Exhibit 1.1
6,250,000 SHARES*
CRAY INC.
COMMON STOCK
FORM OF
UNDERWRITING AGREEMENT
February __, 2003
▇▇▇▇▇▇▇ & COMPANY, INC.
▇▇ ▇▇▇▇▇ SECURITIES CORPORATION
▇.▇. ▇▇▇▇▇▇▇▇▇, TOWBIN
As Representatives of the several Underwriters
c/o Needham & Company, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Cray Inc., a Washington corporation (the "Company"), proposes to issue and
sell [________] shares (the "Company Firm Shares") of the Company's Common
Stock, $0.01 par value per share (the "Common Stock"), and the shareholders of
the Company named in Schedule II hereto (the "Selling Shareholders") propose to
sell an aggregate of [________]shares (the "Selling Shareholder Firm Shares") of
Common Stock, in each case to you and to the several other underwriters named in
Schedule I hereto (collectively, the "Underwriters"), for whom you are
collectively acting as representatives (the "Representatives"). The Company also
has agreed to grant to you and the other Underwriters an option (the "Option")
to purchase up to an additional 937,500 shares of Common Stock, on the terms and
for the purposes set forth in Section 1(b) (the "Option Shares"). The Company
Firm Shares and the Selling Shareholder Firm Shares are referred to collectively
herein as the "Firm Shares," and the Firm Shares and the Option Shares are
referred to collectively herein as the "Shares."
The Company and each of the Selling Shareholders confirm as follows their
respective agreements with the Representatives and the several other
Underwriters.
--------
* Plus an option to purchase up to an additional 937,500 shares to cover
over-allotments.
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1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties and agreements of the
Company and the Selling Shareholders herein contained and subject to all the
terms and conditions of this Agreement, (i) the Company agrees to issue and sell
the Company Firm Shares to the several Underwriters, (ii) each Selling
Shareholder, severally and not jointly, agrees to sell to the several
Underwriters the respective number of Selling Shareholder Firm Shares set forth
opposite that Selling Shareholder's name on Schedule II hereto and (iii) each of
the Underwriters, severally and not jointly, agrees to purchase from the Company
and the Selling Shareholders the respective number of Firm Shares set forth
opposite that Underwriter's name in Schedule I hereto, at the purchase price of
$____ for each Firm Share. The number of Firm Shares to be purchased by each
Underwriter from the Company and each Selling Shareholder shall be as nearly as
practicable in the same proportion to the total number of Firm Shares being sold
by the Company and each Selling Shareholder as the number of Firm Shares being
purchased by each Underwriter bears to the total number of Firm Shares to be
sold hereunder.
(b) Subject to all the representations, warranties, terms and conditions
of this Agreement, the Company grants the Option to the several Underwriters to
purchase, severally and not jointly, up to the maximum number of Option Shares
set forth in Schedule II hereto at the same price per share as the Underwriters
shall pay for the Company Firm Shares. The Option may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters and may be
exercised in whole or in part at any time (but not more than once) on or before
the 30th day after the date of this Agreement upon written or telegraphic notice
(the "Option Shares Notice") by the Representatives to the Company no later than
12:00 noon, Eastern Standard Time, at least two and no more than five business
days before the date specified for closing in the Option Shares Notice (the
"Option Closing Date"), setting forth the aggregate number of Option Shares to
be purchased and the time and date for such purchase. On the Option Closing
Date, the Company will sell to the Underwriters the number of Option Shares set
forth in the Option Shares Notice, and each Underwriter will purchase such
percentage of the Option Shares as is equal to the percentage of Firm Shares
that such Underwriter is purchasing, as adjusted by the Representatives in such
manner as they deem advisable to avoid fractional shares.
2. Delivery and Payment.
(a) Delivery of the Firm Shares shall be made to the Representatives for
the accounts of the Underwriters against payment of the purchase price by wire
transfer payable in same-day funds to the order of the Company for the Company
Firm Shares to be sold by it and to the Company, as custodian for the Selling
Shareholders (in such capacity the "Custodian") for the Firm Shares to be sold
by the Selling Shareholders at the office of ▇▇▇▇▇▇▇ & Company, Inc., ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., Eastern Standard Time, on the
third (or, if the purchase price set forth in Section 1(b) hereof is determined
after 4:30 p.m., Eastern Standard Time, the fourth) business day following the
commencement of the offering contemplated by this Agreement, or at such time on
such other date, not later than seven business days after the date of this
Agreement, as may be agreed upon by the Company and the Representatives (such
date is hereinafter referred to as the "Closing Date").
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(b) To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
(c) The Company shall deliver, or cause to be delivered, a credit
representing the Firm Shares to an account or accounts at The Depository Trust
Company, as designated by the Representatives for the accounts of the
Representatives and the several Underwriters at the Closing Date, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. The Company shall also deliver, or cause
to be delivered, a credit representing the Option Shares that the Underwriters
have agreed to purchase at the Option Closing Date, if applicable, to an account
or accounts at The Depository Trust Company as designated by the Representatives
for the accounts of the Representatives and the several Underwriters, against
the irrevocable release of a wire transfer of immediately available funds for
the amount of the purchase price therefor.
(d) The cost of original issue tax stamps and other transfer taxes, if
any, in connection with the issuance and delivery of the Firm Shares and Option
Shares by the Company to the respective Underwriters shall be borne by the
Company. The Company will pay and save each Underwriter and any subsequent
holder of the Shares harmless from any and all liabilities with respect to or
resulting from any failure or delay in paying Federal and state stamp and other
transfer taxes, if any, which may be payable or determined to be payable in
connection with the original issuance or sale to such Underwriter of the Shares.
3. Representations and Warranties of the Company.
The Company represents, warrants and covenants to each Underwriter that:
(a) The Company meets the requirements for use of Form S-3 and a
registration statement (Registration No. 333-102367) on Form S-3 relating to the
Shares, including a preliminary prospectus and such amendments to such
registration statement as may have been required to the date of this Agreement,
has been prepared by the Company under the provisions of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (collectively
referred to as the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the
Commission. The term "preliminary prospectus" as used herein means a preliminary
prospectus, including the documents incorporated by reference therein, as
contemplated by Rule 430 or Rule 430A of the Rules and Regulations included at
any time as part of the registration statement. Copies of such registration
statement and amendments and of each related preliminary prospectus have been
delivered to the Representatives. If such registration statement has not become
effective, a further amendment to such registration statement, including a form
of final prospectus, necessary to permit such registration statement to become
effective will be filed promptly by the Company with the Commission. If such
registration statement has become effective, a final prospectus containing
information permitted to be omitted at the time of effectiveness by Rule 430A of
the Rules and Regulations will be filed promptly by the Company with the
Commission in accordance with Rule 424(b) of the Rules and Regulations. The term
"Registration Statement"
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means the registration statement as amended at the time it becomes or became
effective (the "Effective Date"), including all documents incorporated by
reference therein, financial statements and all exhibits and schedules thereto
and any information deemed to be included by Rule 430A and includes any
registration statement relating to the offering contemplated by this Agreement
and filed pursuant to Rule 462(b) of the Rules and Regulations. The term
"Prospectus" means the prospectus, including the documents incorporated by
reference therein, as first filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations or, if no such filing is required, the form of final
prospectus, including the documents incorporated by reference therein, included
in the Registration Statement at the Effective Date. Any reference herein to the
terms "amend," "amendment" or "supplement" with respect to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to refer
to and include the filing of any document under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), after the Effective Date, the date of any
preliminary prospectus or the date of the Prospectus, as the case may be, and
deemed to be incorporated therein by reference.
(b) No order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission, and no stop order suspending the
effectiveness of the Registration Statement (including any related registration
statement filed pursuant to Rule 462(b) under the Act) or any post-effective
amendment thereto has been issued, and, to the Company's knowledge, no
proceeding for that purpose has been initiated or threatened by the Commission.
On the Effective Date, the date the Prospectus is first filed with the
Commission pursuant to Rule 424(b) (if required), during the period through and
including the Closing Date and, if later, the Option Closing Date and when any
post-effective amendment to the Registration Statement becomes effective or any
amendment or supplement to the Prospectus is filed with the Commission, the
Registration Statement and the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment or supplement
thereto), including the financial statements included in the Prospectus, did and
will comply with all applicable provisions of the Act, the Rules and
Regulations, the Exchange Act, and the rules and regulations under the Exchange
Act (the "Exchange Act Rules and Regulations"), and will contain all statements
required to be stated therein in accordance with the Act, the Rules and
Regulations, the Exchange Act, and the Exchange Act Rules and Regulations. On
the Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement or any such
amendment thereto did or will contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading. At each of the Effective
Date, the date the Prospectus or any amendment or supplement to the Prospectus
is filed with the Commission and at the Closing Date and, if later, the Option
Closing Date, the Prospectus did not and will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing representations and warranties in this
Section 3(b) do not apply to any statements or omissions made in reliance on and
in conformity with information relating to any Underwriter furnished in writing
to the Company by the Representatives specifically for inclusion in the
Registration Statement or Prospectus or any amendment or supplement thereto. The
Company acknowledges that the
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statements set forth under the heading "Underwriting" in the Prospectus
constitute the only information relating to any Underwriter furnished in writing
to the Company by the Representatives specifically for inclusion in the
Registration Statement.
