1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
TELCO SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 94-2178777
(State or Other Jurisdiction (I.R.S.Employer
of Incorporation or Organization) Identification Number)
63 NAHATAN STREET
NORWOOD, MASSACHUSETTS 02062
(781) 551-0300
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
WILLIAM B. SMITH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TELCO SYSTEMS, INC.
63 NAHATAN STREET
NORWOOD, MASSACHUSETTS 02062
(781) 551-0300
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent For Service)
------------
Copies to:
EDWARD N. GADSBY, JR., ESQUIRE
ROBERT W. SWEET, JR., ESQUIRE
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 832-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------
CALCULATION OF REGISTRATION FEE
====================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SHARES TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value............. 101,636 shares $11.875 $1,206,927.50 $356.04
====================================================================================================================
(1) Estimated solely for the purpose of determining the registration fee. In
accordance with Rule 457(c) under the Securities Act of 1933, the above
calculation is based on the average of the high and low sale prices
reported in the consolidated reporting system of the Nasdaq National Market
on February 18, 1998.
------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
2
PROSPECTUS
- ----------
TELCO SYSTEMS, INC.
101,636 SHARES OF COMMON STOCK
--------------------
The 101,636 shares (the "Shares") of common stock, par value $.01 per share
(the "Common Stock"), of Telco Systems, Inc. (the "Company") covered by this
Prospectus are being offered by a stockholder of the Company (the "Selling
Stockholder") on a delayed or continuous basis, pursuant to the exercise of
registration rights. See "Selling Stockholder."
The Company will not receive any proceeds from the offering. The Company
will bear the costs relating to the registration of the Shares offered hereby
(other than selling commissions).
The Selling Stockholder named herein or any pledgees, donees, transferees
or other successors in interest of such stockholder may offer the Shares, from
time to time during the effectiveness of this Registration Statement, for sale
through the Nasdaq National Market, in the over-the-counter market, in one or
more negotiated transactions or through a combination of methods of sale, at
prices and on terms then prevailing or at negotiated prices. Sales may be
effected to or through broker-dealers, who may receive compensation in the form
of discounts, concessions or commissions in connection therewith. See "Plan of
Distribution."
The Common Stock is traded on the Nasdaq National Market under the symbol
"TELC." On February 18, 1998, the closing price for the Common Stock, as
reported on the Nasdaq National Market, was $11.625 per share.
--------------------
FOR A DESCRIPTION OF CERTAIN RISKS ASSOCIATED WITH THE
COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON
PAGES 4 THROUGH 8 HEREOF.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------------
ALL SECURITIES TO BE REGISTERED HEREBY ARE TO BE OFFERED BY A STOCKHOLDER OF
THE COMPANY.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 25, 1998.
3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied, at prescribed rates, at the public reference facilities of the
Commission in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. The Company files certain documents
with the Commission electronically and these documents may be inspected and
copied at the Commission's Web site, located at http://www.sec.gov. The Common
Stock of the Company is quoted on the Nasdaq National Market and, thus, reports,
proxy statements and other information concerning the Company may also be
inspected at the offices of The Nasdaq Stock Market, Inc. at 1735 K Street,
N.W., Washington, D.C. 20006.
This Prospectus constitutes a part of a registration statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto, in accordance with the rules and regulations of
the Commission. For further information concerning the Company and the Common
Stock offered hereby, reference is hereby made to the Registration Statement and
the exhibits and schedules filed therewith, which may be inspected without
charge at the office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and copies of which may be obtained from the Commission at prescribed
rates. Any statements contained herein concerning the provisions of any document
are not necessarily complete and, in each instance, reference is made to the
copy of such documents filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the Commission
are hereby incorporated in this Prospectus by reference and made a part hereof:
(a) The Company's annual report on Form 10-K for the Company's fiscal year
ended August 31, 1997;
(b) The Company's quarterly report on Form 10-Q for the Company's quarter
ended November 30, 1997; and
(c) The description of the Company's Common Stock contained in the
registration statement on Form 8-A filed with the Commission on June
28, 1984 under Section 12 of 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 Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the Common Stock
offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the respective dates of the filing of
such reports and documents. Any statement or information contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
modified or superseded for the purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document incorporated or
deemed to be incorporated by reference herein modifies or
-3-
4
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus incorporates by reference documents that are not presented
herein or delivered herewith. These documents (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference
herein) are available, without charge, upon written or oral request by any
person to whom this Prospectus is delivered, including any beneficial owner, to:
Telco Systems, Inc., 63 Nahatan Street, Norwood, MA 02062, Attention: Chief
Financial Officer, telephone (781) 551-0300.
