<PAGE>
As filed with the Securities and Exchange Registration No. 333-
Commission on May 5, 2000
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EON COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
----------------------------
<TABLE>
<S> <C> <C>
Delaware eOn Communications Corporation 62-1482176
(State of Incorporation) 4119 Willow Lake Blvd. (I.R.S. Employer Identification No.)
Memphis, TN 38118
(Address of principal executive offices)
</TABLE>
-----------------------------
1997 Equity Incentive Plan of BCS Technologies, Inc.
1997 Equity Incentive Plan
1999 Equity Incentive Plan
1999 Employee Stock Purchase Plan
(Full title of the plans)
J. Michael O'Dell
President and Chief Executive Officer
eOn Communications Corporation
4119 Willow Lake Blvd.
Memphis, TN 38118
(901) 365-7774
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------------
Copies to:
James C. Kitch, Esq.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94032
(650) 843-5000
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Offering Aggregate Amount of
to be Registered Amount to be Registered Price per Share (1) Offering Price (1) Registration Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock Options and Common Stock, 2,677,183 $1.13 - $10.11 $19,480,004 $5,143
par value $.001 per share
====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) and Rule 457(h). The price per
share and aggregate offering price are based upon (a) the weighted average
exercise price for options granted pursuant to the 1997 Equity Incentive
Plan of BCS, 1997 Equity Incentive Plan and 1999 Equity Incentive Plan and
(b) the average of the bid and asked prices on May 4, 2000 as reported on
the Nasdaq National Market.
The chart below details the calculation of the registration fee:
<TABLE>
<CAPTION>
Title of Shares Number of Shares Offering Price Per Share Aggregate Offering Price
===============================================================================================================================
<S> <C> <C> <C>
Common Stock issuable pursuant to outstanding
options under the 1997 Equity Incentive Plan
of BCS Technologies, Inc. 94,279 $1.131 1(a) $ 106,630
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable pursuant to outstanding
options under the 1997 Equity Incentive Plan 332,904 $3.774 1(a) $ 1,256,380
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable pursuant to outstanding
options under the 1999 Equity Incentive Plan 1,078,544 $10.111 1(a) $10,905,159
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable pursuant to the 1999 Equity
Incentive Plan 921,456 $6.1563 1(b) $ 5,672,760
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable pursuant to the 1999 Employee
Stock Purchase Plan 250,000 $6.1563 1(b) $ 1,539,075
- -------------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Aggregate Offering Price $19,480,004
- -------------------------------------------------------------------------------------------------------------------------------
Registration Fee $ 5,143
===============================================================================================================================
</TABLE>
<PAGE>
PART II
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by eOn Communications Corporation (the
"Company") with the Securities and Exchange Commission are incorporated by
reference into this Registration Statement:
(a) The Company's latest prospectus filed pursuant to Rule 424(b) under
the Securities Act of 1933, as amended (the "Act"), that contains audited
financial statements for the Company's latest fiscal year for which such
statements have been filed.
(b) The Company's quarterly report on Form 10-Q for the quarter ended
January 31, 2000.
(c) The description of the Company's Common Stock which is contained in
the Registration Statement on Form 8-A under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), including any amendment or report filed
for the purpose of updating such description.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the filing
of a post-effective amendment which indicates that all securities offered have
been sold or which deregisters all securities then remaining unsold, shall be
deemed to be incorporated by reference herein and to be a part of this
registration statement from the date of the filing of such reports and
documents.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The legality of the Common Stock offered hereby will be passed upon for
the Company by Cooley Godward LLP, Palo Alto, California.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Company's Bylaws also provide that the Company will indemnify its directors
and executive officers, and may indemnify its other officers, employees and
other agents, to the fullest extent not prohibited by Delaware law.
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") provides that the liability of its directors for
monetary damages shall be eliminated to the fullest extent permissible under
Delaware law. Pursuant to Delaware law, this includes elimination of liability
for monetary damages for breach of the directors' fiduciary duty of care to the
Company and its stockholders. These provisions do not eliminate the directors'
duty of care and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company, for acts
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
also does not affect a director's responsibilities under any other laws, such as
the federal securities laws or state or federal environmental laws.
The Company has been authorized by the Board to enter into agreements with
its directors and officers that require the Company to indemnify such persons to
the fullest extent authorized or permitted by the provisions of the Restated
Certificate and Delaware law against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred (including expenses of a
derivative action) in connection with any proceeding, whether actual or
threatened, to which any such person may be made a party by reason of the fact
that such person is or was a director, officer, employee or other agent of the
Company or any of its affiliated enterprises. Delaware law permits such
indemnification provided such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interest of the
Company and, with respect to any criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The indemnification agreements also
set forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
<C> <S>
4.1* Amended and Restated Certificate of Incorporation
4.2* Amended and Restated Bylaws
5.1 Opinion of Cooley Godward LLP
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Brock and Company, CPAs P.C.
23.3 Consent of Cooley Godward LLP is contained in Exhibit 5 to this Registration Statement
24.1 Power of Attorney is contained on the signature pages.
99.1 1997 Equity Incentive Plan of BCS Technologies, Inc.
99.2 1997 Equity Incentive Plan
99.3* 1999 Equity Incentive Plan
99.4* 1999 Employee Stock Purchase Plan
</TABLE>
- ----------------------------
* Filed as an exhibit to Registration Statement on Form S-1 (No. 333-77021),
as amended through the date hereof and incorporated by reference herein.
UNDERTAKINGS
1. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) ((S) 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the issuer pursuant to
section 13 or section 15(d) of the Exchange Act that are incorporated by
reference herein.