(c) The documents that are incorporated by reference in the preliminary
prospectus and the Prospectus or from which information is so incorporated by
reference, when they became or become effective or were or are filed with the
Commission, as the case may be, complied or will comply as to form in all
material respects with the requirements of the Act or the Exchange Act, as
applicable, and the Rules and Regulations or the Exchange Act Rules and
Regulations, as applicable; and any documents so filed and incorporated by
reference subsequent to the Effective Date shall, when they are filed with the
Commission, comply as to form in all material respects with the requirements
of the Act or the Exchange Act, as applicable, and the Rules and Regulations or
the Exchange Act Rules and Regulations, as applicable.
(d) The Company does not own, and at the Closing Date and, if later, the
Option Closing Date, will not own, directly or indirectly, any shares of stock
or any other equity or long-term debt securities of any corporation or have any
equity interest in any corporation, firm, partnership, joint venture,
association or other entity, other than the subsidiaries listed in Exhibit 21.1
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2001 (the "Subsidiaries"), Computational Engineering International, Inc.,
and BioNumerik Pharmaceuticals, Inc. The Company and each of its Subsidiaries
is, and at the Closing Date and, if later, the Option Closing Date, will be,
duly organized, validly existing and, to the extent applicable, in good standing
under the laws of its jurisdiction of organization. The Company and each of its
Subsidiaries has, and at the Closing Date and, if later, the Option Closing
Date, will have, full power and authority to conduct all the activities
conducted by it, to own or lease all the assets owned or leased by it, and to
conduct its business as described in the Registration Statement and the
Prospectus. The Company and each of its Subsidiaries is, and at the Closing Date
and, if later, the Option Closing Date, will be, duly licensed or qualified to
do business and, to the extent applicable, in good standing in all jurisdictions
in which the nature of the activities conducted by it or the character of the
assets owned or leased by it makes such license or qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not reasonably be expected to materially and adversely affect the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a whole. All
of the outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued and are fully paid and nonassessable, and are
owned by the Company free and clear of all claims, liens, charges and
encumbrances other than the interest of Foothill Capital Corporation as
previously disclosed to the Representatives; there are no securities outstanding
that are convertible into or exercisable or exchangeable for capital stock of
any Subsidiary. The Company and its Subsidiaries are not, and at the Closing
Date and, if later, the Option Closing Date, will not be, engaged in any
discussions or a party to any agreement or understanding, written or oral,
regarding the acquisition of an interest in any corporation, firm, partnership,
joint venture, association or other entity where such discussions, agreements or
understandings would require amendment to the Registration Statement pursuant to
applicable securities laws. The Company has made available to the
Representatives complete and correct copies of the articles of incorporation and
of the bylaws of the Company and each of its Subsidiaries and all
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amendments thereto, and no changes therein will be made subsequent to the date
hereof and prior to the Closing Date or, if later, the Option Closing Date.
(e) All of the outstanding shares of capital stock of the Company
(including the Selling Shareholder Firm Shares) have been duly authorized,
validly issued and are fully paid and nonassessable and were issued in
compliance with all applicable state and federal securities laws; the Company
Firm Shares and the Option Shares have been duly authorized and when issued and
paid for as contemplated herein will be validly issued, fully paid and
nonassessable; and no preemptive or similar rights exist with respect to any of
the Shares or the issue and sale thereof. The description of the capital stock
of the Company incorporated by reference in the Prospectus is, and at the
Closing Date and, if later, the Option Closing Date, will be, complete and
accurate in all material respects. The Company does not have outstanding, and at
the Closing Date and, if later, the Option Closing Date, will not have
outstanding, any options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or any contracts or
commitments to issue or sell, any shares of capital stock, or any such warrants,
convertible securities or obligations except as set forth in the Prospectus and
as have been granted or issued, and may be granted or issued, in the ordinary
course of business pursuant to outstanding stock options or pursuant to the
Company's stock option and employee stock purchase plans. No further approval or
authority of shareholders or the board of directors of the Company will be
required for the transfer and sale of the Selling Shareholder Firm Shares or the
issuance and sale of the Company Firm Shares and the Option Shares as
contemplated herein.
(f) The financial statements and schedules included or incorporated by
reference in the Registration Statement or the Prospectus present fairly the
financial condition of the Company and its consolidated Subsidiaries as of the
respective dates thereof and the results of operations and cash flows of the
Company and its consolidated Subsidiaries for the respective periods covered
thereby, all in conformity with generally accepted accounting principles applied
on a consistent basis throughout the entire period involved, except as otherwise
disclosed in the Prospectus. No other financial statements or schedules of the
Company are required by the Act, the Rules and Regulations, the Exchange Act or
the Exchange Act Rules and Regulations to be included in the Registration
Statement or the Prospectus. Deloitte & Touche LLP (the "Accountants"), who have
reported on such financial statements and schedules, are, to the Company's
knowledge and based solely on the representations of the Accountants,
independent accountants with respect to the Company as required by the Act and
the Rules and Regulations. The financial data included in the Registration
Statement under the captions "Summary Consolidated Financial Data" and "Selected
Consolidated Financial Data" present fairly the information shown therein and
have been compiled on a basis consistent with the audited financial statements
incorporated by reference in the Prospectus.
(g) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus and prior to the Closing Date and,
if later, the Option Closing Date, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) there has not been and will not
have been any change in the capitalization of the Company (except as set forth
in Section 3(e) above)
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or any material adverse change in the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole, arising for any reason
whatsoever, (ii) neither the Company nor any of its Subsidiaries has incurred
nor will any of them incur, except in the ordinary course of business as
described in the Prospectus, any material liabilities or obligations, direct or
contingent, nor has the Company or any of its Subsidiaries entered into nor will
it enter into, except in the ordinary course of business as described in the
Prospectus, any material transactions other than pursuant to this Agreement and
the transactions referred to herein, and (iii) the Company has not and will not
have paid or declared any dividends or other distributions of any kind on any
class of its capital stock except for accrued dividends on the Series A
preferred stock.
(h) The Company is not, will not become as a result of the transactions
contemplated hereby, and will not conduct its business in a manner that would
cause it to become, an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended.
(i) Except as set forth in the Registration Statement and the Prospectus,
there are no actions, suits or proceedings pending or, to the knowledge of the
Company, threatened against or affecting the Company, any of its Subsidiaries,
or any of their respective officers in their capacity as such, before or by any
Federal or state court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, wherein an unfavorable ruling,
decision or finding would reasonably be expected to materially and adversely
affect the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole.
(j) The Company and each Subsidiary has, and at the Closing Date and, if
later, the Option Closing Date, will have, performed all material obligations
required to be performed by it, and is not, and at the Closing Date, and, if
later, the Option Closing Date, will not be, in default, under any contract or
other instrument to which it is a party or by which its property is bound or
affected, which default would reasonably be expected to materially and adversely
affect the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company or any of its Subsidiaries,
taken as a whole. To the knowledge of the Company, no other party under any
contract or other instrument to which it or any of its Subsidiaries is a party
is in default in any respect thereunder, which default would reasonably be
expected to materially and adversely affect the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company or any of its Subsidiaries, taken as a whole. Neither the Company nor
any of its Subsidiaries is, and at the Closing Date and, if later, the Option
Closing Date, none of them will be, in violation of any provision of its
articles of incorporation, bylaws or other organizational documents.
(k) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part contemplated herein,
except such as have been obtained or made (or contemplated to be made pursuant
to this Agreement) under the Act or the Rules and Regulations and as may be
required
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under state securities or Blue Sky laws or the bylaws and rules of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with the
purchase and distribution by the Underwriters of the Shares.
(l) The Company has full corporate power and corporate authority to enter
into this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with the terms hereof,
except as enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting the rights of creditors
generally and by equitable principles, and except as obligations of the Company
under the indemnification and contribution provisions hereof may be limited
under federal or state securities laws and public policy relating thereto. The
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company pursuant to the
terms or provisions of, or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or give any party a right to
terminate any of its obligations under, or result in the acceleration of any
obligation under, the certificate or articles of incorporation or bylaws of the
Company or any of its Subsidiaries, any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond, debenture, note agreement or other
evidence of indebtedness, lease, contract or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the Company,
any of its Subsidiaries or any of their respective properties is bound or
affected, or violate any judgment, ruling, decree, order, statute, rule or
regulation of any court or other governmental agency or body applicable to the
business or properties of the Company or any of its Subsidiaries (except where
any such breach, default or violation would not reasonably be expected to
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries, taken as a whole).
(m) The Company and its Subsidiaries have good and marketable title to all
properties and assets described in the Prospectus as owned by them, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
described in the Prospectus, the interest of Foothill Capital Corporation
previously disclosed to the Representatives, or are not material to the business
of the Company. The Company and its Subsidiaries have valid, subsisting and
enforceable leases for the properties described in the Prospectus as leased by
them. The Company and its Subsidiaries own or lease all such properties as are
necessary to their operations as now conducted or as proposed to be conducted,
except where the failure to so own or lease would not reasonably be expected to
materially and adversely affect the business, properties, business prospects,
financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole.
(n) There is no document, contract, permit or instrument of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement which is not described or
filed as required. All such contracts described in the Registration Statement or
the Prospectus or filed as an exhibit to the Registration Statement to which the
Company or any of its Subsidiaries is a party have been duly authorized,
executed and delivered by the Company or such
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Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against and by the Company or such Subsidiary in
accordance with the terms thereof, except as enforceability thereof may be
limited by bankruptcy, insolvency, reorganization or similar laws relating to or
affecting the rights of creditors generally and by equitable principles.