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus and in the documents incorporated by
reference into this Prospectus constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Further, any statements contained in or incorporated into this Prospectus
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "expect," "anticipate,"
"plan," "believe," "seek," "estimate," "internal," "backlog" and similar words
are also intended to identify expressions that may be forward-looking
statements. Such statements are not guarantees of future performance, and
involve risks, uncertainties and assumptions that could cause the Company's
future results to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company. Many of such factors are beyond
the Company's ability to control or predict. Readers are accordingly cautioned
not to place undue reliance on forward-looking statements. The Company disclaims
any intent or obligation to update publicly any forward-looking statements
whether in response to new information, future events or otherwise. Important
factors that may cause the Company's actual results to differ from such
forward-looking statements include, but are not limited to, the risk factors
discussed below.
RISK FACTORS
In addition to other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby:
ORDERS AND BACKLOG
Order delays and cancellations could have an immediate and materially
adverse effect on the Company's business, financial condition, results of
operations and cash flow. The Company's customers may revise scheduled delivery
dates, product configuration or cancel orders. For example, during the first
quarter of the Company's fiscal year ended August 30, 1998, the Company was
notified by one of its major customers, MCI Communications Corporation ("MCI"),
that such customer would cancel an order for Access60 products of the Company in
the amount of $6.9 million.
The Company's backlog of orders may not mitigate the effect of such delays
and cancellations. The backlog may not be representative of actual sales for any
succeeding period because of the timing of orders, delivery intervals, customer
and product mix, the possibility of changes in delivery schedules and additions
or cancellation of orders. Historically, a significant portion of the Company's
sales in any quarter result from orders received in the same period. The
Company's customers and distributors are typically not contractually obligated
to purchase a particular quantity of the Company's products in any period.
-4-
5
CONCENTRATION OF CUSTOMERS
Recent merger activity among some of the Company's large customers could
have a material adverse effect on the Company's future orders as those customers
reassess their strategic direction. NYNEX, the Company's largest customer,
recently merged with Bell Atlantic. A material curtailment by Bell Atlantic in
the rate at which NYNEX ordered products from the Company, if not offset by
increased sales to other customers of the Company, would reduce the Company's
revenues so that the Company could not cover its current level of operating
costs, having a material adverse effect on the Company's business, financial
condition, results of operations and cash flow. Although the Company believes
that its products offer a competitive advantage to Bell Atlantic, there can be
no assurance that Bell Atlantic will continue the historic order levels of
NYNEX. Also, MCI recently agreed to be acquired by WorldCom, Inc.
("WorldCom"); both are customers of the Company. It is currently unclear what
impact the acquisition will have on the Company's sales to MCI and WorldCom.
Reductions in orders by other customers of the Company could also have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flow. The Company is dependent for a significant amount
of its sales on MCI and Walker and Associates, which represented 11% and 10%,
respectively, of the Company's sales in the Company's fiscal year ended August
31, 1997 ("fiscal 1997"). In the Company's fiscal year ended August 25, 1996,
Sprint Corporation ("Sprint") and Walker and Associates represented 13% and 11%,
respectively, of sales and, in the Company's fiscal year ended August 27, 1995,
Sprint represented 18%.
There can be no assurance that any of the Company's customers, including
its significant customers, will continue to utilize the Company's services at
levels similar to previous years or at all. The loss of, or a significant
curtailment of purchases by, one or more of the Company's significant customers,
including a loss or curtailment due to factors outside of the Company's control,
could have a material adverse effect on the Company's business, financial
condition, results of operations and cash flow. In addition, delays in
collection or the uncollectability of accounts receivable from any of the
Company's significant customers could have a material adverse effect on the
Company's liquidity and working capital position.
COMPETITION
The Company operates in highly competitive markets and experiences intense
competitive pressure that places significant pressure on the prices of the
Company's products and may cause the Company's operating results to vary from
those expected. Competitive pressures could cause reduced demand for the
Company's products. If the Company is not successful in winning future business
opportunities, it is possible that the Company will not have sufficient revenue
to cover costs and expenses incurred in anticipation of these opportunities and
its business, financial condition, results of operations and cash flow could be
materially and adversely affected.
