Exhibit 4.2
CORTELCO SYSTEMS, INC.
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INVESTOR RIGHTS AGREEMENT
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Dated as of July 31, 1997
TABLE OF CONTENTS
PAGE
Article 1 General......................................... 1
1.1 Definitions..................................... 1
Article 2 Registration; Restrictions On Transfer.......... 3
2.1 Restrictions on Transfer........................ 3
2.2 Demand Registration............................. 4
2.3 Piggyback Registrations......................... 5
2.4 Form S-3 Registration........................... 6
2.5 Expenses of Registration........................ 7
2.6 Obligations of the Company...................... 8
2.7 Termination of Registration Rights.............. 9
2.8 Delay of Registration; Furnishing Information... 9
2.9 Indemnification................................. 10
2.10 Assignment of Registration Rights............... 12
2.11 Amendment of Registration Rights................ 12
2.12 Limitation on Subsequent Registration Rights.... 12
2.13 "Market Stand-Off" Agreement.................... 13
2.14 Rule 144 Reporting.............................. 13
Article 3 Covenants Of The Company........................ 13
3.1 Basic Financial Information and Reporting....... 13
3.2 Inspection Rights............................... 14
3.3 Confidentiality of Records...................... 14
3.4 Reservation of Common Stock..................... 15
3.5 Stock Vesting................................... 15
3.6 Board of Directors Approval..................... 16
3.7 Termination of Covenants........................ 16
Article 4 Rights Of First Refusal......................... 16
4.1 Subsequent Offerings............................ 17
4.2 Exercise of Rights.............................. 17
4.3 Issuance of Equity Securities to Other Persons.. 17
4.4 Termination of Rights of First Refusal.......... 17
4.5 Transfer of Rights of First Refusal............. 17
4.6 Excluded Securities............................. 18
Article 5 Miscellaneous................................... 18
5.1 Governing Law................................... 18
5.2 Survival........................................ 18
5.3 Successors and Assigns.......................... 19
5.4 Severability.................................... 19
5.5 Amendment and Waiver............................ 19
5.6 Delays or Omissions............................. 19
5.7 Notices......................................... 19
5.8 Attorneys' Fees................................. 20
5.9 Titles and Subtitles............................ 20
5.10 Counterparts.................................... 20
5.11 Special Provision Regarding Alcatel............. 20
Exhibit A - Form of Financial Statement
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement ("Agreement") is entered into as of July 31,
1997 by and among CORTELCO SYSTEMS, INC., a Delaware corporation (the
"Company"); CORTELCO SYSTEMS HOLDING CORP. (the "Founder"); CHINAVEST IV, L.P.,
a Delaware Limited Partnership ("ChinaVest IV"); CHINAVEST IV-A, L.P., a
Delaware Limited Partnership ("ChinaVest IV-A"); and CHINAVEST IV-B, L.P., a
Bermuda Limited Partnership ("ChinaVest IV-B). ChinaVest IV, ChinaVest IV-A and
ChinaVest IV-B are collectively referred to herein as "ChinaVest."
RECITALS
WHEREAS, the Company and ChinaVest are entering into the Convertible Note
Purchase Agreement dated as of the date hereof between the Company and ChinaVest
(the "Purchase Agreement"), pursuant to which the Company shall sell and issue a
Convertible Subordinated Note dated as of the date hereof, made by the Company
in favor of ChinaVest (the "Note"); and
WHEREAS, the Note will be convertible into shares of the Company's Series A
Preferred Stock (the "Shares"); and
WHEREAS, as a condition to entering into the Purchase Agreement, ChinaVest
and the Company shall agree to certain registration rights, information rights
and other rights as set forth below.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement and in the
Purchase Agreement, the parties mutually agree as follows:
ARTICLE 1
GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms shall have
the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"HOLDER" means any person owning of record Registrable Securities that have
not been sold to the public or any assignee of record of such Registrable
Securities in accordance with Section 2.10 hereof.
"INITIAL OFFERING" means the Company's first firm commitment underwritten
public offering of its Common Stock registered under the Securities Act.
