Exhibit 1.1
4,687,500 Shares
PATHNET, INC.
COMMON STOCK, PAR VALUE $.01 PER SHARE
UNDERWRITING AGREEMENT
_________, 1998
_________,1998
Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
J.P. Morgan Securities Inc.
Lehman Brothers Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Bear, Stearns International Limited
J.P. Morgan Securities Ltd.
Lehman Brothers International (Europe)
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Pathnet Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters (as defined below) 4,687,500 shares
of its common stock, par value $.01 per share (the "Firm Shares").
It is understood that, subject to the conditions hereinafter stated,
3,750,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 937,500 Firm Shares (the "International Shares") will be sold to the several
International Underwriters named in Schedule II hereto (the "International
Underwriters") in connection with the offering and sale of such International
Shares outside the United States and Canada to persons other than United States
and Canadian Persons. Morgan Stanley & Co. Incorporated, Bear, Stearns & Co.
Inc., J.P. Morgan Securities Inc. and Lehman Brothers Inc. shall act as
representatives (the "U.S. Representatives") of the several U.S. Underwriters,
and Morgan
Stanley & Co. International Limited, Bear, Stearns International Limited, J.P.
Morgan Securities Ltd. and Lehman Brothers International (Europe) shall act as
representatives (the "International Representatives") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the "Underwriters".
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 703,125 shares of its common stock, par
value $.01 per share (the "Additional Shares") if and to the extent that the
U.S. Representatives shall have determined to exercise, on behalf of the U.S.
Underwriters, the right to purchase such shares of common stock granted to the
U.S. Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares
are hereinafter collectively referred to as the "Shares". The shares of common
stock, par value $.01 per share of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"Common Stock".
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "Prospectus". If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"Rule 462 Registration Statement"), then unless the context otherwise requires,
any reference herein to the term "Registration Statement" shall be deemed to
include such Rule 462 Registration Statement.
As part of the offering contemplated by this Agreement, Morgan Stanley
& Co. Incorporated ("Morgan Stanley") has agreed to reserve out of the Shares
set forth opposite its name on Schedule II to this Agreement, up to 234,375
shares, for sale to the Company's employees, officers, and directors and other
parties associated with the Company (collectively, "Participants"), as set forth
in the Prospectus under the heading "Underwriters" (the "Directed Share
Program"). The Shares to be sold by Morgan Stanley pursuant to the Directed
Share Program (the "Directed Shares") will be sold by Morgan Stanley pursuant to
this Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the business day on
which this Agreement is executed will be offered to the public by Morgan Stanley
as set forth in the Prospectus.
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1. Representations and Warranties. The Company represents and warrants
to each U.S. Underwriter as of the date hereof and as of the Closing Date
referred to in Section 4 hereof, and the Option Closing Date (if any) referred
to in Section 4 hereof, and agrees with each U.S. Underwriter, as follows:
(a) The Company meets the requirements for use of Form S-1 under
the Securities Act. Each of the Registration Statement and any Rule 462
Registration Statement has become effective under the Securities Act and no
stop order suspending the effectiveness of the Registration Statement or
any Rule 462 Registration Statement has been issued under the Securities
Act and no proceedings for that purpose have been instituted or are pending
or, to the knowledge of the Company, are contemplated by the Commission,
and any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462 Registration Statement and any post-effective amendments thereto became
effective and at the Closing Date (and, if any Additional Shares are
purchased, at the Option Closing Date), the Registration Statement, the
Rule 462 Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the Securities Act and the applicable rules and regulations of the
Commission thereunder and did not and will 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 not misleading. Neither
the Prospectus nor any amendments or supplements thereto (including any
prospectus wrapper), at the time the Prospectus or any amendments or
supplements thereto were issued and at the Closing Date (and, if any
Additional Shares are purchased, at the Option Closing Date), included or
will include an untrue statement of a material fact or omitted or will omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. The representations and warranties in this subsection shall not
apply to statements in or omissions from the Registration Statement or the
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through the U.S.
Representatives expressly for use in the Registration Statement or the
Prospectus.
Each preliminary prospectus and the prospectuses filed as part of
the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act, complied
when so filed in all material respects with the Securities Act Regulations
and each preliminary prospectus and the Prospectus delivered to the
Underwriters for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T under
the Securities Act ("Regulation S-T").
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(b) The accountants who certified the financial statements and
supporting schedules included in the Registration Statement are independent
public accountants with respect to the Company and its subsidiaries within
the meaning of Regulation S-X under the Securities Act ("Regulation S-X").
(c) The financial statements included in the Registration
Statement and the Prospectus, together with the related schedules and
notes, present fairly in all material respects the consolidated financial
position of the Company and its consolidated subsidiaries at the dates
indicated and the statement of operations, stockholders' equity and cash
flows of the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved (except in the case of the unaudited
financial statements for the absence of footnotes and subject to year-end
adjustments, which are not expected to be material, taken as a whole). The
supporting schedules, if any, included in the Registration Statement
present fairly in all material respects in accordance with GAAP the
information required to be stated therein. The selected financial data
included in the Prospectus present fairly in all material respects the
information shown therein and have been compiled on a basis consistent with
that of the audited financial statements and unaudited financial
statements, as the case may be, included in the Registration Statement.
