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EXHIBIT 10.1
STOCK DISTRIBUTION AGREEMENT
THIS STOCK DISTRIBUTION AGREEMENT (this "Agreement") is made and
entered into as of March 15, 1999 between CMC Industries, Inc., a Delaware
corporation ("CMC") and Cortelco Systems Holding Corp., a Delaware corporation
("CSHC")
RECITALS
A. CMC owns 1,000,000 shares of Series A Preferred Stock,
liquidation preference $12.50 per share (the "CSHC Preferred Shares"), of CSHC.
B. Article V.b. of CSHC's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") provides, in pertinent part,
that holders of the CSHC Preferred Shares shall be entitled to receive, prior
and in preference to any declaration or payment of any dividend on the common
stock of CSHC, dividends at the rate of $0.75 per share, noncumulative, provided
that such dividends shall be cumulative during each fiscal year of CSHC
beginning on or after August 1, 1995 in which CSHC's net income after tax is at
least $2,000,000.
C. The CSHC net income after tax for the fiscal years ended July 31,
1996, 1997 and 1998, respectively, was less than $2,000,000, with the effect
that no dividends on the CSHC Preferred Shares have accumulated.
D. CMC has never received a dividend in respect of the CSHC
Preferred Shares.
E. CSHC intends to distribute to its stockholders (the "CSI
Spin-Off"), 100% of the shares of common stock, $.0001 par value per share (the
"CSI Shares"), of Cortelco Systems, Inc., a Delaware corporation ("CSI") owned
by CSHC on the date hereof.
F. The CSI Spin-Off will include a distribution to CMC with respect
to the CSHC Preferred Shares of 6,125,302 CSI Shares (the "Preferred
Distribution") and a distribution to the holders of CSHC common stock (the
"Common Stockholders") of 100% of the remaining CSI Shares owned by CSHC on the
date hereof (the "Common Distribution").
G. Immediately prior to the CSI Spin-Off, CSHC will amend (the
"Amendment") the Certificate of Incorporation to, among other things, (i) delay
the date(s) on which the CSHC Preferred Shares may be tendered for redemption at
the option of the holder; (ii) provide for the voluntary conversion of CSHC
Preferred Shares by the holder(s) thereof into CSHC common stock; and (iii)
increase the authorized common stock of CSHC.
H. Pursuant to the Registration Rights Agreement of even date
herewith between CSI and CMC (the "Registration Rights Agreement") CSI will
provide CMC certain piggyback registration rights with respect to CSI shares
delivered to CMC in the Preferred Distribution.
I. The parties hereto desire to express certain consents and
agreements in respect of the CSI Spin-Off and the Amendment.
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NOW, THEREFORE, in consideration of the premises and the covenants,
agreements and consents set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, the parties agree as follows:
1. Pursuant to Sections 228 and 242(b)(2) of the Delaware General
Corporation Law, as amended, CMC hereby expresses its written consent to the
Amendment to the Certificate of Incorporation in the form attached hereto as
Exhibit A (the "Amendment").
2. Conditioned upon its receipt of 6,125,302 CSI Shares in the
Preferred Distribution, CMC hereby waives all rights to dividends for periods
prior to the date hereof.
3. CSHC hereby acknowledges and waives any objection, claim or cause
of action with respect to that certain Stock Purchase Agreement dated as of
March 15, 1999 between CMC and Xxxxx X. Xxx (the "Stock Purchase Agreement"),
and agrees that it will not take any action to enjoin, suspend or otherwise
affect the performance of that agreement by the parties thereto.
4. CSHC hereby represents and warrants, as of the date hereof, as
follows:
(A) CAPITALIZATION. The authorized capital stock of CSHC
consists of (i) 40,000,000 shares of Common Stock, par value of $0.001 per
share, of which 30,225,815 shares are issued and outstanding; and (ii)
10,000,000 shares of Preferred Stock, par value of $0.001 per share, of which
(A) 1,000,000 shares have been designated Series A Preferred Stock, and of which
1,000,000 shares are issued and outstanding, and (B) 100,000 shares have been
designated Series B Preferred Stock, and of which no shares are issued and
outstanding. All issued and outstanding shares of capital stock of CSHC are
validly issued, fully paid and nonassessable. Except as set forth on a schedule
of exceptions hereto, 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 CSHC is a party or by which it is bound obligating CSHC 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
CSHC or obligating CSHC to grant, extend, accelerate the vesting of or enter
into any such subscription, option, warrant, equity security, call, right,
commitment or agreement, except for options to purchase 2,130,500 shares of
Common Stock.
(B) AUTHORITY RELATIVE TO THIS AGREEMENT. CSHC 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 CSHC and
the consummation by CSHC of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of CSHC and
no other corporate proceedings on the part of CSHC are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This Agreement
has been duly and validly executed and delivered by CSHC and, assuming the due
authorization, execution and delivery by CMC, constitutes legal and binding
obligations of CSHC, enforceable against CSHC in accordance with its terms.
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(C) NO CONFLICT; REQUIRED FILING AND CONSENTS.