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"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"REGISTRABLE SECURITIES" means (i) Common Stock of the Company issued or
issuable upon conversion of the Shares issued or issuable upon conversion of the
Note; (ii) Common Stock of the Company held by the Founder as of the date
hereof; and (iii) any Common Stock of the Company 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, such above-described securities. Notwithstanding the
foregoing, Registrable Securities shall not include any securities sold by a
person to the public either pursuant to a registration statement or Rule 144 or
sold in a private transaction in which the transferror's rights under Article 2
of this Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" means the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" means all expenses incurred by the Company in
complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements not to exceed ten
thousand dollars ($10,000) of a single special counsel for the Holders, blue sky
fees and expenses and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts and selling commissions
applicable to the sale.
"SHARES" means the Company's Series A Preferred Stock issued pursuant to
the Purchase Agreement.
"FORM S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities 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.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
ARTICLE 2
REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 RESTRICTIONS ON TRANSFER.
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(a) Each Holder agrees not to make any disposition of all or any
portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by this
Section 2.1, (B) Such Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (C) if reasonably
requested by the Company, such Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and (ii)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by a Holder which is (A) a partnership to its partners or former
partners in accordance with partnership interests, (B) a corporation to its
stockholders in accordance with their interest in the corporation, (C) a limited
liability company to its members or former members in accordance with their
interest in the limited liability company, or (D) to the Holder's family member
or trust for the benefit of an individual Holder, provided the transferee will
be subject to the terms of this Section 2.1 to the same extent as if he were an
original Holder hereunder.
(b) Each certificate representing Shares or Registrable Securities
shall (unless otherwise permitted by the provisions of the Agreement) be stamped
or otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
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(d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
2.2.1 Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from the Holders of more than thirty-five
percent (35%) of the Registrable Securities then outstanding (the "Initiating
Holders") that the Company file a registration statement under the Securities
Act covering the registration of Registrable Securities having an aggregate
offering price to the public in excess of $5,000,000 (a "Qualified Public
Offering"), then the Company shall, within thirty (30) days of the receipt
thereof, give written notice of such request to all Holders, and subject to the
limitations of this Section 2.2, effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities that the
Holders request to be registered.
2.2.2 If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
and the Company shall include such information in the written notice referred to
in Section 2.2.1. In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding any
other provision of this Section 2.2, if the underwriter advises the Company that
marketing factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall so advise
all Holders of Registrable Securities which would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated, first, to the Holders other than the Founder
and its assigns on a pro rata basis based on the total number of Registrable
Securities held by such Holders and, second, to the Founder and its assigns on a
pro rata basis based on the total number of Registrable Securities held by such
Holders (including in each case the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.
2.2.3 The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) prior to the earlier of the Company's Initial Offering or
June 1, 2000; or
(ii) after the Company has effected two (2) registrations
pursuant to this Section 2.2, and such registrations have been declared or
ordered effective; or
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(iii) during the period starting with the date of filing of, and
ending on the date one hundred eighty (180) days following the effective date of
the registration statement pertaining to the Initial Offering; or
(iv) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board 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 registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than ninety (90) days after receipt of the request of the Initiating
Holders; provided that such right to delay a request shall be exercised by the
Company no more than twice in any one-year period.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least twenty (20) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within five (5) days after the above-described notice from the Company,
so notify the Company in writing. Such notice shall state the intended method
of disposition of the Registrable Securities by such Holder. 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 such 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.
2.3.1 UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 2.3 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 underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated, first, to the Company; second, to the Holders other than the
Founder and its assigns on a pro rata basis based on the total number of
Registrable Securities held by such Holders; third, to the Founder and its
assigns on a pro rata basis based on the total number of Registrable Securities
held by such Holders; and fourth, to any stockholder of the Company (other than
a Holder) on a pro rata basis. No such reduction shall reduce the securities
being offered by the Company for
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its own account to be included in the registration and underwriting, and in no
event shall the amount of securities of the selling Holders included in the
registration be reduced below twenty-five percent (25%) of the total amount of
securities included in such registration, unless such offering is the Initial
Offering and such registration does not include shares of any other selling
stockholders, in which event any or all of the Registrable Securities of the
Holders may be excluded in accordance with the immediately preceding sentence.
