EXHIBIT 4.3
___________________________________
Registration Rights Agreement
by and between
CMC Industries, Inc.
and
Cortelco Systems, Inc.
March 15, 1999
___________________________________
TABLE OF CONTENTS
PAGE
1. DEFINITIONS.......................................................... 1
1.1 Registration................................................ 1
1.2 Registrable Securities...................................... 1
1.3 Holder...................................................... 1
1.4 Form S-3.................................................... 1
1.5 SEC......................................................... 1
2. PIGGYBACK REGISTRATIONS.............................................. 2
2.1 Underwriting................................................ 2
2.2 Expenses.................................................... 3
3. FORM S-3 REGISTRATION................................................ 3
3.1 Notice...................................................... 3
3.2 Registration................................................ 3
3.3 Expenses.................................................... 4
4. OBLIGATIONS OF THE COMPANY........................................... 4
5. FURNISH INFORMATION.................................................. 5
6. [INTENTIONALLY OMITTED].............................................. 5
7. INDEMNIFICATION...................................................... 5
7.1 By the Company.............................................. 5
7.2 By Selling Holders.......................................... 6
7.3 Notice...................................................... 6
7.4 Defect Eliminated in Final Prospectus....................... 7
7.5 Contribution................................................ 7
7.6 Survival.................................................... 8
8. "MARKET STAND-OFF" AGREEMENT......................................... 8
9. RULE 144 REPORTING................................................... 8
10. TERMINATION OF THE COMPANY'S OBLIGATIONS............................. 9
11. ASSIGNMENT AND AMENDMENT............................................. 9
11.1 Assignment.................................................. 9
11.2 Amendment of Rights......................................... 9
12. REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 9
i
TABLE OF CONTENTS
(CONTINUED)
PAGE
12.1 Capital Stock.............................................. 9
12.2 Authority Relative to this Agreement....................... 10
12.3 No Conflict; Required Filings and Consents................. 11
12.4 Financial Statements and No Material Changes............... 11
12.5 Liabilities................................................ 12
12.6 CSI Covenants.............................................. 12
13. GENERAL PROVISIONS.................................................. 12
13.1 Notices.................................................... 12
13.2 Entire Agreement........................................... 12
13.3 Governing Law.............................................. 13
13.4 Severability............................................... 13
13.5 Third Parties.............................................. 13
13.6 Successors And Assigns..................................... 13
13.7 Captions................................................... 13
13.8 Counterparts............................................... 13
13.9 Costs And Attorneys' Fees.................................. 13
ii
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into by and
between CMC Industries, Inc. ("CMC") and Cortelco Systems, Inc. (the "Company")
as of March 15, 1999.
WHEREAS, CMC is or will be the recipient of common stock of the Company
upon the distribution thereof to CMC by Cortelco Systems Holding Corp. ("CSHC"),
and
WHEREAS, as an inducement to Holder to facilitate such distribution and
participate therein, the Company has agreed to grant CMC certain registration
rights on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the covenants agreements set forth
herein, and for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
1.1 REGISTRATION. The terms "REGISTER," "REGISTERED" and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement in compliance with the 1933 Act, and the declaration or
ordering of effectiveness of such registration statement.
1.2 REGISTRABLE SECURITIES. The term "REGISTRABLE SECURITIES" means:
(a) all the shares of Common Stock of the Company issued or issuable from time
to time to CMC and (b) any shares of Common Stock issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, all such shares of Common Stock described in clause (a) of
this Section 1.2, excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which rights under this Agreement are not
assigned in accordance with this Agreement or any Registrable Securities sold to
the public or sold pursuant to Rule 144 promulgated under the 1933 Act.
1.3 HOLDER. For purposes of this Agreement, the term "HOLDER" means
CMC and/or any assignee of record of Registrable Securities to whom rights under
this Agreement have been duly assigned in accordance with this Agreement.
1.4 FORM S-3. The term "FORM S-3" means such form under the 1933 Act
as is in effect on the date hereof or any successor registration form under the
1933 Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
1.5 SEC. The term "SEC" or "COMMISSION" means the U.S. Securities and
Exchange Commission.
1.
2. PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least ten (10) days prior to filing any
registration statement under the 1933 Act for purposes of effecting a public
offering of securities of the Company (including, but not limited to,
registration statements relating solely to secondary offerings of securities of
the Company, but excluding registration statements on Form S-8 or Form S-4
relating to any employee benefit plan or a corporate reorganization) and will
afford each such Holder an opportunity to include in such registration statement
all or any part of the Registrable Securities then held by such Holder. Each
Holder desiring to include in any such registration statement all or any part of
the Registrable Securities held by such Holder shall, within twenty (20) days
after receipt of the above-described notice from the Company, so notify the
Company in writing, and in such notice shall inform the Company of the number of
Registrable Securities such Holder wishes to include in such registration
statement. If a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
2.1 UNDERWRITING. If a registration statement under which the Company
gives notice under this Section 2 is for an underwritten offering, then the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
Company, and second, to each of the Holders requesting inclusion of their
Registrable Securities in such registration statement on a pro rata basis based
on the total number of Registrable Securities then held by each such Holder;
provided, however, that the right of the underwriters to exclude shares
(including Registrable Securities) from the registration and underwriting as
described above shall be restricted so that (i) the number of Registrable
Securities included in any such registration is not reduced below seventeen and
one-half percent (17.5%) of the shares included in the registration, and (ii)
any such exclusion shall be allocated pro rata among selling stockholders on the
basis of the number of shares proposed to be sold in the underwriting, provided
that Registerable Securities shall comprise not less than forty percent (40%) of
the shares to be sold by such selling stockholders. If any Holder disapproves of
the terms of any such underwriting, such Holder may elect to withdraw therefrom
by written notice to the Company and the underwriter, delivered at least two (2)
days prior to the effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration.
2.
2.2 EXPENSES. All expenses incurred in connection with a registration
pursuant to this Section 2 (excluding underwriters' and brokers' discounts and
commissions), including, without limitation all federal and "blue sky"
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company shall be borne by the Company.
3. FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, then the Company will:
3.1 NOTICE. Promptly give written notice of the proposed registration
and the Holder's or Holders' request therefor, and any related qualification or
compliance, to any other Holders of Registrable Securities; and
3.2 REGISTRATION. As soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within ten (10) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section 3:
(A) if Form S-3 is not available for such offering by the
Holders;
(B) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than $500,000;
(C) if the Company shall furnish to the Holders a certificate
signed by the President or Chief Executive Officer of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement no more
than once during any twelve month period for a period of not more than 90 days
after receipt of the request of the Holder or Holders under this Section 3;
(D) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 3; or
(E) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance and where
the Company has not previously qualified to do business or given such a general
consent to service in such jurisdiction.
3.
3.3 EXPENSES. Subject to the foregoing, the Company shall file a Form
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered pursuant to this Section 3 as soon as
practicable after receipt of the request or requests of the Holders for such
registration. The Company shall pay all expenses incurred in connection with
each registration requested pursuant to this Section 3, (excluding underwriters'
or brokers' discounts and commissions), including without limitation all filing,
registration and qualification, printers' and accounting fees and counsel for
the Company.
4. OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
4.1 Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to ninety (90) days.
4.2 Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement.
4.3 Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by them that are
included in such registration.
4.4 Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
4.5 In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such agreement.
4.6 Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
4.
4.7 Furnish, at the request of any Holder requesting registration of
Registrable Securities, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a "comfort"
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2 or 3 that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to timely effect the
registration of their Registrable Securities.
6. [INTENTIONALLY OMITTED].
7. INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Sections 2 or 3:
7.1 BY THE COMPANY. To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors of
each Holder, any underwriter (as defined in the ▇▇▇▇ ▇▇▇) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the 1933 Act or the Securities Exchange Act of 1934, as amended, (the "1934
ACT"), against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the 1933 Act, the 1934 Act or other federal
or state law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "VIOLATION"):
(A) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto;
(B) the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the statements therein
not misleading; or
(C) any violation or alleged violation by the Company of the
1933 Act, the 1934 Act, any federal or state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any federal or state
securities law in connection with the offering
5.
covered by such registration statement; and the Company will reimburse each such
Holder, partner, officer or director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 7.1 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, partner, officer, director, underwriter or controlling person of
such Holder.
