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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 02549
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FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
TELCO SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-2178777
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(State of incorporation or organization) (IRS Employer
Identification No.)
63 Nahatan Street, Norwood, Massachusetts 02062
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(Address of principal executive offices) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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None.
Securities to be registered pursuant to Section 12(g) of the Act:
Rights to Purchase Series A
Participating Cumulative Preferred Stock
----------------------------------------
(Title of Class)
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Item 1. Description of Securities to be Registered.
On February 19, 1997, the Board of Directors of 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, KIA and such affiliates owned approximately 43.5% of the
Capital
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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.
The Preferred Shares are authorized to be issued in fractions
which are an integral multiple of one one-hundredth
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(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.
Any Rights that are at any time beneficially owned by an
Acquiring Person (or any affiliate or associate of an
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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 which the Rights may be redeemed or the terms
of the Preferred Shares), except that no supplement or amendment shall be made
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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.
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.
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Item 2. Exhibits.
1. Rights Agreement dated as of February 19, 1997, between
Telco Systems, Inc. and Bank of Boston, as Rights
Agent.
2. 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 1 hereto).
3. Form of Right Certificate (which is attached as Exhibit
B to the Rights Agreement filed as Exhibit 1 hereto).
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
TELCO SYSTEMS, INC.
Dated: February 19, 1997 By: /s/ William B. Smith
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Dr. William B. Smith
President and
Chief Executive Officer
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EXHIBIT 1
RIGHTS AGREEMENT
Dated as of February 19, 1997
between
TELCO SYSTEMS, INC.
and
THE FIRST NATIONAL BANK OF BOSTON
as Rights Agent
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Table of Contents
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Section Page
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SECTION 1. Certain Definitions............................................ 1
SECTION 2. Appointment of Rights Agent.................................... 9
SECTION 3. Issue of Rights and Right Certificates......................... 10
SECTION 4. Form of Right Certificates..................................... 11
SECTION 5. Execution, Countersignature and Registration................... 12
SECTION 6. Transfer, Split-Up, Combination and Exchange
of Right Certificates; Mutilated, Destroyed,
Lost or Stolen Right Certificates;
Uncertificated Rights.......................................... 12
SECTION 7. Exercise of Rights; Expiration Date of Rights.................. 13
SECTION 8. Cancellation and Destruction of Right
Certificates................................................... 15
SECTION 9. Reservation and Availability of Preferred
Shares......................................................... 16
SECTION 10. Preferred Shares Record Date................................... 17
SECTION 11. Adjustments in Rights After There Is an
Acquiring Person; Exchange of Rights for
Shares; Business Combinations.................................. 17
SECTION 12. Certain Adjustments............................................ 22
SECTION 13. Certificate of Adjustment...................................... 23
SECTION 14. Additional Covenants........................................... 23
SECTION 15. Fractional Rights and Fractional Shares........................ 24
SECTION 16. Rights of Action............................................... 25
SECTION 17. Transfer and Ownership of Rights and Right
Certificates................................................... 26
SECTION 18. Right Certificate Holder Not Deemed a
Stockholder.................................................... 26
SECTION 19. Concerning the Rights Agent.................................... 26
SECTION 20. Merger or Consolidation or Change of Rights
Agent.......................................................... 27
SECTION 21. Duties of Rights Agent......................................... 27
SECTION 22. Change of Rights Agent......................................... 30
SECTION 23. Issuance of Additional Rights and Right
Certificates................................................... 31
SECTION 24. Redemption and Termination..................................... 31
SECTION 25. Notices........................................................ 32
SECTION 26. Supplements and Amendments..................................... 33
SECTION 27. Successors..................................................... 33
SECTION 28. Benefits of Rights Agreement; Determinations
and Actions by the Board of Directors, etc..................... 34
SECTION 29. Severability................................................... 34
SECTION 30. Governing Law.................................................. 34
SECTION 31. Counterparts; Effectiveness.................................... 35
SECTION 32. Descriptive Headings........................................... 35
Exhibits
A Certificate of Designation
B Form of Right Certificate
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This RIGHTS AGREEMENT, dated as of February 19, 1997, is made
between TELCO SYSTEMS, INC., a Delaware corporation (the "Company"), and THE
FIRST NATIONAL BANK OF BOSTON, a national banking association, as Rights Agent
(the "Rights Agent").
