supplement to any such
incorporated document 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 Shares at any time nine
months or more after the time of issue of the Prospectus or any Term Sheet,
upon your request but at the expense of such Underwriter, the Company will
prepare and deliver to such Underwriter as many copies as you may request of
an amended or supplemented Prospectus or any Term Sheet complying with
Section 10(a)(3) of the 1933 Act.
16
(e) The Company will use its best efforts to qualify the Shares for
offering and sale under the applicable securities laws of such states and
other jurisdictions as you may designate and to maintain such qualifications
in effect for as long as may be necessary to complete the distribution of
the Shares; provided, however, that the Company shall not be obligated to
file any general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified or to make
any undertakings in respect of doing business in any jurisdiction in which
it is not otherwise so subject. The Company will file such statements and
reports as may be required by the laws of each jurisdiction in which the
Shares have been qualified as above provided.
(f) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than the end of the
fiscal quarter first occurring after the first anniversary of the "effective
date of the Registration Statement" (as defined in Rule 158(c) of the 1933
Act Regulations), an earnings statement (in reasonable detail but which need
not be audited) complying with the provisions of Section 11(a) of the 1933
Act and Rule 158 thereunder and covering a period of at least 12 months
beginning after the effective date of the Registration Statement.
(g) The Company will use the net proceeds received by it from the sale
of the Shares in the manner specified in the Prospectus under the caption
"Use of Proceeds."
(h) The Company will furnish to its securityholders, as soon as
practicable after the end of each respective period, annual reports
(including financial statements audited by independent public accountants)
and unaudited quarterly reports of operations for each of the first three
quarters of the fiscal year. During a period of five years after the date
hereof, the Company will furnish to you: (i) concurrently with furnishing
such reports to its securityholders, statements of operations of the Company
for each of the first three quarters in the form furnished to the Company's
securityholders; (ii) concurrently with furnishing to its securityholders, a
balance sheet of the Company as of the end of such fiscal year, together
with statements of operations, of cash flows and of securityholders' equity
of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent public accountants; (iii) as
soon as they are available, copies of all reports (financial or otherwise)
mailed to securityholders; (iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission,
any securities exchange or the National Association of Securities Dealers,
Inc. (the "NASD"); (v) every material press release in respect of the
Company or its affairs which is released by the Company; and (vi) any
additional information of a public nature concerning the Company or its
business that you may reasonably request. During such five-year period, the
foregoing financial statements shall be on a consolidated basis to the
extent that the accounts of the Company are consolidated with any
subsidiaries, and shall be accompanied by similar financial statements for
any significant subsidiary that is not so consolidated.
17
(i) During the period beginning from the date hereof and continuing to
and including the date one hundred eighty (180) days after the date of the
Prospectus, the Company will not, without the prior written consent of
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc., offer, pledge, issue, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of, or announce any
offer, pledge, sale, grant of any option to purchase or other disposition,
directly or indirectly, any shares of Common Stock or securities convertible
into, exercisable or exchangeable for, shares of Common Stock, except as
provided in Section 3 of this Agreement and pursuant to the Company's 1998
Stock Option Plan, as described in the Registration Statement and
Prospectus.
(j) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be
the same entity as the transfer agent) for its Common Stock.
(k) The Company will cause the Shares to be listed, subject to notice
of issuance, on the Nasdaq National Market and will maintain the listing of
the Shares on the Nasdaq National Market.
(l) The Company is familiar with the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder, and has in the past
conducted its affairs, and will in the future conduct its affairs, in such a
manner so as to ensure that the Company was not and will not be an
"investment company" or an entity "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(m) The Company will not, and will use its best efforts to cause its
officers, directors and affiliates not to, (i) take, directly or indirectly
prior to termination of the underwriting syndicate contemplated by this
Agreement, any action designed to stabilize or manipulate the price of any
security of the Company, or which may cause or result in, or which might in
the future reasonably be expected to cause or result in, the stabilization
or manipulation of the price of any security of the Company, to facilitate
the sale or resale of any of the Shares, (ii) sell, bid for, purchase or pay
anyone any compensation for soliciting purchases of the Shares or (iii) pay
or agree to pay to any person any compensation for soliciting any order to
purchase any other securities of the Company.
(n) If at any time during the 30-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus) and after
written notice from you advising the Company to the effect set forth above,
the Company agrees to forthwith prepare, consult with you concerning the
substance of, and
18
disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor,
publication or event.
(o) The Company will file timely and accurate information with the
Commission in accordance with Rule 463 of the Commission under the 1933 Act
or any successor provision.
Section 5. Covenants of the Selling Shareholders. Each of the Selling
-------------------------------------
Shareholders covenants and agrees with each of the Underwriters:
(a) During the period beginning from the date hereof and continuing to
and including the date one hundred eighty (180) days after the date of the
Prospectus, the Selling Shareholder will not, without the prior written
consent of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc., offer, pledge, issue, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of
(or announce any offer, pledge, sale, grant of an option to purchase or
other disposition, directly or indirectly) any shares of Common Stock or
securities convertible into, exercisable or exchangeable for, shares of
Common Stock, except as provided in Section 3 of this Agreement.
(b) The Selling Shareholder will not (i) take, directly or indirectly,
prior to the termination of the underwriting syndicate contemplated by this
Agreement, any action designed to cause or to result in, or that might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of
any of the Shares, (ii) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of, the Shares or (iii) pay to or
agree to pay any person any compensation for soliciting another to purchase
any other securities of the Company.
Section 6. Payment of Expenses. The Company will pay and bear all costs,
-------------------
fees and expenses incident to the performance of its obligations under this
Agreement (excluding fees and expenses of counsel for the Underwriters, except
as specifically set forth in this Agreement), including (a) the preparation,
printing and filing of the Registration Statement (including financial
statements and exhibits), as originally filed and as amended, the Preliminary
Prospectuses, the Prospectus and any Term Sheet and any amendments or
supplements thereto, and the cost of furnishing copies thereof to the
Underwriters, (b) the preparation, printing and distribution of this Agreement,
the certificates representing the Shares, a Blue Sky memoranda and any
instruments relating to any of the foregoing, (c) the issuance and delivery of
the Shares to the Underwriters, including any transfer taxes payable upon the
sale of the Shares to the Underwriters (other than transfer taxes on resales by
the Underwriters), (d) the fees and disbursements of the Company's counsel and
accountants, (e) the qualification of the Shares under the applicable securities
laws in accordance with the terms of this Agreement, including filing fees and
fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the Blue Sky memoranda, (f) all costs, fees and expenses
in connection
19
with the notification to the Nasdaq National Market of the proposed issuance
of the Shares, (g) filing fees relating to the review of the offering by the
NASD, (h) the transfer agent's and registrar's fees and all miscellaneous
expenses referred to in Part II of the Registration Statement, (i) costs
related to travel and lodging incurred by the Company and its representatives
relating to meetings with and presentations to prospective purchasers of the
Shares reasonably determined by the Underwriters to be necessary or desirable
to effect the sale of the Shares to the public, and (j) all other costs and
expenses incident to the performance of the Company's obligations hereunder
(including costs incurred in closing the purchase of the Option Shares, if
any) that are not otherwise specifically provided for in this section. The
Company, upon your request, will provide funds in advance for filing fees in
connection with "blue sky" qualifications.
