eTOYS INC.
COMMON STOCK, PAR VALUE $0.0001
---------------
UNDERWRITING AGREEMENT
April ____, 1999
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co.,
BancBoston ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Inc.,
▇▇▇▇▇▇▇▇▇ Lufkin & ▇▇▇▇▇▇▇▇ Securities Corporation and
▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ & ▇▇▇▇▇ Incorporated
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
Ladies and Gentlemen:
eToys 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
________ shares (the "Firm Shares") and, at the election of the Underwriters,
up to _______ additional shares (the "Optional Shares") of Common Stock, par
value $0.0001 ("Stock") of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(a) 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 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
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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");
(b) 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 ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. expressly for
use therein;
(c) 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
▇▇▇▇▇▇▇, Sachs & Co. expressly for use therein;
(d) 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 (except pursuant to the exercise
of previously granted options and warrants) or long-term debt of the Company
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, otherwise than as set forth or contemplated in the Prospectus;
(e) The Company does not own any real property; the Company has good
and marketable title to all personal property owned by it, free and clear of
all liens, encumbrances
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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 any
real property and buildings held under lease by the Company 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;
(f) 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;
(g) 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;
(h) The 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;
(i) The issue and sale of the Shares 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 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 Bylaws 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 any of its 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;
(j) The Company is not in violation of its Certificate of
Incorporation or Bylaws 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;
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(k) 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 and complete;
(l) 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, would individually or in the aggregate have a material adverse
effect on the current or future financial position, stockholders' equity or
results of operations of the Company; and, to the Company's knowledge, no
such proceedings are threatened or contemplated by governmental authorities
or threatened by others;
(m) 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");
(n) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes;
(o) The Company owns or possesses adequate rights to use all patents,
patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names, copyrights and other intellectual property rights that
are necessary to conduct its business as described in the Prospectus; the
expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names, copyrights or other intellectual property rights would
not have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company; and the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others
with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names, copyrights or other
intellectual property rights that, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a material adverse
effect upon the Company's business, financial condition or results of
operations;
(p) The Company carries, or is covered by, insurance as is customary
for companies similarly situated and engaged in similar businesses in similar
industries;
(q) There are no contracts or other documents which are required to
be described in the Prospectus or to be filed as exhibits to the Initial
Registration Statement by the Act which are not so filed;
(r) No labor disturbance by the employees of the Company exists or,
to the knowledge of the Company, is imminent which will have a material
adverse effect on the business, financial condition, results of operations or
prospects of the Company;
(s) The Company does not own, directly or indirectly, any interest in
any corporation, partnership, business trust or other entity, which would be
required to be set forth in Exhibit 21 to the Registration Statement;
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(t) The Company does not have any debt securities or preferred stock
which is rated by any "nationally recognized statistical rating
organization", as that term is defined by the Commission for purposes of Rule
426(g)(2) under the Act;
(u) To the Company's knowledge, Ernst & Young, LLP, who have
certified certain financial statements of the Company are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder; and
(v) The Company has reviewed its operations and any third parties
with which the Company has a material relationship to evaluate the extent to
which the business or operations of the Company will be affected by the Year
2000 Problem. As a result of such review, the Company has no reason to
believe, and does not believe, that the Year 2000 Problem will have a
material adverse effect on the general affairs, management, the current or
future financial position, business prospects, stockholders' equity or
results of operations of the Company or result in any material loss or
interference with the Company's business or operations. The "Year 2000
Problem" as used herein means any significant risk that computer hardware or
software used in the receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization of data or in the
operation of mechanical or electrical systems of any kind will not, in the
case of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring prior
to January 1, 2000.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price per share of $____________, the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I hereto and (b)
in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the
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 Company hereby grants to the Underwriters the right to
purchase at their election up to __________ Optional Shares, at the purchase
price per share set forth in the paragraph above, for the sole purpose of
covering overallotments in the sale of the Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from you to
the Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate 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 Company otherwise agree
in writing, earlier than two or later than ten business days after the date
of such notice.
