EXHIBIT 1.1
3,000,000 SHARES
TERAYON COMMUNICATION SYSTEMS, INC.
COMMON STOCK
($0.001 PAR VALUE)
UNDERWRITING AGREEMENT
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January ___, 1999
BT Alex. Xxxxx Incorporated
Xxxxxxxxx & Xxxxx LLC
Xxxxxx Brothers Inc.
Xxxxxxx Xxxxx Barney Inc.
As Representatives of the Several Underwriters
c/o BT Alex. Xxxxx Incorporated
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Gentlemen:
Terayon Communication Systems, Inc., a Delaware corporation (the "Company")
and certain shareholders of the Company (the "Selling Shareholders"), propose to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of 3,000,000 shares of the Company's Common Stock, $0.001 par value (the "Firm
Shares"), of which 1,750,000 shares will be sold by the Company and 1,250,000
shares will be sold by Selling Shareholders. The respective amounts of the Firm
Shares to be so purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto, and the respective amounts to be sold by the
Selling Shareholders are set forth opposite their names in Schedule II hereto.
The Company and the Selling Shareholders are sometimes referred to herein
collectively as the "Sellers." The Company and certain Selling Shareholders
also propose to sell at the Underwriters' option an aggregate of up to 450,000
additional shares of the Company's Common Stock (the "Option Shares") as set
forth below.
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their pro
rata portion of the Option Shares if you elect to exercise the over-allotment
option in whole or in part for the accounts of the several Underwriters. The
Firm Shares and the Option Shares (to the extent the aforementioned option is
exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company and Selling
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Shareholders.
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(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-1 (File No. 333-_____)
with respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462 (b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (i) the form of prospectus first
filed with the Commission pursuant to Rule 424(b) or (ii) the last preliminary
prospectus included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to the
Registration Statement, any Preliminary Prospectus or to the Prospectus shall be
deemed to refer to and include any supplements or amendments to any Prospectus
filed with the Commission after the date of filing of the Prospectus under Rules
424(b) or 430A and prior to the termination of the offering of the Shares by the
Underwriters.
(ii) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Each of the subsidiaries
of the Company as listed in Exhibit 21.1 to Item 16(a) of the Registration
Statement (collectively, the "Subsidiaries") has been duly organized and is
validly existing as a corporation or limited liability company, as applicable,
in good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to lease its properties and
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conduct its business as described in the Registration Statement. The
Subsidiaries are the only subsidiaries, direct or indirect, of the Company. The
Company and each of the Subsidiaries are duly qualified to transact business in
all jurisdictions in which the conduct of their business requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the earnings, business, management, properties, assets,
rights, prospects, results of operations or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole (a "Material Adverse
Effect"). All of the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued and are fully paid and
non-assessable. The shares of capital stock of the Subsidiaries held by the
Company are owned by the Company free and clear of all liens, encumbrances,
equities and claims; and, to the Company's knowledge, no options, warrants or
other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interest in the Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the Company,
including all shares to be sold by the Selling Shareholders have been duly
authorized and validly issued and are fully paid and non-assessable and have
been issued in compliance with all applicable securities laws; the portion of
the Shares to be issued and sold by the Company has been duly authorized and
when issued and paid for as contemplated herein will be validly issued, fully
paid and non-assessable; and no preemptive rights of stockholders, or other
rights to subscribe to, exist with respect to any of the Shares or the issue and
sale thereof. Neither the filing of the Registration Statement nor the offering
or sale of the Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any shares of Common Stock. Cisco Systems, Inc., a
stockholder of the Company, has received the notice required pursuant to its
right of first offer to acquire the Company upon a public offering of the
Company and has not responded in writing within the required time period in
order to exercise such right.
(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the Shares
conform to the description thereof contained in the Registration Statement. The
form of certificates for the Shares conforms to the Delaware General Corporate
Law.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform, to the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto did not and will not as of the
applicable effective date, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto did not and will not, as of the date thereof, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
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provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from 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 or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(vi) The consolidated financial statements of the Company,
together with related notes and schedules as set forth in the Registration
Statement, present fairly the financial position and the results of operations
and cash flows of the Company and the Subsidiaries, at the indicated dates and
for the indicated periods. Such financial statements and related schedules have
been prepared in accordance with generally accepted principles of accounting,
consistently applied throughout the periods involved, except as disclosed
herein, and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and statistical data
included in the Registration Statement present fairly the information shown
therein and such data have been compiled on a basis consistent with the
financial statements presented therein and the books and records of the Company.
The pro forma financial information included in the Registration Statement and
the Prospectus present fairly the information shown therein, have been prepared
in accordance with the Commission's rules and guidelines with respect to pro
forma financial statements, have been properly compiled on the pro forma bases
described therein, and, in the opinion of the Company, the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(vii) Ernst & Young LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, have advised the Company that they are independent public accountants
as required by the Act and the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency or otherwise (i) which if
determined adversely to the Company or any of its Subsidiaries would have a
Material Adverse Effect or (ii) to prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement.
