6,000,000 Shares of Common Stock EFJ, Inc. UNDERWRITING AGREEMENT August 18, 2005

Exhibit 1.1

6,000,000 Shares of Common Stock

EFJ, Inc.

UNDERWRITING AGREEMENT

August 18, 2005

X.X. XXXXXXX & SONS, INC.

XXXXXXX & COMPANY, LLC

X.X. XXXXXXXXX, TOWBIN, LLC

as Representatives of the several Underwriters


c/o		X.X. Xxxxxxx & Sons, Inc.
		Xxx Xxxxx Xxxxxxxxx Xxxxxx
		Xx. Xxxxx, Xxxxxxxx 00000

Ladies and Gentlemen:

EFJ, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”), proposes, subject to the terms and conditions stated herein, to issue and sell to X.X. Xxxxxxx & Sons, Inc. (“X.X. Xxxxxxx”), Xxxxxxx & Company, LLC and X.X. Xxxxxxxxx, Towbin, LLC, as representatives of the several Underwriters named in Schedule I hereto (collectively, the “Underwriters”; which term, if there are no Underwriters other than you, shall be deemed to refer to you), an aggregate of 6,000,000 shares (the “Firm Shares”) of its common stock, par value $0.01 per share (the “Common Stock”). In addition, for the sole purpose of covering over-allotments and subject to the terms and conditions stated herein, the Company proposes to grant to the Underwriters the option to purchase up to an additional 900,000 shares of Common Stock (“Additional Shares”). The Firm Shares and any Additional Shares purchased by the Underwriters are collectively referred to herein as the “Shares.” The Shares are more fully described in the Registration Statement referred to below.

1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the Underwriters that:

(a) The Company meets the requirements for use of Form S-3 under the Securities Act of 1933, as amended (the “Act”), and has filed with the Securities and Exchange Commission (the “Commission”) a registration statement, and amendments thereto, on Form S-3 (Registration No. 333-125257) for the registration of the Shares under the Act. Such registration statement, including the prospectus, financial statements and schedules, exhibits and all other documents filed as a part thereof, as amended at the time of effectiveness of such registration

statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A of the rules and regulations of the Commission under the Act (the “Regulations”), is herein called the “Registration Statement.” Any registration statement filed pursuant to Rule 462(b) of the Regulations is herein called the “462(b) Registration Statement,” and after such filing, the term “Registration Statement” shall include the Rule 462(b) Registration Statement. The prospectus, in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations or filed as part of the Registration Statement at the time of effectiveness if no filing under such Rule 424(b) is required, is herein called the “Prospectus.” The term “preliminary prospectus” as used herein means a preliminary prospectus as described in Rule 430 of the Regulations. The Registration Statement and, if applicable, the Rule 462(b) Registration Statement have been declared effective by the Commission under the Act. The Company has complied, to the Commission’s satisfaction, with all requests of the Commission for additional information. Neither the Commission nor the Blue Sky or securities authority of any jurisdiction has issued a stop order suspending the effectiveness of the Registration Statement, preventing or suspending the use of any preliminary prospectus, the Prospectus, the Registration Statement or any amendment or supplement thereto, refusing to permit the effectiveness of the Registration Statement or suspending the registration or qualification of the Shares, nor has any of such authorities instituted or threatened to institute or, to the Company’s knowledge, contemplated any proceedings with respect to such a stop order. Any reference in this Agreement to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the effective date of the Registration Statement or the date of such preliminary prospectus or the Prospectus, as the case may be, and any reference to “amend,” “amendment,” “amended,” “supplement” or “supplemented” with respect to the Registration Statement, any preliminary prospectus or the Prospectus shall mean amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectus, as the case may be, as well as documents filed after the date of this Agreement and prior to the completion of the distribution of the Shares and deemed to be incorporated by reference in the Registration Statement, any preliminary prospectus or the Prospectus pursuant to Item 12 of Form S-3 under the Act.

(b) At the respective time of the effectiveness of the Registration Statement or, if applicable, the 462(b) Registration Statement, or the effectiveness of any post-effective amendment to the Registration Statement, when the Prospectus is first filed with the Commission pursuant to Rule 424(b) of the Regulations, if applicable, when any amendment or supplement to the Prospectus is filed with the Commission and at the Closing Date and any Additional Closing Date (as hereinafter respectively defined), the Registration Statement and the Prospectus and any amendments and supplements thereto (including any prospectus wrapper) complied or will comply in all material respects with the applicable provisions of the Act and the Regulations (and, if filed by electronic transmission pursuant to the Commission’s Electronic Data Gathering, Analysis and Retrieval system (“XXXXX”), was identical to the copy thereof delivered to the Underwriters for use in connection with the offer and sale of the Shares) and do not or will not contain an untrue statement of a material fact or omit to state a material fact, in the case of the Registration Statement, required to be stated therein or necessary in order to make the statements therein not misleading and, in the case of the Prospectus, necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. When any preliminary prospectus was first filed with the Commission (whether filed

as part of the Registration Statement or any amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment or supplement thereto was first filed with the Commission, such preliminary prospectus and any amendments and supplements thereto complied in all material respects with the applicable provisions of the Act and the Regulations (and, if filed by electronic transmission pursuant to XXXXX, was identical to the copy thereof delivered to the Underwriters for use in connection with the offer and sale of the Shares) and did not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. There are no contracts or other documents required to be described in the Registration Statement or the Prospectus, or to be filed as exhibits to the Registration Statement or to any document incorporated by reference therein, that have not been described or filed as required. No representation and warranty is made in this subsection (b), however, with respect to any information contained in or omitted from the Registration Statement or the Prospectus or any preliminary prospectus or any amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through you as herein stated expressly for use in connection with the preparation thereof.

(c) The documents incorporated by reference in the Prospectus pursuant to Item 12 of Form S-3, at the time they were or hereafter are filed or, if amended, as so amended, complied and will comply, as the case may be, in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations of the Commission thereunder and, when read together with the other information in the Prospectus, at the time the Registration Statement became effective and at the Closing Date and any Additional Closing Date did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading.

(d) Xxxxx Xxxxxxxx LLP, which has expressed its opinions on the Company’s financial statements (which term as used herein includes the related notes thereto) and supporting schedules included or incorporated by reference in the Registration Statement and on the Company’s internal control over financial reporting, is an independent registered public accounting firm as required by the Act and the Regulations.

(e) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, except as set forth in the Registration Statement and the Prospectus, there has been no change in the issued and outstanding capital stock of the Company (except for subsequent issuances of shares of the Common Stock, if any, pursuant to reservations, agreements or employee benefit plans as in existence on the date hereof or pursuant to its currently outstanding options, in each case that are described in the Prospectus) of the Company, and there has been no material adverse change or any development involving a prospective material adverse change in the business, prospects, properties, operations, condition (financial or other), stockholders’ equity or results of operations of the Company and its subsidiaries, taken as a whole, including, without limitation, relationships with customers and suppliers of the Company, whether or not arising from transactions in the ordinary course of business, and since the date of the latest balance sheet included or incorporated by reference in the Registration Statement and the Prospectus, neither the Company nor any subsidiary thereof

has incurred or undertaken any liabilities or obligations, direct or contingent, that are material to the Company and its subsidiaries, taken as a whole, except for liabilities or obligations that are reflected in the Registration Statement and the Prospectus.

(f) This Agreement and the transactions contemplated herein have been duly and validly authorized by the Company, and this Agreement has been duly and validly executed and delivered by the Company.

(g) The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, do not and will not (i) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event that with notice or lapse of time, or both, would constitute a default) or Repayment Event (as defined below) under, require approval or consent under, or result in the creation or imposition of any lien, charge or other encumbrance upon any property or asset of the Company or any subsidiary thereof pursuant to, any agreement, instrument, franchise, license or permit to which the Company or any subsidiary thereof is a party, or by which the Company or any subsidiary thereof or their respective properties or assets may be bound, or under which the Company or any subsidiary thereof are entitled to any right or benefit, except for any such conflicts, breaches or defaults that would not have a material adverse effect on the business, properties or results of operations of the Company and its subsidiaries taken as a whole (a “Material Adverse Effect”), or (ii) violate or conflict with (A) any provision of the articles of incorporation, by-laws, partnership agreement, limited liability company agreement or trust agreement, as the case may be, or other organizational documents of the Company or any subsidiary thereof or (B) any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any subsidiary thereof or any of their respective properties or assets, except, in the case of this clause (B), for such violations or conflicts that would not have a Material Adverse Effect. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any subsidiary thereof or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement, or the consummation of the transactions contemplated by this Agreement, the Registration Statement and the Prospectus, including the issuance, sale and delivery of the Shares to be issued, sold and delivered by the Company hereunder, except the registration under the Act of the Shares and such consents, approvals, authorizations, orders, registrations, filings, qualifications, licenses and permits as have been obtained or may be required under state securities or Blue Sky laws, or with the National Association of Securities Dealers, Inc. (the “NASD”), in connection with the purchase and distribution of the Shares by the Underwriters. As used herein, a “Repayment Event” means any event or condition that gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company.