Section 7. Conditions of Underwriters' Obligations. The obligations of
---------------------------------------
the Underwriters to purchase and pay for (i) the Firm Shares that they have
respectively agreed to purchase pursuant to this Agreement (and any Option
Shares as to which the option granted in Section 3 has been exercised and the
Date of Delivery determined by you is the same as the Closing Time) at the
Closing Time and (ii) the Option Shares at the Date of Delivery of the Option
Shares, are subject to the accuracy of the representations and warranties of the
Company and the Selling Shareholders contained herein as of the Closing Time or
the Date of Delivery, as the case may be, and to the accuracy of the
representations and warranties of the Company and the Selling Shareholders
contained in certificates of any officer of the Company and the Selling
Shareholders delivered pursuant to the provisions hereof, to the performance by
the Company and the Selling Shareholders of their obligations hereunder, and to
the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 p.m. on the date of this Agreement or, with your consent, at a
later time and date not later, however, than 5:30 p.m. on the first business
day following the date hereof, or at such later time or on such later date
as you may agree to in writing; if the Company has elected to rely upon Rule
462(b), the 462(b) Registration Statement shall have become effective by
10:00 p.m., Washington, D.C. time, on the date of this Agreement; and at the
Closing Time no stop order suspending the effectiveness of the Registration
Statement or any 462(b) Registration Statement shall have been issued under
the 1933 Act and no proceedings for that purpose shall have been instituted
or shall be pending or, to your knowledge or the knowledge of the Company,
shall be contemplated by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of counsel for the Underwriters. If the Company has elected to
rely upon Rule 430A, a Prospectus or a Term Sheet containing the Rule 430A
Information shall have been filed with the Commission in accordance with
Rule 424(b) (or a post-effective amendment providing such information shall
have been filed and declared effective in accordance with the requirements
of Rule 430A).
(b) At the Closing Time, you shall have received a favorable opinion
of Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, United States counsel for the
Company, or ▇▇▇▇▇▇▇ &
20
▇▇▇▇▇▇, Canadian counsel for the Company, dated as of the Closing Time,
together with signed or reproduced copies of such opinion for each of the
other Underwriters, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
British Columbia, Canada, with the corporate power and
authority to own, lease and operate its properties and to
conduct its business as described in the Registration
Statement and the Prospectus. The Company is qualified to
transact business as a foreign corporation and is in good
standing in each of the jurisdictions in which the ownership
or leasing of the Company's properties or the nature or
conduct of its business requires such qualification, except
where the failure to do so would not have a material adverse
effect on the condition (financial or other), business,
properties, net worth or results of operations of the
Company and the Subsidiaries taken as a whole.
(ii) Each of the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the state of its incorporation. Each such entity
has all requisite corporate power and authority to own,
lease and operate its properties and conduct its business as
described in the Registration Statement and the Prospectus.
Each such entity is duly qualified to do business and is in
good standing as a foreign corporation in each other
jurisdiction in which the ownership or leasing of its
properties or the nature or conduct of its business requires
such qualification, except where the failure to do so would
not have a material adverse effect on the condition
(financial or other), business, properties, net worth or
results of operations of the Company and the Subsidiaries
taken as a whole.
(iii) The Company has the corporate power and authority to enter
into this Agreement, to issue, sell and deliver the Shares
as provided herein and to consummate the transactions
contemplated herein. This Agreement has been duly
authorized, executed and delivered by the Company and,
assuming due authorization, execution and delivery by the
Underwriters, constitutes a valid and binding agreement of
the Company, enforceable in accordance with its terms,
except to the extent enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other
laws affecting creditors' rights or by general principles of
equity whether considered at law or in equity and except to
the extent that enforcement of the indemnification
provisions set forth in
21
Section 8 of this Agreement may be limited by federal or
state securities laws or the public policy underlying such
laws.
(iv) Each consent, approval, authorization, order, license,
certificate, permit, registration, designation or filing by
or with any governmental agency or body necessary for the
valid authorization, issuance, sale and delivery of the
Shares, the execution, delivery and performance of this
Agreement and the consummation by the Company of the
transactions contemplated hereby, has been made or obtained
and is in full force and effect, except such as may be
necessary under state securities laws or required by the
NASD in connection with the purchase and distribution of the
Shares by the Underwriters, as to which such counsel need
express no opinion.
(v) Neither the issuance, sale and delivery by the Company of
the Shares, nor the execution, delivery and performance of
this Agreement, nor the consummation of the transactions
contemplated hereby will conflict with or result in a breach
or violation of any of the terms and provisions of, or (with
or without the giving notice or the passage of time or both)
constitute a default under, the charter documents of the
Company or the Subsidiaries, respectively, or, under any
indenture, mortgage, deed of trust, loan agreement, note,
lease or other agreement or instrument to which the Company
or the Subsidiaries, respectively, is a party or to which
the Company or the Subsidiaries, respectively, any of their
respective properties or other assets, is subject; or, to
such counsel's knowledge, any applicable statute, judgment,
decree, order, rule or regulation of any court or
governmental agency or body; or to such counsel's knowledge,
result in the creation or imposition of any lien, charge,
claim or encumbrance upon any property or asset of the
Company or the Subsidiaries, respectively.
(vi) The Common Stock conforms in all material respects as to
legal matters to the description thereof contained in the
Registration Statement and the Prospectus under the heading
"Description of Capital Stock."
(vii) The Shares to be issued and sold to the Underwriters
hereunder have been validly authorized by the Company. When
issued and delivered against payment therefor as provided in
this Agreement, such shares will be validly issued, fully
paid and nonassessable. To such counsel's knowledge, no
preemptive rights of shareholders
22
exist with respect to any of the Shares which have not
been satisfied or waived. To such counsel's knowledge, no
person or entity holds a right to require or participate
in the registration under the 1933 Act of the Shares
pursuant to the Registration Statement which has not been
satisfied or waived; and, except as set forth in the
Prospectus, no person holds a right to require
registration under the 1933 Act of any shares of Common
Stock of the Company at any other time which has not been
satisfied or waived. The form of certificates evidencing
the Shares complies with all applicable requirements of
the law of British Columbia, Canada
(viii) The Company has an authorized capitalization as set forth
in the Prospectus under the caption "Capitalization." All
of the issued shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable. None of the issued shares of capital stock
of the Company has been issued or is owned or held in
violation of any preemptive right or to such counsel's
knowledge, co-sale right, registration right, right of first
refusal or other similar right. All offers and sales of the
Company's capital stock prior to the date hereof were at all
relevant times duly registered under the 1933 Act or were
exempt from the registration requirements of the 1933 Act by
reason of Sections 3(b), 4(2) or 4(6) thereof and were duly
registered or the subject of an available exemption from the
registration requirements of the applicable state securities
or blue sky laws, provided, however, that such counsel need
not express any opinion with respect to the registration or
availability of an exemption under applicable state
securities or blue sky laws for shares of Common Stock
issued pursuant to an underwritten public offering.
