1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 02549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): February 19, 1997
TELCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-12622 94-2178777
(State or other jurisdiction) (Commission (IRS Employer
of incorporation) File Number) Identification No.)
63 Nahatan Street, Norwood, Massachusetts 02062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 551-0300
2
Item 5. Other Events.
On February 19, 1997, the Board of Directors Telco Systems, Inc. (the
"Company") distributed one Right for each outstanding share of the Company's
Common Stock, par value $.01 per share (the "Common Stock"). The Rights will be
issued to the holders of record of Common Stock outstanding on February 19,
1997, and with respect to Common Stock issued thereafter until the Distribution
Date (as defined below) and, in certain circumstances, with respect to Common
Stock issued after the Distribution Date. Each Right, when it becomes
exercisable as described below, will entitle the registered holder to purchase
from the Company one one-hundredth (1/100th) of a share of Series A
Participating Cumulative Preferred Stock, par value $.01 per share, of the
Company (the "Preferred Shares") at a price of $50.00 (the "Purchase Price").
The description and terms of the Rights are set forth in a Rights Agreement
dated as of February 19, 1997 (the "Rights Agreement"), between the Company and
Bank of Boston, as Rights Agent (the "Rights Agent").
Until the earlier of (i) such time as the Company learns that a person
or group (including any affiliate or associate of such person or group) has
acquired, or has obtained the right to acquire, beneficial ownership of an
amount equal to or greater than such person's or group's Ownership Threshold (as
defined below) of the outstanding Capital Shares (as defined below) (such person
or group being an "Acquiring Person"), and (ii) such date, if any, as may be
designated by the Board of Directors of the Company following the commencement
of, or first public disclosure of an intent to commence, a tender or exchange
offer for outstanding Capital Shares which could result in such person or group
becoming the beneficial owner of an amount equal to or greater than such
person's or group's Ownership Threshold (as defined below) of the outstanding
Capital Shares (the earlier of such dates being called the "Distribution Date"),
the Rights will be evidenced by the certificates for Capital Shares registered
in the names of the holders thereof (which certificates shall also be deemed to
be Right Certificates, as defined below) and not by separate Right Certificates.
Therefore, until the Distribution Date, the Rights will be transferred with and
only with the Capital Shares.
The definition of "Acquiring Person" under the Rights Agreement does
not include (i) Kopp Investment Advisors, Inc. ("KIA") for so long as KIA
qualifies to report its beneficial ownership of Capital Shares on Schedule 13G
under the Securities and Exchange Act of 1934 or (ii) affiliates or associates
of KIA that have acquired Capital Shares in the ordinary course of business and
not with the purpose or effect of changing or influencing the control of the
Company. According to a Schedule 13G dated as of January 30, 1997 filed by KIA
and its affiliates,
-2-
3
KIA and such affiliates owned approximately 43.5% of the Capital Shares as of
such date.
"Capital Shares", when used with reference to the Company prior to a
business combination, shall mean the shares of Common Stock or any other shares
of capital stock of the Company into which the Common Stock shall be
reclassified or changed.
"Ownership Threshold" means, with respect to any person, the beneficial
ownership of the greater of (i) 15% of the Capital Shares at any time
outstanding or (ii) the percentage of the aggregate of the outstanding Capital
Shares beneficially owned by such person on the date the Rights Plan is
implemented, plus in the case of this clause (ii) 1% of the Capital Shares
outstanding on such date. A person will not be deemed to beneficially own any
Capital Shares solely by virtue of the receipt by such person of a revocable
proxy or consent given to such person pursuant to a definitive proxy statement
filed with the Securities and Exchange Commission and otherwise in accordance
with the rules and regulations under the Securities Exchange Act of 1934.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Capital Shares as of the close of business on the
Distribution Date (and to each initial record holder of certain Common Stock
originally issued after the Distribution Date), and such separate Right
Certificates alone will thereafter evidence the Rights.