(h) All of the outstanding shares of the capital stock of the Company have been duly and validly authorized and issued, are fully paid and nonassessable and have been issued in compliance with federal and state securities laws, and none of such shares was issued in violation of, or is now subject to, any preemptive rights, rights of first refusal or similar rights. The Shares to be purchased from the Company have been duly authorized for issuance and sale

to the Underwriters pursuant to this Agreement and, when issued, delivered and sold in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and nonassessable and will not have been issued in violation of, or be subject to, any preemptive rights, rights of first refusal or similar rights. No holder of Shares will be subject to personal liability by reasons of being such a holder. The Company had, on the date hereof, an authorized and outstanding capitalization as set forth in the Registration Statement and the Prospectus (except for subsequent issuances of shares of the Common Stock, if any, pursuant to reservations, agreements or employee benefit plans as in existence on the date hereof or pursuant to its currently outstanding options, in each case that are described in the Prospectus). The authorized capital stock of the Company, including the Shares, conforms to the description thereof in the Registration Statement and the Prospectus. Except as disclosed in the Registration Statement and the Prospectus, there are no outstanding options, warrants or other rights calling for the issuance of, and no commitments, obligations, plans or arrangements to issue, any shares of, or any security convertible into or exchangeable for, capital stock of the Company. The outstanding stock options relating to the Common Stock have been duly authorized and validly issued and conform to the descriptions thereof in the Registration Statement and the Prospectus.

(i) Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties, whether owned, leased or operated, or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing that will not, in the aggregate, have a Material Adverse Effect. Each of the Company and its subsidiaries has all requisite power and authority, and all necessary consents, approvals, certificates, authorizations, orders, registrations, qualifications, licenses and permits (collectively, “Governmental Licenses”) of and from all appropriate public, regulatory or governmental agencies and bodies, to own, lease and operate its properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus, each such Governmental License is valid and in full force and effect and no such Governmental License contains a material restriction not adequately disclosed in the Registration Statement and the Prospectus, and the Company has not received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such Governmental Licenses.

(j) All of the outstanding capital stock of the Company’s subsidiaries are owned by the Company, free and clear of any security interest, mortgage, pledge, claim, lien, limitation on voting rights or other encumbrance, except as provided for in the Revolving Line of Credit Loan Agreement and Security Agreement among the Company, its subsidiaries and Bank of America, N.A., as amended (the “Credit Facility”); and all shares of such capital stock have been duly and validly authorized and issued, are fully paid and nonassessable, and none of such shares was issued in violation of any preemptive rights, rights of first refusal or similar rights. The Company does not own any capital stock or any other interests in any other corporation or entity other than the Company’s subsidiaries, X.X. Xxxxxxx Company and Transcrypt International, Inc.

(k) Neither the Company nor any subsidiary thereof is (i) in violation of its articles of incorporation, by-laws or other organizational documents, or in breach of any of the

terms or provisions of, or in default (or would be in default with notice or lapse of time or both) in the performance or observance of, any material obligation, agreement, covenant or condition contained in any bond, debenture, note or other evidence of indebtedness or in any material contract, indenture, mortgage, deed of trust, loan or credit agreement, lease, joint venture or other agreement or instrument to which the Company or any such subsidiary is a party or by which any of its properties may be bound, which breach, violation, default or defaults would have, individually or in the aggregate, a Material Adverse Effect, or (ii) in violation of any law, order, rule, regulation, writ, injunction, judgment or decree of any court or governmental agency or body, the violation of which would have, individually or in the aggregate, a Material Adverse Effect.

(l) Each contract described in the Registration Statement and the Prospectus, or in an exhibit to the Registration Statement or to any document incorporated by reference therein, to which the Company or any subsidiary thereof is a party, is in full force and effect and is the legal, valid and binding obligation of the Company or any such subsidiary, as the case may be, enforceable in accordance with its terms, except as rights to indemnification and contribution thereunder may be limited by applicable law and as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles.

(m) Other than as described in the Registration Statement and the Prospectus, there is no litigation or any governmental action, suit or proceeding that is pending or, to the knowledge of the Company, contemplated to which the Company or any subsidiary thereof is or will be a party, or to which any property of the Company or any subsidiary thereof, whether owned, leased or operated, is or may be subject, or that has as the subject matter thereof any officer or director of the Company or any subsidiary thereof, that might result in any change in the capital stock of the Company or the long-term indebtedness of the Company, or any material adverse change or any development involving a material adverse change in the business, prospects, properties, operations, condition (financial or other), stockholders’ equity or results of operations of the Company and its subsidiaries, taken as a whole, or that is required to be disclosed in the Registration Statement and the Prospectus.

(n) Neither the Company nor any of its directors, officers, subsidiaries or other affiliates (as defined in the Regulations) has taken or will take, directly or indirectly, any action designed to cause or result in, or that constitutes or that might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.

(o) The financial statements included or incorporated by reference in the Registration Statement and the Prospectus, including the notes thereto and supporting schedules, present fairly the consolidated financial position of the Company as of the dates indicated and the results of operations for the periods specified. Except as otherwise stated in the Registration Statement, such financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) applied on a consistent basis; and the supporting schedules included or incorporated by reference in the Registration Statement present fairly the information required to be stated therein. The selected financial data and the summary financial information included in the Registration Statement and the Prospectus present fairly the information shown

therein and have been compiled on a basis consistent with that of the financial statements included or incorporated by reference in the Registration Statement and the Prospectus. No other financial statements or supporting schedules are required to be included or incorporated by reference in the Registration Statement and the Prospectus.

(p) Each of the Company and its subsidiaries has good and marketable title to all property and assets owned by it, in each case free and clear of all security interests, mortgages, pledges, claims, liens, encumbrances and other defects, except such as provided for in the Credit Facility, or such as are described or referred to in the Registration Statement and the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made or proposed to be made of such property by the Company or any such subsidiary. Any real property, buildings, improvements, equipment and personal property held under lease by the Company or any subsidiary thereof are held under valid, existing and enforceable leases with such exceptions as are not material and do not interfere with the use made or proposed to be made of such property and buildings by the Company or such subsidiary.

(q) Other than as described in the Registration Statement and the Prospectus and as provided for in the Credit Facility, each of the Company and its subsidiaries owns or possesses valid and enforceable licenses or other rights to use, sell, offer for sale, make, reproduce, distribute, modify and otherwise deal with all inventions, patents, patent applications, trademarks, service marks, trade names, copyrights, technology, software, databases, Internet domain names, know-how (including trade secrets and other unpatented or unpatentable proprietary or confidential information, systems or procedures), proprietary techniques (including processes and substances) and other intellectual property rights necessary to conduct the business now conducted or presently contemplated to be conducted by the Company or such subsidiary as described in the Registration Statement and the Prospectus (collectively, “Intellectual Property”), free and clear of all security interests, mortgages, pledges, liens, claims and other encumbrances. Each of the Company and its subsidiaries has taken all reasonable steps to protect, maintain and safeguard the Intellectual Property for which improper or unauthorized disclosure would impair its value or validity and has executed appropriate invention assignment, nondisclosure and confidentiality agreements and made appropriate filings and registrations in connection with the foregoing. Other than as described in the Registration Statement and the Prospectus: (i) there are no third parties who have any rights in the Intellectual Property that could preclude the Company or any subsidiary thereof from conducting its business as currently conducted or as presently contemplated to be conducted as described in the Registration Statement and the Prospectus; (ii) there are no pending, threatened or, to the Company’s knowledge, contemplated, actions, suits, proceedings, investigations or claims by others challenging the rights of the Company or its subsidiaries or, if the Intellectual Property is licensed, the licensor thereof with respect to any Intellectual Property owned or licensed to the Company or any subsidiary thereof; (iii) neither the Company nor any subsidiary thereof, nor, if the Intellectual Property is licensed, the licensor thereof, has infringed, or has received any notice of infringement of, or conflict with, any rights of others with respect to the Intellectual Property; and (iv) there is no dispute between the Company or any subsidiary thereof and any licensor with respect to any Intellectual Property. True and correct copies of all material licenses and other material agreements between the Company or any subsidiary thereof and any third party relating to the Intellectual Property, and all amendments and supplements thereto, have been provided to the Underwriters and are accurately described in the Registration Statement and

the Prospectus. Further, nothing has come to the attention of the Company that leads the Company to believe, with respect to any pending applications for registration of Intellectual Property, that such applications will not eventuate in registered Intellectual Property, or that any registrations issued, or to be issued in respect of any such Intellectual Property applications, will not be valid or will not afford the Company or its subsidiaries reasonable protection with respect to the subject matter thereof.

(r) No relationship, direct or indirect, exists between or among the Company or its subsidiaries or affiliates, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or its subsidiaries, on the other hand, and no other business relationships or related party transactions involving the Company or any subsidiary or any other person exists, that is required by the Act to be described in the Registration Statement and the Prospectus that is not so described.