(ix) All of the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and are owned directly, or
indirectly through another Subsidiary, by the Company free
and clear of all liens, security interests, pledges,
charges, encumbrances, defects, shareholders' agreements,
voting trusts, equities or claims of any nature whatsoever.
Other than the Subsidiaries and as disclosed in the
Registration Statement and Prospectus, the Company does not
own, directly or indirectly, any capital stock or other
equity securities of any other corporation or any ownership
interest in any partnership, joint venture or other
association.
23
(x) Except as disclosed in the Prospectus, to such counsel's
knowledge there are no outstanding (i) securities or
obligations of the Company or any of its Subsidiaries
convertible into or exchangeable for any capital stock of
the Company or any such Subsidiary, (ii) warrants, rights or
options to subscribe for or purchase from the Company or any
such Subsidiary any such capital stock or any such
convertible or exchangeable securities or obligations, or
(iii) obligations of the Company or any such Subsidiary to
issue any shares of capital stock, any such convertible or
exchangeable securities or obligation, or any such warrants,
rights or options.
(xi) To such counsel's knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or
investigation against the Company, the Subsidiaries or any
of their respective officers and directors or to which the
properties, assets or rights of any such entity are subject,
before or brought by any court or governmental agency or
body or board of arbitrators, that are required to be
described in the Registration Statement or the Prospectus
but are not described as required.
(xii) The descriptions in the Registration Statement and the
Prospectus of the contracts, leases and other legal
documents therein described present fairly the information
required to be shown and there are no contracts, leases or
other documents known to such counsel of a character
required to be described in the Registration Statement or
the Prospectus or to be filed as exhibits to the
Registration Statement which are not described or filed as
required.
(xiii) The Registration Statement and any 462(b) Registration
Statement have become effective under the 1933 Act and, to
the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any 462(b)
Registration Statement has been issued and no proceeding for
that purpose has been instituted or is pending or
contemplated under the 1933 Act. Other than financial
statements and other financial and operating data and
schedules contained therein, as to which counsel need
express no opinion, the Registration Statement, any 462(b)
Registration Statement, all Preliminary Prospectuses, the
Prospectus and any amendment or supplement thereto, conform
as to form in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations.
24
(xiv) The Company is not, or solely as a result of the
consummation of the transactions contemplated hereby will
not become, an "investment company," or a company
"controlled" by an "investment company," within the meaning
of the Investment Company Act of 1940, as amended.
(xv) The information in the Prospectus under the captions "Risk
Factors - Government Regulation," "Risk Factors - Control of
Company," "Risk Factors - Shares Eligible for Future Sale,"
"Business-Strategic Relationship with AT&T," "Business -
Canadian Operations," "Business - Intellectual Property,"
"Business - Government Regulation," "Business - Tax
Matters," "Management - Employment Agreements," "Management
- Incentive Plans," "Certain Transactions," "Description of
Capital Stock" and "Shares Available for Future Sale" to the
extent that such information constitutes a summary of
documents referred to therein or matters of law or legal
conclusions, as been reviewed by such counsel, is correct
and presents fairly the information required to be disclosed
therein under the 1933 Act and the 1933 Act Regulations.
Such counsel also shall state that they have no reason to believe
that the Registration Statement, any 462(b) Registration Statement or
any further amendment thereto made prior to the Closing Time or the
Date of Delivery, as the case may be, on its effective date and as of
the Closing Time or the Date of Delivery, as the case may be,
contained or contains any untrue statement of a material fact or
omitted or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or
that the Prospectus, or any amendment or supplement thereto made prior
to the Closing Time or the Date of Delivery, as the case may be, as of
its issue date and as of the Closing Time or the Date of Delivery, as
the case may be, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading (provided that such counsel
need express no belief regarding the financial statements and related
schedules and other financial data contained in the Registration
Statement, any 462(b) Registration Statement, any amendment thereto,
or the Prospectus, or any amendment or supplement thereto).
(c) You shall have received an opinion, dated such Time of Delivery,
of counsel for the Selling Shareholders, in form and substance satisfactory
to you and your counsel, to the effect that:
25
(i) The Power of Attorney and the Custody Agreement have been
duly executed and delivered by each Selling Shareholder, and
each is enforceable against each Selling Shareholder in
accordance with its terms subject, as to enforcement, to
applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws relating to or affecting the
enforcement of creditors' rights generally and to general
equitable principles.
(ii) This Agreement has been duly authorized by each Selling
Shareholder that is not a natural person and has been duly
executed and delivered by or on behalf of each Selling
Shareholder.
(iii) Upon delivery of such Shares against payment therefor as
provided herein, good and valid title to such Shares, free
and clear of all liens, security interests, pledges,
charges, encumbrances, defects, shareholders' agreements,
voting trusts, equities or claims of any nature whatsoever,
will pass to the several Underwriters.
In rendering the opinions set forth in Sections 7(b) and (c),
such counsel may rely on the following:
(A) as to matters involving the application of laws
other than the laws of the jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the
extent specified in such opinion, upon an opinion or
opinions (in form and substance reasonably satisfactory to
Underwriters' counsel) of other counsel familiar with the
applicable laws, and
(B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the
Company and certificates or other written statements of
officers or departments of various jurisdictions, having
custody of documents respecting the existence or good
standing of the Company provided that copies of all such
opinions, statements or certificates shall be delivered to
Underwriters' counsel. The opinion of counsel for the
Company shall state that the opinion of any other counsel,
or certificate or written statement, on which such counsel
is relying is in form satisfactory to such counsel and that
you and they are justified in relying thereon.
(d) At the Closing Time, you shall have received a favorable opinion
from ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ Freidenrich LLP, counsel for the Underwriters, dated as
of the Closing Time, with respect to the incorporation of the Company, the
issuance and sale of the
26
Shares, the Registration Statement, the Prospectus and other related matters
as the Underwriters may reasonably require, and the Company shall have
furnished to such counsel such documents as they may reasonably request
for the purpose of enabling them to pass on such matters.