(b) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
<PAGE>
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Memphis, State of Tennessee, on May 5, 2000.
eOn Communications Corporation
By: /s/ J. Michael O'Dell
----------------------------------
J. Michael O'Dell
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints J. Michael O'Dell and Stephen N. Samp,
and each or any one of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ J. Michael O'Dell President, Chief Executive Officer and May 5, 2000
- ----------------------------------------- Director (Principal Executive Officer)
J. Michael O'Dell
/s/ Stephen N. Samp Vice President of Finance and May 5, 2000
- ----------------------------------------- Administration, Chief Financial Officer
Stephen N. Samp and Secretary (Principal Financial and
Accounting Officer)
/s/ David S. Lee Chairman of the Board May 5, 2000
- -----------------------------------------
David S. Lee
/s/ Stephen R. Bowling Director May 5, 2000
- -----------------------------------------
Stephen R. Bowling
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Robert P. Dilworth Director May 5, 2000
- -----------------------------------------
Robert P. Dilworth
/s/ W. Frank King Director May 5, 2000
- -----------------------------------------
W. Frank King
/s/ Jenny Hsui Theleen Director May 5, 2000
- -----------------------------------------
Jenny Hsui Theleen
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential Page
Number Description Numbers
<C> <S> <C>
4.1* Amended and Restated Certificate of Incorporation
4.2* Amended and Restated Bylaws
5.1 Opinion of Cooley Godward LLP
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Brock and Company, CPAs P.C.
23.3 Consent of Cooley Godward LLP is contained in Exhibit 5 to this Registration Statement
24.1 Power of Attorney is contained on the signature pages.
99.1 1997 Equity Incentive Plan of BCS Technologies, Inc.
99.2 1997 Equity Incentive Plan
99.3* 1999 Equity Incentive Plan
99.4* 1999 Employee Stock Purchase Plan
</TABLE>
- ----------------------------
* Filed as an exhibit to Registration Statement on Form S-1 (No. 333-77021),
as amended through the date hereof and incorporated by reference herein.
<PAGE>
EXHIBIT 5.1
May 5, 2000
eOn Communications Corporation
4119 Willow Lake Blvd.
Memphis, TN 38118
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by eOn Communications Corporation (the "Company") of a
Registration Statement on Form S-8 (the "Registration Statement") with the
Securities and Exchange Commission covering the offering of up to 2,677,183
shares of the Company's Common Stock, $.001 par value, (the "Shares") pursuant
to its 1999 Equity Incentive Plan, 1999 Employee Stock Purchase Plan, 1997
Equity Incentive Plan and 1997 Equity Incentive Plan of BCS Technologies, Inc.
(the "Plans").
In connection with this opinion, we have examined the Registration Statement and
related Prospectus, your Certificate of Incorporation and Bylaws, as amended,
and such other documents, records, certificates, memoranda and other instruments
as we deem necessary as a basis for this opinion. We have assumed the
genuineness and authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as copies thereof, and
the due execution and delivery of all documents where due execution and delivery
are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Plans, the
Registration Statement and related Prospectuses, will be validly issued, fully
paid, and nonassessable (except as to shares issued pursuant to certain deferred
payment arrangements, which will be fully paid and nonassessable when such
deferred payments are made in full).
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
Cooley Godward llp
By: /s/ James C. Kitch
-----------------------------------
James C. Kitch
JCK:jgv
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the incorporation by reference in this Registration Statement of
eOn Communications Corporation on Form S-8 of our report dated September 16,
1999 appearing in Registration Statement No. 333-77021, as amended, of eOn
Communications Corporation on Form S-1.
Our audits of the financial statements referred to in our aforementioned report
also included the consolidated financial statement schedule of eOn
Communications Corporation, listed in Item 16(b) of Registration Statement No.
333-77021. This financial statement schedule is the responsibility of eOn
Communications Corporation's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/Deloitte & Touche LLP
Memphis, Tennessee
May 5, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration
Statement of eOn Communications Corporation, formerly Cortelco Systems, Inc.,
on Form S-8 of our report on the financial statements of BCS Technologies,
Inc. dated March 5, 1999, appearing in the Registration Statement on Form S-1
(SEC File No. 333-77021).
/s/ Brock and Company, CPAs, P.C.
Certified Public Accountants
Littleton, Colorado
May 5, 2000
<PAGE>
Exhibit 99.1
CORTELCO, INC.
--------------
1997 EQUITY INCENTIVE PLAN
--------------------------
1. PURPOSE
-------
(a) The purpose of the 1997 Equity Incentive Plan (the "Plan") is to
provide a means by which selected key employees and directors (if declared
eligible under paragraph 4) of and consultants to Cortelco Inc., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), may be given an opportunity to benefit from increases in value of the
stock of the Company. It is intended that this purpose will be effected through
the granting of (a) incentive stock options, (b) nonstatutory stock options, (c)
stock bonuses, and (d) purchases of restricted stock.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424 (e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now employed by or serving as consultants or directors to the Company,
to secure and retain the services of persons capable of filling such positions,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
(d) The Company intends that rights granted under the Plan ("Stock Awards")
shall, in the discretion of the Board of Directors of the Company (the "Board")
or any committee to
1.
<PAGE>
which responsibility for administration of the Plan has been delegated pursuant
to subparagraph 2(c), be either (i) stock options granted pursuant to paragraph
5 hereof, including incentive stock options as that term is used in Section 422
of the Code ("Incentive Stock Options"), or options which do not qualify as
incentive stock options ("Supplemental Stock Options") or (ii) stock bonuses or
purchases of restricted stock granted pursuant to paragraph 6 hereof.
2. ADMINISTRATION
--------------
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a committee, as provided in subparagraph 2(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.
(b) The Board shall have the power, subject to, and within the limitations
of. the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how Stock Awards shall be
granted; whether a Stock Award will be an Incentive Stock Option, a
Supplemental Stock Option, a stock bonus, a purchase of restricted stock,
or a combination of the foregoing; the provisions of each Stock Award
granted (which need not be identical), including the time or times when a
person shall be permitted to purchase or receive stock pursuant to a Stock
Award; and the number of shares with respect to which Stock Awards shall be
granted to each such person.