7.2 BY SELLING HOLDERS. To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the 1933 Act, any underwriter and
any other Holder selling securities under such registration statement or any of
such other Holder's partners, directors or officers or any person who controls
such Holder within the meaning of the 1933 Act or the 1934 Act, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, partner or director, officer or controlling person of such other Holder
may become subject under the 1933 Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or other Holder,
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 7.2 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld; and
provided further, that the total amounts payable in indemnity by a Holder under
this Section 7.2 in respect of any Violation shall not exceed the net proceeds
received by such Holder in the registered offering out of which such Violation
arises.
7.3 NOTICE. Promptly after receipt by an indemnified party under this
Section 7.3 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7.3, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential
6.
conflict of interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 7.3, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 7.3.
7.4 DEFECT ELIMINATED IN FINAL PROSPECTUS. The foregoing indemnity
agreements of the Company and Holders are subject to the condition that, insofar
as they relate to any Violation made in a preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the SEC at the time the
registration statement in question becomes effective or the amended prospectus
filed with the SEC pursuant to SEC Rule 424(b) (the "FINAL PROSPECTUS"), such
indemnity agreement shall not inure to the benefit of any person if a copy of
the Final Prospectus was furnished to the indemnified party and was not
furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the ▇▇▇▇ ▇▇▇.
7.5 CONTRIBUTION. In order to provide for just and equitable
contribution to joint liability under the 1933 Act in any case in which either
(i) any Holder exercising rights under this Agreement, or any controlling person
of any such Holder, makes a claim for indemnification pursuant to this Section 7
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 7 provides for
indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of any such selling Holder or any such controlling person
in circumstances for which indemnification is provided under this Section 7;
then, and in each such case, the Company and such Holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the acts or omissions which
resulted in such loss, claim, damage or liability, as well as any other relevant
equitable considerations; provided, however, that, in any such case, (A) no such
Holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered and sold by such
Holder pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the ▇▇▇▇ ▇▇▇) will be entitled to contribution from any person or entity who was
not guilty of such fraudulent misrepresentation.
7.6 SURVIVAL. The obligations of the Company and Holders under this
Section 7 shall survive the completion of any offering of Registrable Securities
in a registration statement, and otherwise.
8. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it shall
not, to the extent requested by the Company or an underwriter of securities of
the Company, sell or otherwise transfer or dispose of any Registrable Securities
or other shares of stock of the
7.
Company then owned by such Holder (other than to donees or partners of the
Holder who agree to be similarly bound or to any officer or director of the
Company) from the effective date of a registration statement of the Company
filed under the 1933 Act until up to one-hundred eighty (180) days following
such effective date; provided, however, that:
(A) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold on its
behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such registration statement; and
(B) all officers and directors of the Company then holding
Common Stock of the Company and all beneficial holders of 5% or more of the
Company's Common Stock enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the shares subject to
this Section and to impose stop transfer instructions with respect to the
Registrable Securities and such other shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
9. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(A) make and keep public information available, as those terms
are understood and defined in Rule 144 promulgated under the 1933 Act, at all
times after the effective date of the first registration under the 1933 Act
filed by the Company for an offering of its securities to the general public;
(B) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the 1933
Act and the 1934 Act (at any time after it has become subject to such reporting
requirements); and
(C) so long as a Holder owns any Registrable Securities, furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the 1933 Act and the 1934 Act (at any time after it has become subject to
the reporting requirements of the 1934 Act), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the 1934 Act).
8.
10. TERMINATION OF THE COMPANY'S OBLIGATIONS. The Company shall have no
obligations pursuant to Sections 2 through 9 with respect to: (a) any request or
requests for registration made by any Holder on a date more than five (5) years
after the closing date of the Company's initial public offering; or (b) any
Registrable Securities proposed to be sold by a Holder in a registration
pursuant to Section 2 (other than in the initial public offering by the Company)
or 3 if, in the opinion of counsel to the Company, all such Registrable
Securities proposed to be sold by a Holder may be sold in a three-month period
without registration under the 1933 Act pursuant to Rule 144 promulgated under
the 1933 Act.