(s) The Common Stock (including the Shares) is registered pursuant to Section 12(g) of the Exchange Act and is approved for quotation on the Nasdaq National Market, subject only, in the case of the Shares, to official notice of issuance. The Company has taken no action designed to terminate the registration of the Common Stock under the Exchange Act or delist the Common Stock from the Nasdaq National Market, or that is likely to have the effect of terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the Nasdaq National Market, nor has the Company received any notification that the Commission is contemplating terminating such registration or that the Nasdaq National Market is contemplating such delisting.

(t) No holder of any securities of the Company has any rights to the registration of securities of the Company, or other similar rights to have any securities of the Company included in the offering contemplated by this Agreement, because of the filing of the Registration Statement or otherwise in connection with the sale of the Shares contemplated hereby or any Additional Shares included in the Registration Statement.

(u) Neither the Company nor any subsidiary thereof is, nor upon consummation of the transactions contemplated hereby will be, subject to registration as an “investment company” or an entity “controlled” by an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”), and will conduct its business in a manner so that it will not become subject to the Investment Company Act.

(v) No labor problem or dispute with the employees of the Company or any subsidiary thereof exists, is threatened or, to the Company’s knowledge, is imminent (including, without limitation, any unfair labor practice complaint against the Company or any subsidiary thereof before the National Labor Relations Board, any state or local labor relations board or any foreign labor relations board), and the Company is not aware of any existing or imminent labor disturbance by the employees of the Company’s or any subsidiary thereof’ principal suppliers, contractors or customers, in each case that could have a Material Adverse Effect. The Company is not aware that any executive or key employee, or group of employees of the Company or any subsidiary thereof, plans to terminate employment with the Company or any subsidiary thereof.

(w) Each of the Company and its subsidiaries is conducting its business in compliance in all material respects with all applicable federal, state, local and foreign laws, rules and regulations of the jurisdictions in which it is conducting its business, including with respect to the filing of tax returns and the payment of taxes, assessments, fines or penalties, except where noncompliance would not cause a Material Adverse Effect.

(x) Each of the Company and its subsidiaries (i) is in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its business and (iii) is in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance or failure to comply with the terms and conditions of, or failure to receive, such permits, licenses or approvals will not, individually or in the aggregate, have a Material Adverse Effect. Neither the Company nor any subsidiary thereof has received any written communication, whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Company or any subsidiary thereof is in violation of any Environmental Law. There is no claim, action or cause of action filed with a court or governmental authority, no investigation with respect to which the Company has received written notice and no written notice by any person or entity alleging potential liability arising out of, based on, or resulting from, the presence, or release into the environment, of any chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products, at any location owned, leased or operated by the Company or any subsidiary thereof, now or in the past (collectively, “Environmental Claims”), pending, threatened or, to the knowledge of the Company, contemplated against the Company or any subsidiary thereof, or any person or entity whose liability for any Environmental Claim the Company or any subsidiary thereof has retained or assumed, either contractually or by operation of law. There are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products, that reasonably could result in a violation of any Environmental Law, or form the basis of a potential Environmental Claim against the Company or any subsidiary thereof, or any person or entity whose liability for any Environmental Claim the Company or any subsidiary thereof has retained or assumed, either contractually or by operation of law. The costs and liabilities associated with the effect of Environmental Laws on the business, operations and properties of the Company and its subsidiaries (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws, or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) could not reasonably be expected, in the aggregate, to have a Material Adverse Effect.

(y) Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”), that is maintained, administered or contributed to by the Company or its subsidiaries or their ERISA Affiliates (as defined below), for employees or former employees of the Company or its subsidiaries, has been, at all times during which the Company was a sponsor of the plan, maintained in compliance with its respective terms and the requirements of any applicable statutes, orders, rules and regulations,

including, without limitation, ERISA and the Internal Revenue Code of 1986, as amended (the “Code”). As used herein, “ERISA Affiliate” means, with respect to the Company or a subsidiary, any member of any group of organizations described in Section 414(b), (c), (m) or (o) of the Code, of which the Company or such subsidiary is a member. No “prohibited transaction,” within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any such plan, excluding transactions effected pursuant to a statutory or administrative exemption. No “reportable event” (as defined under ERISA) has occurred, or is reasonably expected to occur, with respect to any employee benefit plan established or maintained by the Company or its subsidiaries or their ERISA Affiliates. For each such plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no “accumulated funding deficiency,” as defined in Section 412 of the Code, has been incurred, whether or not waived, and the fair market value of the assets of each such plan (excluding for these purposes accrued but unpaid contributions) exceeded the present value of all benefits accrued under such plan determined using reasonable actuarial assumptions. Neither the Company nor its subsidiaries nor their ERISA Affiliates has incurred, or reasonably expects to incur, any liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any employee benefit plan or (ii) Section 412, 4971, 4975 or 4980B of the Code. Each employee benefit plan established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified, and nothing has occurred, whether by action or failure to act, that would cause the loss of such qualification.

(z) Neither the Company nor its subsidiaries, nor any of their respective officers or directors, nor, to the knowledge of the Company, any of their respective employees, agents or affiliates, nor any other person acting on behalf of the Company or its subsidiaries, has, directly or indirectly, given or agreed to give any money, gift or similar benefit to any customer or supplier, any employee or agent of a customer or supplier, any official or employee of any governmental agency (domestic or foreign), instrumentality of any government (domestic or foreign), or any political party or candidate for office (domestic or foreign), or other person who was, is or may be in a position to help or hinder the business of the Company or its subsidiaries (or assist the Company or its subsidiaries in connection with any actual or proposed transaction), that (i) might subject the Company or its subsidiaries to any damage or penalty in any civil, criminal or governmental litigation or proceeding (domestic or foreign), (ii) if not given in the past, might have had a Material Adverse Effect, or (iii) if not continued in the future, might have a Material Adverse Effect.

(aa) There is no outstanding allegation of improper or illegal activities arising from any government audit or non-audit review, including, without limitation, by the Defense Contract Audit Agency, of the Company or work performed by the Company or its subsidiaries or subcontractors. There are no pending civil or criminal penalties or administrative sanctions arising from a government audit or non-audit review of the Company or work performed by the Company or its subsidiaries or subcontractors, including, without limitation, termination of contracts, forfeiture of profits, suspension of payments, fines or suspension or debarment from doing business with any U.S. federal government agency. As of the date hereof, the Company does not believe that it will be required to make any adjustments to the financial statements included or incorporated by reference in the Registration Statement and the Prospectus as a result of any pending government audit or non-audit review of the Company.

(bb) The Company is (i) in compliance with all applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002 and all rules and regulations promulgated thereunder or implementing the provisions thereof (collectively, the “Xxxxxxxx-Xxxxx Act”) and all applicable corporate governance requirements set forth in the Nasdaq Marketplace Rules, in each case to the extent that such provisions and requirements are currently in effect, and (ii) actively taking steps to ensure that it will be in compliance with other applicable provisions of the Xxxxxxxx-Xxxxx Act and other applicable corporate governance requirements set forth in the Nasdaq Marketplace Rules, in each case to the extent not currently in effect upon and at all times after the effectiveness of such provisions and requirements.

(cc) Neither the Company nor any of its subsidiaries, nor, to the Company’s knowledge, any director, officer, agent or employee of, or other person associated with or acting on behalf of, the Company, has violated the Bank Secrecy Act, as amended, the Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT ACT) of 2001 or the rules and regulations promulgated under any such law or any successor law.

(dd) The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the Money Laundering Control Act of 1986, as amended, any other money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”), except for any such non-compliance as would not, singly or in the aggregate, have a Material Adverse Effect, and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of it subsidiaries, with respect to the Money Laundering Laws is pending or, to the Company’s knowledge, threatened.

(ee) Each of the Company and its subsidiaries maintains a system of internal accounting controls that, taken as a whole, is sufficient to provide reasonable assurance that (i) transactions are executed in accordance with its management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences and (v) material information relating to the Company and its subsidiaries is made known to the Company and its subsidiaries by their respective officers and employees. Based on the evaluation conducted by the Company’s management of the effectiveness of the Company’s system of internal control over financial reporting, the Company’s system of internal control over financial reporting was effective as of December 31, 2004.

(ff) Each of the Company and its subsidiaries maintains insurance provided by recognized, financially sound and reputable institutions, of the types and in the amounts generally deemed adequate for its business, including, without limitation, insurance coverage for real and personal property owned, leased or operated by it against theft, damage, destruction, acts

of vandalism and all other material risks customarily insured against, all of which insurance is in full force and effect. The Company has no reason to believe that it will not be able to renew, for itself and its subsidiaries, 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, at a cost that would not likely have a material adverse effect on the Company or its subsidiaries. Neither the Company nor any subsidiary thereof has been denied any insurance coverage that it has sought or for which it has applied.

(gg) Except pursuant to this Agreement, there are no contracts, agreements or understandings between the Company and any other person that would give rise to a valid claim against the Company or the Underwriters for a brokerage commission, finder’s fee or like payment in connection with the issuance, purchase and sale of the Shares.