2.
<PAGE>
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award, in a
manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan as provided in paragraph 11.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than three (3) members (the "Committee"). If the Committee
grants Stock Awards to persons subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), all of the members of the
Committee shall be disinterested persons, if required and as defined by the
provisions of subparagraph 2(d). If administration is delegated to a Committee,
the Committee shall have in connection with the administration of the Plan the
powers theretofore possessed by the Board, subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may abolish the Committee at any time
and revest in the Board the administration of the Plan.
(d) The term "disinterested person," as used in this Plan, shall mean an
administrator of the Plan, whether a member of the Board or of any Committee to
which responsibility for
3.
<PAGE>
administration of the Plan has been delegated pursuant to subparagraph 2(c); (i)
who is not at the time he or she exercises discretion in administering the Plan
eligible and has not at any time within one (1) year prior thereto been eligible
for selection as a person to whom stock may be allocated or to whom stock
options may be granted pursuant to the Plan or any other plan of the Company or
any of its affiliates (as defined in the Exchange Act); entitling the
participants therein to acquire stock or stock options of the Company or any of
its affiliates (as defined in the Exchange Act); or (ii) who is otherwise
considered to be a "disinterested person" in accordance with the rules,
regulations or interpretations of the Securities and Exchange Commission. Any
such person shall otherwise comply with the requirements of Rule 16b-3
promulgated under the Exchange Act.
(e) Any requirement that an administrator of the Plan be a "disinterested
person" shall not apply if the Board or the Committee expressly declares that
such requirement shall not apply.
3. SHARES SUBJECT TO THE PLAN
--------------------------
(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards
granted under the Plan shall not exceed in the aggregate ninety six thousand
four hundred ninety-five (96,495) shares of the Company's common stock. If any
option or right granted under the Plan shall for any reason expire or
otherwise terminate without having been exercised in full, the stock not
issued under such option or right shall again become available for the Plan.
4.
<PAGE>
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY
-----------
(a) Incentive Stock Options may be granted only to employees (including
officers) of the Company or its Affiliates. A director of the Company shall not
be eligible to receive Incentive Stock Options unless such director is also an
employee (including an officer) of the Company or any Affiliate. Stock Awards
other than Incentive Stock Options may be granted only to directors, officers or
employees of or consultants to the Company or its Affiliates.
(b) A director shall in no event be eligible for the benefits of the Plan
unless and until such director is expressly declared eligible to participate in
the Plan by action of the Board or the Committee, and only if, at any time
discretion is exercised by the Board in the selection of a director as a person
to whom Stock Awards may be granted, or in the determination of the number of
shares which may be covered by Stock Awards granted to a director; (i) a
majority of the Board and a majority of the directors acting in such matter are
disinterested persons, as defined in subparagraph 2(d); (ii) the Committee
consists solely of "disinterested persons" as defined in subparagraph 2(d); or
(iii) the Plan otherwise complies with the requirements of Rule l6b-3
promulgated under the Exchange Act, as from time to time in effect. The Board
shall otherwise comply with the requirements of Rule l6b-3 promulgated under the
Exchange Act, as from time to time in effect. Notwithstanding the foregoing, the
restrictions set forth in this subparagraph 4(b) shall not apply if the Board or
Committee expressly declares that such restrictions shall not apply.
5.
<PAGE>
(c) No person shall be eligible for the grant of an Incentive Stock Option
under the Plan, if at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates unless the exercise price of such option is at least
one hundred ten percent (10%) of the fair market value of such stock at the date
of grant and the term of the option does not exceed five (5) years from the date
of grant.
5. TERMS OF STOCK OPTIONS
----------------------
Each stock option shall be in such form and shall contain such terms
and conditions as the Board or the Committee shall deem appropriate. All options
shall be separately designated Incentive Stock Options or Supplemental Stock
Options at the time of grant, and in such form as issued pursuant to this
paragraph 5, and a separate certificate or certificates shall be issued for
shares purchased on exercise of each type of option. An option designated as a
Supplemental Stock option shall not be treated as an incentive stock option. The
provisions of separate options need not be identical, but each option shall
include (through incorporation of provisions hereof by reference in the option
or otherwise) the substance of each of the following provisions:
(a) The term of any option shall not be greater than ten (10) years from
the date it was granted.
(b) The exercise price of each Incentive Stock Option shall be not less
than one hundred percent (100%) of the fair market value of the stock subject to
the option on the date the option is granted. The exercise price of each
Supplemental Stock Option shall be not less than eighty-five percent (85%) of
the fair market value of the stock subject to the option on the date the option
is granted; provided, however, that nonstatutory stock options based on existing
6.
<PAGE>
options held by the grantee on shares of Cortelco Systems Holding Corp. may be
issued at the same option price per share as such existing options.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either (i)
in cash at the time the option is exercised, or (ii) at the discretion of the
Board or the Committee, either at the time of the grant or exercise of the
option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the option is granted or to whom the option is
transferred pursuant to subparagraph 5(d), or (C) in any other form of legal
consideration that may be acceptable to the Board or the Committee.
(d) Unless otherwise expressly stated in the option, an option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the option is
granted only by such person.
(e) The total number of shares of stock subject to an option may, but need
not, be allotted in periodic installments (which may, but need not, be equal).
From time to time during each of such installment periods, the option may become
exercisable ("vest") with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the shares allotted
to such period and/or any prior period as to which the option was not fully
exercised. During the remainder of' the term of the option (if its term extends
beyond the end of the installment periods), the option may be exercised from
time to time with respect to any
7.
<PAGE>
shares then remaining subject to the option. The provisions of this subparagraph
5(e) are subject to any option provisions governing the minimum number of shares
as to which an option may be exercised.