There can be no assurance that the Company will be able to compete
successfully with its existing competitors or with new competitors. Competition
could increase if new companies enter the market or if existing competitors
expand their service offerings. In addition, current and potential competitors
have established or may in the future establish collaborative relationships
among themselves or with third parties, including third parties with whom the
Company has a relationship, to increase the visibility and utility of their
products and services. Accordingly, it is possible that new competitors or
alliances may emerge and
-5-
6
rapidly acquire a significant market share. An increase in competition could
result in price reductions or the loss of market share by the Company and could
have a material adverse effect on the Company's business, financial condition,
results of operations and cash flow.
To remain competitive in the telecommunications industry, the Company will
need to continue to invest in engineering, research and development and sales
and marketing. There can be no assurance that the Company will have sufficient
resources to make such investments or that the Company will be able to make the
technological advances necessary to remain competitive. In addition, most of the
Company's competitors have greater financial, technological and personnel
resources than the Company. As a result, the Company's competitors may be able
to adapt more quickly to new or emerging technologies and changes in customer
requirements or may be able to devote greater resources to the promotion and
sale of their products and services. If the Company is not able to remain
competitive, the Company's business, financial condition, results of operations
and cash flow could be materially adversely affected.
RAPID TECHNOLOGICAL CHANGE
The introduction of new technologies by the Company's competitors could
result in lower demand for the Company's products and could cause the Company's
inventory on hand to become obsolete. The telecommunications industry has been
changing rapidly as a result of increasing competition, technological advances
and evolving industry practices and standards, and the Company expects these
changes to continue. Network service providers in the telecommunications market
have also been changing quickly as the result of consolidation among established
providers and the rapid entrance of new providers into the market. The Company's
future success will depend on the continued use of its existing products and
services, market acceptance of its new products and services and the Company's
ability to develop and market new offerings or adapt existing offerings to keep
pace with changes in the telecommunications industry. Specifically, the
acceptance of the Access60 and Access45 products and certain broadband products
is critical to the Company's growth strategy.
Due to rapid changes in the telecommunications industry, the Company
intends to continue devoting substantial financial, managerial and personnel
resources to product development efforts for the foreseeable future. The
development of the Company's product and service offerings is based on a complex
process requiring high levels of innovation and the accurate anticipation of
technological and market trends. There can be no assurance that the Company will
be successful in developing or marketing its existing or future product and
service offerings in a timely manner, or at all, nor can there be any assurance
that products or services developed by others will not render the Company's
products or services non-competitive or obsolete. Moreover, the Company recently
acquired substantially all of the assets of Jupiter Technology, Inc.
("Jupiter"). Some of the product lines acquired by the Company from Jupiter
require further development. There can be no assurance that the Company will
complete the development of and subsequently market such products in a timely
manner, or at all. If the Company is unable, due to resource, technical or other
constraints, to anticipate or respond adequately to changing market, customer or
technological requirements, the Company's business, financial condition, results
of operations and cash flow will be materially adversely affected.
DEPENDENCE ON SKILLED EMPLOYEES
The failure of the Company to hire and retain qualified personnel could
have a material adverse effect upon the Company's business, financial condition,
results of operations and cash flow. The Company experiences intense competition
for the recruitment and retention of highly skilled engineering, managerial,
sales, marketing and product development employees. The Company believes that
its future success will
-6-
7
depend in large part on its ability to attract and retain highly qualified
management, engineering, research and development, sales and operational
personnel. Competition for all of these personnel is intense and there can be no
assurance that the Company will be successful in attracting and retaining key
personnel.
DEPENDENCE ON SUPPLIERS
The Company is dependent on a few suppliers to provide certain
custom-designed components, and any significant interruption in the supply, or
degradation in the quality, of components manufactured by such suppliers could
have a material adverse effect on the Company's business, financial condition,
results of operations and cash flow. On-time delivery of the Company's products
depends upon the availability of components manufactured by suppliers and used
in the Company's products. There can be no assurance that such suppliers will
continue to be able and willing to meet the Company's requirements for any such
components.
The Company has recently begun to rely on two contract manufacturers, US
Assemblies, New England, Inc. ("US Assemblies") and SCI Technology, Inc.