(hh) The market and industry-related information included in the Registration Statement and the Prospectus are derived from sources that the Company reasonably and in good faith believes to be accurate, reasonable and reliable, and such information is consistent with the sources from which they were derived.

(ii) The Company has not distributed any offering material in connection with the offering and sale of the Shares, other than a preliminary prospectus, the Prospectus or the Registration Statement.

(jj) The statements (including the assumptions described therein) included in the Registration Statement and the Prospectus (i) are within the coverage of Rule 175(b) under the Act to the extent such data constitute forward-looking statements as defined in Rule 175(c) under the Act and (ii) were made by the Company with a reasonable basis and reflect the Company’s good faith estimate of the matters described therein.

Any certificate or other document signed by an officer of the Company and delivered to you or to Pillsbury Xxxxxxxx Xxxx Xxxxxxx LLP, as counsel for the Underwriters (“Counsel for the Underwriters”), shall be deemed to be a representation and warranty by the Company to each Underwriter as to the matters set forth therein.

2. Purchase, Sale and Delivery of the Shares.

(a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $6.615 per share, the number of Firm Shares set forth opposite such Underwriter’s name on Schedule I hereto.

In addition, on the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, (i) the Company hereby grants to the several Underwriters the option to purchase, severally and not jointly, from the Company, all or a portion of the Additional Shares, in each case, as may be necessary to cover over-allotments made in connection with the offering of the Firm Shares, at the same purchase price per share to be paid by the Underwriters to the Company for the Firm Shares. This option may be exercised by you on behalf of the several Underwriters at any time

and from time to time on or before the 30th day following the date hereof, by written notice to the Company. Such notice shall set forth the aggregate number of Additional Shares as to which the option is being exercised and the date and time when such Additional Shares are to be delivered (such date and time being herein referred to as the “Additional Closing Date” with respect to such Additional Shares); provided, however, that any such Additional Closing Date shall not be earlier than the Closing Date (as defined below) nor earlier than the second business day after the date on which the option shall have been exercised nor later than the tenth business day after the date on which the option shall have been exercised. The number of Additional Shares to be sold to each Underwriter shall be the number that bears the same proportion to the aggregate number of Additional Shares being purchased as the number of Firm Shares set forth opposite the name of such Underwriter on Schedule I hereto bears to the total number of Firm Shares (subject, in each case, to such adjustment as you may determine necessary to eliminate fractional shares).

(b) Payment of the purchase price for the Firm Shares shall be made to the Company by wire transfer in same-day funds against delivery of the certificates for the Firm Shares sold by the Company to you through the facilities of The Depository Trust Company (“DTC”) for the respective accounts of the Underwriters. Such payment and delivery shall be made at 9:00 A.M. (New York time) on August 24, 2005 (unless another time shall be agreed to by you and the Company or unless postponed in accordance with the provisions of Section 6 hereof) (such time and date of payment and delivery being herein called the “Closing Date”). As used herein, the term “Business Day” means any day other than a day on which banks are permitted or required to be closed in New York, New York. Certificates for the Firm Shares shall be registered in such name or names and in such authorized denominations as you may request in writing at least two full Business Days prior to the Closing Date. The Company will permit you to examine and package such certificates for delivery at least one full Business Day prior to the Closing Date.

Payment of the purchase price for any Additional Shares shall be made on the Additional Closing Date with respect to such Additional Shares in the same manner at the same office as the payment for the Firm Shares sold by the Company. Certificates for such Additional Shares shall be delivered to you or on your behalf in definitive form, registered in such names and in such denominations as you shall specify no later than the second business day preceding such Additional Closing Date. For the purpose of expediting the checking and packaging of the certificates for such Additional Shares by you or on your behalf, the Company agrees to make such certificates available to you or on your behalf for such purpose at least one full business day preceding such Additional Closing Date.

3. Offering.

(a) Upon your authorization of the release of the Firm Shares, the Underwriters propose to offer the Shares for sale to the public upon the terms set forth in the Prospectus.

(b) It is understood that you have been authorized, for your account and the accounts of the other several Underwriters, to accept delivery of and receipt for, and make payment of the purchase price for, the Firm Shares and any Additional Shares the Underwriters elect to purchase.

4. Covenants of the Company. The Company covenants and agrees with the Underwriters that:

(a) If information is to be omitted from the Registration Statement in accordance with Rule 430A of the Regulations, or if the filing of the Prospectus is otherwise required under Rule 424(b) of the Regulations, the Company will file the Prospectus (properly completed if such Rule 430A has been used) pursuant to such Rule 424(b) within the prescribed time period and will provide evidence satisfactory to you of such timely filing. The Company will notify you immediately (and, if requested by you, will confirm such notice in writing) of (i) any request by the Commission for any amendment or supplement to the Registration Statement or the Prospectus or for any additional information, (ii) the mailing or the delivery to the Commission for filing of any amendment or supplement to the Registration Statement or the Prospectus, (iii) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto, or of the initiation or the threatening of any proceedings therefor, (iv) the receipt of any comments from the Commission and (v) the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for that purpose. If the Commission shall propose or enter a stop order at any time, the Company will make every reasonable effort to prevent the issuance of any such stop order and, if issued, to obtain the lifting of such order as soon as possible. The Company will not file any amendment to the Registration Statement, make any filing under Rule 462(b) of the Regulations or file any amendment or supplement to the Prospectus (including the prospectus required to be filed pursuant to Rule 424(b) of the Regulations) that differs from the prospectus on file at the time of the effectiveness of the Registration Statement before or after the effective date of the Registration Statement to which you shall reasonably object in writing after being timely furnished in advance a copy thereof.

(b) The Company will comply with the Act and the Regulations so as to permit the completion of the distribution of the Shares as contemplated in this Agreement, the Registration Statement and the Prospectus. If, at any time when a prospectus relating to the Shares is required to be delivered under the Act, any event shall have occurred as a result of which the Prospectus as then amended or supplemented would, in the judgment of the Underwriters or the Company, include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or the Registration Statement to comply with the Act or the Regulations, the Company will notify you promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to you) that will correct such statement or omission and will use its best efforts to have any amendment to the Registration Statement declared effective as soon as possible. The Company will, at its own expense, furnish to the Underwriters and to dealers such copies of such amendments or supplements as you may reasonably request.

(c) The Company, at its own expense, will promptly deliver to you two signed copies of the Registration Statement, including exhibits (other than any exhibits incorporated by reference therein) and all amendments thereto (including all documents incorporated by reference therein), and signed copies of all consents filed as exhibits thereto, and the Company, at its own expense, will promptly deliver to each of the Underwriters, such number of copies of any preliminary prospectus, the Prospectus, the Registration Statement, any documents incorporated by reference into such documents and all amendments and supplements to such documents, if any, as you may reasonably request, and the Company hereby consents to the use of such copies for purposes permitted by the Act.

(d) The Company will not distribute, prior to the later of the last Additional Closing Date and the completion of the Underwriters’ distribution of the Shares, any offering material in connection with the offering and sale of the Shares, other than a preliminary prospectus, the Prospectus or the Registration Statement.

(e) The Company will endeavor in good faith, in cooperation with you, at or prior to the time of effectiveness of the Registration Statement, to qualify the Shares for offering and sale under the securities laws relating to the offering or sale of the Shares in such jurisdictions (domestic or foreign) as you may designate and to maintain such qualification in effect for so long as required for the distribution thereof; except that in no event shall the Company be obligated in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process.

(f) The Company will make generally available (within the meaning of Section 11(a) of the Act) to its security holders and to you as soon as practicable, an earnings statement (in form satisfying the provisions of Rule 158 of the Regulations) covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement.

(g) During the period of 90 days from the date of the Prospectus (subject to extension as provided below, the “Lock-Up Period”), the Company will not, directly or indirectly, without the prior written consent of X.X. Xxxxxxx, issue, sell, offer, agree to sell, grant any option or contract for the sale of, pledge, make any short sale of, maintain any short position with respect to, establish or maintain a “put equivalent position” (within the meaning of Rule 16a-1(h) under the Exchange Act) with respect to, enter into any swap, derivative transaction or other arrangement (whether any such transaction is to be settled by delivery of Common Stock, other securities, cash or other consideration) that transfers to another, in whole or in part, any of the economic consequences of ownership, or otherwise dispose of, or announce the offering of or file any registration statement under the Act in respect of, any shares of capital stock of the Company (or any securities convertible into, or exercisable or exchangeable for, capital stock of the Company or interest therein or any capital stock of the Company’s subsidiaries), other than in each case (i) the Company’s sale of Shares under this Agreement and (ii) the Company’s issuance to any person of shares of Common Stock or options to purchase such shares under any stock or option plan as in existence on the date hereof or pursuant to its currently outstanding options, in each case as described in the Prospectus, but only if, at or prior to such issuance, such person shall be prohibited from engaging in any of the foregoing transactions during the Lock-Up Period; provided, however, that if the Company (A) issues an earnings release or material news or a material event relating to the Company occurs during the

last 17 days of such 90-day period or (B) prior to the expiration of such 90-day period, announces that it will release earnings results during the 16-day period beginning on the last day of such 90-day period, then, if the Company and X.X. Xxxxxxx mutually agree, the restrictions imposed by this subsection (g) shall continue to apply until the expiration of the 18-day period beginning on the issuance of such earnings release or the occurrence of such material news or material event. The Company has obtained the agreement of each person listed on Schedule II hereto, on such person’s own behalf, not to engage in any of the transactions set forth in the preceding sentence during the Lock-Up Period. The Company agrees not to waive any agreement obtained pursuant to this subsection (g).