(d) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as otherwise
stated therein, (A) there has been no material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business (a
"Material Adverse Effect"), (B) there have been no transactions entered
into by the Company or any of its subsidiaries, other than those in the
ordinary course of business, which are material with respect to the Company
and its subsidiaries considered as one enterprise, and (C) there has been
no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(e) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware
and has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and
to enter into and perform its obligations under this Agreement; and the
Company is duly qualified as a foreign corporation to transact business and
is in good standing in each other jurisdiction in which such qualification
is required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
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(f) Each of Pathnet Finance I LLC and Pathnet/Idaho Power License
LLC (each, a "Designated Subsidiary" and together the "Designated
Subsidiaries") has been duly organized and is validly existing as limited
liability company in good standing under the laws of the State of Delaware
and has requisite limited liability company power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus. Each of the Designated Subsidiaries is not qualified as
a limited liability company to transact business in any other jurisdiction.
Except as otherwise disclosed in the Registration Statement, all of the
issued and outstanding capital stock or members' interest of each of the
Designated Subsidiaries has been duly authorized and validly issued, and is
fully paid and non-assessable and, except as otherwise set forth in the
Registration Statement and except for the security interest in the
Company's interest in Pathnet/Idaho Power License LLC granted to
Pathnet/Idaho Power Equipment LLC, is owned by the Company, directly or
through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding shares
of capital stock or members' interest of any Designated Subsidiary was
issued in violation of any preemptive or similar rights of any
securityholder or member (as applicable) of such Designated Subsidiary. The
Company has no subsidiaries other than the Designated Subsidiaries and
Pathnet/Idaho Power Equipment LLC.
(g) The authorized, issued and outstanding capital stock of the
Company is as set forth in the financial statements as of their date,
including the schedules and notes, and included in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" and, as of the
date hereof, there has been no material change in the authorized, issued
and outstanding capital stock since the date of such financial statements
other than issuances of shares of common stock upon the exercise of options
disclosed to be outstanding in the Prospectus and as set forth in the
Prospectus under the caption "Capitalization". The shares of issued and
outstanding capital stock of the Company prior to the issuance of the
Shares have been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights
of any member or securityholder of the Company.
(h) This Agreement has been duly authorized, executed and
delivered by the Company.
(i) The Shares to be purchased by the U.S. Underwriters and the
International Underwriters from the Company have been duly authorized for
issuance and sale to the U.S. Underwriters and the International
Underwriters and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration set forth herein, will be
validly issued, fully paid and non-assessable; the Common Stock conforms to
all statements relating thereto contained in the Prospectus and such
description conforms to the rights set forth in the instruments defining
the same; and the issuance of
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the Shares is not subject to the preemptive or other similar rights of any
securityholder of the Company.
(j) Neither the Company nor any Designated Subsidiary is in
violation of its organizational documents (in the case of a limited
liability company) or its certificate of incorporation or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Company or any Designated Subsidiary is a party or
by which it or any of them may be bound, or to which any of the property or
assets of the Company or any Designated Subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults that
would not result in a Material Adverse Effect; and the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated in this Agreement and the Registration Statement (including
the issuance and sale of the Shares and the use of the proceeds from the
sale of the Shares as described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company with its obligations under this
Agreement have been duly authorized by all necessary corporate action on
behalf of the Company and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute a
breach of, or default or a Repayment Event (as defined below) under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any Designated Subsidiary
pursuant to, the Agreements and Instruments (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that, singly or in
the aggregate, would not result in a Material Adverse Effect), nor will
such action result in any violations of (i) the provisions of the
organizational documents (in the case of a limited liability company) or
the certificate of incorporation or by-laws of the Company or any
Designated Subsidiary or (ii) any applicable law, statute, rule, regulation
(including, without limitation, the Communications Act of 1934, as amended,
and the rules and regulations of the Federal Communications Commission (the
"FCC") thereunder), judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Designated Subsidiary or any of their
assets, operations or properties, including, without limitation, the FCC.
As used herein, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of indebtedness
or any series of capital stock entitled by its terms to repayment,
redemption or repurchase (or any person acting on such holder's behalf) the
right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness or other interest by the Company or any
Designated Subsidiary except for the conversion of all of the outstanding
Series Preferred Stock of the Company into Common Stock upon the Closing of
the Offering pursuant to the certificate of incorporation of the Company.
(k) Except as disclosed in the Prospectus, no labor dispute with
the employees of the Company or any Designated Subsidiary exists or, to the
knowledge of
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the Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any of its
Designated Subsidiaries' principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to result in
a Material Adverse Effect.