(ix) The Company and the Subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial statements
(or as described in the Registration Statement) hereinabove described, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. The Company and the
Subsidiaries occupy their leased properties under valid and binding leases
conforming in all material respects to the description thereof set forth in the
Registration Statement.
(x) The Company and the Subsidiaries have filed all federal,
state, local and foreign income tax returns which have been required to be filed
and have paid all taxes indicated
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by said returns and all assessments received by them or any of them to the
extent that such taxes have become due. All tax liabilities have been adequately
provided for in the consolidated financial statements of the Company, and the
Company does not know of any actual or proposed additional tax assessments.
(xi) Since the respective dates as of which information is given
in the Registration Statement, and except as disclosed in the Prospectus, there
has not been any Material Adverse Effect or any development that could
reasonably be expected to have a Material Adverse Effect, and there has not been
any material transaction entered into by the Company or the Subsidiaries, other
than transactions in the ordinary course of business. The Company and the
Subsidiaries have no material contingent obligations which are not disclosed in
the Company's consolidated financial statements included in the Registration
Statement.
(xii) Except as disclosed in the Prospectus, neither the Company
nor any of the Subsidiaries is or with the giving of notice or lapse of time or
both, will be, in violation of or in default under its charter or bylaws or
under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties, is
bound and which violation or default would have a Material Adverse Effect. The
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a party, or of
the charter or bylaws of the Company or any Subsidiary or any rule or regulation
applicable to the Company or any Subsidiary or any order of which the Company is
aware of any court or of any regulatory body or administrative agency or other
governmental body.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect. Except for the Shares, none of the
offerings by the Company of its securities before or during the Offering is part
of the Offering or part of a single plan of financing together with the
Offering.
(xiv) The Company and each of the Subsidiaries hold all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their respective businesses. Except as specifically
disclosed in the Prospectus, the Company and each of the Subsidiaries owns or
possesses adequate rights to use all trademarks, trade names, patents, patent
rights, mask works, copyrights, licenses, approvals and governmental
authorizations currently used in its business as now conducted and, to the
Company's knowledge, as proposed to be conducted;
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and, to the Company's knowledge, neither the Company nor any of the Subsidiaries
has infringed any trademark, trade name, patent, patent right, mask work,
copyright, license, trade secret or other similar right of others, and, except
as disclosed in the Prospectus, no written claim has been made against the
Company or any of the Subsidiaries regarding trademark, trade name, patent, mask
work, copyright, license, trade secret or other infringement which could have a
Material Adverse Effect. The Company knows of no material infringement by others
of any trademark, trade name, patent, patent right, mask work, copyright,
license, trade secret or other similar right owned by or licensed to the
Company.
(xv) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in the stabilization or manipulation of the price of the shares
of Common Stock to facilitate the sale or resale of the Shares and the Company,
without investigation, is not aware of any such action by any of its affiliates.
The Company acknowledges that the Underwriters may engage in passive market
making transactions in the Shares on The NASDAQ Stock Market in accordance with
Rule 10b-6A under the Exchange Act.
(xvi) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940 and the rules and regulations of the Commission thereunder.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xviii) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as the Company
reasonably believes to be adequate for the conduct of their respective
businesses and the value of their respective properties and as the Company
reasonably believes to be customary for companies engaged in similar industries.
(xix) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as
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amended, including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by action
or by failure to act, which would cause the loss of such qualification.
(xx) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba.
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(xxi) Except as disclosed to the Underwriters, the Company is
not (nor did it permit any of its officers, directors, agents, representatives
or affiliates to) directly or indirectly, other than as described in the
Prospectus, taking any of the following actions: (A) solicit, entertain,
encourage, initiate or participate in any proposals, or conduct discussions with
or engage in negotiations, relating to, (B) provide information with respect to
it relating to, or otherwise cooperate with, facilitate or encourage any effort
or attempt with regard to, (C) enter into an agreement providing for, or (D)
make or authorize any statement, recommendation or solicitation in support of,
any possible acquisition of Company or any of the Subsidiaries (whether by
merger, purchase of assets, tender offer or otherwise), or any material portion
of its or their capital stock or assets or any equity interest in the Company or
any of the Subsidiaries.
(xxii) To the best of Company's knowledge, no labor disturbance
by the employees of the Company or any of the Subsidiaries exists or is
imminent. No collective bargaining agreement exists with any of the Company's
employees and, to the best of the Company's knowledge, no such agreement is
imminent.
(xxiii) The Common Stock has been approved for quotation on The
Nasdaq National Market, subject to official notice of issuance.
(xxiv) Neither the Company nor any of the Subsidiaries has at any
time during the last four (4) years (A) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (B) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(xxv) (A) Each of the Company and its Subsidiaries is in
compliance with all rules, laws and regulations relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment ("Environmental Laws") which are applicable to its respective
business, (B) neither the Company nor any of its Subsidiaries has received
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus and is not so disclosed, (C) to the Company's
knowledge, neither the Company nor any of its Subsidiaries will be required to
make future material capital expenditures to comply with existing Environmental
Laws,
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and (D) to the Company's knowledge, no property which is leased or occupied by
the Company or any of its Subsidiaries has been designated as a Superfund site
pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. (S) 9601, et seq.), or otherwise designated as a
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contaminated site under applicable state or local law.
