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EXHIBIT 1.1
TURNSTONE SYSTEMS, INC.
COMMON STOCK
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UNDERWRITING AGREEMENT
____________, 2000
Goldman, Sachs & Co.,
Dain Rauscher Incorporated
Deutsche Bank Securities Inc.
FleetBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Turnstone Systems, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of 3,500,000 shares of Common Stock ("Stock") of the Company and the
stockholders of the Company named in Schedule II hereto (the "Selling
Stockholders") propose, subject to the terms and conditions stated herein, to
sell to the Underwriters an aggregate of 500,000 shares and, at the election of
the Underwriters, up to 600,000 additional shares of Stock. The aggregate of
4,000,000 shares to be sold by the Company and the Selling Stockholders is
herein called the "Firm Shares" and the aggregate of 600,000 additional shares
to be sold by the Selling Stockholders is herein called the "Optional Shares".
The Firm Shares and the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof are herein collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-____)
(the "Initial Registration Statement") in respect of the Shares has
been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore delivered
to you, and, excluding exhibits thereto, to you for each of the other
Underwriters, have been declared effective by the Commission in such
form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed
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pursuant to Rule 462(b) under the Securities Act of 1933, as amended
(the "Act"), which became effective upon filing, no other document with
respect to the Initial Registration Statement has heretofore been filed
with the Commission; and no stop order suspending the effectiveness of
the Initial Registration Statement, any post-effective amendment
thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in
the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission
under the Act is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus
filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the Initial Registration Statement at the
time it was declared effective, each as amended at the time such part
of the Initial Registration Statement became effective or such part of
the Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus";
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not 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, in the 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
through Goldman, Sachs & Co. expressly for use therein or by a Selling
Stockholder expressly for use in the preparation of the answers therein
to Items 7 and 11(l) of Form S-1;
(iii) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of the
applicable filing date as to the Prospectus and any amendment or
supplement thereto, 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; 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 through Goldman,
Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Items 7
and 11(l) of Form S-1;
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(iv) The Company has no significant subsidiaries as defined in Rule
1-02(w) of Regulation S-X of the Act other than Turnstone New Zealand
(formerly known as Paragon Solutions Limited) (the "Significant
Subsidiary");
(v) The Company has not sustained since the date of the latest
audited financial statements included in the Prospectus any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than
as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the
capital stock (other than the exercise of stock options or warrants and
grants under the employee stock plans described in the Prospectus) or
long-term debt of the Company or any of its subsidiaries (other than
intercompany indebtedness between the Company and its wholly-owned
subsidiaries) or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, otherwise
than as set forth or contemplated in the Prospectus;
(vi) The Company and the Significant Subsidiary have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and the Significant
Subsidiary; and any real property and buildings held under lease by the
Company and the Significant Subsidiary are held by it under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and the Significant
Subsidiary;
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction and the Significant Subsidiary has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of New Zealand;
(viii)The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the Stock contained
in the Prospectus and all of the issued shares of capital stock of the
Significant Subsidiary have been duly and validly authorized and issued,
are fully paid and non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear
of all liens, encumbrances, equities or claims;
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(ix) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued and fully paid and non-assessable and will
conform to the description of the Stock contained in the Prospectus;
(x) The issue and sale of the Shares to be sold by the Company and
the compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein contemplated
will not conflict with or 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 or other agreement or instrument
to which the Company or the Significant Subsidiary is a party or by
which the Company or the Significant Subsidiary is bound or to which any
of the property or assets of the Company or the Significant Subsidiary
is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the Company
or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or the
Significant Subsidiary or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or with
any such court or governmental agency or body is required for the issue
and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(xi) Neither the Company nor the Significant Subsidiary is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument to
which it is a party or by which it or any of its properties may be
bound;
(xii) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair;
(xiii) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or the
Significant Subsidiary is a party or of which any property of the
Company or the Significant Subsidiary is the subject which, if
determined adversely to the Company or the Significant Subsidiary, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders' equity
or results of operations of the Company and its subsidiaries; and, to
the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(xiv) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company", as such
term is defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
(xv) To the Company's knowledge after reasonable inquiry, each of
KPMG LLP and Sherwin Chan & Walshe, who have certified certain
financial statements of the
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Company and the Significant Subsidiary, respectively, are independent
public accountants as required by the Act and the rules and regulations
of the Commission thereunder.