The Board of Directors of the Company has authorized and
declared a distribution of one Right (as hereinafter defined) for each share of
Common Stock, par value $.01 per share, of the Company (the "Common Stock")
outstanding at the Close of Business (as hereinafter defined) on February 19,
1997 (the "Record Date"), and has authorized the issuance of one Right (as such
number may hereafter be adjusted pursuant to the provisions of this Rights
Agreement) with respect to each share of Common Stock that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date or the Expiration Date (as such terms are hereinafter
defined); provided, however, that Rights may be issued with respect to shares of
Common Stock that shall become outstanding after the Distribution Date and prior
to the earlier of the Redemption Date or the Expiration Date in accordance with
the provisions of Section 23. Each Right shall initially represent the right to
purchase 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"), having the powers, rights and preferences set forth in the
Certificate of Designation attached as Exhibit A.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
SECTION 1. Certain Definitions. For purposes of this Rights
Agreement, the following terms have the meanings indicated:
"Acquiring Person" shall mean any Person who or which, alone
or together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of the Capital Shares then outstanding that equals or exceeds
such Person's Ownership Threshold, but shall not include (A) the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any of
its Subsidiaries, or any Person holding Capital Shares for or pursuant to the
terms of any such employee benefit plan, (B) any such Person who or which has
become such a Beneficial Owner solely because (i) of a change in the aggregate
number of Capital Shares outstanding since the last date on which such Person
acquired Beneficial Ownership of any Capital Shares or (ii) it acquired such
Beneficial Ownership in the good faith belief that such acquisition would not
cause such Beneficial Ownership to exceed such Person's Ownership Threshold and
such Person relied in good faith in computing the percentage of its Beneficial
Ownership on publicly filed reports or documents of the Company which are
inaccurate or out-of-date, (C) Kopp Investment Advisors, Inc. or any successor
thereto ("KIA") for so long as KIA qualifies under Rule 13d-1(b)(1) of the
General Rules and Regulations under the Exchange Act (or any successor rule or
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regulation thereto) to report KIA's Beneficial Ownership of Capital Shares on
Schedule 13G (or any successor schedule thereto) or (D) any Affiliate or
Associate of KIA that reports his, her or its Beneficial Ownership of Capital
Shares with KIA on a Schedule 13G (or any successor schedule thereto) or
otherwise satisfies the criteria of Rule 13d-1(b)(1)(i) of the General Rules and
Regulations under the Exchange Act (or any successor rule or regulation
thereto). Notwithstanding clause (B) of the immediately preceding sentence, if
any Person that is not an Acquiring Person due to such clause (B) does not
reduce its percentage of Beneficial Ownership of Capital Shares to an amount
less than such Person's Ownership Threshold by the Close of Business on the
fifth Business Day after notice from the Company (the date of notice being the
first day) that such Person's Beneficial Ownership of Capital Shares so exceeds
such Person's Ownership Threshold, such Person shall, at the end of such five
Business Day period, become an Acquiring Person (and such clause (B) shall no
longer apply to such Person). Clauses (C) and (D) of the second preceding
sentence shall not apply to any transferee, assignee or other purchaser of
Capital Shares beneficially owned by KIA or by any Affiliate or Associate of
KIA. For purposes of this definition, the determination whether any Person acted
in "good faith" shall be conclusively determined by the Board of Directors of
the Company.
"Affiliate" and "Associate", when used with reference to any
Person, shall have the respective meanings ascribed to such terms in Rule 12b-2
of the General Rules and Regulations under the Exchange Act, as in effect on the
date of this Rights Agreement.
A Person shall be deemed the "Beneficial Owner" of, and shall
be deemed to "beneficially own", and shall be deemed to have "Beneficial
Ownership" of, any securities:
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to "beneficially own" within the meaning of Rule
13d-3 of the General Rules and Regulations under the Exchange Act, as
in effect on the date of this Rights Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (written or oral), or upon
the exercise of conversion rights, exchange rights, rights (other than
the Rights), warrants or options, or otherwise; provided, however, that
a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, or to have Beneficial Ownership of, securities
tendered pursuant to a tender or exchange offer made by or on behalf of
such Person or any of
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such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange thereunder, or (B) the right to
vote pursuant to any agreement, arrangement or understanding (written
or oral); provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if (1) the
agreement, arrangement or understanding (written or oral) to vote such
security arises solely from 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 applicable rules and regulations under the Exchange Act and (2) the
beneficial ownership of such security is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates
or Associates has any agreement, arrangement or understanding (written
or oral) for the purpose of acquiring, holding, voting (except pursuant
to a revocable proxy as described in clause (ii)(B) of this definition)
or disposing of any securities of the Company.
Notwithstanding the foregoing, nothing contained in this definition shall cause
a Person ordinarily engaged in business as an underwriter of securities to be
the "Beneficial Owner" of, or to "beneficially own", any securities acquired in
a bona fide firm commitment underwriting pursuant to an underwriting agreement
with the Company.
"Book Value", when used with reference to Capital Shares
issued by any Person, shall mean the amount of equity of such Person applicable
to each Capital Share, determined (i) in accordance with generally accepted
accounting principles in effect on the date as of which such Book Value is to be
determined, (ii) using all the consolidated assets and all the consolidated
liabilities of such Person on the date as of which such Book Value is to be
determined, except that no value shall be included in such assets for goodwill
arising from consummation of a business combination, and (iii) after giving
effect to (A) the exercise of all rights, options and warrants to purchase such
Capital Shares (other than the Rights), and the conversion of all securities
convertible into such Capital Shares, at an exercise or conversion price, per
Capital Share, which is less than such Book Value before giving effect to such
exercise or conversion (whether or not exercisability or convertibility is
conditioned upon occurrence of a future event), (B) all dividends and other
distributions on the capital stock of such Person declared prior to the date as
of which such Book Value is to be determined and to be paid or made after such
date, and (C) any other agreement,
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arrangement or understanding (written or oral), or transaction or other action
prior to the date as of which such Book Value is to be determined which would
have the effect of thereafter reducing such Book Value.
"Business Combination" shall have the meaning set forth in
Section 11(c)(I).
"Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in the
Borough of Manhattan, The City of New York, or the city in which the principal
office of the Rights Agent is located, are authorized or obligated by law or
executive order to close.