(o) The Company has not distributed and will not distribute prior to the
later of (i) the Closing Date or, if later, the Option Closing Date, and (ii)
the date on which the Representatives advise the Company that the distribution
of the Shares has been completed, any offering material in connection with the
offering and sale of the Shares other than any preliminary prospectuses, the
Prospectus, the Registration Statement and other materials permitted by the Act.
Neither the Company nor any of its directors, officers or controlling persons
has taken, directly or indirectly, any action designed, or which would
reasonably be expected, to cause or result, under the Act or otherwise, in, or
which has constituted, stabilization or manipulation of the price of any
security of the Company.
(p) No holder of securities of the Company has rights to the registration
of any securities of the Company because of the filing of the Registration
Statement, which rights have not been waived by the holder thereof as of the
date hereof.
(q) The Company has filed a Notification Form for Listing of Additional
Shares of Common Stock with the Nasdaq National Market ("NNM") covering the
issuance of up to 8,662,500 shares of Common Stock in this offering, and has not
received notification or inquiry which would reasonably be expected to
materially and adversely affect the listing thereof. The Selling Shareholder
Firm Shares previously have been listed for trading on the NNM.
(r) Except as disclosed in or specifically contemplated by the Prospectus
(i) the Company and its Subsidiaries have sufficient trademarks, trade names,
patents, patent rights, mask works, inventions, copyrights, licenses, approvals
and governmental authorizations to conduct their businesses as now conducted and
to the Company's knowledge, none of the foregoing intellectual property rights
owned or licensed by the Company is invalid or unenforceable, (ii) the Company
has no knowledge of any infringement by it or any of its Subsidiaries of
trademarks, trade name rights, patents, patent rights, mask work rights,
inventions, copyrights, licenses, trade secrets or other similar rights of
others, where such infringement would reasonably be expected to have a material
and adverse effect on the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole, (iii) the Company is not aware of any
infringement, misappropriation or violation by others of, or conflict by others
with rights of the Company with respect to, any of the foregoing intellectual
property rights, and (iv) there is no claim being made against the Company or
any of its Subsidiaries, or to the Company's knowledge, any employee of the
Company or any of its Subsidiaries, regarding trademark, trade name, patent,
mask work, inventions, copyright, license, trade secret or other infringement
which would reasonably be expected to have a material and adverse effect on the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a whole.
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(s) The Company and each of its Subsidiaries has filed all federal, state,
local and foreign income tax returns which have been required to be filed and
has paid or made provision to pay all taxes and assessments received by it to
the extent that such taxes or assessments have become due, except where the
failure to file such returns or pay, or make provision to pay, all such taxes
and assessments would not reasonably be expected to have a material and adverse
effect on the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole. Neither the Company nor any of its Subsidiaries has any tax
deficiency which has been or, to the knowledge of the Company, might be asserted
or threatened against it which would reasonably be expected to have a material
and adverse effect on the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole.
(t) The Company or its Subsidiaries owns or possesses all authorizations,
approvals, orders, licenses, registrations, other certificates and permits of
and from all governmental regulatory officials and bodies, necessary to conduct
their respective businesses as contemplated in the Prospectus, except where the
failure to own or possess all such authorizations, approvals, orders, licenses,
registrations, other certificates and permits would not reasonably be expected
to materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries, taken as a whole. There is no proceeding pending or threatened
(or any reasonable basis therefor known to the executive officers of the Company
in the course of performing their duties) which may cause any such
authorization, approval, order, license, registration, certificate or permit to
be revoked, withdrawn, cancelled, suspended or not renewed; and the Company and
each of its Subsidiaries is conducting its business in compliance with all laws,
rules and regulations applicable thereto (including, without limitation, all
applicable federal, state and local environmental laws and regulations) except
where such noncompliance would not reasonably be expected to materially and
adversely affect the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole.
(u) The Company and each of its Subsidiaries maintains insurance of the
types and in the amounts generally deemed adequate for its business, including,
but not limited to, insurance covering real and personal property owned or
leased by the Company and its Subsidiaries against theft, damage, destruction,
acts of vandalism, director and officer errors and omissions, and all other
risks customarily insured against, all of which insurance is in full force and
effect.
(v) The Company and its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks (including, but not
limited to, insurance covering real and personal property owned or leased by the
Company and its Subsidiaries against theft, damage, destruction, acts of
vandalism) and in such amounts as are prudent and customary in the businesses in
which they are engaged; neither the Company nor any of its Subsidiaries has been
refused any insurance coverage sought or applied for, other than as would not
reasonably be expected to materially and adversely affect the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole; and neither
the Company nor any of its Subsidiaries has any reason to believe that it will
not be able
10
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business.
(w) The Company and each of its Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (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
the existing assets at reasonable intervals and appropriate action is taken with
respect to any variances.
4. Representations, Warranties and Covenants of the Selling Shareholders.
Each Selling Shareholder, severally and not jointly, represents, warrants
and covenants to each Underwriter that:
(a) All consents, approvals, authorizations and orders necessary for the
execution and delivery by such Selling Shareholder of this Agreement and the
Selling Shareholder Power-of-Attorney and the Letter of Transmittal and Custody
Agreement (hereinafter collectively referred to as the "Selling Shareholders'
Documents") hereinafter referred to, and for the sale and delivery of the
Selling Shareholder Firm Shares hereunder, have been obtained; and such Selling
Shareholder has full right, power and authority to enter into this Agreement and
the Selling Shareholders' Documents, to make the representations, warranties and
agreements hereunder and thereunder, and to sell, assign, transfer and deliver
the Selling Shareholder Firm Shares to be sold by such Selling Shareholder
hereunder.
(b) Certificates in negotiable form representing all of the Selling
Shareholder Firm Shares to be sold by such Selling Shareholder have been placed
in custody under the Selling Shareholders' Documents, in the form heretofore
furnished to you, duly executed and delivered by such Selling Shareholder to the
Custodian, or and each of them, as such Selling Shareholder's attorney-in-fact
(the "Attorneys-in-Fact") with authority to execute and deliver this Agreement
on behalf of such Selling Shareholder, to determine (subject to the provisions
of the Selling Shareholders' Documents) the purchase price to be paid by the
Underwriters to the Selling Shareholders as provided in Section 2 hereof, to
authorize the delivery of the Selling Shareholder Firm Shares to be sold by such
Selling Shareholder hereunder and otherwise to act on behalf of such Selling
Shareholder in connection with the transactions contemplated by this Agreement
and the Selling Shareholders' Documents.
(c) Such Selling Shareholder specifically agrees that the Selling
Shareholder Firm Shares represented by the certificates held in custody for such
Selling Shareholder under the Selling Shareholders' Documents,
11
are for the benefit of and coupled with and subject to the interests of the
Underwriters, the Custodian, the Attorneys-in-Fact, each other Selling
Shareholder and the Company, that the arrangements made by such Selling
Shareholder for such custody, and the appointment by such Selling Shareholder of
the Attorneys-in-Fact by the power-of-attorney under the Selling Shareholders'
Documents, are to that extent irrevocable, and that the obligations of such
Selling Shareholder hereunder shall not be terminated by operation of law,
whether by the death, disability, incapacity, liquidation or dissolution of any
Selling Shareholder or by the occurrence of any other event. If any individual
Selling Shareholder or any executor or trustee for a Selling Shareholder should
die or become incapacitated, or if any Selling Shareholder that is an estate or
trust should be terminated, or if any similar event should occur, before the
delivery of the Selling Shareholder Firm Shares hereunder, the Selling
Shareholder Firm Shares shall be delivered by or on behalf of the Selling
Shareholders in accordance with the terms and conditions of this Agreement and
of the Selling Shareholders' Documents, and actions taken by the
Attorneys-in-Fact pursuant to the powers-of-attorney under the Selling
Shareholders' Documents shall be as valid as if such death, incapacity,
termination, dissolution or other event had not occurred, regardless of whether
or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received
notice of such death, incapacity, termination, dissolution or other event.
(d) This Agreement and the Selling Shareholders' Documents have each been
duly authorized, executed and delivered by such Selling Shareholder and each
such document constitutes a valid and binding obligation of such Selling
Shareholder, enforceable in accordance with its terms, except as enforceability
thereof may be limited by bankruptcy, insolvency, reorganization or similar laws
relating to or affecting the rights of creditors generally and by equitable
principles, and except as obligations of such Selling Shareholder under the
indemnification and contribution provisions hereof may be limited under federal
or state securities laws and public policy relating thereto.
(e) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the sale of the Selling Shareholder Firm Shares by such Selling
Shareholder or the consummation by such Selling Shareholder of the transactions
on its part contemplated by this Agreement and the Selling Shareholders'
Documents, except such as have been obtained or made (or contemplated to be made
pursuant to this Agreement) under the Act or the Rules and Regulations and such
as may be required under state securities or Blue Sky laws or the bylaws and
rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Shares to be sold by such Selling Shareholder.