In no event will shares of any other selling stockholder be included in such
registration which would reduce the number of shares which may be included by
Holders without the written consent of Holders of not less than sixty-six and
two-thirds percent (66 2/3%) of the Registrable Securities proposed to be sold
in the offering.
2.3.2 RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated or withdraw any
registration initiated by it under this Section 2.3 prior to the effectiveness
of such registration whether or not any Holder has elected to include securities
in such registration. The Registration Expenses of such withdrawn registration
shall be borne by the Company in accordance with Section 2.5 hereof.
2.4 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 (or any successor to Form S-3) or
any similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
2.4.1 promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders of Registrable
Securities; and
2.4.2 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 2.4:
(i) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders, or
(ii) 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, or
(iii) if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board of Directors 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 for a
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period of not more than one hundred twenty (120) days after receipt of the
request of the Holder or Holders under this Section 2.4; provided, that such
right to delay a request shall be exercised by the Company nor more than twice
in any one-year period, or
(iv) if the Company has, within the eighteen (18) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 2.4, or
(v) 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.
2.4.3 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 as soon as practicable after receipt of the
request or requests of the Holders. All such Registration Expenses incurred in
connection with registrations requested pursuant to this Section 2.4 after the
first two (2) registrations shall be paid by the selling Holders pro rata in
proportion to the number of shares sold by each. The rights granted in this
Section 2.4 are in addition to the rights granted under Section 2.2.
2.5 EXPENSES OF REGISTRATION. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 2.2 or
2.4, the request of which has been subsequently withdrawn by the Initiating
Holders unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were not aware at the
time of such request or (b) the Holders of a majority of Registrable Securities
(which majority must include ChinaVest for so long as ChinaVest holds or is
deemed to hold at least 2,000,000 shares of Registrable Securities, as presently
constituted) agree to forfeit their right to one requested registration pursuant
to Section 2.2 or Section 2.4, as applicable, in which event such right shall be
forfeited by all Holders. If the Holders are required to pay the Registration
Expenses, such expenses shall be borne by the holders of securities (including
Registrable Securities) requesting such registration in proportion to the number
of shares for which registration was requested. If the Company is required to
pay the Registration Expenses of a withdrawn offering pursuant to clause (a)
above, then the Holders shall not forfeit their rights pursuant to Section 2.2
or Section 2.4 to a demand registration.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
2.6.1 Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities
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registered thereunder, keep such registration statement effective for up to
ninety (90) days or, if earlier, until the Holder or Holders have completed the
distribution related thereto.
2.6.2 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
Securities Act with respect to the disposition of all securities covered by such
registration statement.
2.6.3 Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
2.6.4 Use all reasonable 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.
2.6.5 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 an agreement.
2.6.6 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 Securities 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.
2.6.7 Furnish, at the reasonable request of Holders participating in
the registration, 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 the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities and (ii) a 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 the Holders
requesting registration, addressed to the underwriters, if any, and if permitted
by applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
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2.6.8 Notify each Holder of Registrable Securities covered by such
registration statement and such Holder's underwriters, if any, and confirm such
advice in writing: (i) when the registration statement has become effective,
(ii) when any post-effective amendment to the registration statement becomes
effective and (iii) of any request by the SEC for any amendment or supplement to
the registration statement or prospectus or for additional information after the
registration statement has become effective.
2.6.9 Notify each Holder of Registrable Securities covered by such
registration statement if at any time the SEC should institute or threaten to
institute any proceedings for the purpose of issuing, or should issue, a stop
order suspending the effectiveness of such registration statement. Upon the
occurrence of any of the events mentioned in the preceding sentence, the Company
will use all reasonable efforts to prevent the issuance of any such stop order
or to obtain the withdrawal thereof as soon as possible. The Company will
advise each holder of Registrable Securities promptly of any order or
communication of any public board or body addressed to the Company suspending or
threatening to suspend the qualification of any Registrable Securities for sale
in any jurisdiction.