(l) Except as disclosed in the Prospectus, there is no action,
suit, proceeding, inquiry or investigation before or brought by any court
or governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the Company
or any Designated Subsidiary which might reasonably be expected to result
in a Material Adverse Effect, which is required to be disclosed in the
Registration Statement, or which might reasonably be expected to materially
and adversely affect the properties or assets of the Company or any
Designated Subsidiary or the consummation of the transactions contemplated
by this Agreement or the performance by the Company of its obligations
hereunder. The aggregate of all pending legal or governmental proceedings
to which the Company or any Designated Subsidiary is a party or of which
any of their respective property or assets is the subject which are not
described in the Registration Statement, including ordinary routine
litigation incidental to the business of the Company and its Designated
Subsidiaries, could not reasonably be expected to result in a Material
Adverse Effect.
(m) There are no contracts or documents which are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described or filed as required.
(n) The Company and its Designated Subsidiaries own or otherwise
have the right to use, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them as described in the Registration Statement, and
neither the Company nor any Designated Subsidiary has received any written
notice or is otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any
Designated Subsidiary therein, and which infringement or conflict or
invalidity or inadequacy, singly or in the aggregate, would reasonably be
expected to result in a Material Adverse Effect.
(o) Except as described in the Prospectus, no filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required (x) for the lawful operation of the business of
the Company and its Designated Subsidiaries as described in the
Registration Statement under the caption "Business" in the manner and to
the full
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extent now operated or proposed to be operated as described in the
Registration Statement, except for such filings, authorizations, approvals,
consents, licenses, orders, registrations, qualifications or decrees that
would not, if not so filed, made or otherwise obtained, singly or in the
aggregate, result in a Material Adverse Effect, or (y) for the performance
by the Company of its obligations under this Agreement, in connection with
the offering, issuance or sale of the Shares hereunder or the consummation
of the transactions contemplated by this Agreement, except (i) such as have
been already obtained under the Securities Act or the applicable rules and
regulations of the Commission thereunder or as may be required under
foreign or state securities or blue sky laws and (ii) such as have been
obtained under the laws and regulations of jurisdictions outside the United
States in which the Directed Shares are offered. To the knowledge of the
Company after due inquiry, no event has occurred that permits (nor has an
event occurred, which, with notice or lapse of time, or both, would permit)
the revocation or termination of any authorization, approval, consent,
license, order, registration, qualification or decree described under
clause (x) of this paragraph or that might result in any other material
impairment of the rights of the Company therein or thereunder.
(p) Except as described in the Registration Statement, the
Company and its Designated Subsidiaries possess such permits, licenses,
approvals, consents and other authorizations (collectively, including,
without limitation, all permits required for the operation of the business
of the Company and its Designated Subsidiaries by the FCC and each state
and local authority that regulates the activities of the Company, the
"Governmental Licenses") issued by the appropriate federal, state, local or
foreign regulatory agencies or bodies necessary to conduct the business now
operated by them, except where the failure to obtain such permits,
licenses, approvals, consents or other authorizations would not, singly or
in the aggregate, result in a Material Adverse Effect; the Company and its
Designated Subsidiaries are in compliance with the terms and conditions of
all such Governmental Licenses, except where the failure so to comply would
not, singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except when
the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its Designated
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect. To the knowledge of the
Company, except as described in the Registration Statement, there exists no
reason or cause that could justify the variation, suspension, cancellation
or termination of any such Governmental Licenses held by the Company or its
Designated Subsidiaries with respect to the construction or operation of
their respective businesses, which variation, suspension, cancellation or
termination could reasonably be expected to result in a Material Adverse
Effect.
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(q) The Company and its Designated Subsidiaries own no real
property. The Company and its Designated Subsidiaries have good title to
all other material properties owned by them, in each case, free and clear
of all mortgages, pledges, liens, security interests, claims, restrictions
or encumbrances of any kind except such as (a) are described in the
Prospectus or (b) do not, singly or in the aggregate, materially affect the
value of such property and do not materially interfere with the use made
and proposed to be made of such property by the Company or any of its
Designated Subsidiary; and all of the leases and subleases material to the
business of the Company and its subsidiaries, considered as one enterprise,
and under which the Company or any of its Designated Subsidiaries holds
properties described in the Prospectus, are in full force and effect, and
neither the Company nor any of its Designated Subsidiaries has any notice
of any material claim of any sort that has been asserted by anyone adverse
to the rights of the Company or any of its Designated Subsidiaries under
any of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or any Designated Subsidiary thereof to the
continued possession of the leased or subleased premises under any such
lease or sublease.