("SCI"), to produce its products. Delivery of the Company's products by such
manufacturers may be interrupted if the manufacturers encounter production,
quality or financial problems. Moreover, the Company may fail to order
sufficient quantities of its products from the manufacturers to satisfy orders
from the Company's customers. Such interruptions or failures could have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flow.
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced fluctuations in its quarterly operating results
and anticipates that such fluctuations will continue and could intensify. The
Company's quarterly operating results may vary significantly depending on a
number of factors, including the announcement of technological innovations or
new products by the Company, its competitors and other third parties, the timing
of the introduction or acceptance of new products and services offered by the
Company or its competitors, changes in the mix of products and services provided
by the Company, market conditions in the telecommunications industry, the nature
and timing of changes in the Company's customers or their use of the Company's
products and services, consolidation among participants and other changes in the
telecommunications industry, changes in the customer markets served by the
Company, changes in regulations affecting the telecommunications industry,
changes in the Company's operating expenses, changes in personnel and changes in
general economic conditions. Such factors may cause the market price of the
Common Stock to vary significantly. In addition, the stock market in general has
experienced substantial price and volume fluctuations, which have particularly
affected the market prices of may technology companies and which have often been
unrelated to the operating performance of such companies. These broad market
fluctuations may adversely affect the market price of the Common Stock.
The Company's financial results in any particular fiscal period are not
necessarily indicative of results for future periods. Historically, the Company
has generated a disproportionate amount of its operating revenues toward the end
of each quarter, making precise prediction of revenues and earnings particularly
difficult and resulting in risk of variance of actual results from those
forecast at any time. In addition, announcements by the Company or its
competitors of new products, services or technologies could cause customers to
defer or cancel purchases of the Company's products and services, and any such
deferral or cancellation could also have a material adverse effect on the
Company's business, financial condition, results of operations and cash flow.
Revenue shortfalls can cause significant variations in operating results from
-7-
8
quarter to quarter and could have a material adverse effect on the Company's
business, financial condition, results of operations and cash flow.
Due to all of the foregoing factors, it is possible that in some future
quarter the Company's results of operations will be below prior results or the
expectations of market analysts and investors. In such an event, the price of
the Common Stock would likely be materially adversely affected.
ENTRY INTO INTERNATIONAL MARKETS
The Company may seek opportunities to expand its offerings in international
markets. Between fiscal 1996 and fiscal 1997, the Company's international sales
increased from 4% of its total revenue to 7%. The Company believes that such
expansion is important to the Company's ability to continue to grow and to
market its products and services.
Increased sales by the Company outside the United States could have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flow. In marketing its products and services
internationally, the Company will face new competitors, some of whom may have
established strong relationships with network service providers. There can be no
assurance that the Company will be successful in marketing or distributing its
services abroad or that, if the Company is successful, its international
revenues will be adequate to offset the expense of establishing and maintaining
international operations. The Company's conduct of business outside the United
States is subject to certain risks, including longer payment cycles, unexpected
changes in regulatory requirements and tariffs, difficulties in staffing and
managing foreign operations, greater difficulty in the collection of accounts
receivable and potentially adverse tax consequences. Also, to the extent that
any of the Company's sales are denominated in foreign currencies, the Company's
revenue and results of operations may also be directly affected by fluctuations
in foreign currency exchange rates. Finally, in order to sell its products
internationally, the Company must meet standards established by
telecommunications authorities in various countries. In addition, the Company
follows recommendations of the Consultative Committee on International Telegraph
and Telephony. A delay in obtaining, or the failure to obtain, certification of
its products in foreign countries could delay or preclude the Company's
marketing and sales efforts in such countries.
REGULATORY MATTERS
The Telecommunications Act of 1996, which in large measure deregulated the
telecommunications industry, has caused, and is likely to continue to cause,
significant changes in the industry, including the entrance of new competitors
and the consolidation of industry participants. Those changes could in turn
subject the Company to increased pricing pressures, decrease the demand for the
Company's products and services, increase the Company's cost of doing business
or otherwise have a material adverse effect on the Company's business, financial
condition, results of operations and cash flow.
Changes in existing laws and regulations which govern the
telecommunications industry could adversely affect the Company's business.