2.6.10 As soon as practicable after the effective date of the
registration statement, and in any event within sixteen (16) months thereafter,
have "made generally available to its security holders" (within the meaning of
Rule 158 under the Securities Act) an earnings statement (which need not be
audited) covering a period of at least twelve (12) months beginning after the
effective date of the registration statement and otherwise complying with
Section 11(a) of the Securities Act.
2.7 TERMINATION OF REGISTRATION RIGHTS . All registration rights
granted under this Article 2 shall terminate and be of no further force and
effect seven (7) years after the date of the Company's Initial Offering. In
addition, a Holder's registration rights shall expire if (i) the Company has
completed its Initial Offering and is subject to the provisions of the Exchange
Act, (ii) such Holder (together with its affiliates, partners and former
partners) holds less than one percent (1%) of the Company's outstanding Common
Stock (treating all share of convertible Preferred Stock on an as converted
basis) and (iii) all Registrable Securities held by and issuance to such Holder
may be sold under Rule 144 during any ninety (90) day period.
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2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
2.8.1 No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Article 2.
2.8.2 It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.2, 2.3 or 2.4 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 effect the registration of their
Registrable Securities.
2.9 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Sections 2.2, 2.3 or 2.4:
2.9.1 To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers, directors and legal counsel
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange 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") by the Company: (i) 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, (ii) 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
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering 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 in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 2.9.1 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.
2.9.2 To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers, and legal counsel and
each person, if any, who controls the Company within the
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meaning of the Securities 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, 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, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the Exchange 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 under an instrument duly executed by such Holder and stated to be
specifically 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, or
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 2.9.2 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;
provided further, that in no event shall any indemnity under this Section 2.9
exceed the proceeds from the offering received by such Holder.
2.9.3 Promptly after receipt by an indemnified party under this
Section 2.9 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 2.9, 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 differing 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 materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, 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 2.9.
2.9.4 If the indemnification provided for in this Section 2.9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability 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 Violation(s)
11
that resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and of the indemnified party shall be determined by a court of law by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, that in no event shall any
contribution by a Holder hereunder exceed the proceeds from the offering
received by such Holder.
2.9.5 The obligations of the Company and Holders under this Section
2.9 shall survive completion of any offering of Registrable Securities in a
registration statement. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. In the event any offering of Registrable Securities is underwritten,
and the underwriting agreement provides for indemnification and/or contribution
by the Company and the Holders offering securities thereunder, the
indemnification and/or contribution obligations of the Company and the Holders
hereunder shall in no event exceed the obligations of the parties set forth in
such underwriting agreement.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to this Article 2 may be assigned by a
Holder to a transferee or assignee of Registrable Securities which (i) is a
subsidiary, parent, general partner, limited partner, retired partner or
stockholder of a Holder or (ii) is a Holder's family member or trust for the
benefit of a Holder; provided, however, (A) the transferor shall, within ten
(10) days after such transfer, furnish to the Company written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned and (B) such transferee shall
agree to be subject to all restrictions set forth in this Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Article 2 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 at least a majority of the
Registrable Securities (which majority must include ChinaVest for so long as
ChinaVest holds or is deemed to hold 2,000,000 shares of Registrable Securities,
as presently constituted). Any amendment or waiver effected in accordance with
this Section 2.11 shall be binding upon each Holder and the Company. By
acceptance of any benefits under this Article 2, Holders of Registrable
Securities hereby agree to be bound by the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of this
Agreement, the Company shall not, without the prior written consent of the
Holders of a majority of the Registrable Securities (which majority must include
ChinaVest for so long as ChinaVest holds or is deemed to hold at least 2,000,000
shares or Registrable Securities, as presently constituted), enter into any
agreement with any holder or prospective holder of any securities of
12
the Company that would grant such holder registration rights senior to those
granted to the Holders hereunder.