(r) All United States federal income tax returns of the Company
and its Designated Subsidiaries required by law to be filed have been filed
and all taxes shown by such returns or otherwise assessed, which are due
and payable, have been paid, except assessments against which appeals have
been or will be promptly taken in good faith and as to which adequate
reserves have been provided. The Company and its Designated Subsidiaries
have filed all other tax returns that are required to have been filed by
them pursuant to applicable foreign, state, local or other law except
insofar as the failure to file such returns would not result in a Material
Adverse Effect, and has paid all taxes due pursuant to such returns or
pursuant to any assessment received by the Company and its Designated
Subsidiaries, except for such taxes, if any, as are being contested in good
faith and for which adequate reserves have been provided. The charges,
accruals and reserves on the books of the Company in respect of any income
and corporation tax liability for any years not finally determined are
adequate to meet any assessments or re-assessments for additional income
tax for any years not finally determined, except to the extent of any
inadequacy that would not result in a Material Adverse Effect.
(s) The Company and its Designated Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurances
that (A) transactions are executed in accordance with management's general
or specific authorization, (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain accountability for assets, (C) access to assets is permitted only
in accordance with management's general or specific authorization and (D)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
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(t) The Company and its Designated Subsidiaries carry or are
entitled to the benefits of insurance, with financially sound and reputable
insurers, in such amounts and covering such risks as is generally
maintained by companies of established repute engaged in the same or
similar business, and all such insurance is in full force and effect.
(u) The Company is not, and upon the issuance and sale of the
Shares as herein contemplated, the application of the net proceeds
therefrom as described in the Prospectus and the conduct of the Company's
business in the manner described in the Registration Statement will not be
required to register as an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(v) Except as described in the Prospectus and except for such
matters as would not, singly or in the aggregate, result in a Material
Adverse Effect, (i) neither the Company nor any of its Designated
Subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (ii) the Company and its Designated Subsidiaries
have all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance with their
requirements, (iii) there are no pending or, to the knowledge of the
Company or the Designated Subsidiaries, threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigations or proceedings
relating to any Environmental Law against the Company or any of its
Designated Subsidiaries and (iv) to the knowledge of the Company or the
Designated Subsidiaries, there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of its
Designated Subsidiaries relating to Hazardous Materials or Environmental
Laws.
(w) Except as disclosed in the Registration Statement, there are
no persons with registration rights or other similar rights to have any
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the Securities Act.
(x) The Company has not offered, or caused the Underwriters to
offer, Shares to any person pursuant to the Directed Share Program with the
specific intent to
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unlawfully influence (i) a customer or supplier of the Company to alter the
customer's or supplier's level or type of business with the Company, or
(ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell
to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedules I and II
hereto opposite its names at U.S.$[_____] a share ("Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to 703,125
Additional Shares at the Purchase Price. If the U.S. Representatives, on behalf
of the U.S. Underwriters, elect to exercise such option, the U.S.
Representatives shall so notify the Company in writing not later than 30 days
after the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the U.S. Underwriters and the date on which
such shares are to be purchased or which date shall not be less than the second
business day following the date such notice is given. Such date may be the same
as the Closing Date (as defined below) but not earlier than the Closing Date nor
later than ten business days after the date of such notice. Additional Shares
may be purchased as provided in Section 4 hereof solely for the purpose of
covering overallotments made in connection with the offering of the Firm Shares.
If any Additional Shares are to be purchased, each U.S. Underwriter agrees,
severally and not jointly, to purchase the number of Additional Shares (subject
to such adjustments to eliminate fractional shares as the U.S. Representatives
may determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I
hereto opposite the name of such U.S. Underwriter bears to the total number of
U.S. Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder or (B) the grant of options pursuant to
and on the same or similar terms as set forth in the employee benefit plans
existing on the date hereof and the issuance by the Company of shares of Common
Stock upon the exercise of an option or warrant or the conversion
11
of a security outstanding on the date hereof or upon the exercise of options
granted after the date hereof under employee benefit plans existing on the date
hereof, as described in the Prospectus.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
U.S.$[_____] a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$[____] a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
U.S.$[____] a share, to any Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be made to
the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on _______, 1998, or at such
other time on the same or such other date, not later than _________, 1998, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date".