(f) An option shall terminate three (3) months after termination of the
optionee's employment or relationship as a director of or consultant to the
Company or an Affiliate, unless (i) such termination is due to such person's
permanent and total disability, within the meaning of Section 422(c)(6) of the
Code, in which case the option may, but need not, provide that it may be
exercised at any time within one (1) year following such termination of
employment or relationship as a director or consultant; or (ii) the optionee
dies while in the employ of or while serving as a director of or consultant to
the Company or an Affiliate, or within not more than three (3) months after
termination of such relationship, in which case the option may, but need not,
provide that it may be exercised at any time within eighteen (18) months
following, the death of the optionee by the person or persons to whom the
optionee's rights under such option passes by will or by the laws of descent and
distribution; or (iii) the option by its terms specifies either (a) that it
shall terminate sooner than three (3) months after termination of the optionee's
employment or relationship as a director or consultant, or (b) that it may be
exercised more than three (3) months after termination of the relationship with
the Company or an Affiliate. This subparagraph 5(f) shall not be construed to
extend the term of any option or to permit anyone to exercise the option after
expiration of its term, nor shall it be construed to increase the number of
shares as to which any option is exercisable from the amount exercisable on the
date of termination of the optionee's employment or relationship as a consultant
or director.
8.
<PAGE>
(g) The option may, but need not, include a provision whereby the optionee
may elect at any time during the term of his or her employment or relationship
as a director or consultant to the Company or any Affiliate to exercise the
option as to any part or all of the shares subject to the option prior to the
stated vesting date of the option or of any installment or installments
specified in the option. Any shares so purchased from any unvested installment
or option may be subject to a repurchase right in favor of the Company or to any
other restriction the Board or the Committee determines to be appropriate.
6. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
--------------------------------------------------------
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) The purchase price under each stock purchase agreement shall be not
less than eighty-five percent (85%) of the fair market value of the stock on the
date the stock purchase agreement is authorized by the Board or the Committee.
Notwithstanding the foregoing, the Board or the Committee may determine that
eligible participants in the Plan may be awarded stock pursuant to a stock bonus
agreement in consideration for past services actually rendered to the Company or
for its benefit.
9.
<PAGE>
(b) No rights under a stock bonus or restricted stock purchase agreement
shall be assignable by any participant under the Plan, either voluntarily or by
operation of law, except where such assignment is required by law or expressly
authorized by the terms of the applicable stock bonus or restricted stock
purchase agreement.
(c) The purchase price of stock acquired pursuant to a stock purchase
agreement shall be paid either (i) in cash at the time of purchase, or (ii) at
the discretion of the Board or a Committee to which administration of the Plan
has been delegated, (A) according to a deferred payment or other arrangement
(which may include, without limiting the generality of the foregoing, the use of
other common stock of the Company) with the person to whom the stock is sold, or
(B) in any other form of legal consideration that may be acceptable to the Board
or the Committee in its discretion. Notwithstanding the foregoing, the Board or
the Committee to which administration of the Plan has been delegated may award
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(d) Shares of stock sold or awarded under the Plan may but need not, be
subject to a repurchase option in favor of the Company in accordance with a
vesting schedule to be determined by the Board or the Committee.
(e) In the event a person ceases to be an employee of or ceases to serve as
a director of or consultant to the Company or an Affiliate, the Company may
repurchase or otherwise reacquire any or all of the shares of stock held by that
person which have not vested as of the date of termination under the terms of
the stock bonus or restricted stock purchase agreement between the Company and
such person.
10.
<PAGE>
7. COVENANTS OF THE COMPANY
------------------------
(a) During the terms of any Stock Awards granted under the Plan, the
Company shall keep available at all times the number of shares of stock required
to satisfy such Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon grant or exercise of Stock Awards under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act of 1933, as amended (the "Securities Act"),
either the Plan, any Stock Award granted under the Plan or any stock issued or
issuable pursuant to any such Stock Awards. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK
--------------------------
Proceeds from the sale of stock pursuant to Stock Awards granted under
the Plan shall constitute general funds of the Company,
9. MISCELLANEOUS
-------------
(a) The Board or the Committee shall have the power to accelerate the
time during which a Stock Award may be exercised or the time during which an
option or stock acquired pursuant to a Stock Award will vest, notwithstanding
the provisions in the Stock Award stating
11.
<PAGE>
the time during which it may he exercised or the time during which stock
acquired pursuant thereto will vest.
(b) Neither a recipient of a Stock Award nor any Person to whom a
Stock Award is transferred under subparagraphs 5(d) and 6(b) shall be deemed to
be the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms and is
thereby entitled to receive shares of stock.
(c) Throughout the term of any Stock Award granted pursuant to the
Plan, the Company shall make available to the holder of such Stock Award, not
later than one hundred twenty (120) days after the close of each of the
Company's fiscal years during the option term, upon request, such financial and
other information regarding the Company as comprises the annual report to the
shareholders of the Company provided for in the bylaws of the Company.
(d) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any recipient any right to continue
in the employ of the Company or any Affiliate to terminate the employment or
consulting relationship or directorship of any eligible employee or recipient
with or without cause. In the event that a Stock Award recipient is permitted or
otherwise entitled to take a leave of absence, the Company shall have the
unilateral right to (i) determine whether such leave of absence will be treated
as a termination of employment for purposes of his or her Stock Award, and (ii)
suspend or otherwise delay the time or times at which the shares subject to the
Stock Award would otherwise vest.
12.
<PAGE>
(e) To the extent provided by the terms of any Stock Award, the
recipient may satisfy any federal, state or local tax withholding obligation
relating to the exercise or receipt of such Stock Award by any of the following
means or by a combination of such means; (1) tendering a cash payment; (2)
authorizing the Company to withhold from the shares of the common stock
otherwise issuable to the participant as a result of the exercise of receipt of
the Stock Award cash or a number of shares having a fair market value less than
or equal to the amount of the withholding tax obligation; or (3) delivering to
the Company owned and unencumbered shares of the common stock having a fair
market value less than or equal to the amount of the withholding tax obligation.