(I) The execution and delivery of this Agreement does
not, and the performance of this Agreement by CSHC shall not, (i) conflict with
or violate the Certificate of Incorporation or Bylaws of CSHC, (ii) conflict
with or violate any law, rule, regulation, order, judgement or decree applicable
to CSHC 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 CSHC'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 any of the properties or assets of CSHC
pursuant to, any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
CSHC is a party or by which CSHC or its properties are bound or affected.
(II) The execution and delivery of this Agreement does
not, and the performance of this Agreement by CSHC 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 (a "Governmental Entity"), except (A) for
applicable requirements, if any, of the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and state securities laws ("Blue Sky Laws") and (B) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filing or notifications, would not be material to the CSHC 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
(D) COMPLIANCE; PERMITS. CSHC is not in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgement or
decree applicable to CSHC or by which its properties is bound or affected, or
(ii) any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which CSHC is a
party or by which CSHC or its properties is bound or affected, except in the
case of clauses (i) and (ii) above for any conflicts, defaults or violations
that (individually or in the aggregate) would not cause the CSHC to lose any
material benefit or incur any material liability. No investigation or review by
any governmental or regulatory body or authority is pending or, to the knowledge
of CSHC, threatened against CSHC, nor has any governmental or regulatory body or
authority indicated an intention to conduct the same, other than, in each such
case, those the outcome of which could not, individually or in the aggregate,
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of CSHC, any acquisition of material property by CSHC or
the conduct of business by CSHC.
(E) LITIGATION. There are no claims, actions, suits or
proceedings pending or, to the knowledge of CSHC, threatened (or, to the
knowledge of CSHC, any governmental or regulatory investigation pending or
threatened) against CSHC or any properties or rights of CSHC, before any court,
arbitrator or administrative, governmental or regulatory authority or body,
domestic or foreign.
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(F) CSHC has heretofore furnished CMC with the unaudited
balance sheets of CSHC as of January 31, 1999, and as of July 31, 1998, and the
related statements of income, shareholders' equity and changes in financial
position 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 CSHC Financial
Statements fairly present the financial condition of CSHC at the dates thereof
and, except as indicated therein, reflect all claims against and all debts and
liabilities of CSHC, fixed or contingent, as at the dates thereof; and the
related statements of income, expenses and retained earnings fairly present the
results of the operations of CSHC. Since January 31, 1999, there has been (i) no
material adverse change in CSHC, 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
CSHC's knowledge, no fact or condition exists or is contemplated or threatened
which might cause such a material adverse change in the future.
(G) CSHC has no outstanding claims, liabilities or
indebtedness, contingent or otherwise, except as set forth in the CSHC Financial
Statements or referred to in any footnotes thereto, other than liabilities
incurred subsequent to January 31, 1999 in the ordinary course of business. CSHC
is not in default in respect of the terms or conditions of any indebtedness.
5. As an inducement to CSHC's execution, delivery and performance of
this Agreement, CMC represents and warrants to CSHC that:
(A) The execution, delivery and performance of this
Agreement, the Stock Purchase Agreement and the Registration Rights Agreement
(hereinafter defined) have been duly authorized by all requisite corporate
action by CMC and constitute the legal, valid and binding obligations of CMC,
enforceable in accordance with their respective 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 that Registration Rights Agreement may be limited to applicable
federal or state securities laws or public policy considerations.
(B) There is not any action currently pending against CMC
seeking to enjoin the performance of this Agreement or any of the transactions
or agreements referred to herein by CMC.
(C) CMC is the lawful and record owner of the CSHC Preferred
Shares and has good and valid title thereto, has not granted a proxy to any
other person to vote the CSHC Preferred Shares or give or withhold any written
consent with respect thereto, nor has CMC committed to do any of the foregoing.
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(D) CMC is not required to obtain the consent of any third
party prior to the execution, delivery and performance of this Agreement, or, if
any such consent is required, such consent has been or will be obtained.
6. The consents, covenants and agreements of CMC hereunder are
subject to satisfaction (or waiver) of the following conditions:
(A) Xxxxx X. Xxx shall have executed and delivered the Stock
Purchase Agreement to CMC.
(B) CSI shall have executed and delivered to CMC a
Registration Rights Agreement in the form attached hereto as Exhibit B.
(C) The CSHC Board shall have declared the distribution
constituting the CSI Spin-Off, subject to execution, delivery and effectiveness
of this Agreement.
7. This Agreement may be amended only by written instrument signed
by each of the parties hereto. No modification or waiver of any provision of
this Agreement or consent to departure therefrom shall be effective unless in
writing and signed by the party against whom enforcement is sought.
8. This Agreement shall be binding on and shall inure to the benefit
of the parties and their respective successors and assigns.
9. This Agreement shall in all respects be governed by the laws of
the State of Delaware without regard to choice of law principles thereunder.
10. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, and all of which together shall
constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
CMC INDUSTRIES, INC.
By: /s/ Xxxxxxx X. Xxxxx
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Name: Xxxxxxx X. Xxxxx
Title: President & CEO
CORTELCO SYSTEMS HOLDING CORP.
By: /s/ Xxxxxxx X. Xxxxxxx
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Name: Xxxxxxx X. Xxxxxxx
Title: President
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