(xxvi) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company or any of its Subsidiaries to or for the benefit
of any of the officers or directors of the Company or any of its Subsidiaries or
any of the members of the families of any of them, except as disclosed in the
Registration Statement and the Prospectus.
(b) Each of the Selling Shareholders severally represents and warrants
as follows:
(i) Such Selling Shareholder now has and at the Closing Date
and the Option Closing Date, as the case may be (as such dates are hereinafter
defined) will have good and marketable title to the Firm Shares and the Option
Shares to be sold by such Selling Shareholder, free and clear of any liens,
encumbrances, equities and claims, and full right, power and authority to effect
the sale and delivery of such Firm Shares and Option Shares; and upon the
delivery of, against payment for, such Firm Shares and Option Shares pursuant to
this Agreement, the Underwriters will acquire good and marketable title thereto,
free and clear of any liens, encumbrances, equities and claims.
(ii) Such Selling Shareholder has full right, power and
authority to execute and deliver this Agreement, the Power of Attorney, and the
Custodian Agreement referred to below and to perform its obligations under such
Agreements. The execution and delivery of this Agreement and the consummation by
such Selling Shareholder of the transactions herein contemplated and the
fulfillment by such Selling Shareholder of the terms hereof will not require any
consent, approval, authorization, or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be required
under the Act, state securities laws or Blue Sky laws) and will not result in a
breach of any of the terms and provisions of, or constitute a default under,
organizational documents of such Selling Shareholder, if not an individual, or
any indenture, mortgage, deed of trust or other agreement or instrument to which
such Selling Shareholder is a party, or of any order, rule or regulation
applicable to such Selling Shareholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted, or
which might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Common Stock of the Company and, other than as
permitted by the Act, the Selling Shareholder will not distribute any prospectus
or other offering material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties of the
Company contained herein or the
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information contained in the Registration Statement, such Selling Shareholder
has no reason to believe that the representations and warranties of the Company
contained in this Section 1 are not true and correct, is familiar with the
Registration Statement and has no knowledge of any material fact, condition or
information not disclosed in the Registration Statement which has adversely
affected or may adversely affect the business of the Company or any of the
Subsidiaries; and the sale of the Firm Shares and the Option Shares by such
Selling Shareholder pursuant hereto is not prompted by any information
concerning the Company or any of the Subsidiaries which is not set forth in the
Registration Statement or the documents incorporated by reference therein. The
information pertaining to such Selling Shareholder under the caption "Selling
Shareholders" in the Prospectus is complete and accurate in all material
respects.
2. Purchase, Sale and Delivery of the Firm Shares.
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(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Sellers
agree to sell to the Underwriters and each Underwriter agrees, severally and not
jointly, to purchase, at a price of $_____ per share, the number of Firm Shares
set forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof. The number of Firm Shares to
be purchased by each Underwriter from each Seller shall be as nearly as
practicable in the same proportion to the total number of Firm Shares being sold
by each Seller as the number of Firm Shares being purchased by each Underwriter
bears to the total number of Firm Shares to be sold hereunder. The obligations
of the Company and of each of the Selling Shareholders shall be several and not
joint.
(b) Certificates in negotiable form for the total number of the Shares
to be sold hereunder by the Selling Shareholders have been placed in custody
with Boston Equiserre as custodian (the "Custodian") pursuant to the Custodian
Agreement executed by each Selling Shareholder for delivery of all Firm Shares
and any Option Shares to be sold hereunder by the Selling Shareholders. Each of
the Selling Shareholders specifically agrees that the Firm Shares and any Option
Shares represented by the certificates held in custody for the Selling
Shareholders under the Custodian Agreement are subject to the interests of the
Underwriters hereunder, that the arrangements made by the Selling Shareholders
for such custody are to that extent irrevocable, and that the obligations of the
Selling Shareholders hereunder shall not be terminable by any act or deed of the
Selling Shareholders (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law (including
the death of an individual Selling Shareholder or the dissolution of a corporate
Selling Shareholder) or by the occurrence of any other event or events, except
as set forth in the Custodian Agreement. If any such event should occur prior
to the delivery to the Underwriters of the Firm Shares or the Option Shares
hereunder, certificates for the Firm Shares or the Option Shares, as the case
may be, shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such event has not occurred. The Custodian
is authorized to receive and acknowledge receipt of the proceeds of sale of the
Shares held by it against delivery of such Shares.