(f) In connection with each Stock Award made pursuant to the Plan,
the Company may require as a condition precedent to its obligation to issue or
transfer shares to an eligible participant, or to evidence the removal of any
restrictions on transfers or lapse of any repurchase right, that such
participant make arrangements satisfactory to the Company to insure that the
amount of any federal or other withholding tax required to be withheld with
respect to such sale or transfer, or such removal or lapse, is made available to
the Company for timely payment of such tax.
(g) The Company may, as a condition of transferring any stock
pursuant to the Plan, require any person who is to acquire such stock (1) to
give written assurances satisfactory to the Company as to the optionee's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of
13.
<PAGE>
evaluating, alone or together with the purchaser representative, the merits and
risks of acquiring the stock; and (2) to give written assurances satisfactory to
the Company stating that such person is acquiring the stock for such person's
own account and not with any present intention of selling or otherwise
distributing the stock. These requirements, and any assurances given pursuant to
such requirements, shall be inoperative if (i) the issuance of the shares has
been registered under a then currently effective registration statement under
the Securities Act, or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws.
10. ADJUSTMENTS UPON CHANGES IN STOCK
---------------------------------
(a) If any change is made in the stock subject to the Plan, or
subject to any Stock Award granted under the Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Plan and outstanding Stock Awards will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan and the class(es) and
number of shares and price per share of stock subject to outstanding Stock
Awards.
(b) In the event of; (1) a merger or consolidation in which the
Company is not the surviving corporation, or (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then to the extent permitted by applicable law; (i) any surviving
corporation shall
14.
<PAGE>
assume any Stock Awards outstanding under the Plan or shall substitute similar
rights for those outstanding under the Plan, or (ii) such Stock Awards shall
continue in full force and effect. In the event any surviving corporation
refuses to assume or continue such Stock Awards, or to substitute similar Stock
Awards for those outstanding under the Plan, then, with respect to Stock Awards
held by persons then performing services as employees or as consultants or
directors for the Company, as the case may be, the time during which such Stock
Awards shall vest shall be accelerated and the Stock Awards terminated if not
exercised prior to such event. In the event of' a dissolution or liquidation of
the Company, any options outstanding under the Plan shall terminate if not
exercised prior to such event.
11. AMENDMENT OF THE PLAN
---------------------
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will increase the number of shares reserved for
issuance under the Plan.
(b) With a view to making available the benefits provided by Section
422 of the Code and/or Rule 16b-3 promulgated under the Exchange Act, if deemed
desirable by the Board, the Board in its discretion shall determine at the time
of each amendment of the Plan whether or not to submit such amendment to the
shareholders of the Company for approval.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible employees
with the maximum benefits
15.
<PAGE>
provided or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to employee incentive stock options and/or to
bring the Plan and/or incentive stock options granted under it into compliance
therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN
-------------------------------------
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the shareholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be altered or impaired by suspension or termination
of the Plan, except with the consent of the person to whom the Stock Award was
granted.
13. EFFECTIVE DATE OF PLAN
----------------------
The Plan shall become effective as determined by the Board, but no
Stock Award granted under the Plan shall be exercised and no stock shall
otherwise be issued under the Plan unless and until the Plan has been approved
by the shareholders of the Company, and, if required, an appropriate permit has
been issued.
16.
<PAGE>
IN WITNESS WHEREOF, the authorized officer of the Company has executed
this Plan on this day 27th day of March , 1997, to be effective on the 1st day
of January, 1997.
CORTELCO, INC.
BY: ____________________________________
Stephen R. Bowling, President
17.
<PAGE>
EXHIBIT 99.2
CORTELCO SYSTEMS, INC.
----------------------
1997 EQUITY INCENTIVE PLAN
--------------------------
1. PURPOSE
-------
(a) The purpose of the 1997 Equity Incentive Plan (the "Plan") is to
provide a means by which employees and directors (if declared eligible under
paragraph 4) of and consultants to Cortelco Systems, Inc., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), may be given an opportunity to benefit from increases in value of the
stock of the Company. It is intended that this purpose will be effected through
the granting of (a) incentive stock options, (b) nonstatutory stock options, (c)
stock bonuses, and (d) purchases of restricted stock.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now employed by or serving as consultants or directors to the Company,
to secure and retain the services of persons capable of filling such positions,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
(d) The Company intends that rights granted under the Plan ("Stock Awards")
shall, in the discretion of the Board of Directors of the Company (the "Board")
or any committee to which responsibility for administration of the Plan has been
delegated pursuant to subparagraph
-1-
<PAGE>
2(c), be either (i) stock options granted pursuant to paragraph 5 hereof,
including incentive stock options as that term is used in Section 422 of the
Code ("Incentive Stock Options"), or options which do not qualify as incentive
stock options ("Supplemental Stock Options") or (ii) stock bonuses or purchases
of restricted stock granted pursuant to paragraph 6 hereof.
2. ADMINISTRATION
--------------
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a committee, as provided in subparagraph 2(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how Stock Awards shall be
granted; whether a Stock Award will be an Incentive Stock Option, a Supplemental
Stock Option, a stock bonus, a purchase of restricted stock, or a combination of
the foregoing; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
purchase or receive stock pursuant to a Stock Award; and the number of shares
with respect to which Stock Awards shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any
-2-
<PAGE>
Stock Award, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(iii) To amend the Plan as provided in paragraph 11.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than three (3) members (the "Committee"). If the
Committee grants Stock Awards to persons subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), all of the
members of the Committee shall be disterested persons, if required and as
defined by the provisions of subparagraph 2(d). If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan.