(e) At the Closing Time, (i) the Registration Statement, any 462(b)
Registration Statement, and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the 1933 Act Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the 1933 Act
Regulations; the Company shall have complied in all material respects with
Rule 430A (if it shall have elected to rely thereon) and neither the
Registration Statement, any 462(b) Registration Statement, nor the
Prospectus, as they may then be amended or supplemented, shall contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) no action, suit or proceeding at law or in equity shall
be pending or, to the best of Company's knowledge, threatened against the
Company that would be required to be set forth in the Prospectus other than
as set forth therein and no proceedings shall be pending or, to the best
knowledge of the Company, threatened against the Company before or by any
federal, state or other commission, board or administrative agency wherein
an unfavorable decision, ruling or finding could materially adversely affect
the business, prospects, assets, results of operations or condition
(financial or otherwise) of the Company, other than as set forth in the
Prospectus, (iii) the Company shall have complied with all agreements and
satisfied all conditions on their part to be performed or satisfied at or
prior to the Closing Time, and (iv) the representations and warranties of
the Company set forth in Section 1 shall be accurate as though expressly
made at and as of the Closing Time. At the Closing Time, you shall have
received a certificate executed by the President and Chief Financial Officer
of the Company dated as of the Closing Time, to such effect and with
respect to the following additional matters: (A) the Registration Statement
has become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or preventing or suspending the
use of the Prospectus has been issued, and no proceedings for that purpose
have been instituted or are pending or, to the best of their knowledge,
threatened under the 1933 Act; and (B) they have reviewed the Registration
Statement and the Prospectus and, when the Registration Statement and any
462(b) Registration Statement became effective and at all times subsequent
thereto up to the delivery of such certificate, the Registration Statement,
any 462(b) Registration Statement and the Prospectus and any amendments or
supplements thereto contained all statements and information required to be
included therein or necessary to make the statements therein not misleading
and neither the Registration Statement, any 462(b) Registration Statement,
nor the Prospectus nor any amendment or supplement thereto included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and, since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an amended or
supplemented Prospectus that has not
27
been so set forth. The representations and warranties of the Selling
Shareholders set forth herein shall be accurate as though expressly made
at and as of the Closing Time. At the Closing Time, you shall have
received a certificate executed on behalf of the Selling Shareholders to
such effect.
(f) You shall have received from Deloitte & Touche LLP letters dated,
respectively, the date hereof (or, if the Registration Statement has been
declared effective prior to the execution and delivery of this Agreement,
dated such effective date and the date of this Agreement) and the Closing
Time and the Date of Delivery, in form and substance satisfactory to you,
confirming that they are independent public accountants within the meaning
of the 1933 Act and the applicable 1933 Act Regulations and stating that in
their opinion the financial statements and schedules examined by them and
included in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and the
related published 1933 Act Regulations; and containing such other statements
and information as is ordinarily included in accountants' "comfort letters"
to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration
Statement and Prospectus. In the event that the letters referred to in this
subsection set forth any changes, decreases or increases in financial items,
it shall be a further condition to the obligations of the Underwriters that
(i) such letters shall be accompanied by a written explanation by the
Company as to the significance thereof, unless the Underwriters deem such
explanation unnecessary, and (ii) such changes, decreases or increases do
not, in your sole judgment, make it impracticable or inadvisable to proceed
with the purchase, sale and delivery of the Shares as contemplated by the
Registration Statement, as amended as of the date of such letter.
(g) At the Closing Time, you shall have received from Deloitte &
Touche a letter, in form and substance satisfactory to you and dated as of
the Closing Time, to the effect that they reaffirm the statements made in
the letter furnished pursuant to subsection (f) above, except that the
specified date referred to shall be a date not more than five days prior to
the Closing Time.
(h) At the Closing Time, counsel for the Underwriters shall have been
furnished with all such documents, certificates and opinions as they may
request for the purpose of enabling them to pass upon the issuance and sale
of the Shares as contemplated in this Agreement and the matters referred to
in Section 7(d) and in order to evidence the accuracy and completeness of
any of the representations, warranties or statements of the Company, the
performance of any of the covenants of the Company, or the fulfillment of
any of the conditions herein contained; and all proceedings taken by the
Company at or prior to the Closing Time in connection with the
authorization, issuance and sale of the Shares as contemplated in this
Agreement shall be reasonably satisfactory in form and substance to you and
to counsel for the Underwriters. The Company will furnish you with
28
such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
(i) The NASD, upon review of the terms of the public offering of the
Shares, shall not have objected to such offering, such terms or the
Underwriters' participation in the same.
(j) Since the date of the latest audited financial statements included
in the Prospectus, neither the Company nor any of its subsidiaries shall
have sustained (i) any loss or interference with their respective businesses
from fire, explosion, flood, hurricane 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 disclosed in or contemplated by
the Prospectus or (ii) any change, or any development involving a
prospective change (including without limitation any change in management or
control of the Company), in or affecting the position (financial or
otherwise), results of operations, net worth or business prospects of the
Company and its subsidiaries, otherwise than as disclosed in or contemplated
by the Prospectus, the effect of which, in either such case, is in your
judgment so material and adverse as to make it impracticable or inadvisable
to proceed with the purchase, sale and delivery of the Shares being
delivered at such time as contemplated by the Registration Statement, as
amended as of the date hereof.
(k) Subsequent to the date hereof, there shall not have occurred any
of the following: (i) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political
conditions the effect of which on the financial markets of the United States
is such as to make it, in your judgment, impracticable to market the Shares
or enforce contracts for the sale of the Shares, (ii) any suspension or
limitation in trading in any securities of the Company by the Commission or
by the Nasdaq Stock Market, or any suspension or limitation in trading
generally on the New York Stock Exchange or in the over-the-counter market,
(iii) any downgrading in the rating of any of the Company's debt securities
or preferred stock by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the 1933 Act),
or (iv) a banking moratorium declared by federal or New York or Tennessee
authorities.
(l) The Company shall have obtained and delivered to you an agreement
from each officer and director of the Company and each Selling Shareholder
in writing prior to the date hereof that such person will not, during the
one hundred eighty (180) day period following the date of the Prospectus
(the "Lock-up Period"), effect the disposition of any Common Stock now owned
or hereafter acquired directly by such person or with respect to which such
person has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree
in writing to be bound by this restriction, (ii) as a distribution to
partners or shareholders of such person, provided that the distributees
thereof agree in writing to be bound by the terms of this restriction, or
(iii) with the prior written consent of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc. The
foregoing
29
restriction shall have been expressly agreed to preclude such holder from
engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a disposition of Common Stock
during the Lock-up Period, even if such Common Stock would be disposed of
by someone other than the such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or
not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to
any Common Stock or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any
significant part of its value from the Common Stock. Furthermore, such
person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Common Stock held by such person except in compliance with this
restriction.