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(c) Payment for the Firm Shares to be sold hereunder is to be made in
by wire transfer of immediately available funds to an account specified in
writing by the Company for the Firm Shares to be sold by it and to an account
designated by the custodian for the Firm Shares to be sold by the Selling
Shareholders, against delivery of certificates therefor to the Representatives
for the several accounts of the Underwriters. Such payment and delivery are to
be made through the facilities of the Depository Trust Company, New York, New
York, at 10:00 a.m., Baltimore time, (i) on the third business day after the
date of this Agreement, (ii) if this Agreement is executed and delivered after
4:30 p.m. Eastern time, on the fourth business day after the date of this
Agreement or (iii) at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day" means
a day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and are not permitted by law or
executive order to be closed.) The certificates for the Firm Shares will be
delivered in such denominations and in such registrations as the Representatives
request in writing not later than the second full business day prior to the
Closing Date, and will be made available for inspection by the Representatives
at least one business day prior to the Closing Date.
(d) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company and certain Selling Shareholders listed on Schedule III hereto hereby
grant an option to the several Underwriters to purchase the Option Shares at the
price per share as set forth in the first paragraph of this Section 2. The
maximum number of Option Shares to be sold by the Company and the Selling
Shareholders is set forth opposite their respective names on Schedule III
hereto. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company, the Attorney-in-
Fact, and the Custodian, setting forth the number of Option Shares as to which
the several Underwriters are exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at which
such certificates are to be delivered. If the option granted hereby is
exercised in part, the respective number of Option Shares to be sold by the
Company and each of the Selling Shareholders listed in Schedule III hereto shall
be determined on a pro rata basis in accordance with the percentages set forth
opposite their names on Schedule II hereto, adjusted by you in such manner as to
avoid fractional shares. The time and date at which certificates for Option
Shares are to be delivered shall be determined by the Representatives but shall
not be earlier than three nor later than 10 full business days after the
exercise of such option, nor in any event prior to the Closing Date (such time
and date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is two or more business days before the Closing Date, the
notice of exercise shall set the Closing Date as the Option Closing Date. The
number of Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to the total number of
Firm Shares being purchased, adjusted by you in such manner as to avoid
fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several
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Underwriters, may cancel such option at any time prior to its expiration by
giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date by wire transfer of immediately available funds to an
account specified in writing by the Company for the Option Shares to be sold by
it and to an account designated by the Custodian for Option Shares to be sold by
the Selling Shareholders against delivery of certificates therefor through the
facilities of the Depository Trust Company, New York, New York.
(e) If on the Closing Date or Option Closing Date, as the case may be,
any Selling Shareholder fails to sell the Firm Shares or Option Shares which
such Selling Shareholder has agreed to sell on such date as set forth in
Schedule II or Schedule III hereto, the Company agrees that it will sell or
arrange for the sale of that number of shares of Common Stock to the
Underwriters which represents Firm Shares or the Option Shares which such
Selling Shareholder has failed to so sell, as set forth in Schedule II or
Schedule III hereto, or such lesser number as may be requested by the
Representatives.
3. Offering by the Underwriters.
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It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company and the Selling Shareholders.
-----------------------------------------------------
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations and (C) file on a timely basis all
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reports and statements required to be filed by the Company with the Commission
subsequent to the date of the Prospectus and prior to the termination of the
offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information, and (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose. In the
event of the issuance of any stop order preventing or suspending the use of the
Prospectus, the Company will use its best efforts to obtain as soon as possible
the lifting thereof.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided 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 where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or
before the Closing Date, four conformed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith, and will deliver
to the Representatives such additional number of copies of the Registration
Statement (including such number of copies of the exhibits filed therewith that
may reasonably be requested), and of all amendments thereto, as the
Representatives may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus
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to comply with any law, the Company promptly will prepare and file with the
Commission an appropriate amendment to the Registration Statement or supplement
to the Prospectus so that the Prospectus as so amended or supplemented will not,
in the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with the law.
(vi) The Company will make generally available to its
stockholders, as soon as it is practicable to do so, but in any event not later
than 15 months after the effective date of the Registration Statement, an
earnings statement (which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date of
the Registration Statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been so made
available.
(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports and copies
of all other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements.
(viii) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 90 days after the
date of this Agreement, directly or indirectly, by the Company except with the
prior written consent of BT Alex. Xxxxx Incorporated. The foregoing sentence
shall not apply to (A) the Shares to be sold to the Underwriters pursuant to
this Agreement, (B) shares of Common Stock issued by the Company upon the
exercise of options granted under the stock option plans of the Company (the
"Option Plans") or upon the exercise of warrants outstanding as of the date
hereof, (C) options to purchase Common Stock granted under the Option Plans and
(D) shares of Common Stock or options or warrants to purchase Common Stock
issued or granted in connection with equipment lease financing arrangements,
credit agreements or other commercial transactions or corporate strategic
partner transactions approved by the Company's Board of Directors.
(ix) Each officer and director (and entities affiliated with
directors) of the Company, and each Selling Shareholder and beneficial owner of
more than __% of the Company's Common Stock has agreed not to offer, sell, sell
short or otherwise dispose of any shares of Common Stock of the Company or other
capital stock of the Company, or any other securities convertible, exchangeable
or exercisable for Common Shares or derivative of Common Shares owned by such
person (or as to which such person has the right to direct the disposition of)
for a period of 90 days after the date of this Agreement, directly or
indirectly, except with the prior written consent of the Company or BT Alex.