(f) The sale of the Selling Shareholder Firm Shares to be sold by such
Selling Shareholder hereunder and the performance by such Selling Shareholder of
this Agreement and the Selling Shareholders' Documents and the consummation of
the transactions contemplated hereby and thereby will not result in the creation
or imposition of any lien, charge or encumbrance upon any of the assets of such
Selling Shareholder pursuant to the terms or provisions of, or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, or give any party a right to terminate any of its obligations
under, or result in the acceleration of any obligation under, any indenture,
mortgage, deed of trust, voting trust agreement, loan agreement,
▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which such Selling Shareholder is a
party or by which such Selling Shareholder or any of its properties is bound or
affected, or violate or conflict with any judgment, ruling, decree, order,
statute, rule or regulation of any court or other governmental agency or body
applicable to such Selling Shareholder or, if such Selling Shareholder is a
corporation, partnership, trust or other entity, the organizational documents of
such Selling Shareholder.
(g) Such Selling Shareholder has, and at the Closing Date, will have, good
and marketable title to the Selling Shareholder Firm Shares to be sold by such
Selling Shareholder hereunder, free and clear of all liens, encumbrances,
equities or claims whatsoever; and, upon delivery of such Selling Shareholder
Firm Shares and payment therefor pursuant hereto, good and marketable title to
such Selling Shareholder Firm Shares, free and clear of all liens, encumbrances,
equities or claims whatsoever, will be delivered to the Underwriters.
(h) On the Closing, all stock transfer or other taxes (other than income
taxes) that are required to be paid in connection with the sale and transfer of
the Shares to be sold by such Selling Shareholder to the several Underwriters
hereunder will have been fully paid or provided for by such Selling Shareholder
and all laws imposing such taxes will have been fully complied with.
(i) Other than as permitted by the Act and the Rules and Regulations, such
Selling Shareholder has not distributed and will not distribute any preliminary
prospectus, the Prospectus or any other offering material in connection with the
offering and sale of the Shares. Such Selling Shareholder has not taken and will
not at any time take, directly or indirectly, any action designed, or which
might reasonably be expected, to cause or result in, or which will constitute,
stabilization of the price of shares of Common Stock to facilitate the sale or
resale of any of the Shares.
(j) All information with respect to such Selling Shareholder contained in
the Registration Statement, any preliminary prospectus, the Prospectus and any
amendment or supplement thereto complied or will comply in all material respects
with all applicable requirements of the Act and the Rules and Regulations and
does not and will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
(k) Such Selling Shareholder has no knowledge of any material fact or
condition not set forth in the Registration Statement or the Prospectus that has
materially and adversely affected, or would reasonably be expected to materially
and adversely affect, the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole.
(l) Such Selling Shareholder has reviewed the representations and
warranties of the Company contained in Section 3 hereof and, following such
review, has no reason to believe such representations and warranties are not
true and correct in all material respects.
13
(m) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated, such Selling
Shareholder agrees to deliver to the Representatives prior to or at the Closing
Date a properly completed and executed United States Treasury Department Form
W-9 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
5. Agreements of the Company and the Selling Shareholders.
(a) The Company covenants and agrees with the several Underwriters as
follows:
(i) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an underwriter or
dealer, file any amendment or supplement to the Registration Statement or
the Prospectus, unless a copy thereof shall first have been submitted to
the Representatives not less than one business day prior to the filing
thereof and the Representatives shall not have objected thereto in good
faith; provided, that the Representatives shall advise the Company
promptly in writing when the distribution of the Shares has been completed
and the period during which the Prospectus is required by law to be
delivered in connection with sales of the Shares by an underwriter or
dealer has been terminated.
(ii) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives
promptly, and will confirm such advice in writing, (i) when the
Registration Statement has become effective and when any post-effective
amendment thereto becomes effective, (ii) of any request by the Commission
for amendments or supplements to the Registration Statement or the
Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that
purpose or the threat thereof, (iv) of the happening of any event during
the period mentioned in the second sentence of Section 5(a)(v) that in the
judgment of the Company makes any statement made in the Registration
Statement or the Prospectus untrue in any material respect or that
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in the light of the
circumstances in which they are made, not misleading and (v) of receipt by
the Company or any representative or attorney of the Company of any other
communication from the Commission relating to the Company, the
Registration Statement, any preliminary prospectus or the Prospectus. If
at any time the Commission shall issue any order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible moment. If the Company has omitted any information from the
Registration Statement pursuant to Rule 430A of the Rules and Regulations,
the Company will comply with the provisions of and make all requisite
filings with the Commission pursuant to said Rule 430A and notify the
Representatives promptly of all such filings. If the Company elects to
rely upon Rule 462(b) under the Act, the Company shall file a registration
statement under
14
Rule 462(b) with the Commission in compliance with Rule 462(b) by 10:00
P.M., Eastern Standard Time, on the date of this Agreement, and the
Company shall at the time of filing either pay to the Commission the
filing fee for such Rule 462(b) registration statement or give irrevocable
instructions for the payment of such fee pursuant to the Rules and
Regulations.
(iii) The Company will furnish to each Representative, without
charge, one manually signed copy of each of the Registration Statement and
any pre- or post-effective amendment thereto, including financial
statements and schedules, and all exhibits thereto; and will furnish to
the Representatives, without charge, for transmittal to each of the other
Underwriters, a copy of the Registration Statement and any pre- or
post-effective amendment thereto, including financial statements and
schedules but without exhibits.
(iv) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(v) On the Effective Date, and thereafter from time to time, the
Company will deliver to each of the Underwriters, without charge, as many
copies of the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request. The Company consents to the use of
the Prospectus or any amendment or supplement thereto by the several
Underwriters and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for any period of
time thereafter during which the Prospectus is required by law to be
delivered in connection therewith. If during such period of time any event
shall occur which in the judgment of the Company or counsel to the
Underwriters should be set forth in the Prospectus in order to make any
statement therein, in the light of the circumstances under which it was
made, not misleading, or if it is necessary to supplement or amend the
Prospectus to comply with law, the Company will forthwith prepare and duly
file with the Commission an appropriate supplement or amendment thereto,
and will deliver to each of the Underwriters, without charge, such number
of copies of such supplement or amendment to the Prospectus as the
Representatives may reasonably request. The Company will not file any
document under the Exchange Act or the Exchange Act Rules and Regulations
before the termination of the offering of the Shares by the Underwriters,
if such document would be deemed to be incorporated by reference into the
Prospectus, if the Representatives after reasonable prior notice thereof
shall have objected thereto in good faith.
(vi) Prior to any public offering of the Shares, the Company will
cooperate with the Representatives and counsel to the Underwriters in
connection with the registration or qualification of the Shares for offer
and sale under the securities or Blue Sky laws of such jurisdictions as
the Representatives may request; provided, that in no event shall the
Company be obligated to so register or qualify the Shares in any
jurisdiction where, as a result thereof, the Company would become subject
to general service of process, to qualification to do business as a
foreign entity or to registration as a securities dealer.
15
(vii) The Company will, in accordance with and for so long as
required under the Exchange Act Rules and Regulations, furnish to its
shareholders an annual report (including a balance sheet and statements of
income, shareholders' equity and cash flow of the Company and its
consolidated Subsidiaries, if any, certified by independent public
accountants) and, within 60 days after the end of each of the first three
quarters of each fiscal year (beginning with the fiscal quarter ending
after the effective date of the Registration Statement), an unaudited
consolidated summary balance sheet and statement of operations of the
Company and its Subsidiaries, if any, for such quarter.
(viii) During the five year period commencing on the Effective Date,
the Company will furnish to each Representative and each other Underwriter
who may so request copies of such financial statements and other periodic
and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock, and will
furnish to each Representative and to each other Underwriter who may so
request a copy of each annual or other report it shall be required to file
with or deliver to the Commission.
(ix) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the
Availability Date (as defined below) an earnings statement (which need not
be audited but shall be in reasonable detail) covering a period of 12
months commencing after the Effective Date, which will satisfy the
provisions of Section 11(a) of the Act (including Rule 158 of the Rules
and Regulations). For the purpose of the preceding sentence, "Availability
Date" means the 45th day after the end of the fourth fiscal quarter
following the fiscal quarter that includes such Effective Date, except
that if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Availability Date" means the 90th day after the end of such
fourth fiscal quarter.
(x) The Company will not at any time, directly or indirectly, take
any action designed or which might reasonably be expected to cause or
result in, or which will constitute, stabilization of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares.
(xi) The Company will apply the net proceeds from the offering and
sale of the Shares to be sold by the Company in the manner set forth in
the Prospectus under "Use of Proceeds."
(xii) During the period beginning from the date hereof and
continuing to and including the date 150 days after the date of the
Prospectus, without the prior written consent of ▇▇▇▇▇▇▇ & Company, Inc.,
the Company will not (1) offer, sell, contract to sell, pledge, grant
options, warrants or rights to purchase or otherwise dispose of any equity
securities of the Company, or any other securities convertible into or
exercisable or exchangeable for any equity securities, other than shares
of Common Stock issuable pursuant to options or warrants outstanding on
the date of this Agreement, or offered, sold or granted in the ordinary
course of business pursuant to the Company's stock option plans and
employee stock purchase plan and pursuant to the Series A preferred stock
outstanding on the date of this Agreement or (2) enter into any swap or
other derivatives transaction that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership
16
of the Company's equity securities, whether any such transaction described
in clause (1) or (2) above is to be settled by delivery of Common Stock or
other securities, in cash or otherwise.
(xiii) The Company will use it best efforts to cause each of its
officers and directors to enter into lock-up agreements with the
Representatives to the effect that they will not, without the prior
written consent of the Representatives, sell, contract to sell or
otherwise dispose of any shares of Common Stock or rights to acquire such
shares other than according to the terms set forth in Schedule III hereto.