11. ASSIGNMENT AND AMENDMENT.
11.1 ASSIGNMENT. The registration rights of a Holder hereunder may be
assigned only to a party who acquires at least ten percent (10%) of the
Registrable Securities issued to CMC in the CSHC distribution; provided,
however, that no party may be assigned any of the foregoing rights unless the
Company is given written notice by the assigning party at the time of such
assignment stating the name and address of the assignee and identifying the
securities of the Company of which the rights in question are being assigned;
and provided further that any such assignee shall receive such assigned rights
subject to all the terms and conditions of this Agreement, including without
limitation and the provisions of this Section.
11.2 AMENDMENT OF RIGHTS. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of a majority of the Registrable
Securities then outstanding. Any amendment or waiver effected in accordance with
this Section 11.2 shall be binding upon each Holder, each permitted successor or
assignee of such Holder and the Company.
12. REPRESENTATIONS, WARRANTIES AND COVENANTS.
12.1 CAPITAL STOCK. The Company has an authorized capitalization
consisting of 81,000,000 shares of common stock, $.0001 par value, of which
31,706,871 shares are issued and outstanding, 3,347,669 shares a unissued but
authorized for issuance pursuant to issued stock options, and 14,632,062 shares
of preferred stock, $.0001 par value, of which 14,632,062 shares have been
designated as Series A, none of which are issued and outstanding. All such
outstanding shares have been duly authorized and validly issued and are fully
paid and nonassessable. The Company intends to enter into a Merger Agreement
with BCS Technologies, Inc. ("BCS") pursuant to which a subsidiary of the
Company will merge with and into BCS (the "Merger"), the former stockholders of
BCS will receive an aggregate of 39,811,807 shares of the Company's Common
Stock, and an additional 964,955 shares of Common Stock will be reserved for
issuance upon exercise of outstanding BCS stock options assumed in the Merger.
Immediately prior to the Merger, the Company plans to issue 5,700,868 shares of
Common Stock to CSHC in connection with the acquisition of Cortelco Puerto Rico,
Inc. In connection with the Merger, the Company also intends to effect a reverse
split of the Company's Common Stock by means of amendment of its Certificate of
Incorporation changing the par value per share of the Company's Common Stock
from $.0001 to $.001, and convert each share of the Company's Common Stock
outstanding at the effective time of the amendment into one-tenth (1/10th) share
9.
of the Company's Common Stock (the "Reverse Split"). Such amendment shall change
the par value per share of each share of Series A Preferred Stock of the Company
from $.0001 to $.001, with a corresponding reduction in the number of shares of
Series A Preferred Stock authorized. In addition to the foregoing changes, the
Certificate of Incorporation of the Company shall be further amended to increase
the authorized Company Common Stock (after consideration of the effect of the
Reverse Split) to 50,000,000 shares and increase the authorized Series A
Preferred Stock (after consideration of the effect of the Reverse Split) to
5,000,000 shares. After taking into account the effects of the Puerto Rico
acquisition and the Merger (but not the Reverse Split), immediately after the
Merger, 77,219,546 shares of the Company's Common Stock will be issued and
outstanding, 10,450,470 shares will be unissued but authorized for issuance
pursuant to issued stock options, and 14,348,944 shares will be unissued but
authorized for issuance pursuant to conversion rights under the Series A
Preferred Stock (all of such shares totaling 102,018,960 shares). There are no
subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which CSI is a party or by which
it is bound obligating CSI to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of CSI or obligating CSI to
grant, extend, accelerate the vesting of or enter into any such subscription,
option, warrant, equity security, call, right, commitment or agreement.
12.2 AUTHORITY RELATIVE TO THIS AGREEMENT. CSI has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by CSI and the
consummation by CSI of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of CSI and no
other corporate proceedings on the part of CSI are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by CSI and, assuming the due
authorization, execution and delivery by CMC, constitutes legal and binding
obligations of CSI, enforceable against CSI in accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other laws of general application affecting
enforcement of creditor's rights generally, as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, or (ii) to the extent this Agreement may be limited by applicable
federal or state securities laws or public policy considerations.