Xxxxx Incorporated ("Lockup Agreements").
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(x) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(xi) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or any of the Subsidiaries to register as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
(xii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock.
(b) Each of the Selling Shareholders covenants and agrees with the
several Underwriters that:
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the Company or
other securities convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Shareholder or request the
registration for the offer or sale of any of the foregoing (or as to which the
Selling Shareholder has the right to direct the disposition of) will be made for
a period of 90 days after the date of this Agreement, directly or indirectly, by
such Selling Shareholder otherwise than hereunder or with the prior written
consent of Alex. Xxxxx & Sons Incorporated.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-8 or W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
(iii) Such Selling Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
5. Costs and Expenses.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company; the
cost of printing and delivering to, or as requested by, the Underwriters copies
of the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the
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Blue Sky Survey and any supplements or amendments thereto; the filing fees of
the Commission; the filing fees and reasonable expenses (including legal fees
and disbursements) incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Shares, not to exceed $6,000; the listing fee of the Nasdaq National Market;
and the expenses, including the fees and disbursements of counsel for the
Underwriters, incurred in connection with the qualification of the Shares under
state securities or Blue Sky laws. The Selling Shareholders have agreed with the
Company to reimburse the Company for a portion of such expenses. To the extent,
if at all, that any of the Selling Shareholders engage special legal counsel to
represent them in connection with this offering, the fees and expenses of such
counsel shall be borne by such Selling Shareholder, unless otherwise agreed
between the Company and such Selling Shareholder. Any transfer taxes imposed on
the sale of the Shares to the several Underwriters will be paid by the Sellers
pro rata. The Company agrees to pay all costs and expenses of the Underwriters,
including the reasonable fees and disbursements of counsel for the Underwriters,
incident to the offer and sale of directed shares of the Common Stock by the
Underwriters to employees and persons having business relationships with the
Company and its Subsidiaries, not to exceed $20,000. The Sellers shall not,
however, be required to pay for any of the Underwriters' expenses (other than
those related to qualification under NASD regulation and state securities or
Blue Sky laws) except that, if this Agreement shall not be consummated because
the conditions in Section 6 hereof are not satisfied, or because this Agreement
is terminated by the Representatives pursuant to Section 11 hereof, or by reason
of any failure, refusal or inability on the part of the Company or the Selling
Shareholders to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company and the
Selling Shareholders shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. Conditions of Obligations of the Underwriters.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
and the Selling Shareholders contained herein, and to the performance by the
Company and the Selling Shareholders of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective and any and
all filings required by Rule 424 and Rule 430A of the Rules and Regulations
shall have been made, and any request of the Commission for additional
information (to be included in the Registration Statement or otherwise) shall
have been disclosed to the Representatives and complied with to their reasonable
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satisfaction. No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued and no
proceedings for that purpose shall have been taken or threatened by the
Commission and no injunction, restraining order, or order of any nature by a
federal or state court of competent jurisdiction shall have been issued as of
the Closing Date which would reasonably be expected to prevent the issuance of
the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Xxxxxx Godward LLP,
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; to the best of
such counsel's knowledge, the Company is duly qualified to transact business in
all jurisdictions in which the conduct of its business requires such
qualification, except where the failure to so qualify would have a Material
Adverse Effect;
(ii) [Intentionally omitted.]
(iii) The Company had authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus as of the date
set forth therein; the authorized shares of the Company's Common Stock,
including the Shares to be sold by the Selling Shareholders have been duly
authorized; the outstanding shares of the Company's Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable; all of the
Shares conform to the description thereof contained in the Prospectus under the
caption "Description of Capital Stock"; the certificates for the Shares in the
form filed as Exhibit 4.2 to the Registration Statement with the Commission, are
in due and proper form under Delaware law; the Firm Shares and the Option
Shares, if any, to be sold by the Company pursuant to this Agreement have been
duly authorized and will be validly issued, fully paid and non-assessable when
issued and paid for as contemplated by this Agreement; and to such counsel's
knowledge, no preemptive rights of stockholders exist with respect to any of the
Shares or the issue or sale thereof.
(iv) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, (a) there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and (b) there are no
outstanding or authorized options, warrants or rights obligating the Company to
issue any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for any
shares of such stock; and except as described in the Prospectus, to the
knowledge of such counsel, no holder of any securities of the Company or any
other person has the right, which has not been satisfied or effectively waived,
to cause the Company to sell or otherwise issue to them, or to permit such
person to underwrite the sale of, any of the Shares or the right to have any
Common Shares or other securities of the Company included in the
-16-
Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of any shares of
Common Stock or other securities of the Company.
(v) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(vi) The Registration Statement and the Prospectus comply as to
form in all material respects with the requirements of the Act and the
applicable rules and regulations thereunder (except that such counsel need
express no opinion as to the financial statements and schedules, related notes,
other financial data and statistical data derived therefrom included in the
Registration Statement and Prospectus).