"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. "Capital Shares", when used with reference to any
Person (other than the Company prior to a Business Combination), shall mean
shares of capital stock of such Person (if such Person is a corporation) of any
class or series, or units of equity interests in such Person (if such Person is
not a corporation) of any class or series, the terms of which do not limit (as a
maximum amount and not merely in proportional terms) the amount of dividends or
income payable or distributable on such class or series or the amount of assets
distributable on such class or series upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person and do not provide that
such class or series is subject to redemption at the option of such Person, or
any shares of capital stock or units of equity interests into which the
foregoing shall be reclassified or changed; provided, however, that, if at any
time there shall be more than one such class or series of capital stock or
equity interests of such Person, "Capital Shares" of such Person shall include
all such classes and series substantially in the proportion of the total number
of shares or other units of each such class or series outstanding at such time.
"Certificate of Designation" shall mean the Certificate of
Designation of Series A Participating Cumulative Preferred Stock setting forth
the powers, preferences, rights, qualifications, limitations and restrictions of
such series of Preferred Stock of the Company, a copy of which is attached as
Exhibit A.
"Close of Business" on any given date shall mean 5:00 p.m.,
New York City time, on such date; provided, however, that, if such date is not a
Business Day, "Close of Business" shall mean 5:00 p.m., New York City time, on
the next succeeding Business Day.
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"Common Stock" shall have the meaning set forth in the
introductory paragraph of this Rights Agreement.
"Company" shall have the meaning set forth in the heading of
this Rights Agreement; provided, however, that if there is a Business
Combination, "Company" shall have the meaning set forth in Section 11(c)(III).
The term "control" with respect to any Person shall mean the
power to direct the management and policies of such Person, directly or
indirectly, by or through stock ownership, agency or otherwise, or pursuant to
or in connection with an agreement, arrangement or understanding (written or
oral) with one or more other Persons by or through stock ownership, agency or
otherwise; and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing.
"Distribution Date" shall have the meaning set forth in
Section 3(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as in effect on the date in question, unless otherwise specifically provided.
"Exchange Consideration" shall have the meaning set forth in
Section 11(b)(I).
"Expiration Date" shall have the meaning set forth in Section
7(a).
"Formula Number" shall have the meaning set forth in Section 2
of the Certificate of Designation.
"Major Part", when used with reference to the assets of the
Company and its Subsidiaries as of any date, shall mean assets (i) having a fair
market value aggregating 50% or more of the total fair market value of all the
assets of the Company and its Subsidiaries (taken as a whole) as of the date in
question, (ii) accounting for 50% or more of the total value (net of
depreciation and amortization) of all the assets of the Company and its
Subsidiaries (taken as a whole) as would be shown on a consolidated or combined
balance sheet of the Company and its Subsidiaries as of the date in question,
prepared in accordance with generally accepted accounting principles then in
effect, or (iii) accounting for 50% or more of the total amount of earnings
before interest, taxes, depreciation and amortization or revenues of the Company
and its Subsidiaries (taken as a whole) as would be shown on, or derived from, a
consolidated or combined statement of income of the Company and its Subsidiaries
for the period of 12 months ending on the last day of the Company's monthly
accounting period next preceding the date in question, prepared in accordance
with generally accepted accounting
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principles then in effect.
"Market Value", when used with reference to any class of
Capital Shares on any date, shall be deemed to be the average of the daily
closing prices, per share, of any such class for the period which is the shorter
of (1) 30 consecutive Trading Days immediately prior to the date in question or
(2) the number of consecutive Trading Days beginning on the Trading Day
immediately after the date of the first public announcement of a Business
Combination with an Acquiring Person or Affiliate or Associate of an Acquiring
Person requiring a determination of the Market Value and ending on the Trading
Day immediately prior to the record date of such Business Combination; provided,
however, that, in the event that the Market Value of such class of Capital
Shares is to be determined in whole or in part during a period following the
announcement by the issuer of such class of Capital Shares of any action of the
type described in Section 12(a) that would require an adjustment thereunder,
then, and in each such case, the Market Value of such class shall be
appropriately adjusted to reflect the effect of such action on the market price
of such class. The closing price for each Trading Day shall be the closing price
quoted on the composite tape for securities listed on the New York Stock
Exchange, or, if such securities are not quoted on such composite tape or if
such securities are not listed on such exchange, on the principal United States
securities exchange registered under the Exchange Act (or any recognized foreign
stock exchange) on which such securities are listed, or, if such securities are
not listed on any such exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market with
respect to a share of such securities as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or if no such quotations are available, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in such securities selected by the Board of Directors of the Company.
If on any such Trading Day no market maker is making a market in such securities
for any reason, the closing price of such securities on such Trading Day shall
be deemed to be the fair value of such securities as determined in good faith by
the Board of Directors of the Company (whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the Rights
Agent, the holders of Rights and all other Persons); provided, however, that for
the purpose of determining the closing price of the Preferred Shares for any
Trading Day on which there is no such market maker for the Preferred Shares the
closing price on such Trading Day shall be deemed to be the Formula Number times
the closing price of the Common Stock of the Company on such Trading Day.
"Ownership Threshold" shall mean, with respect to any Person,
Beneficial Ownership of the greater of (A) 15% of the
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Capital Shares at any time outstanding or (B) the percentage of the outstanding
Capital Shares Beneficially Owned by such Person on the date of this Rights
Agreement, plus in the case of this clause (B) 1% of the Capital Shares
outstanding on such date.
"Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
"Potential Acquiring Person" shall have the meaning set forth
in clause (C) of the definition of "Acquiring Person".
"Preferred Shares" shall have the meaning set forth in the
introductory paragraph of this Rights Agreement. Any reference in this Rights
Agreement to Preferred Shares shall be deemed to include any authorized fraction
of a Preferred Share, unless the context otherwise requires.