The Rights are not exercisable until the Distribution Date and will
expire on February 19, 2007 (the "Expiration Date") unless earlier redeemed by
the Company as described below.
The number of Preferred Shares or other securities issuable upon
exercise of a Right, the Purchase Price, the Redemption Price (as defined below)
and the number of Rights associated with each outstanding Capital Share are all
subject to adjustment by the Board of Directors of the Company in the event of
any change in the Capital Shares or the Preferred Shares, whether by reason of
stock dividends, stock splits, recapitalizations, mergers, consolidations,
combinations or exchanges of securities, split-ups, split-offs, spin-offs,
liquidations, other similar changes in capitalization, any distribution or
issuance of cash, assets, evidences of indebtedness or subscription rights,
options or warrants to holders of Capital Shares or Preferred Shares, as the
case may be (other than distribution of the Rights or regular quarterly cash
dividends) or otherwise.
-3-
4
The Preferred Shares are authorized to be issued in fractions which are
an integral multiple of one one-hundredth (1/100th) of a Preferred Share. The
Company may, but is not required to, issue fractions of shares upon the exercise
of Rights, and, in lieu of fractional shares, the Company may issue certificates
or utilize a depository arrangement as provided by the terms of the Preferred
Shares and, in the case of fractions other than one one-hundredth (1/100th) of a
Preferred Share or integral multiples thereof, may make a cash payment based on
the market price of such shares.
At such time as there is an Acquiring Person, the Rights will entitle
each holder (other than such Acquiring Person (or any affiliate or associate of
such Acquiring Person)) of a Right to purchase, for the Purchase Price, that
number of one one-hundredths (1/100ths) of a Preferred Share equivalent to the
number of Capital Shares which at the time of such event would have a market
value of twice the Purchase Price.
In the event the Company is acquired in a merger or other business
combination by an Acquiring Person or an associate or affiliate of an Acquiring
Person that is a publicly traded corporation or 50% or more of the Company's
assets or assets representing 50% or more of the Company's revenues or cash flow
are sold, leased, exchanged or otherwise transferred (in one or more
transactions) to an Acquiring Person or an associate or affiliate of an
Acquiring Person that is a publicly traded corporation, each Right will entitle
its holder (subject to the next paragraph) to purchase, for the Purchase Price,
that number of common shares of such corporation which at the time of the
transaction would have a market value of twice the Purchase Price. In the event
the Company is acquired in a merger or other business combination by an
Acquiring Person or an associate or affiliate of an Acquiring Person that is not
a publicly traded entity or 50% or more of the Company's assets or assets
representing 50% or more of the Company's revenues or cash flow are sold,
leased, exchanged or otherwise transferred (in one or more transactions) to an
Acquiring Person or an associate or affiliate of an Acquiring Person that is not
a publicly traded entity, each Right will entitle its holder (subject to the
next paragraph) to purchase, for the Purchase Price, at such holder's option,
(i) that number of shares of the surviving corporation in the transaction with
such entity (which surviving corporation could be the Company) which at the time
of the transaction would have a book value of twice the Purchase Price, (ii)
that number of shares of such entity which at the time of the transaction would
have a book value of twice the Purchase Price or (iii) if such entity has an
affiliate which has publicly traded common shares, that number of common shares
of such affiliate which at the time of the transaction would have a market value
of twice the Purchase Price.
-4-
5
Any Rights that are at any time beneficially owned by an Acquiring
Person (or any affiliate or associate of an Acquiring Person) will be null and
void and nontransferable and any holder of any such Right (including any
purported transferee or subsequent holder) will be unable to exercise or
transfer any such Right.