(vii) The statements under the captions "Management -- Limitation
on Directors' and Officers' Liability," "Management -- Employee Benefit Plans,"
"Certain Transactions," "Description of Capital Stock," and "Shares Eligible for
Future Sale" in the Prospectus, insofar as such statements constitute a summary
of documents referred to therein or matters of law, summarize the information
called for with respect to such documents and matters to the extent required by
the Act and the Rules and Regulations.
(viii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are no so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are summarized to the extent required
by the Act and the Rules and Regulations.
(ix) Such counsel knows of no legal or governmental proceedings
pending or threatened against the Company or any of the Subsidiaries required
under the Act and the Rules and Regulations to be described in the Prospectus,
except as set forth in the Prospectus.
(x) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Certificate of Incorporation or Bylaws of the
Company, or any agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries may
be bound that was filed as an exhibit to the Registration Statement.
(xi) This Agreement has been duly authorized, executed and
delivered by the Company.
(xii) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery
of this Agreement and the consummation of the transactions
-17-
herein contemplated (other than as may be required by the NASD or as required by
State securities and Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made, specifying the same.
(xiii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
(xiv) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Shareholders.
(xv) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law (other than as required by State
securities and Blue Sky laws as to which such counsel need express no opinion),
to sell, assign, transfer and deliver the portion of the Shares to be sold by
such Selling Shareholder.
(xvi) The Custodian Agreement and the Power of Attorney executed
and delivered by each Selling Shareholder is valid and binding.
(xvii) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code) have acquired good
and marketable title to the Shares being sold by each Selling Shareholder on the
Closing Date, and the Option Closing Date, as the case may be, free and clear of
all liens, encumbrances, equities and claims.
In rendering such opinion, Xxxxxx Godward LLP may rely as to matters
governed by the laws of states other than California, the corporate laws of
Delaware or federal securities laws on local counsel in such jurisdictions and
as to the matters set forth in subparagraphs (xiv), (xv), (xvi) and (xvii) on
opinions of other counsel representing the respective Selling Shareholders,
provided that in each case Xxxxxx Godward LLP, shall state that they believe
that they and the Underwriters are justified in relying on such other counsel.
In addition to the matters set forth above, such opinion shall also state that
nothing has come to the attention of such counsel which leads them to believe
that (i) the Registration Statement, at the time it became effective under the
Act (but after giving effect to any modifications incorporated therein pursuant
to Rule 430A under the Act), 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, and (ii) the Prospectus, on the date
it was filed pursuant to the Rules and Regulations and as of the Closing Date or
the Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements and schedules, related notes, other financial data and statistical
data derived therefrom). With respect to such statement, check and
verification, Xxxxxx Godward LLP may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
-18-
(c) The Underwriters shall have received on the Closing Date an
opinion of Xxxx & Fish, LLP, dated the Closing Date, with respect to certain
intellectual property matters, to the effect that:
(i) As to the patent applications such counsel has filed, the
Company owns all patent applications and patents which have issued therefrom
although the corporate name change has left the assignments from the inventors
to the Company by its prior name, described in the Registration Statement and
Prospectus as being owned by it or necessary for the conduct of its business,
and such counsel is not aware of any claim to the contrary or any challenge by
any other person to the rights of ownership in the Company with respect to the
foregoing.
(ii) Such counsel is not aware of any legal actions, claims or
proceedings pending or threatened against the Company alleging that the Company
is infringing or otherwise violating any patents or trade secrets owned by
others other than those identified in the Registration Statement and the
Prospectus.
(iii) Based upon a review of certain third party patent rights
owned by Unisys and not asserted by them but made known to such counsel, a
formal interpretation of the claims and discussions with scientific personnel of
the Company regarding application of the properly interpreted claims to the
technology of the Company, such counsel does not believe any claim of this
patent would be found in a correctly decided patent litigation to be infringed
by the activities of the Company in the manufacture, use or sale of any product
of the Company, the technologies employed by the Company or the method of their
use in any product of the Company, each as described in the Registration
Statement and Prospectus and as such are related to the Company's technologies
and products. Such counsel have been made aware of another pair of patents
owned by Scientific Atlanta which have not been asserted by them and which
relate to cable modem technology. Based upon some preliminary studies of the
prosecution history and discussions with company technical personnel, such
counsel believes there is no infringement of these patents. However, such
counsel has not as yet had time to do a formal claim interpretation and
infringement analysis, so such counsel has no final opinion on this matter.
(iv) Such counsel has reviewed the patent applications filed by
the Company and prepared by us, such applications have been properly prepared
and filed, are being diligently pursued by the Company, and the inventions
described in such applications are owned by the Company.