"Preferred Stock" shall mean the Preferred Stock, par value
$.01 per share, of the Company.
"Principal Party" shall mean the Surviving Person in a
Business Combination; provided, however, that, if such Surviving Person is a
direct or indirect Subsidiary of any other Person, "Principal Party" shall mean
the Person which is the ultimate parent of such Surviving Person and which is
not itself a Subsidiary of another Person. In the event ultimate control of such
Surviving Person is shared by two or more Persons, "Principal Party" shall mean
that Person that is immediately controlled by such two or more Persons.
"Purchase Price" with respect to each Right shall mean $50.00,
as such amount may from time to time be adjusted as provided herein, and shall
be payable in lawful money of the United States of America. All references
herein to the Purchase Price shall mean the Purchase Price as in effect at the
time in question.
"Record Date" shall have the meaning set forth in the
introductory paragraph of this Rights Agreement.
"Redemption Date" shall have the meaning set forth in Section
24(a).
"Redemption Price" with respect to each Right shall mean $.01,
as such amount may from time to time be adjusted in accordance with Section 12.
All references herein to the Redemption Price shall mean the Redemption Price as
in effect at the time in question.
"Registered Capital Shares" shall mean Capital Shares which
are, as of the date of consummation of a Business Combination, and have
continuously been for the 12 months
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immediately preceding such date, registered under Section 12 of the Exchange
Act.
"Right Certificate" shall mean a certificate evidencing a
Right in substantially the form attached as Exhibit B.
"Rights" shall mean the rights to purchase Preferred Shares
(or other securities) as provided in this Rights Agreement.
"Securities Act" shall mean the Securities Act of 1933, as in
effect on the date in question, unless otherwise specifically provided.
"Subsidiary" shall mean a Person, at least a majority of the
total outstanding voting power (being the power under ordinary circumstances
(and not merely upon the happening of a contingency) to vote in the election of
directors of such Person (if such Person is a corporation) or to participate in
the management and control of such Person (if such Person is not a corporation))
of which is owned, directly or indirectly, by another Person or by one or more
other Subsidiaries of such other Person or by such other Person and one or more
other Subsidiaries of such other Person.
"Surviving Person" shall mean (1) the Person which is the
continuing or surviving Person in a consolidation or merger specified in Section
11(c)(I)(i) or 11(c)(I)(ii) or (2) the Person to which the Major Part of the
assets of the Company and its Subsidiaries is sold, leased, exchanged or
otherwise transferred or disposed of in a transaction specified in Section
11(c)(I)(iii); provided, however, that, if the Major Part of the assets of the
Company and its Subsidiaries is sold, leased, exchanged or otherwise transferred
or disposed of in one or more related transactions specified in Section
11(c)(I)(iii) to more than one Person, the "Surviving Person" in such case shall
mean the Person that acquired assets of the Company and/or its Subsidiaries with
the greatest fair market value in such transaction or transactions.
"Trading Day" when used with reference to the Market Value of
a security, shall mean a day on which the principal national securities exchange
(or principal recognized foreign stock exchange, as the case may be) on which
such securities are listed or admitted to trading is open for the transaction of
business or, if such securities in question are not listed or admitted to
trading on any national securities exchange (or recognized foreign stock
exchange, as the case may be), a Business Day.
SECTION 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint one or more co-Rights
Agents as it may deem necessary or desirable (the term "Rights Agent" being used
herein
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to refer, collectively, to the Rights Agent together with any such co-Rights
Agents). In the event the Company appoints one or more co-Rights Agents, the
respective duties of the Rights Agent and any co-Rights Agents shall be as the
Company shall determine.
SECTION 3. Issue of Rights and Right Certificates. (a) One
Right shall be associated with each Capital Share outstanding on the Record
Date, each additional Capital Share that shall become outstanding between the
Record Date and the earliest of the Distribution Date, the Redemption Date or
the Expiration Date and each additional Capital Share with which Rights are
issued after the Distribution Date but prior to the earlier of the Redemption
Date or the Expiration Date as provided in Section 23, in each case subject to
the provisions of Section 12.
(b) Until the earlier of (i) such time as the Company learns
that a Person has become an Acquiring Person or (ii) the Close of Business on
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 by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any of
its Subsidiaries, or any Person holding Capital Shares for or pursuant to the
terms of any such employee benefit plan) for outstanding Capital Shares, if upon
consummation of such tender or exchange offer such Person's Beneficial Ownership
of Capital Shares then outstanding could equal or exceed such Person's Ownership
Threshold (the Close of Business on the earlier of such dates being the
"Distribution Date"), (x) the Rights will be evidenced by the certificates for
Capital Shares registered in the names of the holders thereof and not by
separate Right Certificates and (y) the Rights, including the right to receive
Right Certificates, will be transferable only in connection with the transfer of
Capital Shares. As soon as practicable after the Distribution Date, the Rights
Agent will send, by first-class, postage-prepaid mail, to each record holder of
Capital Shares as of the Distribution Date, at the address of such holder shown
on the records of the Company, a Right Certificate evidencing the Rights to
which such holder is entitled. As of and after the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(c) With respect to any certificate for Capital Shares, until
the earliest of the Distribution Date, the Redemption Date or the Expiration
Date, the Rights associated with the Capital Shares represented by any such
certificate shall be evidenced by such certificate alone, the registered holders
of the Capital Shares shall also be the registered holders of the associated
Rights and the surrender for transfer of any such certificate shall also
constitute the transfer of the Rights associated with the Capital Shares
represented thereby.