(b) Each of the Selling Stockholders severally represents and warrants
to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement
and the Power of Attorney and the Custody Agreement hereinafter referred
to, and for the sale and delivery of the Shares to be sold by such
Selling Stockholder hereunder, have been obtained; and such Selling
Stockholder has full right, power and authority to enter into this
Agreement, the Power-of-Attorney and the Custody Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions 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 result in a breach or violation
of any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party or
by which such Selling Stockholder is bound or to which any of the
property or assets of such Selling Stockholder is subject, nor will such
action result in any violation of the provisions of any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over such Selling Stockholder or the property of
such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to each
Time of Delivery (as defined in Section 4 hereof) such Selling
Stockholder will have, good and valid title to the Shares to be sold by
such Selling Stockholder hereunder, free and clear of all liens,
encumbrances, equities or claims; and, upon delivery of such Shares and
payment therefor pursuant hereto, good and valid title to such Shares,
free and clear of all liens, encumbrances, equities or claims, will pass
to the several Underwriters;
(iv) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, not
to offer, sell contract to sell or otherwise dispose of, except as
provided hereunder, any securities of the Company that are substantially
similar to the Shares, including but not limited to any securities that
are convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Agreement), without your prior
written consent;
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto are made in reliance upon and in
conformity with written information
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furnished to the Company by such Selling Stockholder expressly for use
therein, such Preliminary Prospectus and the Registration Statement
did, and the Prospectus and any further amendments or supplements to
the Registration Statement and the Prospectus, when they become
effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder and will not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or
at the First Time of Delivery (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);
(viii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Stockholder hereunder have been placed
in custody under a Custody Agreement, in the form heretofore furnished
to you (the "Custody Agreement"), duly executed and delivered by such
Selling Stockholder to EquiServe Trust Company N.A., as custodian (the
"Custodian"), and such Selling Stockholder has duly executed and
delivered a Power of Attorney, in the form heretofore furnished to you
(the "Power of Attorney"), appointing the persons indicated in Schedule
II hereto, and each of them, as such Selling Stockholder's
attorneys-in-fact (the "Attorneys-in-Fact") with authority to execute
and deliver this Agreement on behalf of such Selling Stockholder, to
determine the purchase price to be paid by the Underwriters to the
Selling Stockholders as provided in Section 2 hereof, to authorize the
delivery of the Shares to be sold by such Selling Stockholder hereunder
and otherwise to act on behalf of such Selling Stockholder in connection
with the transactions contemplated by this Agreement and the Custody
Agreement; and
(ix) The Shares represented by the certificates held in custody
for such Selling Stockholder under the Custody Agreement are subject to
the interests of the Underwriters hereunder; the arrangements made by
such Selling Stockholder for such custody, and the appointment by such
Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney,
are to that extent irrevocable; the obligations of the Selling
Stockholders hereunder shall not be terminated by operation of law,
whether by the death or incapacity of any individual Selling Stockholder
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; if
any individual Selling Stockholder or any such executor or trustee
should die or become incapacitated, or if any such estate or trust
should be terminated, or if any such partnership or corporation should
be dissolved, or if any other such event should occur, before the
delivery of the Shares hereunder, certificates representing the Shares
shall be delivered by or on behalf of the Selling Stockholders in
accordance with the terms and conditions of this Agreement and of the
Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant
to the Powers of Attorney shall be as valid as if such death,
incapacity, termination, dissolution or other event had not occurred,
regardless of
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whether or not the Custodian, the Attorneys-in-Fact, or any of them,
shall have received notice of such death, incapacity, termination,
dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the Company
and each of the Selling Stockholders agree, severally and not jointly, to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and each of the Selling Stockholders,
at a purchase price per share of $__________, the number of Firm Shares (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
the aggregate number of Shares to be sold by the Company and each of the Selling
Stockholders as set forth opposite their respective names in Schedule II hereto
by a fraction, the numerator of which is the aggregate number of Firm Shares to
be purchased by such Underwriter as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the aggregate
number of Firm Shares to be purchased by all of the Underwriters from the
Company and all of the Selling Stockholders hereunder and (b) in the event and
to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, each of the Selling Stockholders agrees,
severally and not jointly, to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from each of the
Selling Stockholders, at the purchase price per share set forth in clause (a) of
this Section 2, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares by a
fraction the numerator of which is the maximum number of Optional Shares which
such Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Selling Stockholders, as and to the extent indicated in Schedule II
hereto, hereby grant, severally and not jointly, to the Underwriters the right