(b) Each Selling Shareholder severally covenants and agrees with the
several Underwriters as follows:
(i) Each Selling Shareholder will enter into a lock-up agreement
with the Representatives to the effect that such Selling Shareholder will
not, without the prior written consent of the Representatives, sell,
contract to sell or otherwise dispose of any shares of Common Stock or
rights to acquire such shares during the period commencing on the date
hereof and continuing until the date that is 150 days after the date of
the Prospectus, other than according to the terms set forth in Schedule
III hereto.
(ii) The Selling Shareholder will not at any time, directly or
indirectly, take any action designed or which might reasonably be expected
to cause or result in, or which will constitute, stabilization of the
price of the shares of Common Stock to facilitate the sale or resale of
any of the Shares.
(c) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay or reimburse
if paid by the Representatives all costs and expenses incident to the
performance of the obligations of the Company and the Selling Shareholders under
this Agreement and in connection with the transactions contemplated hereby,
including but not limited to costs and expenses of or relating to (i) the
preparation, printing and filing of the Registration Statement and exhibits to
it, each preliminary prospectus, Prospectus and any amendment or supplement to
the Registration Statement or Prospectus, (ii) the preparation and delivery of
certificates representing the Shares, (iii) the printing of this Agreement, the
agreement among underwriters, any selected dealer agreements, any underwriters'
questionnaires, underwriters' powers of attorney, and any invitation letters to
prospective Underwriters, (iv) furnishing (including costs of shipping and
mailing) such copies of the Registration Statement, the Prospectus and any
preliminary prospectus, and all amendments and supplements thereto, as may be
requested for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold, (v) the listing of the
Shares on the NNM, (vi) any filings required to be made by the Underwriters with
the NASD, (vii) the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions designated
pursuant to Section 5(c)(vi) and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (viii) the fees, charges and expenses
of the transfer agent for the Shares, and (ix) fees, disbursements and other
charges of counsel to the Company (but not those of counsel for the
Underwriters, except as otherwise provided for herein). The Selling Shareholders
will
17
pay (directly or by reimbursement) all fees and expenses incident to the
performance of their obligations under this Agreement that are not otherwise
specifically provided for herein, including but not limited to any fees and
expenses of counsel for such Selling Shareholders, any fees and expenses of the
Attorneys-in-Fact and the Custodian, and all expenses and taxes incident to the
sale and delivery of the Shares to be sold by such Selling Shareholders to the
Underwriters hereunder. Except as provided in this Section 5(c) and Sections 7,
8, and 9, the Underwriters will pay all of their own costs and expenses,
including transfer taxes on resale of any Shares by the Underwriters and any
advertising expenses connected with any offers that they may make.
6. Conditions of the Obligations of the Underwriters.
The obligations of each Underwriter hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 9:00 a.m., Eastern
Standard Time, on the date immediately after the date of this Agreement, or at
such later date and time as shall be consented to in writing by the
Representatives, and all filings required by Rule 424 and Rule 430A of the Rules
and Regulations shall have been made. If the Company has elected to rely upon
Rule 462(b), the registration statement filed under Rule 462(b) shall have
become effective by 10:00 P.M., Eastern Standard Time, on the date of this
Agreement.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Shares under the securities or Blue Sky laws of any jurisdiction shall be
in effect and no proceeding for such purpose shall be pending before or
threatened by the Commission or the authorities of any such jurisdiction, (iii)
any request for additional information on the part of the staff of the
Commission or any such authorities shall have been complied with to the
satisfaction of the staff of the Commission or such authorities, and (iv) after
the date hereof no amendment or supplement to the Registration Statement or the
Prospectus shall have been filed unless a copy thereof was first submitted to
the Representatives and no Representative objects thereto in good faith.
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business, in each case other
than as described in or contemplated by the Registration Statement and the
Prospectus, and (ii) the Company shall not have sustained any material loss or
interference with its business or properties from fire, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or any court or legislative or other governmental action, order or decree, which
is not described in the Registration Statement and the Prospectus, if in the
judgment of the Representatives any such development makes it impracticable or
inadvisable to consummate the sale and delivery of the Shares by the
Underwriters at the initial public offering price.
18
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company, any of its Subsidiaries, or
any of their respective officers or directors in their capacities as such,
before or by any Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding an unfavorable ruling, decision or finding would, in
the reasonable judgment of the Representatives, materially and adversely affect
the business, properties, business prospects, condition (financial or otherwise)
or results of operations of the Company and its Subsidiaries, taken as a whole.
(e) Each of the representations and warranties of the Company and the
Selling Shareholders contained herein shall be true and correct in all material
respects at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, and all covenants and agreements contained herein to be
performed on the part of the Company or the Selling Shareholders and all
conditions contained herein to be fulfilled or complied with by the Company or
the Selling Shareholders at or prior to the Closing Date and, with respect to
the Option Shares, at or prior to the Option Closing Date, shall have been duly
performed, fulfilled or complied with.
(f) The Representatives shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to the Representatives and counsel for the
Underwriters from Stoel Rives LLP, counsel to the Company, with respect to the
following matters (except that the matters set forth in subparagraphs (xv) and
(xvi) need not be addressed in the opinion delivered at the Option Closing Date,
if later than the Closing Date):
(i) Each of the Company and Cray Federal, Inc., is a
corporation duly organized and validly existing under Washington law,
and has the necessary corporate power and corporate authority to
conduct its business as described in the Prospectus.
(ii) The specimen certificate evidencing the Common Stock currently used
by the Company is in due and proper form under Washington law; and] the Shares
to be sold by the Company hereunder have been duly authorized and, when issued
and paid for as contemplated by this Agreement, will be validly issued, fully
paid and nonassessable.
(iii) The authorized common stock and Series A convertible preferred
stock of the Company, as of September 30, 2002, is as set forth in the
Prospectus under the caption "Capitalization." The description of the
common stock of the Company incorporated by reference in the Prospectus
conforms in all material respects to the terms thereof.
(iv) The Selling Shareholder Shares are duly listed on the NNM and
the Company has taken such steps as are necessary to cause the Shares to
be sold by the Company hereunder to be duly authorized for listing on the
NNM.
19
(v) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened to which the Company or Cray Federal,
Inc. is a party or to which any of their respective properties are subject
that are required to be described in the Prospectus but are not so
described.
(vi) To such counsel's knowledge, no consent, approval,
authorization or order of, or any filing or declaration with, any court or
governmental agency or body is required for the consummation by the
Company and the Selling Shareholders, respectively, of the transactions
contemplated by this Agreement, except such as have been obtained or made
under the Act or the Rules and Regulations and such as may be required
under state securities or Blue Sky laws or the bylaws and rules of the
NASD in connection with the purchase and distribution by the Underwriters
of the Shares.
(vii) The Company has the necessary corporate power and corporate
authority to enter into this Agreement. This Agreement has been duly
authorized, executed and delivered by the Company, and constitutes a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, except as enforceability may be limited by the
application of bankruptcy, insolvency or other laws affecting creditors'
rights generally or by general principles of equity, and except as
obligations of the Company under the indemnification and contribution
provisions hereof may be limited under federal or state securities laws
and public policy relating thereto.
(viii) The execution and delivery of this Agreement, the compliance
by the Company with all of the terms hereof and the consummation of the
transactions contemplated hereby do not contravene any provision of
applicable law or the Articles of Incorporation or Bylaws of the Company
or Cray Federal, Inc..
(ix) The statements under the captions "Risk Factors - Risks Related
to An Investment in Our Company - A substantial number of our shares are
eligible for future sale and may depress market prices of our common stock
and may hinder our ability to obtain additional financing"; and "Risk
Factors - Risks Related To An Investment In Our Company - Provisions of
our articles and bylaws could make a proposed acquisition that is not
approved by our board of directors more difficult", as included in the
Prospectus, insofar as the statements constitute a summary of documents
referred to therein or matters of law, fairly present, in all material
respects, the information called for with respect to such documents and
matters (provided, however, that such counsel may rely on representations
of the Company with respect to the factual matters contained in such
statements, and provided further that such counsel shall state that
nothing has come to the attention of such counsel which leads them to
believe that such representations are not true and correct in all material
respects).
(x) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940,
as amended.
20
(xi) The Registration Statement has become effective under the Act,
and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or is pending or
threatened.
(xii) The Registration Statement and the Prospectus comply as to
form in all material respects with the requirements of the Act and the
Rules and Regulations (other than the financial statements, schedules and
other financial or statistical data contained or incorporated by reference
in the Registration Statement or the Prospectus, as to which such counsel
need express no opinion).
(xiii) The documents incorporated by reference in the Prospectus
(other than the financial statements, schedules and other financial or
statistical data contained therein, as to which such counsel need express
no opinion), when they were filed with the Commission, complied as to form
in all material respects with the requirements of the Exchange Act and the
Exchange Act Rules and Regulations.