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(d) Certificates issued for Capital Shares after the Record
Date (including, without limitation, upon transfer or exchange of outstanding
Capital Shares), but prior to the earliest of the Distribution Date, the
Redemption Date or the Expiration Date, may have printed on, written on or
otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in a Rights Agreement dated as of
February 19, 1997, as it may be amended from time to time (the "Rights
Agreement"), between Telco Systems, Inc. (the "Company") and The First
National Bank of Boston, as Rights Agent (the "Rights Agent"), the
terms of which are hereby incorporated herein by reference and a copy
of which is on file at the principal executive offices of the Company.
Under certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Company will mail to the holder of
this certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Rights beneficially owned by
Acquiring Persons or their Affiliates or Associates (as such terms are
defined in the Rights Agreement) and by any subsequent holder of such
Rights are null and void and nontransferable.
Notwithstanding this paragraph (d), the omission of a legend shall not affect
the enforceability of any part of this Rights Agreement or the rights of any
holder of Rights.
SECTION 4. Form of Right Certificates. The Right Certificates
(and the form of election to purchase and form of assignment to be printed on
the reverse side thereof) shall be in substantially the form set forth as
Exhibit B and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Rights
Agreement, or as may be required to comply with any applicable law or with any
rule or regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Rights may, from time to time be listed, or to
conform to usage. Subject to the provisions of Sections 7, 11 and 23, the Right
Certificates, whenever issued, shall be dated as of the Distribution Date, and
on their face shall entitle the holders thereof to purchase such number of
Preferred Shares as shall be set forth therein for the Purchase Price set forth
therein, subject to adjustment from time to time as herein provided.
SECTION 5. Execution, Countersignature and Registration. (a)
The Right Certificates shall be executed on behalf of the Company by the
Chairman of the Board, the Chief Executive Officer,
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<PAGE> 13
the President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer or a Vice President (whether preceded by any additional title) of the
Company, either manually or by facsimile signature, and have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary,
an Assistant Secretary or a Vice President (whether preceded by any additional
title, provided that such Vice President shall not have also executed the Right
Certificates) of the Company, either manually or by facsimile signature. The
Right Certificates shall be manually countersigned by the Rights Agent and shall
not be valid or obligatory for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Right Certificates shall
cease to be such an officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates may
nevertheless be countersigned by the Rights Agent and issued and delivered by
the Company with the same force and effect as though the person who signed such
Right Certificates had not ceased to be such an officer of the Company; and any
Right Certificate may be signed on behalf of the Company by any person who, at
the actual date of execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
execution of this Rights Agreement any such person was not such an officer of
the Company.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its office in Canton, Massachusetts, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced by each of the Right Certificates,
the certificate number of each of the Right Certificates and the date of each of
the Right Certificates.
SECTION 6. Transfer, Split-Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates;
Uncertificated Rights. (a) Subject to the provisions of Sections 7(e) and 15, at
any time after the Distribution Date, and at or prior to the Close of Business
on the earlier of the Redemption Date or the Expiration Date, any Right
Certificate or Right Certificates may be transferred, split-up, combined or
exchanged for another Right Certificate or Right Certificates representing, in
the aggregate, the same number of Rights as the Right Certificate or Right
Certificates surrendered then represented. Any registered holder desiring to
transfer, split-up, combine or exchange any Right Certificate shall make such
request in writing delivered to the Rights Agent and shall surrender the Right
Certificate or Right Certificates to be transferred, split-up, combined or
exchanged at the office of the Rights Agent; provided, however, that neither the
Rights Agent nor the Company shall be obligated to take any action whatsoever
with respect to the transfer of any Right Certificate surrendered for transfer
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<PAGE> 14
until the registered holder shall have completed and signed the certification
contained in the form of assignment on the reverse side of such Right
Certificate and shall have provided such additional evidence of the identity of
the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request. Thereupon the Rights Agent
shall, subject to Sections 7(e) and 15, countersign and deliver to the Person
entitled thereto a Right Certificate or Right Certificates, as the case may be,
as so requested. The Company may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
transfer, split-up, combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a valid Right Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them, and, at
the Company's request, reimbursement to the Company and the Rights Agent of all
reasonable expenses incidental thereto, and upon surrender to the Rights Agent
and cancellation of the Right Certificate if mutilated, the Company will make a
new Right Certificate of like tenor and deliver such new Right Certificate to
the Rights Agent for countersignature and delivery to the registered owner in
lieu of the Right Certificate so lost, stolen, destroyed or mutilated.
(c) Notwithstanding any other provision hereof, the Company
and the Rights Agent may amend this Rights Agreement to provide for
uncertificated Rights in addition to or in place of Rights evidenced by Right
Certificates.
SECTION 7. Exercise of Rights; Expiration Date of Rights. (a)
Subject to Section 7(e) and except as otherwise provided herein (including
Section 11), each Right shall entitle the registered holder thereof, upon
exercise thereof as provided herein, to purchase for the Purchase Price, at any
time after the Distribution Date and at or prior to the earlier of (i) the Close
of Business on the 10th anniversary of the date of this Rights Agreement (the
Close of Business on such date being the "Expiration Date") or (ii) the
Redemption Date, one one-hundredth (1/100th) of a Preferred Share, subject to
adjustment from time to time as provided in Sections 11 and 12.