to purchase at their election up to 600,000 Optional Shares, at the purchase
price per share set forth in the paragraph above, for the sole purpose of
covering sales of shares in excess of the number of Firm Shares. Any such
election to purchase Optional Shares shall be made in proportion to the maximum
number of Optional Shares to be sold by each Selling Stockholder as set forth in
Schedule II hereto. Any such election to purchase Optional Shares may be
exercised only by written notice from you to the Attorneys-in-Fact, given within
a period of 30 calendar days after the date of this Agreement and setting forth
the aggregate number of Optional Shares to be purchased and the date on which
such Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Attorneys-in-Fact otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.,
through the facilities of the Depository Trust Company ("DTC"), for the account
of such Underwriter, against payment by or on behalf of such Underwriter of the
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purchase price therefor by wire transfer of Federal (same-day) funds to the
account specified by the Company and the Custodian to Goldman, Sachs & Co. at
least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York time, on _______, 2000 or such other
time and date as Goldman, Sachs & Co., the Company and the Selling Stockholders
may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m.,
New York time, on the date specified by Goldman, Sachs & Co. in the written
notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase
such Optional Shares, or such other time and date as Goldman, Sachs & Co., and
the Company may agree upon in writing. Such time and date for delivery of the
Firm Shares is herein called the "First Time of Delivery", such time and date
for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7 hereof, will be delivered at the offices of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road,
Palo Alto, California 94304 (the "Closing Location"), and the Shares will be
delivered at the Designated Office, all at such Time of Delivery. A meeting will
be held at the Closing Location at 3.00 p.m., Palo Alto time, on the New York
Business Day next preceding such Time of Delivery, at which meeting the final
drafts of the documents to be delivered pursuant to the preceding sentence will
be available for review by the parties hereto. For the purposes of this Section
4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus which shall be disapproved by you
promptly after reasonable notice thereof; to advise you, promptly after
it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
and to furnish you with copies thereof; to advise you, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or
of any request by the Commission for the amending or supplementing of
the Registration Statement or Prospectus or for additional information;
and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
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prospectus or suspending any such qualification, promptly to use its
best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to
time, to furnish the Underwriters with copies of the Prospectus in New
York City in such quantities as you may reasonably request, and, if the
delivery of a prospectus is required at any time prior to the expiration
of nine months after the time of issue of the Prospectus in connection
with the offering or sale of the Shares and if at such time any event
shall have occurred as a result of which the Prospectus as then amended
or supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for
any other reason it shall be necessary during such period to amend or
supplement the Prospectus in order to comply with the Act, to notify you
and upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may
from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the
Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to
prepare and deliver to such Underwriter as many copies as you may
request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a) of
the Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the
Prospectus, (i) not to offer, sell, contract to sell or otherwise
dispose of, except as provided hereunder, any securities of the Company
that are substantially similar to the Shares, including but not limited
to any securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than pursuant to employee stock option plans existing
on, or upon the conversion or exchange of convertible or exchangeable
securities or the exercise of warrants outstanding as of, the date of
this Agreement), (ii) to take reasonable steps to enforce, and not to
release any securityholder of the Company from, its obligations under
any agreement pursuant to which such securityholder has agreed not to
offer, sell, contract to sell or otherwise
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dispose of any securities of the Company, and (iii) not to accelerate or
otherwise alter the vesting of any security subject to an agreement not
to offer, sell, contract to sell or otherwise dispose of for a period of
less than 90 days after the date of the Prospectus, in any of the above
cases, without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the
first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
to make available to its stockholders consolidated summary financial
information of the Company and its subsidiaries for such quarter in
reasonable detail;
(g) During a period of three years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports
and financial statements furnished to or filed with the Commission or
any national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company an its
subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds";
(i) To take all steps reasonably necessary to ensure that the
Company is not deemed an "investment company," as such term is defined
in the Investment Company Act, including, if and to the extent
necessary, the investment of the net proceeds received by it from the
sale of the Shares in "government securities," as such term is defined
in the Investment Company Act;
(j) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National
Market System ("NASDAQ"); and
(k) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the
date of this Agreement, and the Company shall at the time of filing
either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment
of such fee pursuant to Rule 111(b) under the Act.