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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 ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. may request upon at least forty-eight hours'
prior notice to the Company shall be delivered by or on behalf of the Company
to ▇▇▇▇▇▇▇, Sachs & Co. through these facilities of the Depository Trust
Company ("DTC"), for the account of such Underwriter, against payment by or
on behalf of such Underwriter of the purchase price therefor by wire transfer
of Federal (same-day) funds, to the account specified by the Company to
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. at least forty-eight hours in advance. The time and
date of such delivery and payment shall be, with respect to the Firm Shares,
9:30 a.m., New York City time, on _____________, 1999 or such other time and
date as ▇▇▇▇▇▇▇, Sachs & Co. and the Company may agree upon in writing, and,
with respect to the Optional Shares, 9:30 a.m., New York time, on the date
specified by ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. in the written notice given by ▇▇▇▇▇▇▇,
Sachs & Co. of the Underwriters' election to purchase such Optional Shares,
or such other time and date as ▇▇▇▇▇▇▇, ▇▇▇▇▇ & 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(k) hereof, will be delivered at the
offices of Venture Law Group ("VLG"), ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ (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 ___p.m., New York City 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
6
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
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 (which need not be audited)
complying with Section 11(a) of the Act and the rules and regulations
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 180 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 (i) 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
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this Agreement, or (ii) as consideration in connection with mergers,
acquisitions of assets, reclassifications and other transactions not
primarily for equity financing purposes, provided that the number of shares
or other securities issued in connection with such mergers, acquisitions of
assets, reclassifications and other transactions shall not exceed ten percent
(10%) of the number of shares of Common Stock of the Company outstanding on
the date of issuance and, provided further, that all persons that are issued
such shares or other securities shall enter a lock-up agreement for a period
expiring on the date 180 days after the date of the Prospectus in the form
substantially to the effect set forth in this Subsection 5(e) in form and
substance satisfactory to you), 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
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 summary
financial information of the Company for such quarter in reasonable detail;
(g) During a period of five 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;
(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 use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National
Market System ("NASDAQ"); and
(j) To file with the Commission such information on Form 10-Q or Form
10-K as may be required by Rule 463 under the Act; 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 covenants and agrees with the several Underwriters
that the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the 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
8
supplements thereto and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing or producing any
Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
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.
It is understood, however, that, except as provided in this Section, and
Sections 8 and 11 hereof, the Underwriters will pay all of their own costs
and expenses, including the fees of their counsel, 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 herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company shall have
performed all of its obligations hereunder theretofore to be performed, and
the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to your reasonable satisfaction;
(b) ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions (a draft of each such
opinion is attached as Annex II(a) hereto), dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii), (v), (ix) and (xi) of
subsection (c) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) VLG, counsel for the Company, shall have furnished to you their
written opinion, 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
9
(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 in all material respects to the
description of the Stock contained in the Prospectus;
(iii) To such counsel's knowledge, 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, except where the failure to be so qualified would not have a
material adverse effect on the Company (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 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, would individually or
in the aggregate have a material adverse effect on the current or future
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;
(v) This Agreement has been duly authorized, executed and
delivered by the Company;
(vi) The issue and sale of the Shares being delivered at such
Time of Delivery 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
material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel 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 Bylaws 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;
(vii) 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 (as to which such counsel need
not express an opinion);
10
(viii) The Company is not in violation of its Certificate of
Incorporation or Bylaws or, to such counsel's knowledge, 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;
(ix) 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 and complete in all material respects;
(x) The Company is not an "investment company", as such term
is defined in the Investment Company Act; and
(xi) Such counsel shall also state that (i) they believe that
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, and have not
independently verified, 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 (ix) of this Section 7(c);
(ii) 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 therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that, as of its date, the Prospectus or
any further amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contained an
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading or that, as of such Time of
Delivery, either the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules therein,
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 (iii) 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) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Ernst & Young, LLP,
shall have furnished to you a letter or letters, dated the respective
11
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);
(e) (i) The Company shall not have sustained since the date of the
latest audited financial statements included in the Prospectus any loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as of
which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company (except pursuant
to the exercise of previously granted options and warrants) 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, 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;
(f) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) under the Act, and
(ii) no such organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of
any of the Company's debt securities;
(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 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 for quotation on NASDAQ; and
(i) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from all stockholders of the Company (except
for those stockholders agreed to by you), substantially to the effect set
forth in Subsection 5(e) hereof in form and substance satisfactory to you;
12
(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 shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company satisfactory
to you as to the accuracy of the representations and warranties of the
Company herein at and as of such Time of Delivery, as to the performance by
the Company of all of its obligations hereunder to be performed at or prior
to such Time of Delivery, as to the matters set forth in subsections (a) and
(e) of this Section and as to such other matters as you may reasonably
request.
8. (a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; PROVIDED, HOWEVER, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through ▇▇▇▇▇▇▇,
▇▇▇▇▇ & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through ▇▇▇▇▇▇▇, Sachs & Co. expressly for use therein; and will
reimburse the Company for any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the
13
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, clpability
or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as
is appropriate to reflect not only such relative benefits but also the
relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company bear to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if
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
14
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 under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations
of the Underwriters under this Section 8 shall be in addition to any
liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of
the Company and to each person, if any, who controls the Company within the
meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the 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. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be entitled
to a further period of thirty-six hours within which to procure another party
or other parties satisfactory to you to purchase such Shares on such terms.