Regulations promulgated by the Federal Communications Commission affect various
of the Company's products. Certain regulations currently require that products
which reside on a customer's premises and interconnect the public switched
network meet certain standards to prevent harm to the network. Other regulations
currently limit the levels of electromagnetic radiation which may emanate from
an electronic device located on a customer's premises. Changes in these
regulations could force the Company to change its products, slowing or halting
sales of such products.
-8-
9
THE COMPANY
The Company is a manufacturer of three major product lines which are
designed to provide integrated access for network services: (1) broadband
transmission products; (2) network access products; and (3) bandwidth
optimization products.
The Company's products are deployed at the edge of service providers'
networks to provide organizations with a flexible, cost-effective means of
transmitting voice, data, video and image traffic over public or private
networks. These products are used in a wide variety of applications by network
service providers, such as long distance carriers, Bell Operating Companies,
independent and competitive local access providers, as well as government
agencies, electric utilities, wireless service operators, and major
corporations. Its products, which can be found most often in telephone company
central offices and in private communications networks, perform functions that
range from basic signaling and multiplexing of DS0 (64kbps) low speed data and
voice traffic to digital fiber optic transmission of high-speed, high-capacity
services over SONET OC-3 (155Mbps) networks.
In January 1983, the Company acquired the fiber optics transmission
business from Raytheon Company, which evolved into the Broadband product line.
Sales of broadband transmission products in fiscal year 1997 comprised
approximately 54% of the Company's total revenue. In August 1984, the Company
acquired TeleBit, Inc., a manufacturer of digital transmission systems based in
Lombard, Illinois. Later, the products from this acquisition were merged with
the Company's Voice Frequency products which together evolved into the Access
product line. In fiscal 1997, sales of access products were 41% of total sales.
In May 1992, the Company acquired Magnalink Communications Corporation, a
developer and manufacturer of high speed data compression and bandwidth
optimization products, which evolved into the Bandwidth Optimization product
line. In fiscal 1997, bandwidth optimization products represented 5% of sales.
In January 1998, the Company acquired substantially all of the assets of Jupiter
Technology, Inc. ("Jupiter"). Jupiter was a developer of Frame Relay and ATM
access technologies, and the Company expects that the assets it acquired from
Jupiter will strengthen the Company's integrated access product offerings.
The Company's executive offices are located at 63 Nahatan Street, Norwood,
Massachusetts 02062, and its telephone number is (781) 551-0300. The Company was
incorporated in California in 1972 and reincorporated in Delaware in 1986.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock
offered hereunder by the Selling Stockholder.
SELLING STOCKHOLDER
The Shares are being offered for sale from time to time during the period
of effectiveness of the Registration Statement for the account of the Selling
Stockholder set forth below or any of its pledgees, donees, transferees or other
successors in interest. The Selling Stockholder acquired the Shares being
offered hereunder pursuant to an Asset Purchase Agreement dated as of January
26, 1998 (the "Purchase Agreement") by and among the Company, the Selling
Stockholder and certain other parties.
The Company has filed with the Commission a Registration Statement on Form
S-3, of which this prospectus forms a part, with respect to the resale of the
Shares from time to time on the Nasdaq Stock
-9-
10
Market or in privately-negotiated transactions. The Company has agreed to use
its best efforts to keep such Registration Statement effective until the first
anniversary of the closing of the Purchase Agreement (such anniversary shall
occur on January 26, 1999) or, if earlier, until the distribution contemplated
by this Prospectus has been completed.
Based on the information supplied by the Selling Stockholder to the
Company, the Company believes that neither it nor any of its predecessors or
affiliates have had any material relationship with the Selling Stockholder
during the last three years. The following table sets forth, as of February 18,
1998, certain information regarding the beneficial ownership of the Common Stock
by the Selling Stockholder:
SHARES BENEFICIALLY SHARES TO BE BENEFICIALLY
OWNED PRIOR TO OFFERING NUMBER OF OWNED AFTER OFFERING
----------------------- SHARES BEING -------------------------
NAME NUMBER PERCENT(1) OFFERED(2) NUMBER(3) PERCENT(1)
- ---------------- ------ ---------- ------------ --------- ----------
Tempus Technology, Inc.(4)(5)... 101,636 * 101,636 0 *
- ------------------
* Less than 1%.
(1) Represents the percentage beneficially owned relative to the aggregate of
10,987,547 shares of Common Stock outstanding as of February 18, 1998.