2.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company as the
representative of the underwriters of Common Stock (or other securities) of the
Company, each Holder shall not sell or otherwise transfer or dispose of any
Shares Common Stock (or other securities) of the Company held by such each
Holder (other than those included in the registration) for a period specified by
the representative of the underwriters not to exceed one hundred eighty (180)
days following the effective date of a registration statement of the Company
filed under the Securities Act; provided that all officers and directors of the
Company enter into similar agreements. The obligations described in this
Section 2.13 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms that may be promulgated in the future.
The Company may impose stop-transfer instructions with respect to the shares of
Common Stock (or other securities) subject to the foregoing restriction until
the end of said one hundred eighty (180) day period.
2.14 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, furnish to
such Holder forthwith upon request: a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 of the Securities
Act, and of the Exchange Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report of
the Company; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
ARTICLE 3
COVENANTS OF THE COMPANY
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
3.1.1 The Company will maintain true books and records of account in
which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting
13
principles consistently applied, and will set aside on its books all such proper
accruals and reserves as shall be required under generally accepted accounting
principles consistently applied.
3.1.2 As soon as practicable after the end of each fiscal year of the
Company, and in any event within one hundred twenty (120) days thereafter, the
Company will furnish ChinaVest a consolidated balance sheet of the Company, as
at the end of such fiscal year, and a consolidated statement of income and a
consolidated statement of cash flows of the Company, in substantially the form
attached as Exhibit A hereto, for such year, all prepared in accordance with
generally accepted accounting principles consistently applied and setting forth
in each case in comparative form the figures for the previous fiscal year, all
in reasonable detail. Such financial statements shall be accompanied by a report
and opinion thereon by independent public accountants of national standing
selected by the Company's Board of Directors.
3.1.3 As soon as practicable after the end of each quarter, and in
any event within thirty (30) days thereafter, the Company will furnish to
ChinaVest the unaudited consolidated and consolidating balance sheet of the
Company) and any of its subsidiaries as at the end of such quarter) and the
related unaudited consolidated and consolidating statements of operations,
stockholders' equity and cash flows of the Company (and any such subsidiaries)
for such quarter and for the elapse period of such fiscal year, all in
reasonable detail and stating in comparative form the figures as of the end of
and for the comparable periods of the preceding fiscal year and budgeted figures
for the period. All such financial statements shall be complete and correct in
all material respects and shall be prepared in conformity with accounting
principles generally accepted in the United States and applied on a consistent
basis throughout the periods reflected therein except as stated therein and
shall be accompanied by a certificate of the chief financial officer of the
Company to such effect. Each such financial statement shall be accompanied by a
brief narrative description prepared by management of the operations of the
Company during such period covered thereby, including, without limitation,
identification of relevant trends in the Company's business.
3.1.4 As soon as available, but in any event not later than the end
of each fiscal year the Company, the Company will furnish to ChinaVest the
financial plan of the Company (and any subsidiaries) for the next succeeding
fiscal year, including but not limited to a cash flow projection, operating
budged, calculated monthly, and a business plan for the next three succeeding
fiscal years, and any updates or revisions to any of the foregoing as soon as
available.
3.2 INSPECTION RIGHTS. For so long as ChinaVest shall own not less than
seven million (7,000,000) shares of Registrable Securities (as adjusted for
stock splits and combinations), ChinaVest shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such additional information
regarding the Company as it may reasonably request, including without limitation
any information or reports required by reason of reporting or regulatory
requirements to which ChinaVest is subject, all at such times and as often as
may be reasonably requested.