(h) Unless otherwise publicly available on XXXXX, during a period of three years from the effective date of the Registration Statement, the Company will furnish to you copies of (i) all reports and other communications mailed generally to its stockholders and (ii) all reports, financial statements and proxy or information statements filed by the Company with the Commission or the Nasdaq National Market. The Company, during the period when the Prospectus is required to be delivered under the Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and the rules and regulations of the Commission thereunder.

(i) The Company will use its best efforts to maintain the approval of the Common Stock (including the Shares) for quotation on the Nasdaq National Market.

(j) The Company will maintain, at its own expense, a registrar and transfer agent for the Common Stock.

(k) The Company will use its best efforts to do and perform all things required or necessary to be done and performed under this Agreement by the Company prior to or after the Closing Date or any Additional Closing Date, as the case may be, and to satisfy all conditions precedent to the delivery of the Shares.

You, on behalf of the several Underwriters, may, in your sole discretion, waive in writing the performance by the Company of any one or more of the foregoing covenants or extend the time for their performance.

5. Payment of Expenses. Whether or not the transactions contemplated in this Agreement are consummated or whether or not this Agreement is terminated, the Company hereby agrees to pay, directly or by reimbursement, all costs, expenses, fees and taxes in connection with (a) the preparation and filing of the Registration Statement, each preliminary prospectus and the Prospectus, as well as any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Underwriters and to dealers (including costs of mailing and shipment), (b) the registration, issue, sale and delivery of the Shares, (c) the producing, word processing and printing of this Agreement, any agreement among underwriters, any dealer agreements, any powers of attorney and any closing documents (including compilations thereof) and the reproduction, printing and furnishing of copies of each thereof to the Underwriters and (except closing documents) to dealers (including costs of mailing and shipment), (d) the qualification of the Shares for offering and sale under state securities laws and the determination of their eligibility for investment under state securities law as aforesaid

(including the reasonable legal fees and filing fees and other disbursements of Counsel for the Underwriters) and the printing and furnishing of copies of any blue sky surveys or legal investment surveys to the Underwriters and to dealers, as applicable, (e) any listing of the Shares on any securities exchange or qualification of the Shares for quotation on the Nasdaq National Market and any registration thereof under the Exchange Act, (f) the review of the public offering of the Shares by the NASD, including the associated filing fees and the reasonable fees and disbursements of Counsel for the Underwriters, (g) the costs and expenses of the Company relating to presentations or meetings undertaken in connection with the marketing of the offer and sale of the Shares to prospective investors and the Underwriters’ sales forces, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations, travel, lodging and other expenses incurred by the officers of the Company and any such consultants and the cost of any aircraft chartered in connection with the road show and (h) the performance of the Company’s obligations under this Agreement (including fees and costs incurred in connection with any Additional Closings) that are not otherwise specifically provided for herein.

6. Conditions of Underwriters’ Obligations. The obligations of the Underwriters to purchase and pay for the Shares, as provided herein, shall be subject to the accuracy of the representations and warranties of the Company herein contained, as of the date hereof and as of the Closing Date (for purposes of this Section 6, the term “Closing Date” shall refer to the Closing Date for the Firm Shares and, if different, each Additional Closing Date with respect to Additional Shares), to the absence from any certificates, opinions, written statements or letters furnished to you or to Counsel for the Underwriters pursuant to this Section 6 of any misstatement or omission, to the performance by the Company of its respective obligations hereunder and to the following additional conditions:

(a) The Registration Statement shall have become effective not later than 5:30 P.M., New York time, on the date of this Agreement, and, if information is to be omitted from the Registration Statement in accordance with Rule 430A of the Regulations, the Prospectus shall have been filed with the Commission pursuant to Rule 424(b) of the Regulations at or before 5:30 P.M., New York time, on the second full business day after the date of this Agreement and, if applicable, the Rule 462(b) Registration Statement required in connection with the offering and sale of the Shares shall have been filed and become effective no later than 10:00 P.M., New York time, on the date of this Agreement. At or prior to the Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto shall have been issued and no proceedings therefor shall have been initiated or threatened by the Commission.

(b) At the Closing Date, you shall have received the opinion of each of (i) R. Xxxxxx Xxxxxx, General Counsel of the Company, substantially in the form attached hereto as Exhibit A hereto and (ii) Manatt, Xxxxxx & Xxxxxxxx, LLP, corporate counsel for the Company, substantially in the form attached hereto as Exhibit B hereto, in each case dated the Closing Date and addressed to the Underwriters.

(c) All proceedings taken in connection with the sale of the Shares as herein contemplated shall be satisfactory in form and substance to you and to Counsel for the Underwriters, and the Underwriters shall have received from Counsel for the

Underwriters a favorable opinion dated as of the Closing Date with respect to the Firm Shares and the issuance and sale thereof, the Registration Statement and the Prospectus and such other related matters as you may reasonably require, and the Company shall have furnished to Counsel for the Underwriters such documents as they request for the purpose of enabling them to pass upon such matters.

(d) At the Closing Date, you shall have received a certificate of the Chief Executive Officer and Chief Financial Officer of the Company, dated the Closing Date, to the effect that (i) the conditions set forth in subsection (a) of this Section 6 have been satisfied, (ii) as of the date hereof and as of the Closing Date, the representations and warranties of the Company set forth in Section 1 hereof are accurate, (iii) as of the Closing Date, the obligations of the Company to be performed hereunder on or prior thereto have been duly performed and (iv) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, the Company and its subsidiaries have not sustained any material loss or interference with its businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, and there has not been any change in the capital stock of the Company or the long-term indebtedness of the Company, or any material adverse change, or any development involving a material adverse change, in the business prospects, properties, operations, condition (financial or otherwise), stockholders’ equity or results of operations of the Company and its subsidiaries, taken as a whole, except in each case as described in or contemplated by the Prospectus.

(e) The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Underwriters, from Xxxxx Xxxxxxxx LLP, an independent registered public accounting firm, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained or incorporated by reference in the Registration Statement and the Prospectus, provided that the letter delivered on the Closing Date shall use a “cut-off date” not earlier than the date hereof.

(f) For the period from and after the date of this Agreement and prior to the Closing Date, in your judgment, there shall not have occurred any change in the capital stock of the Company (except for subsequent issuances of shares of the Common Stock, if any, pursuant to reservations, agreements or employee benefit plans as in existence on the date hereof or pursuant to its currently outstanding options, in each case that are described in the Prospectus) or the long-term indebtedness of the Company, or any material adverse change, or any development involving a prospective material adverse change, in the business, prospects, properties, operations, condition (financial or other), stockholders’ equity or results of operations of the Company and its subsidiaries, taken as a whole.

(g) Prior to the Closing Date, the Company shall have obtained and furnished to you an executed lock-up agreement substantially in the form attached as Exhibit C hereto, from each person listed on Schedule II hereto.

(h) Prior to the Closing Date, the Company shall have furnished to you such further information, certificates and documents as you may reasonably request.

(i) At the Closing Date, the Shares shall have been approved for quotation on the Nasdaq National Market, subject to official notice of issuance.

(j) The NASD shall have raised no objection to the fairness and reasonableness of the underwriting terms and arrangements.

If any of the conditions specified in this Section 6 shall not have been fulfilled when and as required by this Agreement, or if any of the certificates, opinions, written statements or letters furnished to you or to Counsel for the Underwriters pursuant to this Section 6 shall not be in all material respects reasonably satisfactory in form and substance to you and to Counsel for the Underwriters, all obligations of the Underwriters hereunder may be canceled by you at, or at any time prior to, the Closing Date, and the obligations of the Underwriters to purchase any Additional Shares may be canceled by you at, or at any time prior to, the Additional Closing Date with respect to such Additional Shares. Notice of such cancellation shall be given to the Company, in writing, or by telephone, facsimile, telex or telegraph, confirmed in writing.

7. Indemnification.

(a) The Company agrees to indemnify and hold harmless each Underwriter and its members, directors, officers, employees and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all losses, liabilities, claims, damages and expenses whatsoever as incurred (including, without limitation, attorneys’ fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which the Underwriters may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereto, or any preliminary prospectus or the Prospectus, or in any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Underwriters through you expressly for use therein. This indemnity agreement will be in addition to any liability that the Company or any subsidiary thereof may otherwise have, including under this Agreement.