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such other
date, in any event not later than _______, 1998, as shall be designated in
writing by the U.S. Representatives. The time and date of such payment are
hereinafter referred to as the "Option Closing Date".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. Conditions to the Company's and the Underwriters' Obligations. The
obligations of the Company to sell the Shares to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Shares on
the Closing Date are subject to the condition that the Registration Statement
shall have become effective not later than the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
12
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 5(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
The officer signing and delivering such certificate may rely upon
the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Paul, Weiss, Rifkind, Wharton & Garrison, special counsel for
the Company, dated the Closing Date, substantially to the effect that:
(i) the Company is a corporation duly incorporated and
validly existing as a corporation in good standing under the laws of
the State of Delaware;
(ii) the Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under this Agreement;
(iii) based solely on certificates of public officials in
the respective jurisdictions delivered to the Underwriters by the
Company, the
13
Company is duly qualified to do business in each of the jurisdictions
listed on Schedule III hereto;
(iv) the authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to
this Agreement or pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to the
exercise or conversion of convertible securities or options referred
to in the Prospectus); the shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and
are fully paid and non-assessable; and none of the outstanding shares
of capital stock of the Company was issued in violation of the
preemptive or other similar rights of any securityholder of the
Company pursuant to the Company's Certificate of Incorporation or
bylaws, each as in effect on the date hereof, or in any agreement or
other instrument filed as an exhibit to the Registration Statement;
(v) the Shares to be purchased by the U.S. Underwriters and
the International Underwriters from the Company have been duly
authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company pursuant to
this Agreement against payment of the consideration set forth in this
Agreement, will be validly issued and fully paid and non-assessable;
(vi) the issuance of the Shares is not subject to the
preemptive or other similar rights of any securityholder of the
Company pursuant to the Company's Certificate of Incorporation or
bylaws, each as in effect on the date hereof, or in any agreement or
other instrument filed as an exhibit to the Registration Statement;
(vii) each Designated Subsidiary (as listed in Schedule I to
counsel's opinion) has been duly formed and is validly existing as a
limited liability company in good standing under the laws of the
jurisdiction of its formation, has limited liability company power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus; except as otherwise disclosed
in the Registration Statement, all of the issued and outstanding
membership interest in each Designated Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned of record by the Company;
(viii) this Agreement has been duly authorized, executed and
delivered by the Company;
14
(ix) Each of the Registration Statement, including any Rule
462 Registration Statement, the Prospectus and each amendment or
supplement to the Registration Statement and the Prospectus as of
their respective effective or issue dates (other than the financial
statements and supporting schedules and other financial and
statistical data included therein or omitted therefrom, as to which
such counsel need express no opinion) appears on its face to be
appropriately responsive in all material respects to the requirements
of the Securities Act and the rules and regulations of the Commission
thereunder. For the purpose of this opinion, such counsel may assume
that the statements made in such documents are complete and correct;
(x) to such counsel's knowledge, there is no pending or
threatened legal proceeding, including by the FCC, against the Company
or any subsidiary, or to which the property of the Company or any
subsidiary thereof is subject, before or brought by any court or
governmental agency or body, which might reasonably be expected to
result in a Material Adverse Effect, or would have a material adverse
effect on the consummation of the transactions contemplated in this
Agreement or the performance by the Company of its obligations
hereunder or the transactions relating to the Offering contemplated by
the Prospectus;
(xi) the statements in the Prospectus under the caption
"Certain United States Federal Tax Consequences to Non-United States
Holders of Common Stock," and in the Registration Statement under
Items 14 and 15, to the extent that such statements constitute
summaries of the legal matters, documents or proceedings referred to
therein are accurate in all material respects and fairly summarize the
matters described therein in all material respects;
(xii) the statements in the Prospectus under the captions
"Risk Factors -- Regulation," "Business -- Regulation" (except for any
and all statements regarding management's awareness of or belief or
intention regarding certain matters, as to which no opinion need be
expressed), insofar as such statements constitute a summary of the
legal matters, documents, or proceedings related to the Communications
Act of 1934, as amended, and the rules, regulations and published
policies of the FCC ("Communications Law") referred to therein, are
accurate in all material respects and fairly summarize the matters
referred to therein;
(xiii) all descriptions in the Registration Statement of
contracts and other documents to which the Company or any of its
subsidiaries is a party are accurate in all material respects; to such
counsel's knowledge, there are no franchises, contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments or any
statutes or regulations that would be required to be described in the
Registration Statement that are not described or referred to in the
15
Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed as exhibits thereto;
(xiv) to such counsel's knowledge, (i) neither the Company
nor any of its Designated Subsidiaries is in violation of its Charter
Documents or equivalent organizational documents and (ii) no default
by the Company or any Designated Subsidiary exists in the due
performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument that is
described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement;
(xv) no filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any
Governmental Authority or agency or under the Delaware General
Corporation Law (the "DGCL") (other than under the Securities Act
and the applicable rules and regulations of the Commission thereunder,
which have been obtained, or as may be required under the securities
or blue sky laws of the various states or foreign securities laws as
to which such counsel need express no opinion) is required for the
due authorization, execution, delivery of this Agreement and the
performance by the Company of its obligations under this Agreement.