At any time after a person or a group becomes an Acquiring Person, the
Board of Directors of the Company may exchange all or part of the then
outstanding Rights (other than Rights that have become null and void and
nontransferable as described above) for consideration per Right consisting of
one-half of the securities that otherwise would have been issuable to the holder
of each Right upon exercise thereof. The Board of Directors of the Company may
also issue, in substitution for Preferred Shares, Common Stock having an
equivalent market value to the Preferred Shares if, at such time, the Company
has a sufficient number of Common Stock issued but not outstanding or authorized
but unissued.
At any time prior to the earlier of (i) such time as a person becomes
an Acquiring Person and (ii) the Expiration Date, the Board of Directors of the
Company may redeem the Rights in whole, but not in part, at a price (in cash or
Common Stock or other securities of the Company deemed by the Board of Directors
to be at least equivalent in value) of $.01 per Right, subject to adjustment as
provided in the Rights Agreement (the "Redemption Price").
Immediately upon the action of the Board of Directors of the Company
electing to redeem the Rights, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
After there is an Acquiring Person, the Board of Directors may elect to
exchange each Right (other than Rights that shall have become null and void and
nontransferable as described above) for consideration per Right consisting of
one-half of the securities that would be issuable at such time upon the exercise
of one Right pursuant to the terms of the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
At any time prior to the Distribution Date, the Company may, without
the approval of any holder of the Rights, supplement or amend any provision of
the Rights Agreement (including the date on which the Distribution Date shall
occur, the time during
-5-
6
which the Rights may be redeemed or the terms of the Preferred Shares), except
that no supplement or amendment shall be made which reduces the Redemption Price
(other than pursuant to certain adjustments therein) or provides for an earlier
Expiration Date.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on substantially all the Rights being acquired.
The Rights will not interfere with any merger or other business combination
pursuant to certain all-cash tender offers for all outstanding Capital Shares or
with a third party approved by the Board of Directors of the Company since the
Board of Directors of the Company may, at its option, at any time prior to any
person becoming an Acquiring Person, redeem all but not less than all of the
then outstanding Rights at the Redemption Price.
A Registration Statement on Form 8-A with respect to the Rights has
been filed with the Securities and Exchange Commission. The Rights Agreement
specifying the terms of the Rights, the Certificate of Designation of the
Preferred Shares specifying the terms of the Preferred Shares (Exhibit A to the
Rights Agreement) and the form of Right Certificate (Exhibit B to the Rights
Agreement) are filed herewith as exhibits. The foregoing description of the
Rights does not purport to be complete and is qualified in its entirety by
reference to such exhibits, which are incorporated herein by reference.
-6-
7
Item 7. Exhibits.
Number Title
4(a) Rights Agreement dated as of February 19, 1997, between Telco
Systems, Inc. and Bank of Boston as Rights Agent.
4(b) Form of Certificate of the Voting Powers, Preferences and
Relative, Participating, Optional and other Special Rights,
Qualifications, Limitations or Restrictions of Series A
Participating Cumulative Preferred Stock of Telco Systems, Inc.
(which is attached as Exhibit A to the Rights Agreement filed as
Exhibit 4(a) hereto).
4(c) Form of Right Certificate (which is attached as Exhbit B to the
Rights Agreement filed as Exhibit 4(a) hereto).
-7-
8
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELCO SYSTEMS, INC.
Dated: February 19, 1997 By: /s/ William B. Smith
------------------------------
Dr. William B. Smith
President and
Chief Executive Officer
-8-
9
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Number Title
4(a) Rights Agreement dated as of February 19, 1997, between Telco
Systems, Inc. and Bank of Boston as Rights Agent.
4(b) Form of Certificate of the Voting Powers, Preferences and
Relative, Participating, Optional and other Special Rights,
Qualifications, Limitations or Restrictions of Series A
Participating Cumulative Preferred Stock of Telco Systems,
Inc. (which is attached as Exhibit A to the Rights Agreement
filed as Exhibit 4(a) hereto).
4(c) Form of Right Certificate (which is attached as Exhibit B to the
Rights Agreement filed as Exhibit 4(a) hereto).
-9-