(b) Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, each of its directors and each of its officers who shall have signed the Registration Statement against any losses, liabilities, claims, damages and expenses whatsoever as incurred (including, without limitation, attorneys’ fees and any and all expenses whatsoever

incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereto, or any preliminary prospectus or the Prospectus, or in any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Underwriter expressly for use therein; provided, however, that in no case shall such Underwriter be liable or responsible for any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder. This indemnity will be in addition to any liability that the Underwriters may otherwise have, including under this Agreement. The Company acknowledges that the statements set forth in (i) the first two sentences of the third paragraph relating to concessions, (ii) the tenth paragraph relating to stabilizing transactions, (iii) the first sentence of the twelfth paragraph relating to the delivery of prospectuses in short sales and (iv) the first sentence of the thirteenth paragraph relating to passive market making transactions, in each case, found under the caption “Underwriting” in the Prospectus, constitute the only information furnished in writing by or on behalf of the Underwriters expressly for use in the Registration Statement or in any amendment thereto, any preliminary prospectus or the Prospectus or in any amendment or supplement thereto, as the case may be.

(c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify each party against whom indemnification is to be sought in writing of the commencement of such action (but the failure so to notify an indemnifying party shall not relieve it from any liability that it may have under this Section 7). In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, such indemnifying party will be entitled to participate therein and, to the extent it may elect by written notice delivered to such indemnified party or parties promptly after receiving the aforesaid notice, to assume the defense thereof with counsel satisfactory to such indemnified party. Notwithstanding the foregoing, such indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by one of the indemnifying parties in connection with the defense of such action, (ii) the indemnifying parties shall not have employed counsel to take charge of the defense of such action within a reasonable time after notice of commencement of the action or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them that are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying parties. No indemnifying party

shall be liable to an indemnified party for any losses, claims, damages, liabilities and judgments by reason of settlement of any action or claim effected without its written consent, which consent shall not be unreasonably withheld.

8. Contribution. In order to provide for contribution in circumstances in which the indemnification provided for in Section 7 hereof is for any reason held to be unavailable from any indemnifying party or is insufficient to hold harmless a party indemnified thereunder, the Company and the Underwriters shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provision (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting in the case of losses, claims, damages, liabilities and expenses suffered by the Company, any contribution received by the Company from persons, other than the Underwriters, who may also be liable for contribution, including its officers who have signed the Registration Statement and its directors) as incurred to which the Company and one or more of the Underwriters may be subject, in such proportions as are appropriate to reflect the relative benefits received by the Company and the Underwriters from the offering of the Shares or, if such allocation is not permitted by applicable law, in such proportions as are appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company and the Underwriters in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters, respectively, shall be deemed to be in the same proportion as (a) the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and (b) the underwriting discounts and commissions received by the Underwriters, respectively, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and of the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 8, (i) in no case shall any Underwriter be liable or responsible for any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 8 and the preceding sentence, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by such Underwriter and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. For purposes of this Section 8, each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the same rights to

contribution as such Underwriter and each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company subject in each case to clauses (i) and (ii) of this Section 8. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties, notify each party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 8 or otherwise. No party shall be liable for contribution with respect to any action or claim settled without its consent; provided, however, that such consent was not unreasonably withheld.

9. Default by an Underwriter.

(a) If any Underwriter or Underwriters shall default in its or their obligation to purchase Firm Shares or any Additional Shares hereunder, and if the Firm Shares or any Additional Shares with respect to which such default relates do not (after giving effect to arrangements, if any, made by you pursuant to subsection (b) below) exceed in the aggregate 10% of the total number of Firm Shares or such Additional Shares, the Firm Shares or Additional Shares to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to the respective proportions that the numbers of Firm Shares set forth opposite their respective names in Schedule I hereto bear to the aggregate number of Firm Shares set forth opposite the names of the non-defaulting Underwriters, or in such other proportions as may be specified by you with the consent of the non-defaulting Underwriters.

(b) In the event that such default relates to more than 10% of the Firm Shares or any Additional Shares, as the case may be, you may in your discretion arrange for yourselves or for another party or parties (including any non-defaulting Underwriter or Underwriters who so agree) to purchase such Shares, as the case may be, to which such default relates on the terms contained herein. In the event that within five calendar days after such a default you do not arrange for the purchase of the Firm Shares or Additional Shares, as the case may be, to which such default relates as provided in this Section 9, this Agreement or, in the case of a default with respect to any Additional Shares, the obligations of the Underwriters to purchase and of the Company to sell such Additional Shares, shall thereupon terminate, without liability on the part of the Company (except, in each case, that the provisions of Sections 5, 7, 8 and 11 hereof shall at all times be effective and shall survive such termination) or the non-defaulting Underwriters with respect thereto, but nothing in this Agreement shall relieve a defaulting Underwriter or Underwriters of its or their liability, if any, to the other Underwriters and the Company for damages occasioned by its or their default hereunder.

(c) In the event that the Firm Shares or Additional Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, either you on the one hand or the Company on the other hand shall have the right to postpone the Closing Date or an Additional Closing Date, as the case may be, for a period, not exceeding five Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment or supplement to the Registration Statement or the Prospectus that, in the opinion of the Company’s counsel and Counsel for the Underwriters, may thereby be made necessary or advisable. The term

“Underwriter” as used in this Agreement shall include any party substituted under this Section 9 with respect to Shares to be purchased with like effect as if it had originally been a party to this Agreement with respect to such Shares.

10. Survival of Representations and Agreements. All representations and warranties, covenants and agreements of the Company and the Underwriters contained in this Agreement, including the agreements contained in Section 5 hereof, the indemnity agreements contained in Section 7 hereof and the contribution agreements contained in Section 8 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriters or any controlling person thereof or by or on behalf of the Company or any of its respective officers and directors or any controlling person thereof and shall survive delivery of and payment for the Shares to and by the Underwriters. The representations and warranties contained in Section 1 hereof, and the agreements contained in Sections 5, 7, 8 and 11 hereof, shall survive the termination of this Agreement, including termination pursuant to Section 11 hereof.

11. Effective Date of Agreement; Termination.

(a) This Agreement shall become effective (i) if information will not be omitted from the Registration Statement in accordance with Rule 430A of the Regulations, such time as you and the Company shall have received notification of the effectiveness of the Registration Statement or (ii) if information will be so omitted in accordance with such Rule 430A, upon the execution and delivery of this Agreement. If either the public offering price or the purchase price per Share has not been agreed upon prior to 5:00 P.M., New York time, on the fifth full Business Day after the Registration Statement shall have become effective, this Agreement shall thereupon terminate without liability to the Company or the Underwriters except as herein expressly provided. Until this Agreement becomes effective as aforesaid, it may be terminated by you by notifying the Company or it may be terminated by the Company by notifying you. Notwithstanding the foregoing, the provisions of this Section 11 and of Sections 1, 5, 7 and 9 hereof shall at all times be in full force and effect.

(b) The obligations of the several Underwriters hereunder shall be subject to termination in the absolute discretion of you or any group of Underwriters (which may include you) that has agreed to purchase in the aggregate at least 50% of the Firm Shares, (i) if, since the time of execution of this Agreement or the respective dates as of which information is given in the Registration Statement and the Prospectus, there has been any material adverse change, or any development involving a prospective material adverse change (other than as specifically identified in the Registration Statement and the Prospectus) in the business, prospects, properties, condition (financial or otherwise) or results of operations of the Company that would, in your judgment or in the judgment of such group of Underwriters, make it impracticable to market the Shares, or (ii) if, at any time prior to the time of purchase or, with respect to the purchase of any Additional Shares, the additional time of purchase, as the case may be, trading in securities on the New York Stock Exchange or the Nasdaq National Market shall have been suspended or limitations or minimum prices shall have been established on the New York Stock Exchange or the Nasdaq National Market, or (iii) if a banking moratorium shall have been declared either by the United States or New York State authorities, or (iv) if any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, the market for the Company’s securities or securities in general.

(c) Any notice of termination pursuant to this Section 11 shall be by telephone, facsimile, telex or telegraph, confirmed in writing.

(d) If this Agreement shall be terminated pursuant to any of the provisions hereof (otherwise than pursuant to notification by you as provided in Section 11(a) hereof), or if the sale of the Shares provided for herein is not consummated because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof, the Company will, subject to demand by you, reimburse the Underwriters for all out-of-pocket expenses (including the reasonable fees and expenses of their counsel), incurred by the Underwriters in connection herewith.

12. Notice. All communications hereunder, except as may be otherwise specifically provided herein, shall be in writing and (a) if sent to the Underwriters, shall be mailed, delivered, sent by facsimile, telex or telegraph and confirmed in writing by letter to X.X. Xxxxxxx & Sons, Inc., Xxx Xxxxx Xxxxxxxxx Xxxxxx, Xx. Xxxxx, Xxxxxxxx 00000, Attention: Xxxxxxx Xxxxx, fax no. (000) 000-0000, with a copy to Pillsbury Xxxxxxxx Xxxx Xxxxxxx LLP, 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxx X. Xxxxxxx, Esq., fax no. (000) 000-0000 and (b) if sent to the Company, shall be mailed, delivered, or sent by facsimile, telex or telegraph and confirmed in a letter to EFJ, Inc., 0000 Xxxxxxxxx Xxxxx, Xxxxxx, Xxxxx 00000, Attention: Xxxxxxx X. Xxxxxxx, fax no. (000) 000-0000, with a copy to Manatt, Xxxxxx & Xxxxxxxx, LLP, 00000 X. Xxxxxxx Xxxx., Xxx Xxxxxxx, Xxxxxxxxxx 00000, Attention: Xxxxxxx X. Quicksilver, Esq., fax no. (000) 000-0000.