(2) This Registration Statement shall also cover any additional shares of
Common Stock that become issuable in connection with the shares registered
for sale hereby by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration that results in an increase in the number of the Company's
outstanding shares of Common Stock.
(3) Assumes all shares offered hereby are sold.
(4) When it acquired the Shares, the name of the Selling Stockholder was
Jupiter Technology, Inc. The Selling Stockholder changed its name to Tempus
Technology, Inc. on January 28, 1998.
(5) The Selling Stockholder has informed the Company that it does not expect to
sell the Shares itself. Instead, the Selling Stockholder plans to
distribute the Shares to its parent company, Jupiter Communications, Inc.
("Parent"). The Company anticipates that Parent will then transfer the
Shares to a trust established for the benefit of the stockholders (the
"Stockholders") of Parent, the Tempus Liquidating Trust (the "Trust"), and
that the Trust will sell the Shares. The Stockholders are: Cyberfin Corp.,
Joseph F. Kruy, the Kruy Family Trust, Peter Kruy, Bruce Rozelle, Craig
Rozelle, Alexa Rozelle, Joseph N. Kruy, Victoria Kruy, Richard Howell, Ken
Osborne, Jennifer Taggart, Ken Ingham, Nicholas Cuccaro, John Zornig,
Sanford Goldfless, Paul Toldalagi, Anura Guruge, Robert Caouette, Kevin
McPartlin, Dorothy Elliott, Daniel Bergman, James Martel, Keith Giles,
Tracy Brookings and Ben Rachman. In addition, the following persons are
currently not Stockholders but hold options to purchase shares of the
common stock of Parent and may become Stockholders by exercising such
options: Philip Kountz, William Kwan, Jeff R. Meikle, Paul Schilling and
Chin-Kue Wen.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Stockholder or by
any of its pledgees, donees, transferees or other successors in interest,
including, without limitation, the Trust. Such sales may be made on one or more
exchanges or in the over-the-counter market, or otherwise at prices and at terms
then prevailing or at prices related to the then current market price, or in
negotiated transactions. The Shares may be sold by one or more of the following:
(a) a block trade in which the broker or dealer so engaged will attempt to sell
the Shares as agent but may position and resell a portion of the block as
principal to facilitate
-10-
11
the transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c) an
exchange distribution in accordance with the rules of such exchange; and (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers. In effecting sales, brokers or dealers engaged by the Selling
Stockholder may arrange for other brokers or dealers to participate. Brokers or
dealers will receive commissions or discounts from the Selling Stockholder in
amounts to be negotiated immediately prior to the sale. Such brokers or dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any commission received by them and profit on any resale of the
Shares as principal might be deemed to be underwriting discounts and commissions
under the Securities Act. In addition, any securities covered by this Prospectus
which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather
than pursuant to the Prospectus.
Upon the Company being notified by the Selling Stockholder that any
material arrangement has been entered into with a broker-dealer for the sale of
the Shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
Prospectus will be filed, if required, pursuant to Rule 424(c) under the
Securities Act, disclosing (i) the name of the participating broker-dealer(s),
(ii) the number of shares involved, (iii) the price at which such shares were
sold, (iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this Prospectus and (vi) other facts material to the transaction.
The Company has agreed to pay the expenses incurred in connection with
preparing and filing the Registration Statement and this Prospectus (other than
selling commissions). The Company has agreed to indemnify the Selling
Stockholder against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by Foley,
Hoag & Eliot LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Telco Systems, Inc. appearing in
Telco Systems, Inc.'s Annual Report (Form 10-K) for the year ended August 31,
1997, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
-11-
12
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering covered by this Prospectus and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company or the Selling Stockholder. This Prospectus does not constitute an offer
to sell or the solicitation of an offer to buy any securities other than the
securities to which it relates or an offer to sell or the solicitation of an
offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof or that
the information contained herein is correct as of any time subsequent to its
date.
101,636
Shares
TELCO SYSTEMS, INC.
Common Stock
(par value $.01 per share)
---------------------
PROSPECTUS
---------------------
13
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses to be paid by the
Company in connection with the issuance and distribution of the securities being
registered. All amounts shown are estimates except for amounts of registration
and listing fees. The Company will pay all expenses in connection with the
issuance and distribution of any securities sold by the Selling Stockholder
(including fees and expenses of counsel for the Selling Stockholder) up to a
maximum of $5,000, but will not pay for any discounts, concessions, commissions
or other compensation due to any broker or dealer in connection with the sale of
any of the shares offered hereby.