The several obligations of the Underwriters to purchase Option Shares
hereunder are subject to the satisfaction on and as of any Date of Delivery for
Option Shares of the conditions set forth in this Section 7, except that, if any
Date of Delivery for Option Shares is other than the Closing Time, the
certificates, opinions and letters referred to in paragraphs (b), (c) and (d)
shall be revised to reflect the sale of Option Shares.
Section 8. Indemnification and Contribution.
--------------------------------
(a) The Company and each of the Principal Shareholders, jointly and
severally, 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 1933 Act, or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
(i) arise out of or are based upon any breach of any warranty or covenant of
the Company herein contained, (ii) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in (A)
any Preliminary Prospectus, the Registration Statement, any 462(b)
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written
information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Shares under the securities or blue sky
laws thereof or filed with the Commission or any securities association or
securities exchange (each an "Application"), or (iii) arise out of or are
based upon the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement, any 462(b) Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any Application 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 loss, claim, damage,
liability or action; 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
30
or alleged omission made in any Preliminary Prospectus, the Registration
Statement, any 462(b) 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 expressly
for use therein. In addition to its other obligations under this Section
8(a), the Company and each Principal Shareholder agrees that, as an
interim measure during the pendency of any such claim, action,
investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described
in this Section 8(a), it will reimburse the Underwriters on a monthly
basis for all reasonable legal and other expenses incurred in connection
with investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of their obligation
to reimburse the Underwriters for such expenses and the possibility that
such payments might later be held to have been improper by a court of
competent jurisdiction. Any such interim reimbursement payments that are
not made to an Underwriter within 30 days of a request for reimbursement
shall bear interest at the prime rate (or reference rate or other
commercial lending rate for borrowers of the highest credit standing)
published from time to time by The Wall Street Journal (the "Prime Rate")
from the date of such request. This indemnity agreement shall be in
addition to any liabilities that the Company and each Principal
Shareholder may otherwise have. The Company and each Principal Shareholder
will not, without the prior written consent of each Underwriter, settle or
compromise or consent to the entry of any judgment in any pending or
threatened action or claim or related cause of action or portion of such
cause of action in respect of which indemnification may be sought
hereunder (whether or not such Underwriter is a party to such action or
claim), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter from all liability arising out
of such action or claim (or related cause of action or portion thereof).
Notwithstanding the foregoing, no Principal Shareholder shall be required
to provide indemnification pursuant to this Section 8(a) unless the
Underwriter seeking indemnification shall have first made a written demand
for payment to the Company with respect to any losses, claims, damages or
liabilities for which the Company and the Principal Shareholders are
required to indemnify the Underwriters pursuant to this Section 8(a) and
the Company shall have failed to make such demanded payment within sixty
(60) days after receipt thereof. In no event, however, shall the liability
of any Principal Shareholder for indemnification under this Section 8(a)
or for breaches of the representations and warranties set forth in Section
1 exceed the proceeds received by such Principal Shareholder from the
Underwriters in the offering. This indemnity agreement will be in addition
to any liability which the Company or any of the Principal Shareholders
may have other than pursuant to this Agreement.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the 1933
Act to the same extent as such agreement applies to the Underwriters.
31
(b) Each Selling Shareholder, (other than the Principal Shareholders),
severally but not jointly, 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 1933 Act, or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (i) arise out of or are based upon any breach of any
warranty or covenant of such Selling Shareholder herein contained, (ii)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in (A) any Preliminary Prospectus,
the Registration Statement, any 462(b) Registration Statement or the
Prospectus, or any amendment or supplement thereto, or (B) any Application,
or (iii) arise out of or are based upon the omission or alleged omission to
state in any Preliminary Prospectus, the Registration Statement, any 462(b)
Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any Application 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 loss,
claim, damage, liability or action; provided, however, that such Selling
-------- -------
Shareholder 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, any 462(b)
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 expressly for use therein;
provided, however, that the indemnification obligation arising under the
-------- -------
subsection (b) shall apply only to the extent that such loss, claim, damage
or liability is caused by an untrue statement or omission or alleged
omission made in reliance upon and in conformity with information relating
to such Selling Shareholder furnished to the Company by or on behalf of such
Selling Shareholder expressly for use in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendments or supplements
thereto. In no event, however, shall the liability of any such Selling
Shareholder for indemnification under this Section 8(b) or for breaches of
the representations and warranties set forth in Section 2 exceed the
proceeds received by such Selling Shareholder from the Underwriters in the
offering. This indemnity agreement will be in addition to any liability
which such Selling Shareholders may otherwise have. In addition to their
other obligations under this Section 8(b), each Selling Shareholder agrees
that, as an interim measure during the pendency of any such claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
this Section 8(b), such Selling Shareholder will reimburse the Underwriters
on a monthly basis for all reasonable legal and other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of such
Selling Shareholder's obligation to reimburse the Underwriters for such
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. Any such interim
reimbursement payments that are not made to an Underwriter within 30
32
days of a request for reimbursement shall bear interest at the prime rate
(or reference rate or other commercial lending rate for borrowers of the
highest credit standing) published from time to time by The Wall Street
Journal (the "Prime Rate") from the date of such request. This indemnity
agreement shall be in addition to any liabilities that such Selling
Shareholder may otherwise have. Such Selling Shareholder will not, without
the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened action
or claim or related cause of action or portion of such cause of action in
respect of which indemnification may be sought hereunder (whether or not
such Underwriter is a party to such action or claim), unless such
settlement, compromise or consent includes an unconditional release of
such Underwriter from all liability arising out of such action or claim
(or related cause of action or portion thereof). The liability of each
Selling Shareholder under the representations, warranties and agreements
contained herein and under the indemnity agreements contained in the
provisions of this Section 8(b) shall be limited to an amount equal to the
proceeds to such Selling Shareholder of the Selling Shareholder Shares
sold by such Selling Shareholder to the Underwriters.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the 1933
Act to the same extent as such agreement applies to the Underwriters.