3.3 CONFIDENTIALITY OF RECORDS.
14
3.3.1 ChinaVest agrees not to use Confidential Information (as
hereinafter defined) of the Company for its own use or for any purpose except to
evaluate and enforce its equity investment in the Company. ChinaVest shall
undertake to treat such Confidential Information in a manner consistent with the
treatment of its own information of such proprietary nature and agrees that it
shall protect the confidentiality of and use its best efforts to prevent
disclosure of the Confidential Information to prevent it from falling into the
public domain or the possession of unauthorized persons. Each transferee of any
ChinaVest who receives Confidential Information shall agree to be bound by such
provisions. For purposes of this Section, "Confidential Information": means any
information, technical data, or know-how, including, but not limited to, the
Company's research, products, software, services, development, inventions,
processes, designs, drawings, engineering, marketing, or finances, disclosed by
the Company either directly or indirectly in writing, orally or by drawings or
inspection of parts or equipment which written material is stamped
"Confidential" or "Proprietary" or if disclosed orally, is promptly confirmed in
writing to be Confidential Information.
3.3.2 Confidential Information does not include information, technical
data or know-how which (i) is in ChinaVest's possession at the time of
disclosure as shown by ChinaVest's files and records immediately prior to the
time of disclosure; (ii) before or after it has been disclosed to ChinaVest, it
is part of the public knowledge or literature, not as a result of any action or
inaction of ChinaVest; or (iii) is disclosed to ChinaVest on a non-confidential
basis by a third party having a legal right to such information, (iv) is
independently developed by ChinaVest, as properly documented by ChinaVest, or
(v) is approved for release by written authorization of Company. The provisions
of this Section shall not apply (i) to the extent that an ChinaVest is required
to disclose Confidential Information pursuant to any law, statue, rule or
regulation or any order of any court or jurisdiction process or pursuant to any
direction, request or requirement (whether or not having the force of law but if
not having the force of law being of a type with which institutional investors
in the relevant jurisdiction are accustomed to comply) of any self-regulating
organization or any governmental, fiscal, monetary or other authority; (ii) to
the disclosure of Confidential Information to ChinaVest's employees, counsel,
accountants or other professional advisors; (iii) to the extent that ChinaVest
needs to disclose Confidential Information for the protection of any of such
ChinaVest's rights or interest against the Company, whether under this Agreement
or otherwise; or (iv) to the disclosure of Confidential Information to a
prospective transferee of securities which agrees to be bound by the provisions
of this Section in connection with the receipt of such Confidential Information.
3.4 RESERVATION OF COMMON STOCK. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the conversion of the
Series A Preferred Stock, all Common Stock issuable from time to time upon such
conversion.
3.5 STOCK VESTING. Unless otherwise approved by the Board of Directors,
all stock options and other stock equivalents issued after the date of this
Agreement to employees, directors, consultants and other service providers shall
be subject to vesting as follows: (i) twenty-five percent (25%) of such stock
shall vest at the end of the first year following the earlier of the date of
issuance or such person's services commencement date with the company, and (ii)
seventy-five percent (75%) of such stock shall vest over the remaining three (3)
years. With respect to any shares of stock purchased by any such person, the
Company's repurchase
15
option shall provide that upon such person's termination of employment or
service with the Company, with or without cause, the Company or its assignee (to
the extent permissible under applicable securities laws and other laws) shall
have the option to purchase at cost any unvested shares of stock held by such
person.
3.6 BOARD OF DIRECTORS APPROVAL. The Company shall not, without the
approval of the member of the Board of Directors elected by the Series A
Preferred Stock,
(a) issue any equity securities of the Company (including any
security convertible into or exercisable for any equity security); provided,
however, this provision shall not apply to (x) the issuance of options or rights
to purchase shares of Common under any Company stock option plan, stock purchase
plan, stock incentive plan or similar stock plans and to the issuance of Common
upon exercise thereof and (y) the issuance of Common in connection with the
Company's Initial Offering;
(b) effect any sale, lease, assignment, transfer, or other conveyance
of all or substantially all of the assets of the Company or any of its
subsidiaries, or any consolidation, merger or reorganization of the Company in
which the stockholders of the Company prior to such consolidation, merger or
reorganization do not own a majority of the outstanding shares of the surviving
corporation;
(c) select new auditors of the Company, or materially change the
Company's accounting methods;
(d) amend or repeal any provision of, or add any provision to, the
Company's Bylaws;
(e) acquire any company by purchase, merger or otherwise;
(f) adopt or implement any new employee stock option or stock
incentive plan, or amend the Company's 1996 Stock Incentive Plan; or
(g) engage in any material, non-customary transaction with any direct
or indirect affiliate of the Company or Cortelco Systems Holding Corp. For
purposes of this Section 3.6(g), a transaction shall be deemed customary if it
is a type of transaction substantially similar to a transaction that is
described and identified as customary on the Schedule of Exceptions delivered at
the Closing (as defined in the Purchase Agreement) or if it is an arm's-length
transaction that has been approved by a majority of the disinterested directors
of the Company.