In the event that, within the respective prescribed periods, you notify the
Company that you have so arranged for the purchase of such Shares, or the
Company notifies you that it has so arranged for the purchase of such Shares,
you or the Company shall have the right to postpone such Time of Delivery for
a period of not more than seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or
in any other documents or arrangements, and the Company agrees to file
promptly any amendments to the Registration Statement or the Prospectus which
in your opinion may thereby be made necessary. The term "Underwriter" as used
in this Agreement shall include any person substituted under this Section
with like effect as if such person had originally been a party to this
Agreement with respect to such 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 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 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
15
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
as provided in subsection (a) above, the aggregate number of such Shares
which remains unpurchased exceeds one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, or if the Company shall
not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase 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 Company
to sell the Optional Shares) shall thereupon terminate, without liability on
the part of any non-defaulting Underwriter or the Company, except for the
expenses to be borne by the Company and the Underwriters as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters,
as set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless
of any investigation (or any statement as to the results thereof) made by or
on behalf of any Underwriter or any controlling person of any Underwriter, or
the Company, or any officer or director or controlling person of the Company,
and shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, the Company shall not then be under any liability to any Underwriter
except as provided in Sections 6 and 8 hereof; but, if for any other reason,
any Shares are not delivered by or on behalf of the Company as provided
herein, the Company will reimburse the Underwriters through you for all
out-of-pocket expenses approved in writing by you, including fees and
disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so
delivered, but the Company shall then be under no further liability to any
Underwriter except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made
or given by you jointly or by ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall
be in writing, and if to the Underwriters shall be delivered or sent by mail,
telex or facsimile transmission to you as the representatives in care of
▇▇▇▇▇▇▇, Sachs & Co., ▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: Registration Department; and if to the Company shall be delivered
or sent by mail to the address of the Company set forth in the Registration
Statement, Attention: Secretary; provided, however, that any notice to an
Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire,
16
which address will be supplied to the Company by you upon request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective
heirs, executors, administrators, successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. No
purchaser of any of the 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.
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.
17
If the foregoing is in accordance with your understanding, please
sign and return to us seven (7) counterparts hereof, and upon the acceptance
hereof by you, on behalf of each of the Underwriters, this letter and such
acceptance hereof shall constitute a binding agreement between each of the
Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company for examination upon request, but without warranty
on your part as to the authority of the signers thereof.
Very truly yours,
ETOYS INC.
By:
--------------------------------
Name:
--------------------------
Title:
--------------------------
Accepted as of the date hereof:
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co.
BancBoston ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Inc.
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Securities Corporation
▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ & ▇▇▇▇▇ Incorporated
By:
----------------------------------------
(▇▇▇▇▇▇▇, Sachs & Co.)
On behalf of each of the Underwriters
18
SCHEDULE I
Number of
Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- --------------
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co.........................
BancBoston ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Inc...........
▇▇▇▇▇▇▇▇▇ Lufkin & ▇▇▇▇▇▇▇▇ Securities
Corporation ................................
▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ & ▇▇▇▇▇
Incorporated................................
[NAMES OF OTHER UNDERWRITERS]...............
------------- ---------------
Total
------------- ---------------
------------- ---------------
S-1
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 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 interim financial
statements, selected financial data, pro forma financial information,
financial forecasts and/or condensed financial statements derived from
audited financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
separately furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed statements of income, balance sheets and statements of cash flows
included in the Prospectus as indicated in their reports thereon copies of
which have been separately furnished to the Representatives and on the basis
of specified procedures including inquiries of officials of the Company who
have responsibility for financial and accounting matters regarding whether
the unaudited condensed 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 cause them to believe
that the unaudited condensed 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
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 financial
statements for such five fiscal years which were included or incorporated by
reference in the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the basis
of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to believe
that this information does not conform in all material respects with the
disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of
Regulation S-K;
(vi) On the basis of limited procedures, not constituting an examination
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial
A-1
statements and other information referred to below, a reading of the latest
available interim financial statements of the Company, inspection of the
minute books of the Company since the date of the latest audited financial
statements included in the Prospectus, inquiries of officials of the Company
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 statements of income, balance sheets and
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 statements of income,
balance sheets and 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 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 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 financial statements included in the Prospectus;
(D) any unaudited pro forma 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 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 long-term debt of the Company, or any decreases in net
current assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the latest
balance sheet included in the Prospectus, except in each case for changes,
increases or 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 net revenues or operating profit or the total or
per share amounts of net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives,
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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, 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 have found them to be in agreement.
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