6. The Company and each of the Selling Stockholders covenant and agree
with one another and with the several Underwriters that (a) the Company will pay
or cause to be the following: (i) the fees, disbursements and expenses of the
Company's counsel and accountants in connection with the registration of the
Shares under the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement, any Preliminary Prospectus
and the Prospectus and amendments and supplements thereto and the
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mailing and delivering of copies thereof to the Underwriters and dealers; (ii)
the cost of printing or producing any Agreement among Underwriters, this
Agreement, closing documents (including any compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares; (iii) all expenses in connection with the qualification of the Shares
for offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) all fees and expenses in connection with listing the Shares on the NASDAQ;
(v) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section; and (b) such Selling
Stockholder will pay or cause to be paid all costs and expenses incident to the
performance of such Selling Stockholder's obligations hereunder which are not
otherwise specifically provided for in this Section, including (i) any fees and
expenses of counsel for such Selling Stockholder, (ii) such Selling
Stockholder's pro rata share of the fees and expenses of the Attorneys-in-Fact
and the Custodian, and (iii) all expenses and taxes incident to the sale and
delivery of the Shares to be sold by such Selling Stockholder to the
Underwriters hereunder. In connection with clause (b)(iii) of the preceding
sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax,
and the Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for
associated carrying costs if such tax payment is not rebated on the day of
payment and for any portion of such tax payment not rebated. It is understood,
however, that the Company shall bear, and the Selling Stockholders shall not be
required to pay or to reimburse the Company for, the cost of any other matters
not directly relating to the sale and purchase of the Shares pursuant to this
Agreement, and that, except as provided in this Section, and Sections 8 and 11
hereof, the Underwriters will pay all of their own costs and expenses, including
the fees of their counsel, stock transfer taxes on resale of any of the Shares
by them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; if the Company has elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have become
effective by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by
the Commission; and all requests for additional information on the part
of the Commission shall have been complied with to your reasonable
satisfaction;
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(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions, dated such Time of
Delivery, with respect to such matters as you may reasonably request,
and such counsel shall have received such papers and information as they
may reasonably request to enable them to pass upon such matters;
(c) Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Company, shall have furnished to you their written
opinion (a draft of such opinion is attached as Annex II(b) hereto),
dated such Time of Delivery, in form and substance satisfactory to you,
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 the
State of Delaware, with power and authority (corporate and other)
to own its properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification or is subject to no material liability or disability
by reason of failure to be so qualified in any such jurisdiction
(such counsel being entitled to rely in respect of the opinion in
this clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the Company,
provided that such counsel shall state that they believe that both
you and they are justified in relying upon such opinions and
certificates);
(iv) To such counsel's knowledge, other than as set forth in
Exhibit 21.1 to the Registration Statement, the Company has no
subsidiaries and does not own or control directly or indirectly any
equity or similar interest in any corporation, association, joint
venture, partnership, or similar arrangement or entity;
(v) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings
pending to which the Company is a party or of which any property of
the Company is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company; and, to such counsel's knowledge, no
such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(vi) This Agreement has been duly authorized, executed
and delivered by the Company;
(vii) The issue and sale of the Shares being delivered at such
Time of Delivery to be sold by the Company and the compliance by
the Company with all of the provisions of this Agreement and the
consummation of the transactions herein
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<PAGE> 13
contemplated will not conflict with or 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 or other agreement or instrument, identified to such
counsel as material pursuant to a certificate executed by an
officer of the Company, to which the Company is a party or by which
the Company is bound or to which any of the property or assets of
the Company is subject, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or
regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the
Act of the Shares, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(ix) To such counsel's knowledge, the Company is not in
violation of its Certificate of Incorporation or By-laws;
(x) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock and under the
caption "Underwriting", insofar as they purport to describe the
provisions of the laws and documents referred to therein, are
accurate, complete and fair;
(xi) The Company is not an "investment company", as such term
is defined in the Investment Company Act; and
(xii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion) comply as to form in all material respects with
the requirements of the Act and the rules and regulations
thereunder; although they do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in
the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (xi) of this section 7(c),
they have no reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules and financial data therein, as to