(c) Each Underwriter, severally but not jointly, will indemnify and
hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities to which the Company and such Selling
Shareholder may become subject, under the 1933 Act, or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any breach of any warranty or covenant by
such Underwriter herein contained or any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement, any 462(b) 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 thereto in reliance upon and
in conformity with written information furnished to the Company by such
Underwriter expressly for use therein; and will reimburse the Company and
each Selling Shareholder for any legal or other expenses reasonably incurred
by the Company and such Selling Shareholder in connection with investigating
or defending any such loss, claim, damage, liability or action. In addition
to its other obligations under this Section 8(c), the Underwriters agree
that, as an interim measure during the pendency of any such claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged
33
statement or omission, described in this Section 8(c), they will reimburse
the Company and each Selling Shareholder on a monthly basis for all
reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of their obligation
to reimburse the Company for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. Any such interim reimbursement payments that are not made to
the Company within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement shall be in addition to any liabilities that the Underwriters
may otherwise have. No Underwriter will, without the prior written consent
of the Company, settle or compromise or consent to the entry of judgment
in any pending or threatened action or claim or related cause of action or
portion of such cause of action in respect of which indemnification may be
sought hereunder (whether or not the Company is a party to such action or
claim), unless such settlement, compromise or consent includes an
unconditional release of the Company from all liability arising out of
such action or claim (or related cause of action or portion thereof).
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
officer and director of the Company and each person, if any, who controls
the Company and each Selling Shareholder within the meaning of the 1933 Act
to the same extent as such agreement applies to the Company and the Selling
Shareholder.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party
in writing of the commencement thereof; no indemnification provided for in
subsection (a), (b) or (c) shall be available to any party who shall fail to
give notice as provided in this subsection (d) if the party to whom notice
was not given was unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice, but the
omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability that it may have to any indemnified
party otherwise than under Section 8. 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 or other expenses subsequently incurred by such
indemnified party in connection with the defense
34
thereof other than reasonable costs of investigation, except that if the
indemnified party has been advised by counsel in writing that there are
one or more defenses available to the indemnified party which are
different from or additional to those available to the indemnifying party,
then the indemnified party shall have the right to employ separate counsel
and in that event the reasonable fees and expenses of such separate
counsel for the indemnified party shall be paid by the indemnifying party;
provided, however, that if the indemnifying party is the Company, the
Company shall only be obligated to pay the reasonable fees and expenses of
a single law firm (and any reasonably necessary local counsel) employed by
all of the indemnified parties. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent,
but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement
or judgment.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Section 8(a), (b) and
(c) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts
shall be apportioned among the indemnifying parties, shall be settled by
arbitration conducted pursuant to the Code of Arbitration Procedure of the
National Association of Securities Dealers, Inc. Any such arbitration must
be commenced by service of a written demand for arbitration or a written
notice of intention to arbitrate, therein electing the arbitration tribunal.
In the event the party demanding arbitration does not make such designation
of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 8(a), (b) and (c) hereof and will not
resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses that is created by the provisions of Sections 8(a),
(b) and (c).
(f) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 8 is
for any reason judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the right of appeal) to be unenforceable by the
indemnified parties although applicable in accordance with its terms, the
Company and the Selling Shareholders, on the one hand and the Underwriters
on the other shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity incurred
by the Company and the Selling Shareholders, and one or more of the
Underwriters, as incurred, in such proportions that (a) the Underwriters are
responsible pro rata for that portion represented by the percentage that the
underwriting discount appearing on the cover page of the Prospectus bears to
the public offering price (before deducting expenses) appearing thereon, and
(b) the Company and the Selling Shareholders are responsible for the
balance, provided, however, that no person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the 1933
35
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation; provided, further, that if the
allocation provided above is not permitted by applicable law, the Company
and the Selling Shareholders, on the one hand, and the Underwriters on the
other shall contribute to the aggregate losses in such proportion as is
appropriate to reflect not only the relative benefits referred to above
but also the relative fault of the Company and the Selling Shareholders,
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, as well as any other relevant equitable considerations.
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 to state a material fact relates to information supplied by the
Company and the Selling Shareholders, on the one hand or by the
Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling Shareholders, and the
Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 8(f) 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 Section 8(f).
The amount paid or payable by a party as a result of the losses, claims,
damages or liabilities referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending such action or claim.
Notwithstanding the provisions of this Section 8(f), no Underwriter shall
be required to contribute any amount in excess of the amount by which the
total price at which the Shares 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. The
Underwriters' obligations in this Section 8(f) to contribute are several
in proportion to their respective underwriting obligations and not joint.
For purposes of this Section 8(f), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act shall have
the same rights to contribution as such Underwriter, and each director of
the Company, each officer of the Company who signed the Registration
Statement, and each person, if any, who controls the Company or the
Selling Shareholders, within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as the Company or the Selling
Shareholders.
Section 9. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. The representations, warranties, indemnities, agreements and other
--------
statements of the Company, the Principal Shareholders and the Selling
Shareholders, or their respective officers set forth in or made pursuant to this
Agreement will remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company, any Principal Shareholder,
any Selling Shareholder, or any Underwriter or controlling person, and with
respect to an Underwriter or the Company and the Selling Shareholders, will
survive delivery of and payment for the Shares or termination of this Agreement.
36
Section 10. Effective Date of Agreement and Termination.
-------------------------------------------
(a) This Agreement shall become effective immediately as to Sections 6
and 8 and, as to all other provisions, (i) if at the time of execution of
this Agreement the Registration Statement has not become effective, at 10:00
a.m., on the first full business day following the effectiveness of the
Registration Statement, or (ii) if at the time of execution of this
Agreement the Registration Statement has been declared effective, at 10:00
a.m. on the first full business day following the date of execution of this
Agreement; but this Agreement shall nevertheless become effective at such
earlier time after the Registration Statement becomes effective as you may
determine on and by notice to the Company or by release of any of the Shares
for sale to the public. For the purposes of this Section 10, the Shares
shall be deemed to have been so released upon the release of publication of
any newspaper advertisement relating to the Shares or upon the release by
you of telegrams (i) advising the Underwriters that the Shares are released
for public offering, or (ii) offering the Shares for sale to securities
dealers, whichever may occur first. By giving notice before the time this
Agreement becomes effective, you, as representative of the several
Underwriters, or the Company, may prevent this Agreement from becoming
effective, without liability of any party to any other party, except that
the Company shall remain obligated to pay costs and expenses to the extent
provided in Section 6 hereof.
(b) This Agreement may be terminated with respect to the Firm Shares
or the Option Shares in your sole discretion by notice to the Company given
prior to the Closing Time or the Date of Delivery, as the case may be, in
the event that (i) any condition to the obligations of the Underwriters set
forth in Section 7 hereof has not been satisfied or (ii) the Company or the
Selling Shareholders shall have failed, refused or been unable to deliver
the Shares or to perform all obligations and satisfy all conditions on their
respective parts to be performed or satisfied hereunder at or prior to such
Closing Time or Date of Delivery, as applicable, other than by reason of a
default by any of the Underwriters. If this Agreement is terminated
pursuant to this Section 10(b), the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including fees and
disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Shares.
(c) If this Agreement is terminated pursuant to this Section 10, such
termination shall be without liability of any party to any other party,
except to the extent provided in this Section 10. Notwithstanding any such
termination, the provisions of Section 8 shall remain in effect.