12.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(A) The execution and delivery of this Agreement does not, and
the performance of this Agreement or the Registration Rights Agreement by CSI
shall not, (i) conflict with or violate the Certificate of Incorporation or
Bylaws of CSI, (ii) conflict with or violate any law, rule, regulation, order,
judgement or decree applicable to CSI or by which its properties is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
impair CSI's rights or alter the rights or obligations of any third party under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on
10.
any of the properties or assets of CSI pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which CSI is a party or by which CSI or its
properties are bound or affected.
(B) The execution and delivery of this Agreement and the
Registration Rights Agreement do not, and the performance of this Agreement and
the Registration Rights Agreement by CSI shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
court, administrative agency, commission, governmental or regulatory authority,
domestic or foreign, except (A) for the applicable requirements, if any, of the
Securities Act, the Exchange Act, the Blue Sky Laws and (B) where the failure to
obtain such consent, approvals, authorizations or permits, or to make such
filings or notifications, would not be material to the CSI or have a material
Adverse effect on the parties hereto, prevent consummation of the transactions
contemplated by this Agreement or otherwise prevent the parties hereto from
performing their obligations under this Agreement.
12.4 FINANCIAL STATEMENTS AND NO MATERIAL CHANGES. The Company has
heretofore furnished CMC with the unaudited balance sheets of the Company as of
January 31, 1999, and as of July 31, 1998, and the related statements of income,
cash flow and stockholders' equity for the periods then ended (the "Company
Financial Statements"). Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods indicated; provided, however, that certain year-end audit
adjustments have not been made and such financial statements omit footnotes
otherwise required by generally accepted accounting principles. The balance
sheets included in the Company Financial Statements fairly present the financial
condition of the Company at the dates thereof and, except as indicated therein,
reflect all claims against and all debts and liabilities of the Company, fixed
or contingent, as at the dates thereof; and the related statements of income,
cash flow and stockholders' equity fairly present the results of the operations
of the Company. Since January 31, 1999, there has been (i) no material adverse
change in the Company, whether as a result of any legislative or regulatory
change, revocation of any license or rights to do business, fire, explosion,
accident, casualty, labor trouble, flood, drought, riot, storm, condemnation or
action of God or other public force or otherwise and (ii) to Company's
knowledge, no fact or condition exists or is contemplated or threatened which
might cause such a material adverse change in the future.
12.5 LIABILITIES. The Company has no outstanding claims, liabilities
or indebtedness, contingent or otherwise, except as set forth in the Company
Financial Statements or referred to in any footnotes thereto, other than
liabilities incurred subsequent to January 31, 1999 in the ordinary course of
business. The Company is not in default in respect of the terms or conditions of
any indebtedness.
12.6 CSI COVENANTS. The Company covenants and agrees that it will use
its best efforts to complete the Merger within thirty (30) days of the date of
this Agreement.
13. GENERAL PROVISIONS.
11.
13.1 NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, as follows:
(A) if to CMC, at:
CEO and CFO
CMC Industries, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
(B) if to the Company, at:
President
Cortelco Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
13.2 ENTIRE AGREEMENT. This Agreement, together with all the Exhibits
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the registration rights of CMC
described herein.
13.3 GOVERNING LAW. This Agreement shall be governed by and construed
exclusively in accordance with the internal laws of the State of California as
applied to agreements among California residents entered into and to be
performed entirely within California, excluding that body of law relating to
conflict of laws and choice of law.
13.4 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
12.
13.5 THIRD PARTIES. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.6 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section
11.1, the provisions of this Agreement shall inure to the benefit of, and shall
be binding upon, the successors and permitted assigns of the parties hereto.
13.7 CAPTIONS. The captions to sections of this Agreement have been
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
13.8 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
13.9 COSTS AND ATTORNEYS' FEES. In the event that any action, suit or
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
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13.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
THE COMPANY: HOLDER:
CORTELCO SYSTEMS, INC. CMC INDUSTRIES, INC.
By: /s/ By: /s/
---------------------------- ---------------------------
Title: ________________________ Title: _______________________