For the purposes of this opinion, the term "Governmental Authorities"
means any executive, legislative, judicial, administrative or
regulatory body of the United States of America or the State of New
York;
(xvi) the execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated in this
Agreement and compliance by the Company with its obligations under
this Agreement do not and will not, whether with or without the giving
of notice or lapse of time or both, (a) conflict with or constitute a
breach of, or default or Repayment Event (as defined in Section
1(a)(x) of the Purchase Agreement) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary thereof pursuant to, any
contract, other agreement or instrument included as an exhibit to the
Registration Statement, except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a
Material Adverse Effect, or (b) result in any violation of the
provisions of the charter or by-laws (or comparable organizational
documents) of the Company and its subsidiaries, or any Applicable Law,
including Communications Law, or any judgment, order, writ or decree
known to such counsel, except where the violation would not have a
Material Adverse Effect. Except as described in the Prospectus, no
consent, approval, authorization, order or qualification with the FCC
is required for the performance by the Company of its obligations
under this Agreement. The term "Applicable Law" means the DGCL and
those laws, rules and regulations of the United States of
16
America, in each case which in our experience are normally applicable
to the transactions of the type contemplated by this Agreement.;
(xvii) to such counsel's knowledge, except as set forth in
the Registration Statement, there are no persons with registration
rights or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the
Company under the Securities Act;
(xviii) to such counsel's knowledge, based on certification
to such counsel from the Company, the Company does not currently have
any licenses, certificates, orders, permits, authorizations, consents
or approvals from the FCC (collectively, the "FCC Licenses"), except
that the Company and an incumbent operator with whom the Company has a
strategic relationship hold certain FCC Licenses granted conditionally
on filing pursuant to 47 C.F.R. Section 101.31(e) (the "Conditional
Licenses"). These Conditional Licenses are the only FCC Licenses
necessary to allow the Company to operate its current business as
described in the Registration Statement on the date hereof (as such
counsel understands the Company's current business, based on a
certification to such counsel from the Company). As described in the
Registration Statement, the Company will require additional FCC
Licenses to carry out its business as planned. In connection with the
applications for and the maintenance of its FCC Licenses, the Company
has made and will be required to make certain reports and/or filings
with, and to pay certain fees to, the FCC.
(xix) the Company is not required to be registered as an
investment company" under the 1940 Act, as amended, and the rules and
regulations promulgated thereunder;
Such counsel will confirm, based on oral advice from the
Commission, that the Registration Statement, including any Rule 462
Registration Statement, has been declared effective under the Securities
Act; such counsel shall further confirm that any required filing of the
Prospectus pursuant to Rule 424 has been made in the manner and within the
time period required by Rule 424; and that, to such counsel's knowledge, no
stop order suspending the effectiveness of the Registration Statement or
any Rule 462 Registration Statement has been issued under the Securities
Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.
Such counsel shall also state that they have participated in the
preparation of the Registration Statement and, although they have not
undertaken to investigate or verify independently, and do not assume
responsibility for, the accuracy or completeness of the statements
contained in either of them (other than as explicitly stated in paragraph
(xi) and (xii) above), based upon such participation (and relying as to
factual matters in determining materiality to the extent we deem reasonable
on officers, employees and other
17
representatives of the Company), nothing has come to such counsel's
attention that would lead them to believe that the Registration Statement
or any amendment or supplement thereto (except for financial statements
and schedules and other financial and statistical data included or
incorporated by reference therein or omitted therefrom, as to which they
express no belief), at the time such Registration Statement or any such
amendment became effective, 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 the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial and statistical data included
therein or omitted therefrom, as to which they express no belief), at the
time the Prospectus was issued, at the time any such amended or
supplemented prospectus was issued or at the Closing Time, contained or
contains an untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
The opinion of Paul, Weiss, Rifkind, Wharton & Garrison described
in Section 5(c) above shall be rendered to the Underwriters at the request
of the Company and shall so state therein.
In rendering the foregoing opinions, such counsel may (A) rely as
to factual matters, to the extent such counsel deems, proper upon the
representations and warranties of the Company made in this Agreement and
upon certificates of public officials and officers of the Company, (B)
assume without independent investigation (i) that each of the parties to
this Agreement (other than the Company) has complied with all of its
obligations and agreements arising hereunder, (ii) the genuineness of all
signatures, (iii) the legal capacity of all individuals who have executed
any of the documents reviewed by such counsel, (iv) the authenticity of all
documents submitted to such counsel as originals, (v) the conformity to the
originals of all documents submitted to such counsel as certified,
photostatic, reproduced or conformed copies of valid existing agreements or
other documents, (vi) the authenticity of all such latter documents and
(vii) that the statements regarding matters of fact in the certificates,
records, agreements, instruments and documents that such counsel have
examined are accurate and complete and (C) indicate that whenever such
counsel's opinion with respect to the existence or absence of facts is
based upon such counsel's knowledge, such counsel's opinion is based solely
on the actual knowledge of the attorneys in such counsel's firm who are
representing the Company in connection with the transactions contemplated
by this Agreement or who are otherwise responsible for the representation
of the Company and without any independent verification.
(d) The Underwriters shall have received on the Closing Date an
opinion of Shearman & Sterling, counsel for the Underwriters, dated the
Closing Date, in form and substance satisfactory to the Underwriters.
18
(e) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to the
Underwriters, from Pricewaterhouse Coopers LLP, independent public
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier than
the date hereof.
(f) The "lockup" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date.
(g) The Common Stock shall have been approved for trading on the
Nasdaq National Market, subject only to official notice of issuance.
(h) You shall have received such other documents and certificates
as are reasonably requested by you or your counsel.
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters related to
the issuance of the Additional Shares.
6. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, five signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 3:00 p.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 6(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement
or the Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or supplement to
which you reasonably object in a timely manner, and to file with the
Commission within the applicable period specified
19
in Rule 424(b) under the Securities Act any prospectus required to be filed
pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request provided, however, that no qualification shall be
required in any jurisdiction where, as a result thereof, the Company would
be subject to service of process or to taxation as a foreign corporation
doing business in such jurisdiction.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the
twelve-month period ending [________], 1999 that satisfies the provisions
of Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause
to be paid all expenses incident to the performance of its obligations
under this Agreement, including: (i) the fees, disbursements and expenses
of the Company's counsel and the Company's accountants in connection with
the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of
the Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities herein above
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) one half of the cost of printing or producing any
Blue Sky or Legal Investment memorandum in connection with the offer and
sale of the Shares under state
20
securities laws and all expenses in connection with the qualification of
the Shares for offer and sale under state securities laws as provided in
Section 6(d) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) one half of all filing fees and the reasonable fees and
disbursements of counsel to the Underwriters incurred in connection with
the review and qualification of the offering of the Shares by the National
Association of Securities Dealers, Inc., (v) all fees and expenses in
connection with the preparation and filing of the registration statement on
Form 8-A relating to the Common Stock and all costs and expenses incident
to listing the Shares on the Nasdaq National Market, (vi) the cost of
printing certificates representing the Shares, (vii) the costs and charges
of any transfer agent, registrar or depositary, (viii) in connection with
any "road show" one half of the cost of any aircraft chartered in
connection therewith and travel and lodging expenses of the representatives
and officers of the Company, and (ix) all other costs and expenses incident
to the performance of the obligations of the Company hereunder for which
provision is not otherwise made in this Section. It is understood, however,
that except as provided in this Section, Section 7 entitled "Indemnity and
Contribution", and the last paragraph of Section 9 below, the Underwriters
will pay all of their costs and expenses, including fees and disbursements
of their counsel, stock transfer taxes payable on resale of any of the
Shares by them and any advertising expenses connected with any offers they
may make.
(g) That in connection with the Directed Share Program, the
Company will use its reasonable best efforts to ensure that the Directed
Shares will be restricted to the extent required by the National
Association of Securities Dealers, Inc. (the "NASD") or the NASD rules from
sale, transfer, assignment, pledge or hypothecation for a period of three
months following the date of the effectiveness of the Registration
Statement. Morgan Stanley will notify the Company as to which Participants
will need to be so restricted. The Company will direct the transfer agent
to place stop transfer restrictions upon such securities for such period of
time.
Furthermore, the Company covenants with Morgan Stanley that the
Company will comply with all applicable securities and other applicable laws,
rules and regulations in each foreign jurisdiction, if any, in which the
Directed Shares are offered in connection with the Directed Share Program.
7. Indemnity and Contribution. (a) The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or
21
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein and except that the Company shall not be liable to any
Underwriter or any person who controls any Underwriter with respect to any
preliminary prospectus to the extent that any such loss, liability, claim,
damage or expense resulted from the fact that such Underwriter, sold Shares to a
person to whom such Underwriter failed to send or give, at or prior to the
Closing Date, a copy of the Prospectus, as then amended or supplemented, if (x)
the Company has previously furnished copies thereof (sufficiently in advance of
the Closing Date to allow for distribution by the Closing Date) to the
Underwriters and the loss, liability, claim, damage or expense of such
Underwriter or person who controls a Underwriter resulted from an untrue
statement or omission of a material fact contained in or omitted from any
preliminary prospectus which was corrected in the Prospectus as, if applicable,
amended or supplemented prior to the Closing Date and (y) the Prospectus (as so
amended or supplemented) would have cured the defect giving rise to such
asserted loss, claim, damage, liability or expense.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 7(a) or 7(b), such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the reasonable
fees and disbursements of such counsel related to such proceeding. The failure
so to notify the indemnifying party: (i) will not relieve it from liability
under paragraph (a) or (b) of this Section 7 unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses; and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
of this Section 7. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party
22
shall have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying
party shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm (in addition to any local counsel) for all such indemnified
parties and that in each case all such fees and expenses shall be reimbursed
as they are incurred. Such firm shall be designated in writing by Morgan
Stanley & Co. Incorporated in the case of parties indemnified pursuant to
Section 7(a), and by the Company in the case of parties indemnified pursuant
to Section 7(b). 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.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 60 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement other than
such fees and expenses of counsel that are being contested in good faith by
such indemnifying party. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding. Notwithstanding anything contained herein
to the contrary, if indemnity may be sought pursuant to Section 7(g) hereof
in respect of such action or proceeding, then in addition to such separate
firm for the indemnified parties, the indemnifying party shall be liable for
the reasonable fees and expenses of not more than one separate firm (in
addition to any local counsel) for Morgan Stanley for the defense of any
losses, claims, damages and liabilities arising out of the Directed Share
Program, and all persons, if any, who control Morgan Stanley within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act.