(d) The term "disinterested person," as used in this Plan, shall mean an
administrator of the Plan, whether a member of the Board or of any Committee to
which responsibility for administration of the Plan has been delegated pursuant
to subparagraph 2(c); (i) who is not at the time he or she exercises discretion
in administering the Plan eligible and has not at any time within one (1) year
prior thereto been eligible for selection as a person to whom stock may be
allocated or to whom stock options may be granted pursuant to the Plan or any
other plan of the Company or any of its affiliates (as defined in the Exchange
Act) entitling the participants therein to acquire stock or stock options of the
Company or any of its affiliates (as defined in the
-3-
<PAGE>
Exchange Act); or (ii) who is otherwise considered to be a "disinterested
person" in accordance with the rules, regulations or interpretations of the
Securities and Exchange Commission. Any such person shall otherwise comply with
the requirements of Rule 16b-3 promulgated under the Exchange Act.
(e) Any requirement that an administrator of the Plan be a "disinterested
person" shall not apply if the Board or the Committee expressly declares that
such requirement shall not apply.
3. SHARES SUBJECT TO THE PLAN
--------------------------
(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards
granted under the Plan shall not exceed in the aggregate four hundred fifty
thousand (450,000) shares of the Company's common stock. If any option or
right granted under the Plan shall for any reason expire or otherwise
terminate without having been exercised in full, the stock not issued under
such option or right shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY
-----------
(a) Incentive Stock Options may be granted only to employees (including
officers) of the Company or its Affiliates. A director of the Company shall not
be eligible to receive Incentive Stock Options unless such director is also an
employee (including an officer) of the Company or any Affiliate. Stock Awards
other than Incentive Stock Options may be granted only to directors, officers or
employees of or consultants to the Company or its Affiliates.
-4-
<PAGE>
(b) A director shall in no event be eligible for the benefits of the Plan
unless and until such director is expressly declared eligible to participate in
the Plan by action of the Board or the Committee, and only if, at any time
discretion is exercised by the Board in the selection of a director as a person
to whom Stock Awards may be granted, or in the determination of the number of
shares which may be covered by Stock Awards granted to a director; (i) a
majority of the Board and a majority of the directors acting in such matter are
disinterested persons, as defined in subparagraph 2(d); (ii) the Committee
consists solely of "disinterested persons" as defined in subparagraph 2(d); or
(iii) the Plan otherwise complies with the requirements of Rule 16b-3
promulgated under the Exchange Act, as from time to time in effect. The Board
shall otherwise comply with the requirements of Rule 16b-3 promulgated under the
Exchange Act, as from time to time in effect. Notwithstanding the foregoing,
the restrictions set forth in this subparagraph 4(b) shall not apply if the
Board or Committee expressly declares that such restrictions shall not apply.
(c) No person shall be eligible for the grant of an Incentive Stock Option
under the Plan if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates unless the exercise price of such option is at least
one hundred ten percent (110%) of the fair market value of such stock at the
date of grant and the term of the option does not exceed five (5) years from the
date of grant.
5. TERMS OF STOCK OPTIONS
----------------------
Each stock option shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. All options
shall be separately designated Incentive Stock Options or Supplemental Stock
Options at the time of grant, and in such form as
-5-
<PAGE>
issued pursuant to this paragraph 5, and a separate certificate or certificates
shall be issued for shares purchased on exercise of each type of option. An
option designated as a Supplemental Stock Option shall not be treated as an
incentive stock option. The provisions of separate options need not be
identical, but each option shall include (through incorporation of provisions
hereof by reference in the option or otherwise) the substance of each of the
following provisions:
(a) The term of any option shall not be greater than ten (10) years from
the date it was granted.
(b) The exercise price of each Incentive Stock Option shall be not less
than one hundred percent (100%) of the fair market value of the stock subject to
the option on the date the option is granted. The exercise price of any
nonstatutory stock option shall be as determined by the Board or the Committee,
as applicable.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either (i)
in cash at the time the option is exercised, or (ii) at the discretion of the
Board or the Committee, either at the time of the grant or exercise of the
option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the option is granted or to whom the option is
transferred pursuant to subparagraph 5(d), or (C) in any other form of legal
consideration that may be acceptable to the Board or the Committee.
(d) Unless otherwise expressly stated in the option, an option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the option is
granted only by such person.
-6-
<PAGE>
(e) The total number of shares of stock subject to an option may, but need
not, be allotted in periodic installments (which may, but need not, be equal).
From time to time during each of such installment periods, the option may become
exercisable ("vest") with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the shares allotted
to such period and/or any prior period as to which the option was not fully
exercised. During the remainder of the term of the option (if its term extends
beyond the end of the installment periods), the option may be exercised from
time to time with respect to any shares then remaining subject to the option.
The provisions of this subparagraph 5(e) are subject to any option provisions
governing the minimum number of shares as to which an option may be exercised.
(f) An option shall terminate three (3) months after termination of the
optionee's employment or relationship as a director of or consultant to the
Company or an Affiliate, unless (i) such termination is due to such person's
permanent and total disability, within the meaning of Section 422(c)(6) of the
Code, in which case the option may, but need not, provide that it may be
exercised at any time within one (1) year following such termination of
employment or relationship as a director or consultant; or (ii) the optionee
dies while in the employ of or while serving as a director of or consultant to
the Company or an Affiliate, or within not more than three (3) months after
termination of such relationship, in which case the option may, but need not,
provide that it may be exercised at any time within eighteen (18) months
following the death of the optionee by the person or persons to whom the
optionee's rights under such option passes by will or by the laws of descent and
distribution; or (iii) the option by its terms specifies either (a) that it
shall terminate sooner than
-7-
<PAGE>
three (3) months after termination of the optionee's employment or relationship
as a director or consultant, or (b) that it may be exercised more than three (3)
months after termination of the relationship with the Company or an Affiliate.