Section 11. Default by One or More of the Underwriters. If one or more
------------------------------------------
of the Underwriters shall fail at the Closing Time to purchase the Shares that
it or they are obligated to purchase pursuant to this Agreement (the "Defaulted
Securities"), you shall have the right, within 36 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or
37
any other underwriters, to purchase all, but not less than all, of the
Defaulted Securities in such amounts as may be agreed upon and upon the terms
set forth in this Agreement; if, however, you have not completed such
arrangements within such 36-hour period, then:
(a) If the aggregate number of Firm Shares which are Defaulted
Securities does not exceed 10% of the aggregate number of Firm Shares to be
purchased pursuant to this Agreement, the non-defaulting Underwriters shall
be obligated to purchase the full amount thereof in the proportions that
their respective underwriting obligation proportions bear to the
underwriting obligations of all non-defaulting Underwriters, and
(b) If the aggregate number of Firm Shares which are Defaulted
Securities exceeds 10% of the aggregate number of Firm Shares to be
purchased pursuant to this Agreement, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default that does not result in a termination of
this Agreement, either you or the Company shall have the right to postpone the
Closing Time for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus that
may thereby be made necessary. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 11.
Section 12. Notices. All notices and other communications under this
-------
Agreement shall be in writing and shall be deemed to have been duly given if
delivered, mailed or transmitted by any standard form of telecommunication.
Notices to the Underwriters shall be directed c/o ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc.,
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇ ▇▇▇▇▇▇ (with a copy sent in
the same manner to ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ Freidenrich LLP, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.; and notices to the
Company and the Selling Shareholders, shall be directed to them at DataWave
Inc., ▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇ Attention: ▇▇▇▇▇ ▇▇▇▇▇
(with a copy sent in the same manner to _________________ Attention:
________________).
Section 13. Parties. This Agreement is made solely for the benefit of
-------
and is binding upon the Underwriters, the Company and the Selling Shareholders,
to the extent provided in Section 8, any person controlling the Company and the
Selling Shareholders, or any of the Underwriters, the officers and directors of
the Company, and their respective executors, administrators, successors and
assigns and subject to the provisions of Section 8, no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and
38
assigns" shall not include any purchaser, as such purchaser, from any of the
several Underwriters of the Shares.
All of the obligations of the Underwriters hereunder are several and not
joint.
Section 14. Governing Law and Time. This Agreement shall be governed by
----------------------
the laws of the State of California, without application of conflict of law
principles. Specified time of the day refers to United States Eastern Time.
Time shall be of the essence of this Agreement.
Section 15. Counterparts. This Agreement may be executed in one or more
------------
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
39
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, and upon the acceptance
hereof by ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc., on behalf of each of the Underwriters,
this instrument will become a binding agreement among the Company, the Selling
Shareholders, and the several Underwriters in accordance with its terms. It is
understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in the Master Agreement
among Underwriters, a copy 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,
DataWave Systems Inc.
By:________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
SELLING SHAREHOLDERS
By:________________________________
[NAME]
Attorney-in-Fact
The foregoing Agreement is hereby
confirmed and accepted as of the
date first written above:
▇▇▇▇▇▇ ▇▇▇▇▇▇ & COMPANY, INC.
▇▇▇▇▇▇▇ GLOBAL SECURITIES INC.
By: ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc.
By:_________________________________
(Authorized Representative)
On behalf of each of the Underwriters
40
SCHEDULE A
Number of
Firm Shares
to be Purchased
---------------
Underwriter
-----------
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc.
▇▇▇▇▇▇▇ Global Securities Inc.
TOTAL
===============
SCHEDULE B
SELLING SHAREHOLDERS
Number of
Firm Selling
Name Shareholder Shares
---- ------------------
------------------
TOTAL
==================
EXHIBIT A
FORM OF UNDERWRITERS' WARRANTS
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, TOGETHER WITH THE REGULATIONS PROMULGATED THEREUNDER (THE "SECURITIES
ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. THIS WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF
OF ANY U.S. PERSON UNLESS REGISTERED UNDER THE SECURITIES ACT, OR AN EXEMPTION
FROM REGISTRATION IS AVAILABLE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock of
DATAWAVE SYSTEMS, INC.
THIS CERTIFIES that, for value received, ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, Inc. (the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time on or after the first anniversary of the date hereof and
on or prior to _________, 2003 (the "Termination Date") but not thereafter, to
subscribe for and purchase from DATAWAVE SYSTEMS, INC., a British Columbia
corporation (the "Company"), that number of shares of Common Stock equal to ten
percent (10%) of the total number of shares of Common Stock issued in the
Company's initial underwritten public offering of Common Stock (the "IPO") under
the Securities Act (the "Warrant Shares"). The purchase price of one share of
Common Stock (the "Exercise Price") under this Warrant shall be equal to one
hundred thirty-five percent (135%) of the offering price at which the Company's
Common Stock is offered to the public in the IPO. The Exercise Price and the
number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein.
1. Title of Warrant. Prior to the expiration hereof and subject to
----------------
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, pursuant to paragraph 10 hereof.
2. Authorization of Shares. The Company covenants that all shares of
-----------------------
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant.
-------------------
(a) Procedure for Exercise. Exercise of the purchase rights
represented by this Warrant may be made at any time or times after the date
hereof, in whole or in part, before the close of business on the Termination
Date, or such earlier date on which this Warrant may terminate as provided in
paragraph 13 below, by the surrender of this Warrant and the Notice of
Exercise annexed hereto duly executed, at the office of the Company (or such
other office or agency of the Company as it may designate by notice in writing
to the registered Holder hereof at the address of such Holder appearing on the
books of the Company) and upon payment of the Exercise Price of the shares
thereby purchased; whereupon the Holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares of Common Stock purchased hereunder shall be delivered
to the holder hereof within five (5) NASDAQ trading days after the date on which
this Warrant shall have been exercised as aforesaid. Payment of the Exercise
Price of the shares may be by certified check or cashier's check or by wire
transfer to an account designated by the Company in an amount equal to the
Exercise Price multiplied by the number of shares of Common Stock being
purchased.
(b) Net Exercise Rights. Notwithstanding the payment provisions set
-------------------
forth in this Section 3, the holder may elect to receive the amount of Warrant
Shares equal to the value (as determined below) of this Warrant by surrender of
this Warrant at the principal office of the Company together with notice of such
election, in which event the Company shall issue to the holder the number of
shares of Common Stock determined by use of the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to the
holder.
Y = the number of Warrant Shares subject to this Warrant.
A = the Fair Market Value (as defined below) of one (1) Warrant
Share.
B = the Exercise Price per share of the Warrant Shares.