Securities and Exchange Commission registration fee......... $ 356.04
----------
Nasdaq Stock Market, Inc. listing fee ...................... 2,032.72
----------
Legal fees and expenses .................................... 7,500.00
----------
Accounting fees and expenses ............................... 3,000.00
----------
Printing, EDGAR formatting and mailing expenses ............ 2,000.00
----------
Miscellaneous .............................................. 811.24
==========
Total ................................................. 15,700.00
----------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law affords a Delaware
corporation the power to indemnify its present and former directors and officers
under certain conditions. Article VII of the Company's By-Laws provides that the
Company shall indemnify any person made or threatened to be made a party to any
action or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he is or was a director, officer or employee of the
Company or serves or served any other enterprise as a director, officer or
employee at the request of the Company.
Section 102(b)(7) of the Delaware General Corporation Law gives a Delaware
corporation the power to adopt a charter provision eliminating or limiting the
personal liability of directors to the corporation or its stockholders for
breach of fiduciary duty as directors, provided that such provision may not
eliminate or limit the liability of directors for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) any acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) any payment of a dividend or approval of a stock
purchase that is illegal under Section 174 of the Delaware Corporation Law or
(iv) any transaction from which the director derived an improper personal
benefit. Article TWELFTH of the Company's Certificate of Incorporation provides
that no director of the Company shall be personally liable to the Company or to
any of its stockholders for monetary damages arising out of such director's
breach of fiduciary duty as a director of the Company except to the extent not
permitted by the General Corporation Law of the State of Delaware. A principal
effect of such Article TWELFTH is to limit or eliminate the potential liability
of the Company's directors for monetary damages arising from breaches of their
duty of care, unless the breach involves on of the four exceptions described in
(i) through (iv) above. Article TWELFTH does not prevent stockholders from
obtaining injunctive or other equitable relief against directors, nor does it
shield directors from liability under federal or state securities laws.
Section 145 of the Delaware General Corporation Law also affords a Delaware
corporation the power to obtain insurance on behalf of its directors and
officers against liabilities incurred by them in those capacities.
-13-
14
The Company has a directors' and officers' liability policy insuring its
directors and officers for certain claims up to $7,000,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
4.1 Certificate of Incorporation of Telco Systems, Inc.
4.2 By-Laws of Telco Systems, Inc., as amended.
5.1 Opinion of Foley, Hoag & Eliot LLP.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1).
24.1 Power of Attorney (contained on the signature page).
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) 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 of 1933;
(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 the 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 a prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
upon effectiveness hereof;
(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)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3 and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
-14-
15
(3) 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.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference to 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 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 Act and will be governed by the final adjudication of
such issue.
-15-
16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Norwood, state of Massachusetts, on this 25th day of
February, 1998.
TELCO SYSTEMS, INC.
By: /s/ William B. Smith
-----------------------------------------
William B. Smith, President,
Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints William B. Smith and William J. Stuart, and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution, 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 all 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 which
they, or either of them, may deem necessary or advisable to be done in
connection with this Registration Statement, 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 any substitute or
substitutes for any of them, 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 indicated as of February 25, 1998.
Signature Title
- --------- -----
/s/ William B. Smith President, Chief Executive Officer
- -------------------------- and Director
William B. Smith (Principal Executive Officer)
/s/ William J. Stuart Vice President and Chief Financial
- -------------------------- Officer
William J. Stuart (Principal Financial and Accounting
Officer)
/s/ Dean C. Campbell Director
- --------------------------
Dean C. Campbell
-16-
17
Signature Title
- --------- -----
/s/Sheldon Horing Director
- ---------------------------
Sheldon Horing
/s/ Steward Flaschen Director
- ---------------------------
Steward Flaschen
/s/ Edward J. Fontenot Director
- ---------------------------
Edward J. Fontenot
-17-
18
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
4.1 Certificate of Incorporation of Telco Systems, Inc.
4.2 By-Laws of Telco Systems, Inc., as amended.
5.1 Opinion of Foley, Hoag & Eliot LLP.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Foley, Hoag & Eliot LLP
(included in Exhibit 5.1).
24.1 Power of Attorney (contained on the signature page).
-18-