(b) The registered holder of any Right Certificate may
exercise the Rights evidenced thereby (except as otherwise provided herein) in
whole or in part at any time after the Distribution Date, upon surrender of the
Right Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the office of the Rights Agent in
Canton, Massachusetts, together with payment of the Purchase Price for each
one-hundredth (1/100th) of a Preferred Share as to which the Rights
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<PAGE> 15
are exercised, at or prior to the earlier of (i) the Expiration Date or (ii) the
Redemption Date.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the Preferred Shares to be
purchased together with an amount equal to any applicable transfer tax, in
lawful money of the United States of America, in cash or by certified check or
money order payable to the order of the Company, the Rights Agent shall
thereupon (i) either (A) promptly requisition from any transfer agent of the
Preferred Shares (or make available, if the Rights Agent is the transfer agent)
certificates for the number of Preferred Shares to be purchased and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests or (B) if the Company shall have elected to deposit the Preferred
Shares with a depositary agent under a depositary arrangement, promptly
requisition from the depositary agent depositary receipts representing the
number of one-hundredths (1/100ths) of a Preferred Share to be purchased (in
which case certificates for the Preferred Shares to be represented by such
receipts shall be deposited by the transfer agent with the depositary agent) and
the Company will direct the depositary agent to comply with all such requests,
(ii) when appropriate, promptly requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional shares in accordance with Section
15, (iii) promptly after receipt of such certificates or depositary receipts,
cause the same to be delivered to or upon the order of the registered holder of
such Right Certificate, registered in such name or names as may be designated by
such holder and (iv) when appropriate, after receipt promptly deliver such cash
to or upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate
shall exercise fewer than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to the registered holder of
such Right Certificate or to his duly authorized assigns, subject to the
provisions of Section 15.
(e) Notwithstanding anything in this Rights Agreement to the
contrary, any Rights that are at any time beneficially owned by an Acquiring
Person or any Affiliate or Associate of an Acquiring Person shall be null and
void and nontransferable, and any holder of any such Right (including any
purported transferee or subsequent holder) shall not have any right to exercise
or transfer any such Right.
(f) Notwithstanding anything in this Rights Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered
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<PAGE> 16
holder of any Right Certificates upon the occurrence of any purported exercise
as set forth in this Section 7 unless such registered holder shall have (i)
completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
(g) The Company may temporarily suspend, for a period of time
not to exceed 90 calendar days after the Distribution Date, the exercisability
of the Rights in order to prepare and file a registration statement under the
Securities Act, on an appropriate form, with respect to the Preferred Shares
purchasable upon exercise of the Rights and permit such registration statement
to become effective; provided, however, that no such suspension shall remain
effective after, and the Rights shall without any further action by the Company
or any other Person become exercisable immediately upon, the effectiveness of
such registration statement. Upon any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended and shall issue a further public announcement at such time
as the suspension is no longer in effect. Notwithstanding any provision herein
to the contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification under the blue sky or securities laws of such
jurisdiction shall not have been obtained or the exercise of the Rights shall
not be permitted under applicable law.
SECTION 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered or presented for the purpose of exercise,
transfer, split-up, combination or exchange shall, and any Right Certificate
representing Rights that have become null and void and nontransferable pursuant
to Section 7(e) surrendered or presented for any purpose shall, if surrendered
or presented to the Company or to any of its agents, be delivered to the Rights
Agent for cancellation or in canceled form, or, if surrendered or presented to
the Rights Agent, shall be canceled by it, and no Right Certificates shall be
issued in lieu thereof except as expressly permitted by this Rights Agreement.
The Company shall deliver to the Rights Agent for cancellation and retirement,
and the Rights Agent shall so cancel and retire, any Right Certificate purchased
or acquired by the Company. The Rights Agent shall deliver all canceled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such canceled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
SECTION 9. Reservation and Availability of Preferred Shares.
(a) The Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares or any authorized
and issued Preferred Shares held
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<PAGE> 17
in its treasury, free from preemptive rights or any right of first refusal, a
number of Preferred Shares sufficient to permit the exercise in full of all
outstanding Rights.
(b) In the event that there shall not be sufficient Preferred
Shares issued but not outstanding or authorized but unissued to permit the
exercise or exchange of Rights in accordance with Section 11, the Company
covenants and agrees that it will take all such action as may be necessary to
authorize additional Preferred Shares for issuance upon the exercise or exchange
of Rights pursuant to Section 11; provided, however, that if the Company is
unable to cause the authorization of additional Preferred Shares, then the
Company shall, or in lieu of seeking any such authorization, the Company may, to
the extent necessary and permitted by applicable law and any agreements or
instruments in effect prior to the Distribution Date to which it is a party, (A)
upon surrender of a Right, pay cash equal to the Purchase Price in lieu of
issuing Preferred Shares and requiring payment therefor, (B) upon due exercise
of a Right and payment of the Purchase Price for each Preferred Share as to
which such Right is exercised, issue equity securities having a value equal to
the value of the Preferred Shares which otherwise would have been issuable
pursuant to Section 11, which value shall be determined by a nationally
recognized investment banking firm selected by the Board of Directors of the
Company or (C) upon due exercise of a Right and payment of the Purchase Price
for each Preferred Share as to which such Right is exercised, distribute a
combination of Preferred Shares, cash and/or other equity and/or debt securities
having an aggregate value equal to the value of the Preferred Shares which
otherwise would have been issuable pursuant to Section 11, which value shall be
determined by a nationally recognized investment banking firm selected by the
Board of Directors of the Company. To the extent that any legal or contractual
restrictions (pursuant to agreements or instruments in effect prior to the
Distribution Date to which it is party) prevent the Company from paying the full
amount payable in accordance with the foregoing sentence, the Company shall pay
to holders of the Rights as to which such payments are being made all amounts
which are not then restricted on a pro rata basis as such payments become
permissible under such legal or contractual restrictions until such payments
have been paid in full.