(xiv) This Agreement and the Selling Shareholders' Documents have
been duly executed and delivered by or on behalf of each Selling
Shareholder; each such agreement constitutes a valid and binding agreement
of such Selling Shareholder in accordance with its terms, except as
enforceability may be limited by the application of bankruptcy, insolvency
or other laws affecting creditors' rights generally or by general
principles of equity, and except as obligations of the Selling
Shareholders under the indemnification and contribution provisions hereof
may be limited under federal or state securities laws and public policy
relating thereto; the Shareholders' Attorneys-in-Fact and the Custodian
have been duly authorized by such Selling Shareholder to deliver the
Shares on behalf of such Selling Shareholder in accordance with the terms
of this Agreement; and the sale of the Shares to be sold by such Selling
Shareholder hereunder, the performance by such Selling Shareholder of this
Agreement, the Selling Shareholders' Documents, and the consummation of
the transactions contemplated hereby and thereby will not result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, or give any party a right to terminate any of its
obligations under, or result in the acceleration of any obligation under,
the agreements and instruments identified in a certificate delivered to
such counsel by each Selling Shareholder, or to such counsel's knowledge
violate any judgment, ruling, decree, order statute, rule or regulation of
any court or other governmental agency or body applicable to such Selling
Shareholder.
(xv) Each Selling Shareholder has full legal right, power and
authority to enter into this Agreement and the Selling Shareholders'
Documents and to sell, assign, transfer and deliver the Shares to be sold
by such Selling Shareholder hereunder and, upon payment for such Shares
and assuming that the Underwriters are purchasing such Shares in good
faith and without notice of any adverse claim within the meaning of the
Uniform Commercial Code, the Underwriters will have acquired all rights of
such Selling Shareholder in such Shares free of any adverse claim, any
lien in favor of the Company and any restrictions on transfer imposed by
the Company.
21
(xvi) A statement of fact (but not an opinion) that, based on such
counsel's participation in the preparation of the Registration Statement
and Prospectus and review and discussion of the contents thereof, but
without independent check or verification of the accuracy, completeness or
fairness of the Registration Statement and Prospectus (except for those
matters described in paragraph (ix) above), nothing has come to such
counsel's attention that would cause such counsel to believe that the
Registration Statement (except for the financial statements, schedules,
and other financial and statistical data contained or incorporated by
reference therein, as to which such counsel need express no opinion), as
of the Effective Date, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus, or any amendment or supplement thereto (except for the
financial statements, schedules, and other financial and statistical data
contained or incorporated by reference therein, as to which such counsel
need express no opinion), as of its date and the Closing Date and, if
later, the Option Closing Date, contained or contains any untrue statement
of a material fact or omitted or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering such opinion, such counsel may (i) assume, with the consent
of the Representatives, that New York law is the same as Washington law, and
(ii) rely upon as to matters of local law on opinions of counsel satisfactory in
form and substance to the Representatives and counsel for the Underwriters,
provided that the opinion of counsel to the Company and the Selling Shareholders
shall state that they are doing so, that they have no reason to believe that
they and the Underwriters are not entitled to rely on such opinions and that
copies of such opinions are to be attached to this opinion.
(g) The Representatives shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to the Representatives and counsel for the
Underwriters from ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, counsel to the Company, with respect to
the following matters:
(i) Each of the Company and Cray Federal, Inc. is duly licensed or
qualified to do business and is in good standing as a foreign corporation
in all jurisdictions in which the nature of the activities conducted by it
or the character of the assets owned or leased by it makes such license or
qualification necessary and where the failure to be licensed or qualified
would reasonably be expected to have a material and adverse effect on the
business or financial condition of the Company.
(ii) All of the outstanding shares of capital stock of the Company
(including the Selling Shareholder Firm Shares) have been duly authorized,
validly issued and are fully paid and nonassessable, to such counsel's
knowledge, were issued in compliance with the registration or
qualification requirements of all applicable state and federal securities
laws, or in transactions exempt from such registration or qualification
requirements, and were not issued in violation of or subject to any
preemptive or similar rights.
22
(iii) No preemptive or, to such counsel's knowledge, similar rights
exist with respect to any of the Shares or the issue and sale thereof.
(iv) The Company does not own or control, directly or indirectly,
any shares of stock or any other equity or long-term debt securities of
any corporation or have any equity interest in any corporation, firm,
partnership, joint venture, association or other entity other than the
Subsidiaries, Computational Engineering International, Inc. or BioNumerik
Pharmaceuticals, Inc. All of the outstanding shares of capital stock of
each Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable, and owned by the Company free and clear of all
claims, liens, charges and encumbrances, other than the interest of
Foothill Capital Corporation as previously disclosed to the
Representatives. To such counsel's knowledge, there are no securities
outstanding that are convertible into or exercisable or exchangeable for
capital stock of any Subsidiary.
(v) The outstanding shares of capital stock of the Company are as
set forth in the Registration Statement and the Prospectus under the
section "Capitalization," as of the date set forth in such section (except
for subsequent issuances, if any, pursuant to this Agreement or pursuant
to reservations, agreements, stock option and employee stock purchase
plans or the exercise or conversion of convertible securities, options or
warrants referred to in the Prospectus). Except pursuant to the operation
of the stock option plans and employee stock purchase plan in the ordinary
course of business, or as otherwise disclosed in or specifically
contemplated by the Prospectus, there are no outstanding options, warrants
or other rights calling for the issuance of, and no commitments, plans or
arrangements to issue, any shares of capital stock of the Company or any
security convertible into or exchangeable or exercisable for capital stock
of the Company.
(vi) There are no legal or governmental proceedings pending or, to
such counsel's knowledge, threatened to which the Company or any of its
Subsidiaries is a party or to which any of their respective properties is
subject that are required to be described in the Registration Statement or
the Prospectus but are not so described.
(vii) Execution and delivery of this Agreement, the compliance by
the Company with all of the terms hereof and the consummation of the
transactions contemplated hereby do not contravene any provision of
applicable law or the Articles of Incorporation or Bylaws of the Company
or Cray Federal, Inc., , and to such counsel's knowledge will not result
in the creation or imposition of any lien, charge or encumbrance upon any
of the assets of the Company or Cray Federal, Inc. pursuant to the terms
and provisions of, result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or give any party a right to
terminate any of its obligations under, or result in the acceleration of
any obligation under, any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or other
evidence of indebtedness, lease, contract or other agreement or instrument
known to such counsel to which the Company or Cray Federal, Inc. is a
party or by which the Company or or Cray Federal, Inc., or any of their
respective
23
properties, is bound or affected, or violate (i) any judgment, ruling,
decree or order known to such counsel or (ii) any statute, rule or
regulation of any governmental agency or body, applicable to the business
or properties of the Company or or Cray Federal, Inc..
(viii) There is no document or contract of a character required to
be described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement which is not described
or filed or incorporated by reference as required, and each description of
such contracts and documents so filed or incorporated by reference that is
contained in the Registration Statement and Prospectus fairly presents in
all material respects the information required under the Act and the Rules
and Regulations.
(ix) A statement of fact (but not an opinion) that, based on such
counsel's participation in the preparation of the Registration Statement
and Prospectus and review and discussion of the contents thereof, nothing
has come to such counsel's attention that would cause such counsel to
believe that the Registration Statement (except for the financial
statements, schedules, and other financial and statistical data contained
or incorporated by reference therein, as to which such counsel need
express no opinion), as of the Effective Date, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, or any amendment or supplement thereto
(except for the financial statements, schedules, and other financial and
statistical data contained or incorporated by reference therein, as to
which such counsel need express no opinion), as of its date and the
Closing Date and, if later, the Option Closing Date, contained or contains
any untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely upon as to matters of
local law on opinions of counsel satisfactory in form and substance to the
Representatives and counsel for the Underwriters, provided that the opinion of
counsel to the Company and the Selling Shareholders shall state that they are
doing so, that they have no reason to believe that they and the Underwriters are
not entitled to rely on such opinions and that copies of such opinions are to be
attached to the opinion.
(h) The Underwriters shall have received an opinion, dated the Closing
Date and the Option Closing Date, from ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, counsel to the
Underwriters, with respect to the Registration Statement, the Prospectus, and
this Agreement, which opinion shall be satisfactory in all respects to the
Representatives.
(i) Concurrently with the execution and delivery of this Agreement, the
Accountants shall have furnished to the Representatives a letter, dated the date
of its delivery, addressed to the Representatives and in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants with respect to the Company and its Subsidiaries as required by the
Act, the Rules and Regulations, the Exchange Act and the Exchange Act Rules and
Regulations and with respect to certain financial and other statistical and
numerical information contained or incorporated by
24
reference in the Registration Statement. At the Closing Date and, as to the
Option Shares, the Option Closing Date, the Accountants shall have furnished to
the Representatives a letter, dated the date of its delivery, which shall
confirm, on the basis of a review in accordance with the procedures set forth in
the letter from the Accountants, that nothing has come to their attention during
the period from the date of the letter referred to in the prior sentence to a
date (specified in the letter) not more than three days prior to the Closing
Date and the Option Closing Date, as the case may be, which would require any
change in their letter dated the date hereof if it were required to be dated and
delivered at the Closing Date and the Option Closing Date.