(v) Such counsel has reviewed the statements under the
captions "Risk Factors -- We May Not Be Able to Adequately Protect or Enforce
Our Intellectual Property Rights" and "Business--Intellectual Property" in the
Registration Statement and Prospectus, and, to the extent they constitute
matters of law or legal conclusions, these descriptions appear to be accurate
and fairly and completely present the intellectual property situation of the
Company with respect to patents that have actually been asserted or as to which
infringement has been claimed.
-19-
(vi) Such counsel is aware of nothing that causes such counsel
to believe that, as of the date that the Registration Statement became effective
and as of the date of such opinion, the statements under the captions "Risk
Factors--We May Not be Able to Adequately Protect or Enforce Our Intellectual
Property Rights" and "Business--Intellectual Property" in the Registration
Statement and Prospectus contained or contains any untrue statement of a
material fact (other than understating the number of patent applications now
pending - there are now 7 pending U.S. patent applications and one PCT
application which has not yet entered the national stage, but if it does and if
the Company files in all the countries in which they filed a prior application,
there will be 14 pending foreign applications in January 1999 - there are
currently 7 pending foreign applications) or omitted or omits to state a
material fact necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading, (except that no
mention is made of the unasserted patents the situations of which have been
described above - if those facts are deemed material). There is never absolute
certainty about the validity, enforceability or infringement of a patent, and
the Registration Statement does a good job of accurately reflecting this
uncertainty. There are always challenges to the validity and/or enforceability
of patents in patent litigation and neither the Registration Statement nor this
opinion can possibly anticipate what they will be if litigation occurs.
(d) The Representatives shall have received from Xxxxxx Xxxxxxx
Xxxxxxxx & Xxxxxx, P.C., counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, substantially to
the effect specified in subparagraphs (v) and (vi) of Paragraph (b) of this
Section 6, and that the Company is a duly organized and validly existing
corporation under the laws of the State of Delaware. In addition to the matters
set forth above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to believe
that (i) the Registration Statement at the time it became effective under the
Act (but after giving effect to any modifications incorporated therein pursuant
to Rule 430A under the Act) 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, and (ii) the Prospectus on the date
it was filed pursuant to the Rules and Regulations and as of the Closing Date or
the Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact, necessary in order to make
the statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, related notes, schedules and other financial information or
statistical data derived therefrom therein). With respect to such statement,
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C. may state that their belief is based upon
the procedures set forth therein, but is without independent check and
verification.
(e) The Representatives shall have received at or prior to the Closing
Date from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., a memorandum or summary, in
form and substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under the
State securities or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
-20-
(f) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of Ernst & Young LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(g) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and, to his knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such purpose have
been taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) He has examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct, and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(iv) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, and except as disclosed therein,
there has not been any Material Adverse Effect or any development that could
reasonably be expected to have a Material Adverse Effect.
(h) The Representatives shall have received a certificate, dated as of
the Closing Date or Option Closing Date, as the case may be, signed by or on
behalf of each of the Selling Shareholders to the effect that the
representations and warranties of such Selling Shareholder in this Agreement are
true and correct, as if made at and as of such Closing Date or Option Closing
Date, as the case may be, and such Selling Shareholder has complied with all the
agreements and satisfied all
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the conditions on his or its part to be performed or satisfied prior to such
Closing Date or Option Closing Date, as the case may be.
(i) The Company and the Selling Shareholders shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.
(j) The Firm Shares and Option Shares, if any, shall have been
approved for listing on the Nasdaq National Market, subject to official notice
of issuance.
(k) The Lockup Agreements described in Section 4(a)(ix) shall be in
full force and effect as of the Closing Date.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Xxxxxx Xxxxxxx
Xxxxxxxx & Xxxxxx, P.C., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Shareholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Selling Shareholders, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Sellers.
--------------------------------------------
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or
-22-
supplement thereto or 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 or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto or the omission or alleged omission to state
therein any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made; and will reimburse each Underwriter and each such controlling person
upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a party to any
action or proceeding; provided, however, that the Company will 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 the Registration Statement, any
Preliminary Prospectus, the Prospectus or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) The Selling Shareholders agree to indemnify the Underwriters and
each person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
controlling person may become subject under the Act or otherwise to the same
extent as indemnity is provided by the Company pursuant to Section 8(a) above.
In no event, however, shall the liability of any Selling Shareholder for
indemnification under this Section 8(a) exceed the proceeds received by such
Selling Shareholder from the Underwriters in the offering. This indemnity
obligation will be in addition to any liability which the Company may otherwise
have.