13. Parties. This Agreement shall inure solely to the benefit of, and shall be binding upon, the Company and the Underwriters, and the members, directors, officers, employees and agents referred to in Sections 7 and 8, and their respective heirs, legal representatives, distributees, beneficiaries, successors and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision contained herein. The term “successors and assigns” shall not include a purchaser, in its capacity as such, of Shares from the Underwriters.

14. General Representation. Each of the parties hereto acknowledges that it is a sophisticated business person who was adequately represented by counsel during negotiations regarding the provisions hereof, including, without limitation, the indemnification provisions of Section 7 and the contribution provisions of Section 8, and is fully informed regarding such provisions. Each of the parties hereto further acknowledges that the provisions of Sections 7 and 8 hereto fairly allocate the risks in light of the ability of the parties to investigate the Company, its affairs and its business in order to assure that adequate disclosure has been made in the Registration Statement, any preliminary prospectus and the Prospectus (and any amendments and supplements thereto), as required by the Act and the Exchange Act.

15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, but without regard to principles of conflicts of law.

16. Counterparts. This Agreement may be executed in counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

If the foregoing correctly sets forth the understanding between you and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us. It is understood that acceptance of this letter by the Representatives on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company for examination, upon request, but without warranty on the part of the Representatives as to the authority of the signers thereof.


Very truly yours,

EFJ, INC.

By:
Name:
Title:

Accepted as of the date first above written

X.X. XXXXXXX & SONS, INC.

XXXXXXX & COMPANY, LLC

X.X. XXXXXXXXX, TOWBIN, LLC

as Representatives of the several Underwriters named in Schedule I hereto

By: X.X. XXXXXXX & SONS, INC.


By:
Name:
Title:		Managing Director

SCHEDULE I


Underwriter		Total Number of Firm Shares to be Purchased
X.X. Xxxxxxx & Sons, Inc.		2,850,000
Xxxxxxx & Company, LLC		1,995,000
X.X. Xxxxxxxxx, Towbin, LLC		855,000
Feltl and Company		60,000
Xxxxxx Xxxxxxxxxx Xxxxx LLC		60,000
Xxxx Xxxxx Xxxx Xxxxxx, Incorporated		60,000
Xxxxxxxxxx & Co, LLC		60,000
Xxxxxx Xxxxxx & Company, Inc.		60,000

Total		6,000,000

SCHEDULE II

Persons Subject to Lock-Up Agreement

Xxxx Xxxxxxxxx Xxxx

Xxxxxx X. Xxxxxxx

Xxxxxxx X. Xxxxxx

Xxxxxxxx X. Xxxxxxx

Xxxxxx Xxxxxxx

Xxxxxxx X. Xxxxxxx

Xxxxxxx Xxxxxx

R. Xxxxxx Xxxxxx

Xxxxx X’Xxxx

Xxx Xxxxx

Xxxxxx X. Xxxxxxx

Xxxxxxx X. Xxxx

EXHIBIT A

Form of Opinion of General Counsel

(1) Each of the Company and Transcrypt International, Inc. (“Transcrypt”) is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware. X.X. Xxxxxxx Company (“X.X. Xxxxxxx”) is a corporation duly incorporated, validity existing and in good standing under the laws of Minnesota. Each of the Company and its subsidiaries is duly qualified to transact business as a foreign corporation in each jurisdiction in which such counsel has knowledge that the character or location of its properties, whether owned, leased or operated, or the nature or conduct of its business makes such qualification necessary. Each of the Company and its subsidiaries has full corporate power and authority to conduct its business as now being conducted and as described in the Registration Statement and the Prospectus.

(2) The Company has an authorized and outstanding capitalization as set forth in the Registration Statement and the Prospectus. All of the outstanding shares of the capital stock of the Company and its subsidiaries have been duly authorized, validly issued and are fully paid and nonassessable and were not issued in violation of, or subject to, any preemptive rights or, to such counsel’s knowledge, rights of first refusal or similar rights.

(3) To such counsel’s knowledge, there are no outstanding options, warrants or other rights calling for the issuance of, and no commitments, obligations, plans or arrangements to issue, any shares of capital stock of the Company or any security convertible into or exchangeable for capital stock of the Company, except as disclosed in the Registration Statement and the Prospectus. The outstanding stock options relating to the Common Stock have been duly authorized and validly issued, and conform to the descriptions thereof contained in the Registration Statement and the Prospectus.

(4) Neither the Company nor any subsidiary thereof is in violation of its respective certificate of incorporation or by-laws or other organizational documents and, to the best of such counsel’s knowledge, neither the Company nor any subsidiary thereof is in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument to which the Company or any subsidiary thereof is a party or by which the Company or any subsidiary thereof or their respective property is bound and that is an exhibit to the Registration Statement or to any document incorporated therein by reference, except for any such default that would not have a Material Adverse Effect.

(5) All of the outstanding capital stock of, or other ownership interests in, the Company’s subsidiaries are owned by the Company, free and clear of any security interest, mortgage, pledge, claim, lien, limitation on voting rights or other encumbrance (except as provided for in the Credit Facility); and all such interests have been duly and validly authorized and issued and are fully paid and nonassessable, and none of such interests was issued in violation of any preemptive rights, rights of first refusal or similar rights.

(6) All descriptions in the Registration Statement of legal and governmental proceedings are accurate and fairly present the information required to be shown. To such counsel’s knowledge, there is no litigation or any governmental action, suit or proceeding that is pending or, to such counsel’s knowledge, contemplated, to which the Company or any subsidiary thereof is or will be a party, or to which any property of the Company or any subsidiary thereof,

whether owned, leased or operated, is or may be subject, or that has as the subject matter thereof any officer or director of the Company or any subsidiary thereof, that is required to be disclosed in the Registration Statement or the Prospectus.

(7) The statements (A) in Item 15 of Part II of the Registration Statement and (B) in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 under Item 10, “Directors and Executive Officers of the Registrant” and Item 13, “Certain Relationships and Related Transactions,” insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly present and summarize, in all material respects, the matters referred to therein.

(8) All descriptions in the Registration Statement of contracts and other documents to which the Company is a party are accurate in all material respects and fairly present the information required to be shown. To such counsel’s knowledge, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement, or to be filed as exhibits thereto or to any document incorporated by reference therein, other than those described or referred to therein or so filed as exhibits, and the descriptions thereof or references thereto are correct in all material respects.

(9) The Company and its subsidiaries own or possess, or can acquire on reasonable terms, all Intellectual Property currently employed by them in connection with the business now operated by them, except where the failure to own or possess or otherwise be able to acquire such Intellectual Property would not, singly or in the aggregate, have a Material Adverse Effect; and to such counsel’s knowledge, neither the Company nor any subsidiary thereof has received any notice of infringement of or conflict with asserted rights of others with respect to any Intellectual Property that, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, except as disclosed in the Registration Statement or the Prospectus or would not have a Material Adverse Effect.

EXHIBIT B

Form of Opinion of Corporate Counsel

(1) The Shares to be delivered on the Closing Date have been duly authorized and, upon delivery to the Underwriters against payment therefor in accordance with this Agreement, will be validly issued, fully paid and nonassessable and will not have been issued in violation of, or subject to, any preemptive rights or, to such counsel’s knowledge, rights of first refusal or similar rights, and no holder of such Shares will be subject to personal liability by reasons of being such a holder. The authorized capital stock of the Company, including the Firm Shares and any Additional Shares, conform to the descriptions thereof contained in the Registration Statement and the Prospectus.

(2) This Agreement and the transactions contemplated herein have been duly authorized by the Company, and this Agreement has been duly executed and delivered by the Company.

(3) The documents incorporated by reference in the Prospectus pursuant to Item 12 of Form S-3 under the Act, at the time they were filed or, if amended, as so amended (other than the financial statements and schedules and other financial data included therein, as to which no opinion need be rendered), complied as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder.