(j) Concurrently with the execution and delivery of this Agreement and at
the Closing Date and, as to the Option Shares, the Option Closing Date, there
shall be furnished to the Representatives a certificate, dated the date of its
delivery, signed by each of the Chief Executive Officer and the Chief Financial
Officer of the Company, in form and substance satisfactory to the
Representatives, to the effect that:
(i) He has reviewed the Prospectus, the Registration Statement, and
each amendment or supplement thereto (each a "Filed Document" and
collectively the "Filed Documents");
(ii) Based on his knowledge, none of the Filed Documents contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading;
(iii) Based on his knowledge, the financial statements and other
financial information included in or incorporated by reference into the
Filed Documents fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of, and
for, the periods presented in the report;
(iv) He and the other certifying officers: (A) are responsible for
establishing and maintaining disclosure controls and procedures; (B) have
designed such disclosure controls and procedures to ensure that material
information is made known to them, particularly during the periods covered
by the Filed Documents; (C) have evaluated the effectiveness of the
Company's disclosure controls and procedures as of a date within 90 days
prior to the Effective Date; and (D) have filed or caused to be filed in
the Company's periodic reports under Section 13 or Section 15(d) of the
Exchange Act their conclusions about the effectiveness of the disclosure
controls and procedures based on the required evaluation as of the dates
applicable to such reports;
(v) He and the other certifying officers have disclosed to the
Accountants and to the Company's audit committee: (A) all significant
deficiencies in the design or operation of internal controls which could
adversely affect the Company's ability to record, process, summarize and
report financial data and have identified for the Company's auditors any
material weaknesses in internal controls; and (B) any fraud, whether or
not material, that involves management or other employees who have a
significant role in the Company's internal controls; and
25
(vi) He and the other certifying officers have indicated in the
Filed Documents or otherwise in a timely report filed under Section 13 or
Section 15(d) of the Exchange Act a statement whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses. For purposes of this certificate,
"disclosure controls and procedures" has the meaning assigned in
Commission Release No. 33-8124 (August 29, 2002).
(vii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct.
(viii) Each of the covenants required to be performed by the Company
herein on or prior to the date of such certificate has been duly, timely
and fully performed and each condition herein required to be satisfied or
fulfilled on or prior to the date of such certificate has been duly,
timely and fully satisfied or fulfilled.
(k) Concurrently with the execution and delivery of this Agreement and at
the Closing Date and, as to the Option Shares, the Option Closing Date, there
shall be furnished to the Representatives a certificate, dated the date of its
delivery, signed by the Selling Shareholders (or the Attorneys-in-Fact on their
behalf), in form and substance satisfactory to the Representatives, to the
effect that the representations and warranties of the Selling Shareholders
contained herein are true and correct in all material respects on and as of the
date of such certificate as if made on and as of the date of such certificate,
and each of the covenants and conditions required herein to be performed or
complied with by the Selling Shareholders on or prior to the date of such
certificate has been duly, timely and fully performed or complied with.
(l) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Sections 5(a)(xiii) and 5(b)(i).
(m) The Shares shall be qualified for sale in such jurisdictions as the
Representatives may reasonably request and each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
or the Option Closing Date.
(n) Prior to the Closing Date, a Notification Form for the Listing of
Additional Shares of Common Stock with the NNM covering the issuance of up to
8,662,500 shares of Common Stock by the Company in this offering shall have been
filed with the NNM.
(o) The Company and the Selling Shareholders shall have furnished to the
Representatives such certificates, in addition to those specifically mentioned
herein, as the Representatives may have reasonably requested as to the accuracy
and completeness at the Closing Date and the Option Closing Date of any
statement in the Registration Statement or the Prospectus, as to the accuracy at
the Closing Date and the Option Closing Date of the representations and
warranties of the Company and the Selling Shareholders herein, as to the
performance by the Company and the Selling Shareholders of its and their
respective obligations hereunder, or as to the fulfillment of
26
the conditions concurrent and precedent to the obligations hereunder of the
Representatives.
7. Indemnification.
(a) The Company and each of the Selling Shareholders, jointly and
severally, will indemnify and hold harmless each Underwriter, the directors,
officers, employees and agents of each Underwriter and each person, if any, who
controls each Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, from and against any and all losses, claims,
liabilities, expenses and damages (including any and all investigative, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they, or any of them, may become subject under the Act, the Exchange Act or
other federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, liabilities, expenses or damages arise out of or
are based on any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment or supplement to the Registration Statement or the
Prospectus, or the omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the statements in
it not misleading in the light of the circumstances in which they were made, or
arise out of or are based in whole or in part on any inaccuracy in the
representations and warranties of the Company or the Selling Shareholders
contained herein or any failure of the Company or the Selling Shareholders to
perform its or their obligations hereunder or under law in connection with the
transactions contemplated hereby; provided, however, that (i) the Company and
the Selling Shareholders will not be liable to the extent that such loss, claim,
liability, expense or damage arises from the sale of the Shares in the public
offering to any person by an Underwriter and is based on an untrue statement or
omission or alleged untrue statement or omission made by any Underwriter or made
in reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives, on behalf of any
Underwriter, expressly for inclusion in the Registration Statement, the
preliminary prospectus or the Prospectus; (ii) the Company and the Selling
Shareholders will not be liable to any Underwriter, the directors, officers,
employees or agents of such Underwriter or any person controlling such
Underwriter with respect to any loss, claim, liability, expense, or damage
arising out of or based on any untrue statement or omission or alleged untrue
statement or omission or alleged omission to state a material fact in the
preliminary prospectus which is corrected in the Prospectus if the person
asserting any such loss, claim, liability, charge or damage purchased Shares
from such Underwriter but was not sent or given a copy of the Prospectus at or
prior to the written confirmation of the sale of such Shares to such person and
if copies of the Prospectus were timely delivered to such Underwriter pursuant
to Section 5 hereof; (iii) no Selling Shareholder will be liable except to the
extent that such loss, claim, liability, expense or damage arises out of or is
based in whole or in part on any inaccuracy in the representations and
warranties made by such Selling Shareholder in this Agreement or any failure of
such Selling Shareholder to perform his respective obligations hereunder or
under law in connection with the transactions contemplated hereby; and (iv) the
liability of the Company and Selling Shareholder under this Section 7(a) shall
not exceed the product of the purchase price for each Share set forth in Section
1(a) hereof multiplied by the number of Shares sold by the Company or such
Selling Shareholders hereunder, respectively. The
27
Company and the Selling Shareholder acknowledge that the statements set forth
under the heading "Underwriting" in the preliminary prospectus and the
Prospectus constitute the only information relating to any Underwriter furnished
in writing to the Company by the Representatives on behalf of the Underwriters
expressly for inclusion in the Registration Statement, the preliminary
prospectus or the Prospectus. This indemnity agreement will be in addition to
any liability that the Company and the Selling Shareholders might otherwise
have.
(b) Each Underwriter will indemnify and hold harmless the Company, each
director of the Company, each officer of the Company who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, the employees of the
Company, and each Selling Shareholder to the same extent as the foregoing
indemnity from the Company and each Selling Shareholder to each Underwriter, as
set forth in Section 7(a), but only (i) insofar as losses, claims, liabilities,
expenses or damages arise out of or are based on any untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company by the Representatives, on behalf of such Underwriter, expressly for
use in the Registration Statement, the preliminary prospectus or the Prospectus;
and (ii) insofar as such losses, claims, liabilities, expenses or damages arise
out of or are based on an untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus that was
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such Losses purchased shares of Common Stock from an
Underwriter but was not sent or given a copy of the Prospectus (as amended or
supplemented) in any case where such delivery of the Prospectus (as amended or
supplemented) was required by the Act. Indemnification by each Underwriter
hereunder shall be several and shall be limited to the total indemnification
liability, multiplied by a fraction, the numerator of which shall be the total
number of Firm Shares sold by that Underwriter plus the total number of Option
Shares sold by that Underwriter, and the denominator of which shall be the total
number of Shares sold hereunder. The Company and the Selling Shareholders
acknowledge that the statements set forth under the heading "Underwriting" in
the preliminary prospectus and the Prospectus constitute the only information
relating to any Underwriter furnished in writing to the Company by the
Representatives on behalf of the Underwriters expressly for inclusion in the
Registration Statement, the preliminary prospectus or the Prospectus. This
indemnity will be in addition to any liability that each Underwriter might
otherwise have.
(c) Any party that proposes to assert the right to be indemnified under
this Section 7 shall, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 7, notify each such
indemnifying party in writing of the commencement of such action, enclosing with
such notice a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing provisions of this Section 7 unless,
and only to the extent that, such omission results in the loss of substantive
rights or defenses by the indemnifying party. If any such action is brought
against any indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after
28
receiving notice of the commencement of the action from the indemnified party,
jointly with any other indemnifying party similarly notified, to assume the
defense of the action, with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation incurred by the indemnified
party in connection with the defense. The indemnified party will have the right
to employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such indemnified party unless
(i) the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (ii) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to it or other indemnified parties that are different from or in
addition to those available to the indemnifying party, (iii) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (iv) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. All such fees, disbursements and other charges will be reimbursed by
the indemnifying party promptly as they are incurred. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement (i) includes
an unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act by
or on behalf of an indemnified party. An indemnifying party will not be liable
for any settlement of any action or claim effected without its written consent
(which consent will not be unreasonably withheld or delayed).