(c) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Shareholders, and each person, if
any, who controls the Company or the Selling Shareholders within the meaning of
the Act, against any losses, claims, damages or liabilities to which the Company
or any such director, officer, Selling Shareholder or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto or the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto or the omission or alleged omission to state
therein any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made and will reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer, Selling Shareholder or controlling
person in connection with investigating or defending any
-23-
such loss, claim, damage, liability, action or proceeding; provided, however,
that each Underwriter will be liable in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a), (b) or (c) shall be available to any party who shall fail to give notice
as provided in this Section 8(d) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the pro visions of Section 8(a), (b) or (c). In
case any such proceeding 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 reasonably satisfactory
to such indemnified party and the indemnifying party shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any
such proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense. Notwithstanding the fore going, the indemnifying
party shall pay as incurred (or within 30 days of presentation) the fees and
expenses of the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel, (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
or (iii) the indemnifying party shall have failed to assume the defense and
employ counsel acceptable to the indemnified party within a reasonable period of
time after notice of commencement of the action. It is understood that the
indemnifying party shall not, 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 for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) or (b) and by the Company and the Selling Shareholders
in the case of parties indemnified pursuant to Section 8(c). 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. In addition, the indemnifying party will not, without
the prior written consent of the indemnified party, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding of which indemnification may be sought hereunder (whether or not
any
-24-
indemnified party is an actual or potential party to such claim, action or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action or proceeding.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings 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 or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party or parties 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, 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 indemnifying party or
parties on the one hand and the indemnified party or parties on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Shareholders on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company and the Selling Shareholders bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Shareholders 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, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
8(e) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 8(e). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 8(e) 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 (e), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, (ii) 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 and (iii) no Selling Shareholder
shall be required to contribute any amount in excess of the proceeds received by
such Selling Shareholder from the
-25-
Underwriters in the offering. The Underwriters' obligations in this Section 8(e)
to contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. Default by Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or a Selling
Shareholder), you, as Representatives of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Shareholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company and the
-26-
Selling Shareholders or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company or of the Selling Shareholders
except to the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. Notices.
-------
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to BT Alex. Xxxxx
Incorporated, 000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx
00000, Attention: Xxxx Xxxxxxxxxx; with a copy to BT Alex. Xxxxx Incorporated,
One Bankers Trust Plaza, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Attention: General Counsel; if to the Company or the Selling Shareholders, to
Xx. Xxxx Rakib
Chief Executive Officer
Terayon Communication Systems, Inc.
0000 Xxxxxx Xxxx Xxxx
Xxxxx Xxxxx, XX 00000
with a copy to:
Xxxxxx Godward LLP
Xxx Xxxxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxx
11. Termination.
-----------
This Agreement may be terminated by you by notice to the Company and
the Selling Shareholders as follows:
(a) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any Material Adverse Effect has
occurred or is reasonably likely to occur, (ii) any out-
-27-
break or escalation of hostilities or declaration of war or national emergency
or other national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, escalation, declaration,
emergency, calamity, crisis or change on the financial markets of the United
States would, in your reasonable judgment, make it impracticable to market the
Shares or to enforce contracts for the sale of the Shares, or (iii) suspension
of trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on hours
or numbers of days of trading) for securities on either such Exchange, (iv) the
enactment, publication, decree or other promulgation of any statute, regulation,
rule or order of any court or other governmental authority which in your opinion
is reasonably likely to have a Material Adverse Effect, (v) declaration of a
banking moratorium by United States or New York State authorities, (vi) any
downgrading in the rating of the Company's debt securities by any "nationally
recognized statistical rating organization" (as defined for purposes of Rule
436(g) under the Exchange Act); (vii) the suspension of trading of the Company's
Common Stock by the Commission on the Nasdaq National Market or (viii) the
taking of any action by any governmental body or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Shareholders and their respective
successors, executors, administrators, heirs and assigns, the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. Information Provided by Underwriters.
------------------------------------
The Company, the Selling Shareholders and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters),
legends required by Item 502(d) of Regulation S-K under the Act and the
information under the caption "Underwriting" in the Prospectus.
14. Miscellaneous.
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
-28-
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
-29-
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Shareholders, the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
TERAYON COMMUNICATION SYSTEMS, INC.
By
------------------------------------------
Xxxx Xxxxx
Chief Executive Officer
Selling Shareholders listed on Schedule II and III
By
------------------------------------------
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. XXXXX INCORPORATED
XXXXXXXXX & XXXXX LLC
XXXXXX BROTHERS INC.
XXXXXXX XXXXX BARNEY INC.
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Xxxxx Incorporated
By:
------------------------------
Authorized Officer
-30-
SCHEDULE I
SCHEDULE OF UNDERWRITERS
NUMBER OF FIRM
SHARES TO BE
UNDERWRITER PURCHASED
-----------------------------------------------------------------------------
BT Alex. Xxxxx Incorporated...............................
Xxxxxxxxx & Xxxxx LLC.....................................
Xxxxxx Brothers Inc. .....................................
Xxxxxxx Xxxxx Xxxxxx Inc. ................................
==============
Total Underwriters........................................ 3,000,000
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
NUMBER OF FIRM
SHARES
SELLING SHAREHOLDER TO BE SOLD
-------------------------------------------------------------------------------
==============
Total 1,250,000
SCHEDULE III
SCHEDULE OF OPTION SHARES
MAXIMUM NUMBER PERCENTAGE OF
OF OPTION SHARES TOTAL NUMBER OF
NAME OF SELLER TO BE SOLD OPTION SHARES
------------------------------------------------------------------------------
=============== ================
Total 100%