(c) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares delivered
upon exercise or exchange of Rights shall, at the time of delivery of the
certificates for such Preferred Shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(d) So long as the Preferred Shares issuable upon the exercise
or exchange of Rights are to be listed on any national securities exchange, the
Company covenants and agrees to use its
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<PAGE> 18
best efforts to cause, from and after such time as the Rights become exercisable
or exchangeable, all Preferred Shares reserved for such issuance to be listed on
such securities exchange upon official notice of issuance upon such exercise or
exchange.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all Federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of Right
Certificates or of any Preferred Shares or Capital Shares or other securities
upon the exercise or exchange of the Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a Person other than, or in respect of the
issuance or delivery of certificates for the Preferred Shares or Capital Shares
or other securities, as the case may be, in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or exchange or to issue or deliver any certificates for Preferred
Shares or Capital Shares or other securities, as the case may be, upon the
exercise or exchange of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Right Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
SECTION 10. Preferred Shares Record Date. Each Person in whose
name any certificate for Preferred Shares or Capital Shares or other securities
is issued upon the exercise or exchange of Rights shall for all purposes be
deemed to have become the holder of record of the Preferred Shares or Capital
Shares or other securities, as the case may be, represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of any Purchase Price (and any
applicable transfer taxes) was made; provided, however, that, if the date of
such surrender and payment is a date upon which the transfer books of the
Company for the Preferred Shares or Capital Shares or other securities, as the
case may be, are closed, such Person shall be deemed to have become the record
holder of such Preferred Shares or Capital Shares or other securities, as the
case may be, on, and such certificate shall be dated, the next succeeding
Business Day on which the transfer books of the Company for the Preferred Shares
or Capital Shares or other securities, as the case may be, are open.
SECTION 11. Adjustments in Rights After There Is an Acquiring Person;
Exchange of Rights for Shares; Business Combinations. (a) Upon a Person becoming
an Acquiring Person, proper provision shall be made so that each holder of a
Right, except as provided in Section 7(e), shall thereafter have a right to
receive, upon exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, such number of one-hundredths (1/100ths) of a
Preferred Share as shall equal the result obtained
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<PAGE> 19
by multiplying the Purchase Price by a fraction, the numerator of which is the
number of one-hundredths (1/100ths) of a Preferred Share for which a Right is
then exercisable and the denominator of which is 50% of the Market Value of the
Common Stock on the date on which a Person becomes an Acquiring Person. As soon
as practicable after a Person becomes an Acquiring Person (provided the Company
shall not have elected to make the exchange permitted by Section 11(b)(I) for
all outstanding Rights), the Company covenants and agrees to use its best
efforts to:
(I) prepare and file a registration statement under the
Securities Act, on an appropriate form, with respect to the Preferred
Shares purchasable upon exercise of the Rights;
(II) cause such registration statement to become effective as
soon as practicable after such filing;
(III) cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of the
Securities Act) until the Expiration Date; and
(IV) qualify or register the Preferred Shares purchasable
upon exercise of the Rights under the blue sky or securities laws of
such jurisdictions as may be necessary or appropriate.
(b)(I) The Board of Directors of the Company may, at its
option, at any time after a Person becomes an Acquiring Person, mandatorily
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that shall have become null and void and nontransferable
pursuant to the provisions of Section 7(e)) for consideration per Right
consisting of one-half of the securities that would be issuable at such time
upon the exercise of one Right in accordance with Section 11(a) or, if
applicable, Section 9(b) (the consideration issuable per Right pursuant to this
Section 11(b)(I) being the "Exchange Consideration"). The Board of Directors of
the Company may, at its option, issue, in substitution for Preferred Shares,
shares of Common Stock in an amount per Preferred Share equal to the Formula
Number if there are sufficient shares of Common Stock issued but not outstanding
or authorized but unissued. If the Board of Directors of the Company elects to
exchange all the Rights for Exchange Consideration pursuant to this Section
11(b)(I) prior to the physical distribution of the Rights Certificates, the
Corporation may distribute the Exchange Consideration in lieu of distributing
Right Certificates, in which case for purposes of this Rights Agreement holders
of Rights shall be deemed to have simultaneously received and surrendered for
exchange Right Certificates on the date of such distribution.
(II) Any action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to Section 11(b)(I)
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shall be irrevocable and, immediately upon the taking of such action and without
any further action and without any notice, the right to exercise any such Right
pursuant to Section 11(a) shall terminate and the only right thereafter of a
holder of such Right shall be to receive the Exchange Consideration in exchange
for each such Right held by such holder or, if the Exchange Consideration shall
not have been paid or issued, to exercise any such Right pursuant to Section
11(c)(I). The Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Rights for the Exchange Consideration will
be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which shall have become null and void
and nontransferable pursuant to the provisions of Section 7(e)) held by each
holder of Rights.