This subparagraph 5(f) shall not be construed to extend the term of any option
or to permit anyone to exercise the option after expiration of its term, nor
shall it be construed to increase the number of shares as to which any option is
exercisable from the amount exercisable on the date of termination of the
optionee's employment or relationship as a consultant or director.
(g) The option may, but need not, include a provision whereby the
optionee may elect at any time during the term of his or her employment or
relationship as a director or consultant to the Company or any Affiliate to
exercise the option as to any part or all of the shares subject to the option
prior to the stated vesting date of the option or of any installment or
installments specified in the option. Any shares so purchased from any unvested
installment or option may be subject to a repurchase right in favor of the
Company or to any other restriction the Board or the Committee determines to be
appropriate.
6. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
--------------------------------------------------------
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
-8-
<PAGE>
(a) The purchase price under each stock purchase agreement shall be not
less than eighty-five percent (85%) of the fair market value of the stock on the
date the stock purchase agreement is authorized by the Board or the Committee.
Notwithstanding the foregoing, the Board or the Committee may determine that
eligible participants in the Plan may be awarded stock pursuant to a stock bonus
agreement in consideration for past services actually rendered to the Company or
for its benefit.
(b) No rights under a stock bonus or restricted stock purchase agreement
shall be assignable by any participant under the Plan, either voluntarily or by
operation of law, except where such assignment is required by law or expressly
authorized by the terms of the applicable stock bonus or restricted stock
purchase agreement.
(c) The purchase price of stock acquired pursuant to a stock purchase
agreement shall be paid either (i) in cash at the time of purchase, or (ii) at
the discretion of the Board or a Committee to which administration of the Plan
has been delegated, (A) according to a deferred payment or other arrangement
(which may include, without limiting the generality of the foregoing, the use of
other common stock of the Company) with the person to whom the stock is sold, or
(B) in any other form of legal consideration that may be acceptable to the Board
or the Committee in its discretion. Notwithstanding the foregoing, the Board or
the Committee to which administration of the Plan has been delegated may award
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(d) Shares of stock sold or awarded under the Plan may, but need not, be
subject to a repurchase option in favor of the Company in accordance with a
vesting schedule to be determined by the Board or the Committee.
-9-
<PAGE>
(e) In the event a person ceases to be an employee of or ceases to serve as
a director of or consultant to the Company or an Affiliate, the Company may
repurchase or otherwise reacquire any or all of the shares of stock held by that
person which have not vested as of the date of termination under the terms of
the stock bonus or restricted stock purchase agreement between the Company and
such person.
7. COVENANTS OF THE COMPANY
------------------------
(a) During the terms of any Stock Awards granted under the Plan, the
Company shall keep available at all times the number of shares of stock required
to satisfy such Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon grant or exercise of Stock Awards under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act of 1933, as amended (the "Securities Act"),
either the Plan, any Stock Award granted under the Plan or any stock issued or
issuable pursuant to any such Stock Awards. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK
--------------------------
Proceeds from the sale of stock pursuant to Stock Awards granted under the
Plan shall constitute general funds of the Company.
-10-
<PAGE>
9. MISCELLANEOUS
-------------
(a) The Board or the Committee shall have the power to accelerate the time
during which a Stock Award may be exercised or the time during which all option
or stock acquired pursuant to a Stock Award will vest, notwithstanding the
provisions in the Stock Award stating the time during which it may be exercised
or the time during which stock acquired pursuant thereto will vest.
(b) Neither a recipient of a Stock Award nor any person to whom a Stock
Award is transferred under subparagraphs 5(d) and 6(b) shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such person has satisfied all
requirements for exercise of the Stock Award pursuant to its terms and is
thereby entitled to receive shares of stock.
(c) Throughout the term of any Stock Award granted pursuant to the Plan,
the Company shall make available to the holder of such Stock Award, not later
than one hundred twenty (120) days after the close of each of the Company's
fiscal years during the option term, upon request, such financial and other
information regarding the Company as comprises the annual report to the
shareholders of the Company provided for in the bylaws of the Company.
(d) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any recipient any right to continue in the
employ of the Company or any Affiliate to terminate the employment or consulting
relationship or directorship of any eligible employee or recipient with or
without cause. In the event that a Stock Award recipient is permitted or
otherwise entitled to take a leave of absence, the Company shall have the
unilateral
-11-
<PAGE>
right to (i) determine whether such leave of absence will be treated as a
termination of employment for purposes of his or her Stock Award, and (ii)
suspend or otherwise delay the time or times at which the shares subject to the
Stock Award would otherwise vest.
(e) To the extent provided by the terms of any Stock Award, the recipient
may satisfy any federal, state or local tax withholding obligation relating to
the exercise or receipt of such Stock Award by any of the following means or by
a combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold from the shares of the common stock otherwise issuable to
the participant as a result of the exercise of receipt of the Stock Award cash
or a number of shares having a fair market value less than or equal to the
amount of the withholding tax obligation; or (3) delivering to the Company owned
and unencumbered shares of the common stock having a fair market value less than
or equal to the amount of the withholding tax obligation.
(f) In connection with each Stock Award made pursuant to the Plan, the
Company may require as a condition precedent to its obligation to issue or
transfer shares to an eligible participant, or to evidence the removal of any
restrictions on transfers or lapse of any repurchase right, that such
participant make arrangements satisfactory to the Company to insure that the
amount of any federal or other withholding tax required to be withheld with
respect to such sale or transfer, or such removal or lapse, is made available to
the Company for timely payment of such tax.