which such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that, as of its date, the Prospectus or
any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial statements
and related schedules and financial data therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact necessary to
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<PAGE> 14
make the statements therein, in the light of the circumstances
under which they were made, not misleading or that, as of such Time
of Delivery, either the Registration Statement or the Prospectus or
any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial statements
and related schedules and financial data therein, as to which such
counsel need express no opinion) contains an untrue statement of a
material fact or omits to state a material fact necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading; and they do not know of any
amendment to the Registration Statement required to be filed or of
any contracts or other documents of a character required to be
filed as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus which are
not filed or described as required;
(d) Wilson Sonsini Goodrich & Rosati, Professional Corporation,
shall have furnished to you its written opinion with respect to each of
the Selling Stockholders for whom it is acting as counsel (a draft of
each such opinion is attached as Annex II(c) hereto), dated the First
Time of Delivery, in form and substance satisfactory to you, to the
effect that:
(i) A Power-of-Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Stockholder and constitute
valid and binding agreements of such Selling Stockholder in
accordance with their terms;
(ii) This Agreement has been duly executed and delivered by or
on behalf of such Selling Stockholder; and the sale of the Shares to
be sold by such Selling Stockholder hereunder and the compliance by
such Selling Stockholder with all of the provisions 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 result in a breach or violation of any
terms or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound
or to which any of the property or assets of such Selling
Stockholder is subject, nor will such action result in any violation
of the provisions of any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder;
(iii) To such counsel's knowledge, no consent, approval,
authorization or order of any court or governmental agency or body
is required for the consummation of the transactions contemplated by
this Agreement in connection with the Shares to be sold by such
Selling Stockholder hereunder, except such as have been obtained
under the Act and such as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of
such Shares by the Underwriters;
(iv) Immediately prior to the First Time of Delivery, such
Selling Stockholder had good and valid title to the Shares to be
sold at the First Time of Delivery by such Selling Stockholder
under this Agreement, free and clear of all liens, encumbrances,
equities or claims, and full right, power and authority to sell,
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<PAGE> 15
assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder; and
(v) Good and valid title to such Shares, free and clear of all
liens, encumbrances, equities or claims, has been transferred to
each of the several Underwriters who have purchased such Shares in
good faith and without notice of any such lien, encumbrance, equity
or claim or any other adverse claim within the meaning of the
Uniform Commercial Code.
In rendering the opinion in paragraph (iv), such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
(e) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of
Delivery, each of KPMG LLP and Sherwin Chan & Walshe shall have
furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the
effect set forth in Annex I hereto (the executed copy of the letter
delivered prior to the execution of this Agreement is attached as Annex
I(a) hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(f)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus, and (ii) since the respective dates as of which information
is given in the Prospectus there shall not have been any change in the
capital stock (except upon exercise of outstanding securities
exercisable for or convertible into capital stock of the Company, if
such securities were outstanding as of such date and except for grants
made after such date under the equity incentive plans described in the
Prospectus consistent with past grants) or long-term debt of the Company
or any of its subsidiaries (other than intercompany indebtedness between
the Company and its wholly-owned subsidiaries) or any change, or any
development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in any
such case described in clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities
on NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York or California State authorities;
or (iv) the outbreak or escalation of hostilities involving the United
States or the declaration by
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<PAGE> 16
the United States of a national emergency or war, if the effect of any
such event specified in this clause (iv) in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at
such Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have been
duly listed, subject to notice of issuance, for quotation on NASDAQ;
(i) The Company shall have obtained and delivered to the
Underwriters executed copies of an agreement from (i) each executive
officer and director of the Company and (ii) each of the stockholders
listed on Schedule III attached hereto, substantially to the effect set
forth in Subsection 5(e) hereof in form and substance satisfactory to
you;
(j) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New
York Business Day next succeeding the date of this Agreement; and
(k) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Stockholders, respectively,
satisfactory to you as to the accuracy of the representations and
warranties of the Company and the Selling Stockholders, respectively,
herein at and as of such Time of Delivery, as to the performance by the
Company and the Selling Stockholders of all of their respective
obligations hereunder to be performed at or prior to such Time of
Delivery, and as to such other matters as you may reasonably request,
and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a) and (f) of
this Section.