(d) If the indemnification provided for in this Section 7 is applicable in
accordance with its terms but for any reason is held to be unavailable to or
insufficient to hold harmless an indemnified party under paragraphs (a), (b) and
(c) of this Section 7 in respect of any losses, claims, liabilities, expenses
and damages referred to therein, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any contribution
received by the Company or the Selling Shareholders from persons other than the
Underwriters, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who also may be liable for contribution) by such indemnified
29
party as a result of such losses, claims, liabilities, expenses and damages in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Shareholders, on the one hand, and the
Underwriters, on the other hand. The relative benefits received by the Company
and the Selling Shareholders, on the one hand, and the Underwriters, on the
other hand, 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. If, but only if, the allocation provided by
the foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only the relative benefits referred to in the foregoing sentence but also the
relative fault of the Company and the Selling Shareholders, on the one hand, and
the Underwriters, on the other hand, with respect to the statements or omissions
which resulted in such loss, claim, liability, expense or damage, or action in
respect thereof, as well as any other relevant equitable considerations with
respect to such offering. Such relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to information supplied by
the Company, the Selling Shareholders or the Representatives on behalf of the
Underwriters, the intent of the parties and their relative 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 7(d) were to
be 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 into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss claim,
liability, expense or damage, or action in respect thereof, referred to above in
this Section 7(d) shall be deemed to include, for purposes of this Section 7(d),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), no Underwriter shall be
required to contribute any amount in excess of the underwriting discounts
received by it; no Selling Shareholder shall be required to contribute any
amount in excess of the product of the purchase price for each Share set forth
in Section 1(a) hereof multiplied by the number of Shares sold by such Selling
Shareholder hereunder; and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 7(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 7(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against any such party in respect of which a claim for contribution may be made
under this Section 7(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 7(d). No party will be liable for
contribution with
30
respect to any action or claim settled without its written consent (which
consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in this Section 7
and the representations and warranties of the Company and the Selling
Shareholders contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any investigation made by or on behalf of the
Underwriters, (ii) acceptance of any of the Shares and payment therefor or (iii)
any termination of this Agreement.
8. Reimbursement of Certain Expenses.
In addition to its other obligations under Section 7(a) or 7(b) of this
Agreement, any indemnifying party hereby agrees to reimburse on a quarterly
basis indemnified parties for all reasonable legal and other expenses incurred
in connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding giving rise to an indemnification claim under this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 8 and the
possibility that such payment might later be held to be improper; provided,
however, that, to the extent any such payment is ultimately held to be improper,
the persons receiving such payments shall promptly refund them.
9. Termination.
The obligations of the several Underwriters under this Agreement may be
terminated at any time on or prior to the Closing Date (or, with respect to the
Option Shares, on or prior to the Option Closing Date), by notice to the Company
and the Selling Shareholders from the Representatives, without liability on the
part of any Underwriter to the Company if, prior to delivery and payment for the
Firm Shares or Option Shares, as the case may be, in the judgment of a majority
of the Representatives, (i) trading in any of the equity securities of the
Company shall have been suspended by the Commission or by the Nasdaq Stock
Market, (ii) trading in securities generally on the New York Stock Exchange or
the Nasdaq Stock Market shall have been suspended or limited or minimum or
maximum prices shall have been generally established on such exchange, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall have been imposed upon trading in securities generally by such
exchange, by order of the Commission or any court or other governmental
authority, by the New York Stock Exchange or the Nasdaq Stock Market, (iii) a
general banking moratorium shall have been declared by Federal, New York State
or Washington State authorities or (iv) any material adverse change in the
financial or securities markets in the United States or in political, financial
or economic conditions in the United States or any outbreak or material
escalation of hostilities or other calamity or crisis (including without
limitation a significant terrorist act) shall have occurred, the effect of which
is such as to make it, in the judgment of any Representatives, impracticable or
inadvisable to proceed with completion of the public offering or the delivery of
and payment for the Shares.
If this Agreement is terminated pursuant to Section 9 or 10 hereof,
neither the Company nor any Selling Shareholder shall be under any liability to
any Underwriter except as provided in Sections 5(c), 7 and 8 hereof; but, if
this Agreement is terminated
31
for failure of the Company to satisfy its obligations pursuant to Section 6
hereof or if for any reason the Company shall be unable to perform its
obligations hereunder, the Company will reimburse the several Underwriters for
all out-of-pocket expenses (including the fees, disbursements and other charges
of counsel to the Underwriters) incurred by them in connection with the offering
of the Shares.
10. Substitution of Underwriters.
If any one or more of the Underwriters shall fail or refuse to purchase
any of the Firm Shares which it or they have agreed to purchase hereunder, and
the aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Firm Shares, the other Underwriters shall be
obligated, severally, to purchase the Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase, in the
proportions which the number of Firm Shares which they have respectively agreed
to purchase pursuant to Section 1 bears to the aggregate number of Firm Shares
which all such non-defaulting Underwriters have so agreed to purchase, or in
such other proportions as the Representatives may specify; provided that in no
event shall the maximum number of Firm Shares which any Underwriter has become
obligated to purchase pursuant to Section 1 be increased pursuant to this
Section 10 by more than one-ninth of such number of Firm Shares without the
prior written consent of such Underwriter. In any such case either the
Representatives or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. If any Underwriter or
Underwriters shall fail or refuse to purchase any Firm Shares and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase exceeds one-tenth of the aggregate number of
the Firm Shares and arrangements satisfactory to the Representatives and the
Company for the purchase of such Firm Shares are not made within 48 hours after
such default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholders for the
purchase or sale of any Shares under this Agreement. Any action taken pursuant
to this Section 10 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
11. Miscellaneous.
Notice given pursuant to any of the provisions of this Agreement shall be
in writing and, unless otherwise specified, shall be mailed or delivered (a) if
to the Company or the Selling Shareholders, at the office of the Company, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, with a copy to L. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Jr. at Stoel Rives LLP, Suite 3600,
One Union Square, 600 University, Seattle, Washington 98101-3197, or (b) if to
the Underwriters, to the Representatives at the offices of ▇▇▇▇▇▇▇ & Company,
Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Corporate Finance
Department, with a copy to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ at the offices of ▇▇▇▇▇▇▇ & Company,
Inc., ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, and with a copy also
to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ at the offices of ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇. Any such notice
shall be effective only upon receipt. Any
32
notice under such Section 9 or 10 may be made by telecopier or telephone, but if
so made shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, the Selling Shareholders and the controlling persons,
directors and officers referred to in Section 7, and their respective successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" as used in this
Agreement shall not include a purchaser, as such purchaser, of Shares from any
of the several Underwriters.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended or modified unless in writing by all
of the parties hereto (it being understood that execution by the Representatives
of any such amendment or modification shall constitute execution by the
Underwriters), and no condition herein (express or implied may be waived unless
waived in writing by each party whom the condition is meant to benefit. Nothing
herein contained shall constitute any of the Underwriters an unincorporated
association or partner with any other Underwriter or with the Company.
The Company and the Underwriters each hereby waive any right they may have
to a trial by jury in respect of any claim based upon or arising out of this
Agreement or the transactions contemplated hereby.
33
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Shareholders and the several Underwriters.
Very truly yours,
CRAY, INC.
By:
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President and
Chief Executive Officer
Selling Shareholders
(named in Schedule II hereto)
By:
--------------------------------------
Attorney-in-Fact
Confirmed as of the date first above mentioned:
▇▇▇▇▇▇▇ & Company, Inc.
Acting on behalf of themselves and as the Representative of the other
several Underwriters named in Schedule I hereto.
By: ▇▇▇▇▇▇▇ & Company, Inc.
By:
--------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Managing Director
34
SCHEDULE I
UNDERWRITERS
UNDERWRITERS NUMBER OF FIRM
SHARES TO BE
PURCHASED
▇▇▇▇▇▇▇ & Company, Inc. ....................................
▇▇ ▇▇▇▇▇ Securities Corporation ............................
▇.▇. ▇▇▇▇▇▇▇▇▇, Towbin .....................................
Total ................................................
---------
6,250,000
1
SCHEDULE II
Number of Shares Total Number of Firm Total Option
Shares to be Sold to be Sold
CRAY INC. ............................. 937,500
-0-
-0-
--------- -------
TOTALS .......................... 6,250,000 937,500
========= =======
1
SCHEDULE III
FORM OF LOCK-UP AGREEMENT
▇▇▇▇▇▇▇ & Company, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
The undersigned is a holder of securities of Cray Inc., a Washington
corporation (the "Company"), and wishes to facilitate the public offering of
shares of the Common Stock (the "Common Stock") of the Company contemplated by
the Company's Registration Statement No. 333-102367 (the "Offering"). The
undersigned recognizes that the Offering will be of benefit to the undersigned.
In consideration of the foregoing and in order to induce you to act as
underwriters in connection with the Offering, the undersigned hereby agrees that
he or she will not, without the prior written approval of ▇▇▇▇▇▇▇ & Company,
Inc., acting on its own behalf and/or on behalf of other representatives of the
underwriters, directly or indirectly, sell, contract to sell, make any short
sale, pledge, or otherwise dispose of, or enter into any hedging transaction
that is likely to result in a transfer of, any shares of Common Stock, options
to acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock of the Company which he, she or it may own or
control, directly or indirectly, for a period commencing as of the date hereof
and ending on August 1, 2003. The undersigned confirms that he or she
understands that the underwriters and the Company will rely upon the
representations set forth in this Agreement in proceeding with the Offering. The
undersigned agrees and consents to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of securities held by the
undersigned except in compliance with this Agreement.
This Agreement shall be binding on the undersigned and his or her
respective successors, heirs, personal representatives and assigns.
This Agreement shall be null and void if the Offering is not consummated
by February 28, 2003.
Very truly yours,
------------------------------------
------------------------------------
(Print Shareholder Name)
1