(d) To the extent the indemnification provided for in Section 7(a) or
7(b) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 7(d)(i) above is not permitted by applicable law, in such proportion
23
as is appropriate to reflect not only the relative benefits referred to in
clause 7(d)(i) above but also the relative fault of the Company on the one hand
and of the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand 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 by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 7 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 that does not take account of the
equitable considerations referred to in Section 7(d). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, 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 Section 7, 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 that 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 Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.
24
(g) The Company agrees to indemnify and hold harmless Morgan Stanley
and each person, if any, who controls Morgan Stanley within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act
("Morgan Stanley Entities"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by the failure of any Participant to pay for
and accept delivery of the shares which, immediately following the effectiveness
of the Registration Statement, were subject to a properly confirmed agreement to
purchase; or (ii) related to, arising out of, or in connection with the Directed
Share Program, provided that, the Company shall not be responsible under this
subparagraph (ii) for any losses, claim, damages or liabilities (or expenses
relating thereto) that are finally judicially determined to have resulted from
the bad faith or gross negligence of Morgan Stanley Entities.
8. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 8(a)(i) through 8(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
9. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I or Schedule
II bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 9 by
an amount in excess of one-ninth of such number of Shares without
25
the written consent of such Underwriter. If, on the Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the
aggregate number of Firm Shares with respect to which such default occurs is
more than one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. If, on the
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
Additional Shares or (ii) purchase not less than the number of Additional Shares
that such non-defaulting Underwriters would have been obligated to purchase in
the absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
10. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
11. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
12. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
26
Very truly yours,
PATHNET, INC.
By:
------------------------
Name:
Title:
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS, INC.
J.P. MORGAN SECURITIES INC.
Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
---------------------------
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
J.P. MORGAN SECURITIES LTD.
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By: Morgan Stanley & Co. International Limited
By:
---------------------------
Name:
Title:
27
SCHEDULE I
U.S. UNDERWRITERS
Number of
Firm Shares
Underwriter To Be Purchased
---------------
Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
Lehman Brothers Inc.
J.P. Morgan Securities Inc.
---------------
Total U.S. Firm Shares ...................... 3,750,000
---------------
---------------
SCHEDULE II
INTERNATIONAL UNDERWRITERS
Number of
Firm Shares
Underwriter To Be Purchased
---------------
Morgan Stanley & Co. International Limited
Bear, Stearns International Limited
Lehman Brothers International (Europe)
J.P. Morgan Securities Ltd.
---------------
Total International Firm Shares ............. 937,500
---------------
---------------
SCHEDULE III
FOREIGN QUALIFICATIONS OF PATHNET, INC.
Jurisdiction
- ------------
California
Colorado
District of Columbia
Texas
Nevada
Kansas
Maryland
Kentucky
Pennsylvania
Nebraska
Iowa
Maine
Minnesota
Montana
Missouri
South Dakota
Wyoming
Louisiana
North Dakota
Illinois
Indiana
Oklahoma
Arkansas
New Mexico
EXHIBIT A
[FORM OF LOCK-UP LETTER]
__________, 1998
Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc
J.P. Morgan Securities Inc.
Lehman Brothers Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Morgan Stanley & Co. International Limited
Bear, Stearns International Limited
J.P. Morgan Securities Ltd.
Lehman Brothers International (Europe)
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") and Morgan Stanley & Co. International Limited ("MSIL")
propose to enter into an Underwriting Agreement (the "Underwriting Agreement")
with Pathnet, Inc., a Delaware corporation (the "Company") providing for the
public offering (the "Public Offering") by the several Underwriters, including
Morgan Stanley and MSIL (the "Underwriters") of 4,687,500 shares (the "Shares")
of the common stock, par value $.01 per share, of the Company (the "Common
Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final prospectus
A-1
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (a) the sale of any
Shares to the Underwriters pursuant to the Underwriting Agreement, (b)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Public Offering,
(c) the exercise of an option to purchase shares of Common Stock or the
surrender of shares of Common Stock or of an option to purchase share of Common
Stock in connection with an option, in each case, pursuant to options issued
under existing employee benefit plans of the Company, (d) transfers by way of
testate or intestate succession or by operation of law, (e) transfers to
members of the immediate family of the undersigned or to a trust, limited
liability company or entity, all of the beneficial interests which are held by
the undersigned and (f) transfers to charitable organizations; PROVIDED that,
in the case of transfers pursuant to clause (d), (e) and (f) of this sentence,
the transferee shall have agreed to be bound by the restriction on transfer
contained in this letter.
In addition, the undersigned agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, it will not, during
the period commencing on the date hereof and ending 180 days after the date of
the Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
The undersigned further agrees that it will not request the consent
of Morgan Stanley on behalf of the Underwiters to transfer or register more
than an aggregate of 10,000 shares of Common Stock during the 180-day period
referred to above without first (i) providing each of the other stockholders
of the Company with ten days written notice of its intention to request such
consent and (ii) offering to each of the other stockholders of the Company the
opportunity to join in such request pro rata based on the number of shares of
Common Stock held by such stockholder.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
_________________________
(Name)
_________________________
(Address)
A-2