8. (a) The Company and each of the Selling Stockholders, 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 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company and the Selling Stockholders shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein; provided, further, that
the liability of a Selling Stockholder pursuant to this subsection 8(a) shall
not exceed the product of the number of Shares sold by such Selling Stockholder,
including any Optional Shares, and the initial price to public of the Shares as
set forth in the Prospectus.
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<PAGE> 17
(b) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or such Selling Stockholder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the Company
or such Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Stockholders on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not
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<PAGE> 18
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Selling Stockholders on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company, each of the
Selling Stockholders and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the 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. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company (including any person
who, with his or her consent, is named in the Registration Statement as about to
become a director of the Company) and to each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein.
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If within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company and the Selling
Stockholders shall be entitled to a further period of thirty-six hours within
which to procure another party or other parties satisfactory to you to purchase
such Shares on such terms. In the event that, within the respective prescribed
periods, you notify the Company and the Selling Stockholders that you have so
arranged for the purchase of such Shares, or the Company and the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Company and the Selling Stockholders shall have the right to
postpone (a) Time of Delivery for a period of not more than seven days, in order
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Selling Stockholders to sell the Optional
Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Stockholders, except
for the expenses to be borne by the Company and the Selling Stockholders and the
Underwriters as provided in Section 6 hereof and the indemnity and contribution
agreements in Section 8 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or
19
<PAGE> 20
controlling person of the Company, or any controlling person of any Selling
Stockholder, and shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company will
reimburse the Underwriters through you for all out-of-pocket expenses approved
in writing by you, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Chief Financial
Officer; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire or telex constituting such Questionnaire, which address will be
supplied to the Company or the Selling Stockholders by you on request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
20
<PAGE> 21
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and each of the Representatives plus one
for each counsel and the Custodian, if any counterparts hereof, and upon the
acceptance hereof by you, on behalf of each of the Underwriters, this letter and
such acceptance hereof shall constitute a binding agreement among each of the
Underwriters, the Company and each of the Selling Stockholders. It is understood
that your acceptance of this letter on behalf of each of the Underwriters is
pursuant to the authority set forth in a form of Agreement among Underwriters,
the form of which shall be submitted to the Company and the Selling Stockholders
for examination, upon request, but without warranty on your part as to the
authority of the signers thereof.
21
<PAGE> 22
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power-of-Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
Turnstone Systems, Inc.
By:
-----------------------------------------------
Name: Richard N. Tinsley
Title: President and Chief Executive Officer
Richard N. Tinsley
P. Kingston Duffie
M. Denise Savoie
Eric J. Andrews
Michael A. Crumlin
John Loiacano IV
Catherine Millet
Shames S. Panaki
By:
----------------------------------------------
Name:
Title:
As Attorney-in-Fact acting
on behalf of each of the
Selling Stockholders
named in Schedule II to
this Agreement.
Accepted as of the date hereof at
-----------
Goldman, Sachs & Co.
Dain Rauscher Incorporated
Deutsche Bank Securities Inc.
FleetBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
By:
-------------------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the
Underwriters
22
<PAGE> 23
SCHEDULE I
<TABLE>
<CAPTION>
TOTAL NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
----------- ---------------
<S> <C>
Goldman, Sachs & Co.....................................
Dain Rauscher Incorporated..............................
Deutsche Bank Securities Inc............................