3.7 TERMINATION OF COVENANTS. All covenants of the Company contained in
Article 3 of this Agreement shall expire and terminate on the effective date of
the registration statement pertaining to the Initial Offering.
ARTICLE 4
RIGHTS OF FIRST REFUSAL
16
4.1 SUBSEQUENT OFFERINGS. ChinaVest shall have a right of first refusal to
purchase its pro rata share of all Equity Securities, as defined below, that the
Company may, from time to time, propose to sell and issue after the date of this
Agreement, other than the Equity Securities excluded by Section 4.6 hereof.
ChinaVest's pro rata share is equal to the ratio of (A) the number of shares of
the Company's Common Stock (including all shares of Common Stock issued or
issuable upon conversion of the Shares) which such Purchaser is deemed to be a
holder immediately prior to the issuance of such Equity Securities to (B) the
total number of shares of the Company's outstanding Common Stock (including all
shares of Common Stock issued or issuable upon conversion of the Shares)
immediately prior to the issuance of the Equity Securities and assuming exercise
of all outstanding options and warrants to purchase Securities of the Company.
In the event such calculation must be made prior to the Conversion Calculation
Date, the calculation shall be made as if the Series A Conversion Price were
$0.4393 (subject to adjustments for stock splits, stock dividends and the like).
The term "Equity Securities" shall mean (i) any Common Stock, Preferred Stock or
other security of the Company, (ii) any security convertible, with or without
consideration, into any Common Stock, Preferred Stock or other security
(including any option to purchase such a convertible security), (iii) any
security carrying any warrant or right to subscribe to or purchase any Common
Stock, Preferred Stock or other security or (iv) any such warrant or right.
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give ChinaVest written notice of its intention, describing
the Equity Securities, the price and the terms and conditions upon which the
Company proposes to issue the same. ChinaVest shall have fifteen (15) days from
the giving of such notice to agree to purchase its pro rata share of the Equity
Securities for the price and upon the terms and conditions specified in the
notice by giving written notice to the Company and stating therein the quantity
of Equity Securities to be purchased. Notwithstanding the foregoing, the
Company shall not be required to offer or sell such Equity Securities to
ChinaVest if such offer or sale would in the judgment of counsel for the Company
cause the Company to be in violation of applicable federal securities laws.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If ChinaVest does not
elect to purchase its pro rata share of the Equity Securities, then the Company
shall have one hundred twenty (120) days thereafter to sell the Equity
Securities in respect of which ChinaVest's rights were not exercised, at a price
and upon general terms and conditions no more favorable to the purchasers
thereof than specified in the Company's notice to ChinaVests pursuant to Section
4.2 hereof. If the Company has not sold such Equity Securities within days of
the notice provided pursuant to Section 4.2, the Company shall not thereafter
issue or sell any Equity Securities, without first offering such securities to
ChinaVests in the manner provided above.
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first refusal
established by this Article 4 shall terminate upon the effective date of the
registration statement pertaining to the Initial Offering.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal of
ChinaVest under this Article 4 may be transferred among ChinaVest IV, ChinaVest
IV-A and ChinaVest IV-B, subject to the same restrictions as any transfer of
registration rights pursuant to Section 2.10.