(4) The execution and delivery of this Agreement, and the performance by the Company of its terms, do not and will not (A) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event that with notice or lapse of time, or both, would constitute a default) or Repayment Event under, require approval or consent under, or result in the creation or imposition of any lien, charge or other encumbrance upon any property or assets of the Company or its subsidiaries pursuant to any material agreement or instrument that is an exhibit to the Registration Statement or to any document incorporated by reference therein (except for such conflicts, breaches and defaults that would not have a Material Adverse Effect) or (B) violate (i) any provision of the certificate of incorporation or by-laws of the Company, Transcrypt or X.X. Xxxxxxx or (ii) any statute, rule or regulation of any governmental or regulatory agency or body of the State of Delaware of the United States of America or any court having jurisdiction over the Company or its subsidiaries or any of their respective properties or assets or any order, writ, judgment or decree known to such counsel. No consent, approval, authorization, order, registration, qualification, license or permit of, or filing with, any governmental authority or agency of the State of New York or Delaware of the United States of America or any court having jurisdiction over the Company or its subsidiaries or any of their respective properties or assets is required in connection with the consummation of the transactions contemplated by this Agreement, the Registration Statement or the Prospectus, including the issuance, sale and delivery of the Shares to be issued, sold and delivered by the Company hereunder, except such as have been obtained under the Act and such as may be required under state securities or Blue Sky laws, or with the NASD, in connection with the purchase and distribution of the Shares by the Underwriters.

(5) Neither the Company nor any subsidiary thereof is, nor upon consummation of the transactions contemplated hereby will be, subject to registration as an “investment company” or an entity “controlled” by an “investment company” under the Investment Company Act.

(6) The Registration Statement and the Prospectus, and any amendments or supplements thereto (other than the financial statements and schedules and other financial data included or incorporated by reference therein, as to which no opinion need be rendered), comply as to form in all material respects with the requirements of the Act and the Regulations (and, if filed by electronic transmission pursuant to XXXXX, were identical to the copies thereof delivered to the Underwriters for use in connection with the offer and sale of the Shares).

(7) The Registration Statement has become effective under the Act; to such counsel’s knowledge, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or supplement thereto, or suspending the registration or qualification of the Shares, has been issued by the Commission and no proceeding for that purpose has been instituted or is pending or threatened under the Act; any required filing of the Prospectus pursuant to Rule 424(b) of the Regulations has been made in the manner and within the time period required by such Rule 424(b); and the Shares to be sold under this Agreement to the Underwriters have been approved for quotation on the Nasdaq National Market.

(8) The statements under the caption “Description of Capital Stock” in the Prospectus, insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly present and summarize, in all material respects, the matters referred to therein.

(9) To such counsel’s knowledge, no holder of any securities of the Company has any rights to the registration of securities of the Company, or other similar rights to have any securities of the Company included in the offering contemplated by this Agreement, because of the filing of the Registration Statement or otherwise in connection with the sale of the Shares contemplated hereby and any Additional Shares included in the Registration Statement.

In addition, such counsel shall state that they have not independently verified the accuracy, completeness or fairness of the statements made or included in the Registration Statement or the Prospectus (including the Exchange Act documents incorporated therein) and that they take no responsibility therefore, except as and to the extent set forth in paragraph (8) above. In the course of the preparation by the Company of the Registration Statement and the Prospectus (excluding the Exchange Act documents incorporated therein), such counsel shall state that they participated in conferences with certain officers and employees of the Company, with representatives of the Company’s independent accountants, with other counsel to the Company and with the Representatives and counsel for the Underwriters. Based upon such counsel’s examination of the Registration Statement and the Prospectus (including the Exchange Act documents incorporated therein) and such counsel’s investigations made in connection with the preparation of the Registration Statement and the Prospectus (excluding the Exchange Act documents incorporated therein) and such counsel’s participation in the conferences referred to above, such counsel had no reason to believe that the Registration Statement, as of its effective date (including the Exchange Act documents incorporated therein on file with the Commission on such effective date), contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading or that the Prospectus (including the Exchange Act documents incorporated therein) as of its date contained, or, as of such time and delivery, contains, any untrue statement of a material fact or omitted or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that in each case such counsel need express no belief with respect to the financial statements or other financial data contained or incorporated by reference in the Registration Statement or the Prospectus or the Exchange Act documents incorporated therein.

In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the federal laws of the United States and the laws of the State of New York and Delaware, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Counsel for the Underwriters) of other counsel reasonably acceptable to Counsel for the Underwriters, familiar with the applicable laws and (B) as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and certificates or other written statements of officers of departments of various jurisdictions having custody of documents regarding the corporate existence or good standing of the Company and its subsidiaries, provided that copies of any such statements or certificates shall be delivered to Counsel for the Underwriters.

EXHIBIT C

[Form of Lock-Up Agreement]

August , 2005

X.X. Xxxxxxx & Sons, Inc.

Xxxxxxx & Company, LLC

X.X. Xxxxxxxxx, Towbin, LLC

as Representatives of the several Underwriters


c/o		X.X. Xxxxxxx & Sons, Inc.
		Xxx Xxxxx Xxxxxxxxx Xxxxxx
		Xx. Xxxxx, Xxxxxxxx 00000

Ladies and Gentlemen:

The undersigned is a holder of securities of EFJ, Inc., a Delaware corporation (the “Company”), and wishes to facilitate the public offering of shares of the Common Stock, par value $0.01 per share (the “Common Stock”), of the Company (the “Offering”). The undersigned recognizes that such 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 the undersigned will not, without the prior written consent of X.X. Xxxxxxx & Sons, Inc. (“X.X. Xxxxxxx”) acting on its own behalf or on behalf of the other underwriters, directly or indirectly, issue, sell, offer, agree to sell, grant any option or contract for the sale of, pledge, make any short sale of, maintain any short position with respect to, establish or maintain a “put equivalent position” (within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934) with respect to, enter into any swap, derivative transaction or other arrangement (whether any such transaction is to be settled by delivery of Common Stock, other securities, cash or other consideration) that transfers to another, in whole or in part, any of the economic consequences of ownership, or otherwise dispose of, any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, capital stock of the Company or interest therein or any capital stock of the Company’s subsidiaries (except that that the undersigned may acquire shares of Common Stock or options to purchase such shares under any stock or option plan as in existence on the date hereof or pursuant to the undersigned’s currently outstanding options, provided that such shares shall be subject to the provisions of this letter) that the undersigned may now or hereafter own (including, without limitation, Common Stock that may be deemed to be beneficially owned by the undersigned within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, the “Shares”), for a period commencing as of the date that the registration statement in connection with the Offering is filed by the Company with the Securities and Exchange Commission and ending on the date that is 90 days after the final prospectus in connection with the Offering is filed by the Company with the Securities and Exchange Commission (such period, the “Lock-Up Period”), subject to extension as provided below. The undersigned confirms that the undersigned understands that you, as underwriters for the Offering, and the Company will rely upon the representations set forth in this letter in proceeding with the Offering.

If (a) the Company issues an earnings release or material news or a material event relating to the Company occurs during the last 17 days of the Lock-Up Period or (b) prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the Lock-Up Period, then, if the Company and X.X. Xxxxxxx mutually agree, the restrictions imposed by this letter shall continue to apply until the expiration of the 18-day period beginning on the issuance of such earnings release or the occurrence of such material news or material event.

The undersigned hereby acknowledges and agrees that written notice of confirmation of the agreement to any extension of the Lock-Up Period pursuant to the previous paragraph will be delivered by or on behalf of X.X. Xxxxxxx to the Company (in accordance with the notice provisions of the underwriting agreement entered into between the Company and you in connection with the Offering), which notice will be promptly delivered by or on behalf of the Company to the undersigned at the undersigned’s address maintained by the transfer agent for the Common Stock, and that any such notice so delivered will be deemed to have been given to, and received by, the undersigned.

Notwithstanding the foregoing, the undersigned may transfer any of the Shares (a) as a bona fide gift or gifts, (b) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned or (c) if the undersigned is a corporation, to any wholly owned subsidiary of such corporation, provided that in any such case, it shall be a condition to any such transfer that (i) any donee of any such gift, the trustee of any such trust, such subsidiary or other transferee be bound in writing by the restrictions set forth herein by executing and delivering a letter in form and substance similar to this letter and (ii) such transfer shall not involve a disposition for value. For purposes of this Agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin. The undersigned now has, and, except as contemplated by clause (a), (b) or (c) above, through the expiration of the Lock-Up Period, as it may be extended, will have, good and marketable title to the Shares, free and clear of all liens, encumbrances, and claims whatsoever.

The undersigned further confirms that the agreements of the undersigned set forth in this letter are irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns. The undersigned agrees and consents to the placing of legends or entry of stop transfer instructions with the Company’s transfer agent against the transfer of the Shares by the undersigned except in compliance with this letter.

This letter shall be binding on the undersigned and the undersigned’s respective successors, heirs, personal representatives and assigns. This Agreement shall lapse and become null and void if the first closing of the Offering shall not have occurred on or prior to September 30, 2005.

Very truly yours,

Print Name of Stockholder

Signature

The Company requests that this letter be executed and delivered to the Company’s counsel, Manatt, Xxxxxx & Xxxxxxxx, LLP, 00000 Xxxx Xxxxxxx Xxxxxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, Attn: Xxxxxxxx Xxxxxxx, Esq.

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6,000,000 Shares of Common Stock EFJ, Inc. UNDERWRITING AGREEMENT August 18, 2005

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