FleetBoston Robertson Stephens Inc......................
U.S. Bancorp Piper Jaffray Inc..........................
------------
Total............................................ 4,000,000
============
</TABLE>
23
<PAGE> 24
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL
SHARES TO BE
TOTAL NUMBER OF SOLD IF
FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
--------------- --------------
<S> <C> <C>
The Selling Stockholder(s):........................
Richard N. Tinsley(a)....................... 133,000 219,000
P. Kingston Duffie(b)....................... 131,500 216,500
M. Denise Savoie(c)......................... 100,000 164,500
Eric J. Andrews(d).......................... 48,000
Michael A. Crumlin(e)....................... 15,000
John Loiacano IV(f)......................... 22,500
Catherine Millet(g)......................... 20,000
Shames S. Panaki(h)......................... 30,000
Total...........................................
------------ ---------------
500,000 600,000
============ ===============
</TABLE>
(a) This Selling Stockholder is represented by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304-1050 and has
appointed Richard N. Tinsley and Terence J. Schmid, and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304-1050 and has
appointed Richard N. Tinsley and Terence J. Schmid, and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304-1050 and has
appointed Richard N. Tinsley and Terence J. Schmid, and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
(d) This Selling Stockholder is represented by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304-1050 and has
appointed Richard N. Tinsley and Terence J. Schmid, and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
24
<PAGE> 25
(e) This Selling Stockholder is represented by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304-1050 and has
appointed Richard N. Tinsley and Terence J. Schmid, and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
(f) This Selling Stockholder is represented by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304-1050 and has
appointed Richard N. Tinsley and Terence J. Schmid, and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
(g) This Selling Stockholder is represented by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304-1050 and has
appointed Richard N. Tinsley and Terence J. Schmid, and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
(h) This Selling Stockholder is represented by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304-1050 and has
appointed Richard N. Tinsley and Terence J. Schmid, and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
25
<PAGE> 26
SCHEDULE III
Stockholders subject to a lock-up agreement
-------------------------------------------
Institutional Venture Partners VII, L.P.
Institutional Venture Management VII, L.P.
IVP Founders Fund I, L.P.
IVP Broadband Fund, L.P.
Matrix Partners V, L.P.
Matrix Partners Entrepreneurs Fund, L.P.
Benchmark Capital Partners II, L.P.
Benchmark Founders' Fund II, L.P.
Benchmark Founders' Fund II-A, L.P.
Benchmark Members' Fund II, L.P.
26
<PAGE> 27
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and
the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have
been furnished to the Representatives and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether
the unaudited condensed consolidated financial statements referred to in
paragraph (vi)(A)(i) below comply as to form in all material respects
with the applicable accounting requirements of the Act and the related
published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the related
published rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where
applicable) in the audited consolidated financial statements for such
five fiscal years which were included or incorporated by reference in
the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of
Regulation S-K and on the basis of limited procedures
specified in such letter nothing came to their attention as a
result of the foregoing procedures that caused them to
believe that this information does not conform in all
material respects with the disclosure requirements of Items
301, 302, 402 and 503(d), respectively, of Regulation S-K;
<PAGE> 28
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of
the latest audited financial statements included in the Prospectus,
inquiries of officials of the Company and its subsidiaries responsible
for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations, or (ii) any
material modifications should be made to the unaudited condensed
consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus for
them to be in conformity with generally accepted accounting
principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any such
unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included in
the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in clause (B) were not determined on
a basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements of
the Act and the published rules and regulations thereunder or the
pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior
to the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of convertible
securities, in each case which were outstanding on the date of the
latest financial statements included in the Prospectus) or any
increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each case
for changes,
2
<PAGE> 29
increases or decreases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in clause (E) there were any decreases in consolidated net
revenues or operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
decreases or increases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (vi) above, they have carried out certain specified
procedures, not constituting an examination in accordance with generally
accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Representatives,
which are derived from the general accounting records of the Company and
its subsidiaries, which appear in the Prospectus, or in Part II of, or
in exhibits and schedules to, the Registration Statement specified by
the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its subsidiaries and have found them to be in agreement.
3