17
4.6 EXCLUDED SECURITIES. The rights of first refusal established by this
Article 4 shall have no application to any of the following Equity Securities:
4.6.1 options, warrants or other Common Stock purchase rights or
Common Stock issued pursuant to such options, warrants or other rights) issued
or to be issued to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors;
4.6.2 stock issued pursuant to any rights, options, warrants or
agreements outstanding as of the date of this Agreement; and stock issued
pursuant to any such rights, options, warrants or agreements granted after the
date of this Agreement, provided that the rights of first refusal established by
this Article 4 applied with respect to the initial sale or grant by the Company
of such rights or agreements;
4.6.3 any Equity Securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination;
4.6.4 shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;
4.6.5 shares of Common Stock issued upon conversion of the Shares;
4.6.6 any Equity Securities issued pursuant to any equipment leasing
arrangement or bank financing;
4.6.7 any Equity Securities that are issued by the Company pursuant to
a registration statement filed under the Securities Act; and
4.6.8 shares of the Company's Common Stock or Preferred Stock issued
in connection with strategic transactions involving the Company and other
entities, including (A) joint ventures, manufacturing, marketing or distribution
arrangements or (B) technology transfer or development arrangements; provided
that such strategic transactions and the issuance of shares therein, has been
approved by the Company's Board of Directors in accordance with the terms
hereof.
18
ARTICLE 5
MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
5.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a Holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the Holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
5.4 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
5.5 AMENDMENT AND WAIVER.
5.5.1 Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the Holders
of a majority of the Registrable Securities (which majority must include
ChinaVest for so long as ChinaVest holds or is deemed to hold at least 2,000,000
shares of Registrable Securities, as presently constituted).
5.5.2 Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the Holders of a majority of the Registrable
Securities (which majority must include ChinaVest for so long as ChinaVest holds
or is deemed to hold at least 2,000,000 share of Registrable Securities, as
presently constituted).
5.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
19
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
5.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature pages hereof
or at such other address as such party may designate by ten (10) days advance
written notice to the other parties hereto.
5.8 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
5.9 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.11 SPECIAL PROVISION REGARDING ALCATEL. Notwithstanding anything to the
contrary contained or implied herein, this Agreement shall not affect in any way
the rights of Alcatel Network Systems, Inc. ("Alcatel") pursuant to that certain
CSHC Pledge Agreement (the "CSHC Pledge Agreement") dated as of December 16,
1993 executed by Founder in favor of Alcatel, as amended, or that certain New
Pledge Agreement (the "New Pledge Agreement") dated as of August 23, 1993
executed by Founder in favor of Alcatel, and this Agreement shall not apply to,
limit, restrict or prohibit in any manner the exercise by Alcatel of any such
rights including, without limitatioin, any transfer of capital stock of the
Company pursuant to the CSHC Pledge Agreement or the New Pledge Agreement (the
"Stock Transfer"). Notwithstanding anything to the contrary contained or
implied herein, this Agreement shall automatically terminate upon any Stock
Transfer. Notwithstanding anything to the contrary contained or implied herein,
this Section 5,11 cannot be amended without the written consent of Alcatel, and
Alcatel shall be entitled to enforce the provisions hereof against the parties
hereto.
[THIS SPACE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights
Agreement as of the date set forth in the first paragraph hereof.
COMPANY: CHINAVEST
INVESTORS:
CORTELCO SYSTEMS, INC. CHINAVEST IV, L.P.
By: /s/
--------------------------- By: /s/
▇▇▇▇▇ ▇▇▇▇▇▇▇ -----------------------------
President Print Name:_____________________
Address:_______________________ Title:__________________________
_______________________________
Address:________________________
_______________________________ ________________________________
________________________________
FOUNDER:
CORTELCO SYSTEMS HOLDING CORP. CHINAVEST IV-A, L.P.
By: /s/ By: /s/
----------------------------- -----------------------------
Print Name:____________________ Print Name:_____________________
Title:_________________________ Title:__________________________
Address:_______________________ Address:________________________
_______________________________ ________________________________
_______________________________ ________________________________
CHINAVEST IV-B, L.P.
By: /s/
-----------------------------
Print Name:_____________________
Title:__________________________
Address:________________________
________________________________
________________________________
21