(g) The Company may, as a condition of transferring any stock pursuant to
the Plan, require any person who is to acquire such stock (1) to give written
assurances satisfactory to the Company as to the optionee's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is
-12-
<PAGE>
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of acquiring the stock; and (2) to give
written assurances satisfactory to the Company stating that such person is
acquiring the stock for such person's own account and not with any present
intention of selling or otherwise distributing the stock. These requirements,
and any assurances given pursuant to such requirements, shall be inoperative if
(i) the issuance of the shares has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws.
(h) Where any shares of company stock ("Stock") are to be valued for any
purpose under any provision of the Plan, such value shall consist of the "fair
market value" of such Stock. For these purposes:
(i) If the Stock is listed on a national securities and sales
prices are regularly reported for the Stock, fair market value shall mean the
average of the closing or last prices of the Stock on the composite tape or
other comparable reporting system for the 10 consecutive trading days
immediately preceding the valuation date;
(ii) If the Stock is traded on the over-the-counter market, and bid
and asked prices for the Stock are regularly reported, fair market value shall
mean the average of the mean between the bid and the asked price for the Stock
at the close of trading in the over-the-counter market for the 10 days on which
Stock was traded immediately preceding such applicable date; and
-13-
<PAGE>
(iii) If the Stock is neither listed on a national securities
exchange nor traded on the over-the-counter market, fair market value shall mean
such value as the company's board of directors, in good faith, determine based
upon those principles enumerated in Revenue Ruling 59-60, or alternatively,
using a current valuation appraisal of the company's Stock by an independent
appraiser.
(i) Notwithstanding any other provision of the Plan, the company shall
have a right of first refusal as to the sale, assignment, transfer, gift or
other disposition any share of company stock ("Stock") acquired under any
provision of the Plan, both with respect to the original holder of such Stock
and as to any subsequent holder. Such right of first refusal shall operate as
follows:
No person acquiring Stock shall sell, assign, transfer, give or otherwise
dispose of any of the shares of such Stock and no shares shall be transferred on
the company's books without the written consent of the company, or compliance
with the provisions of the following paragraph.
Before making any sale, assignment, transfer, gift or other disposition of
any of the shares of Stock without the written consent of the Company, the
holder ("Holder") of shares of Stock shall give the company a written notice
setting forth all of the details of such intended disposition. At any time
within 90 days of receipt of such notice, the company shall have an option to
purchase, at the fair market value of the shares as determined under Section
9(h) of the Plan, the shares intended to be disposed of by the Holder. Such
right of first refusal may be exercised either in whole or in part by the
company within such 90-day period by giving written notice to the Holder. If
such right of first refusal is not exercised with respect to all of the shares
of Stock subject to such right, the Holder may sell, assign, transfer, give or
otherwise dispose of that portion of such shares which was not purchased
pursuant to such right, in the manner set
-14-
<PAGE>
forth in the written notice of sale to the company by the Holder, provided that
such disposition occurs within 30 days after the expiration of such 90-day right
of first refusal period. Any such shares of Stock sold, assigned, transferred,
given or otherwise disposed of shall again become subject to the right of first
refusal provisions described in this Section 9(i) of the Plan.
(j) With respect to any shares of company stock awarded or issued pursuant
to the terms and conditions of the Plan (or later sold, assigned, transferred,
given or otherwise disposed of by the original holder of such shares), the
following legend shall be placed upon any such certificate of stock:
"The shares represented by this certificate are subject to certain right of
first refusal and repurchase provisions contained in the Cortelco Systems, Inc.
1997 Equity Incentive Plan ("Plan"). These provisions restrict the free
transferability of the shares represented by this certificate. If a written
request is made to the company, the holder of this certificate will be provided
with a copy of such Plan."
10. ADJUSTMENTS UPON CHANGES IN STOCK
---------------------------------
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
Stock Awards will be appropriately adjusted in the class(es) and maximum number
of shares subject to the Plan and the class(es) and number of shares and price
per share of stock subject to outstanding Stock Awards.
-15-
<PAGE>
(b) In the event of: (1) a merger or consolidation in which the Company is
not the surviving corporation, or (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then to the extent permitted by applicable law: (i) any surviving
corporation shall assume any Stock Awards outstanding under the Plan or shall
substitute similar rights for those outstanding under the Plan, or (ii) such
Stock Awards shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Stock Awards, or to substitute
similar Stock Awards for those outstanding under the Plan, then, with respect to
Stock Awards held by persons then performing services as employees or as
consultants or directors for the Company, as the case may be, the time during
which such Stock Awards shall vest shall be accelerated and the Stock Awards
terminated if not exercised prior to such event. In the event of a dissolution
or liquidation of the Company, any options outstanding under the Plan shall
terminate if not exercised prior to such event.
11. AMENDMENT OF THE PLAN
---------------------
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will increase the number of shares reserved for
issuance under the Plan.
(b) With a view to making available the benefits provided by Section 422
of the Code and/or Rule 16b-3 promulgated under the Exchange Act, if deemed
desirable by the Board, the
-16-
<PAGE>
Board in its discretion shall determine at the time of each amendment of the
Plan whether or not to submit such amendment to the shareholders of the Company
for approval.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to employee incentive
stock options and/or to bring the Plan and/or incentive stock options granted
under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN
-------------------------------------
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years from the date the Plan is
adopted by the Board or approved by the shareholders of the Company, whichever
is earlier. No Stock Awards .may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
-17-
<PAGE>
13. EFFECTIVE DATE OF PLAN
----------------------
The Plan shall become effective as determined by the Board, but no Stock
Award granted under the Plan shall be exercised and no stock shall otherwise be
issued under the Plan unless and until the Plan has been approved by the
shareholders of the Company, and, if required, an appropriate permit has been
issued.
IN WITNESS WHEREOF, the authorized officer of the Company has executed this
Plan on this 21st day of August, 1998, to be effective on the 7th day of April,
1998.
CORTELCO SYSTEMS. INC.
BY:--------------------------
TITLE: President & CEO
----------------
-18-