For purposes of this Section 3, fair market value of a share as of a particular
date shall mean the closing price (the last reported sales price; if not so
reported, the average of the last reported bid and asked prices) of the
Company's stock as of the last business day immediately prior to the exercise of
this Warrant.
-2-
4. Registration Rights.
-------------------
(a) If the Company proposes to register (under the laws of the United
States) any of its common shares for sale to the public, whether for its own
account or for the account of other security holders or both, each such time it
will give at least 45 days' prior written notice to the holder hereof of its
intention so to do. Upon the written request of the Holder, received by the
Company within 30 days after the giving of any such notice by the Company, to
register any of the common stock owned or to be owned by the holder hereof
pursuant to the exercise of this Warrant, the Company will cause such common
shares to be covered by the registration statement proposed to be filed by the
Company. Notwithstanding the foregoing, the Company may withdraw any
registration statement without thereby incurring any liability to the Holder,
except as to expenses as set forth below.
(b) All expenses, including without limitation all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, the fees and disbursements of
special counsel to the Holder, fees and expenses incurred in connection with
complying with federal or state securities or "blue sky" laws, fees of the
National Association of Securities Dealers, Inc., fees and expenses of United
States regulatory authorities, transfer taxes, fees or transfer agents and
registrars, underwriting discounts, selling commissions and costs of insurance,
will be paid directly by the Company.
5. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant.
6. Charges, Taxes and Expenses. Issuance of certificates for shares of
---------------------------
Common Stock upon the exercise of this Warrant shall be made without charge to
the Holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Holder of this Warrant or in such name or names as may be directed by the
Holder of this Warrant; provided, however, that in the event certificates for
-----------------
shares of Common Stock are to be issued in a name other than the name of the
Holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder
hereof; and provided further, that upon any transfer involved in the issuance or
----------------
delivery of any certificates for shares of Common Stock, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
7. Holder Representations. The Holder of the Warrant agrees and
----------------------
acknowledges that the Warrant is being purchased for the Holder's own account,
for investment purposes only, and not for the account of any other person, and
not with a view to distribution, assignment, pledge or resale to others or to
fractionalization in whole or in part. The Holder further represents, warrants
and agrees as follows: no other person has or will have a direct or indirect
beneficial interest in this Warrant and the Holder will not sell, hypothecate or
otherwise transfer the Warrant except in accordance with the Securities Act and
Regulation D thereunder and applicable state securities laws or unless, in the
opinion of counsel for the Holder acceptable to
-3-
the Company, an exemption from the registration requirements of the Securities
Act and such laws is available.
8. Closing of Books. The Company will at no time close its shareholder
----------------
books or records in any manner which interferes with the timely exercise of this
Warrant.
9. No Rights as Shareholder until Exercise. This Warrant does not entitle
---------------------------------------
the Holder hereof to any voting rights or other rights as a Shareholder of the
Company prior to the exercise thereof. If, however, at the time of the surrender
of this Warrant and purchase the Holder hereof shall be entitled to exercise
this Warrant, the shares so purchased shall be and be deemed to be issued to
such holder as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been exercised.
10. Assignment and Transfer of Warrant. This Warrant may be assigned by
----------------------------------
the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred except
with the prior consent of the Company and (i) in a transaction registered under
the Securities Act, or (ii) in a transaction pursuant to an exemption, if
available, from such registration and whereby, if requested by the Company, an
opinion of counsel reasonably satisfactory to the Company is obtained by the
holder of this Warrant to the effect that the transaction is so exempt.
11. Loss, Theft, Destruction or Mutilation of Warrant. The Company
-------------------------------------------------
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
12. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
---------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
13. Effect of Certain Events.
------------------------
(a) If at any time the Company proposes (i) to sell or otherwise
convey all or substantially all of its assets, or (ii) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction") in which
the consideration to be received by the Company or its Shareholders consists
solely of cash, the Company shall give the Holder of this Warrant thirty
-4-
(30) days notice of the proposed effective date of the transaction specifying
that the Warrant shall terminate if the Warrant has not been exercised by the
effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
Shareholders consists in part of consideration other than cash, the Holder of
this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
14. Adjustments of Exercise Price and Number of Warrant Shares. The number
----------------------------------------------------------
and kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following:
In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, the number of Warrant Shares purchasable
upon exercise of this Warrant immediately prior thereto shall be adjusted so
that the holder of this Warrant shall be entitled to receive the kind and number
of Warrant Shares or other securities of the Company which he would have owned
or have been entitled to receive had such Warrant been exercised in advance
thereof. An adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
15. Voluntary Adjustment by the Company. The Company may at its
-----------------------------------
discretion, at any time during the term of this Warrant, reduce the then current
Exercise Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.
16. Notice of Adjustment. Whenever the number of Warrant Shares or number
--------------------
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
Holder of this Warrant notice of such adjustment or adjustments setting forth
the number of Warrant Shares (and other securities or property) purchasable upon
the exercise of this Warrant and the Exercise Price of such Warrant Shares after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth computation by which such adjustment was made. Such
notice, in absence of manifest error, shall be conclusive evidence of the
correctness of such adjustment.
-5-
17. Authorized Shares. The Company covenants that during the period the
-----------------
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary
to assure that such shares of Common Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of
the NASDAQ (or on the principal national securities exchange on which the Common
Stock is admitted to trading or listed or, if not listed or admitted to trading
on NASDAQ or a national securities exchange, as reported by the National
Quotation Bureau, Inc. or other similar organization ("Other Exchanges")) for
the three (3) trading days immediately prior to the date such dividend is
payable.
18. Miscellaneous.
-------------
(a) Issue Date; Jurisdiction. The provisions of this Warrant shall be
------------------------
construed and shall be given effect in all respects as if it had been issued and
delivered by the Company on the date hereof. This Warrant shall be binding upon
any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws and jurisdictions of Delaware and for all purposes shall
be construed in accordance with and governed by the laws of said state without
regard to its conflict of law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the Common Stock
------------
acquired upon the exercise of this Warrant, if not registered, may have
restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof
-----------------------
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
-------
permitted to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
-6-
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated:_________________, 1998
DATAWAVE SYSTEMS, INC.
By:__________________________________
Title:_______________________________
-7-
NOTICE OF EXERCISE
------------------
To: DATAWAVE SYSETEMS, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock
of DATAWAVE SYSTEMS, INC. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) By signing below, the undersigned hereby certifies that the shares
of Common Stock to be issued upon exercise of this Warrant have been registered
under the Securities Act of 1933 (the "Act"), or that an exemption from
registration under the Securities Act is available for such shares of Common
Stock.
(3) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
______________________________
Signature
NOTE: Signature must conform in all respects to holder's name as specified on
the face of the attached warrant.
-8-
ASSIGNMENT FORM
---------------
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, 199___
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
-9-