(c)(I) In the event that, following a Distribution Date,
directly or indirectly, any transactions specified in the following clause (i),
(ii) or (iii) of this Section 11(c) (each such transaction being a "Business
Combination") shall be consummated:
(i) the Company shall consolidate with, or merge with and
into, any Acquiring Person or any Affiliate or Associate of an
Acquiring Person;
(ii) any Acquiring Person or any Affiliate or Associate of an
Acquiring Person shall merge with and into the Company and, in
connection with such merger, all or part of the Capital Shares shall be
changed into or exchanged for capital stock or other securities of the
Company or of any Acquiring Person or Affiliate or Associate of an
Acquiring Person or cash or any other property; or
(iii) the Company shall sell, lease, exchange or otherwise
transfer or dispose of (or one or more of its Subsidiaries shall sell,
lease, exchange or otherwise transfer or dispose of), in one or more
transactions, the Major Part of the assets of the Company and its
Subsidiaries (taken as a whole) to any Acquiring Person or any
Affiliate or Associate of an Acquiring Person,
then, in each such case, proper provision shall be made so that each holder of a
Right, except as provided in Section 7(e), shall
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thereafter have the right to receive, upon the exercise thereof for the Purchase
Price in accordance with the terms of this Rights Agreement, the securities
specified below (or, at such holder's option, the securities specified in
Section 11(a)):
(A) If the Principal Party in such Business Combination has
Registered Capital Shares outstanding, each Right shall thereafter
represent the right to receive, upon the exercise thereof for the
Purchase Price in accordance with the terms of this Rights Agreement,
such number of Registered Capital Shares of such Principal Party, free
and clear of all liens, encumbrances or other adverse claims, as shall
have an aggregate Market Value equal to the result obtained by
multiplying the Purchase Price by two;
(B) If the Principal Party involved in such Business
Combination does not have Registered Capital Shares outstanding, each
Right shall thereafter represent the right to receive, upon the
exercise thereof for the Purchase Price in accordance with the terms of
this Rights Agreement, at the election of the holder of such Right at
the time of the exercise thereof, any of:
(1) such number of Capital Shares of the Surviving
Person in such Business Combination as shall have an aggregate
Book Value immediately after giving effect to such Business
Combination equal to the result obtained by multiplying the
Purchase Price by two;
(2) such number of Capital Shares of the Principal
Party in such Business Combination (if the Principal Party is
not also the Surviving Person in such Business Combination) as
shall have an aggregate Book Value immediately after giving
effect to such Business Combination equal to the result
obtained by multiplying the Purchase Price by two; or
(3) if the Principal Party in such Business
Combination is an Affiliate of one or more Persons which has
Registered Capital Shares outstanding, such number of
Registered Capital Shares of whichever of such Affiliates of
the Principal Party has Registered Capital Shares with the
greatest aggregate Market Value on the date of consummation of
such Business Combination as shall have an aggregate Market
Value on the date of such Business Combination equal to the
result obtained by multiplying the Purchase Price by two.
(II) The Company shall not consummate any Business Combination
unless each issuer of Capital Shares for which Rights may be exercised, as set
forth in this Section 11(c), shall have sufficient authorized Capital Shares
that have not been issued or
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reserved for issuance (and which shall, when issued upon exercise thereof in
accordance with this Rights Agreement, be validly issued, fully paid and
nonassessable and free of preemptive rights, rights of first refusal or any
other restrictions or limitations on the transfer or ownership thereof) to
permit the exercise in full of the Rights in accordance with this Section 11(c)
and unless prior thereto:
(i) a registration statement under the Securities Act on an
appropriate form, with respect to the Rights and the Capital Shares of
such issuer purchasable upon exercise of the Rights, shall be effective
under the Securities Act; and
(ii) the Company and each such issuer shall have:
(A) executed and delivered to the Rights Agent a
supplemental agreement providing for the assumption by such
issuer of the obligations set forth in this Section 11(c)
(including the obligation of such issuer to issue Capital
Shares upon the exercise of Rights in accordance with the
terms set forth in Sections 11(c)(I) and 11(c)(III)) and
further providing that such issuer, at its own expense, will
use its best efforts to:
(1) cause a registration statement under the
Securities Act on an appropriate form, with respect
to the Rights and the Capital Shares of such issuer
purchasable upon exercise of the Rights, to remain
effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the
Expiration Date;
(2) qualify or register the Rights and the
Capital Shares of such issuer purchasable upon
exercise of the Rights under the blue sky or
securities laws of such jurisdictions as may be
necessary or appropriate; and
(3) list the Rights and the Capital Shares
of such issuer purchasable upon exercise of the
Rights on each national securities exchange on which
the Capital Shares were listed prior to the
consummation of the Business Combination or, if the
Capital Shares were not listed on a national
securities exchange prior to the consummation of the
Business Combination, on a national securities
exchange;
(B) furnished to the Rights Agent a written opinion
of independent counsel stating that such supplemental
agreement is a valid, binding and enforceable agreement of
such issuer; and
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(C) filed with the Rights Agent a certificate of a
nationally recognized firm of independent accountants setting
forth the number of Capital Shares of such issuer which may be
purchased upon the exercise of each Right after the
consummation of such Business Combination.
(III) After consummation of any Business Combination and
subject to the provisions of Section 11(c)(II), (i) each issuer of Capital
Shares for which Rights may be exercised as set forth in this Section 11(c)
shall be liable for, and shall assume, by virtue of such Business Combination,
all the obligations and duties of the Company pursuant to this Rights Agreement,
(ii) the term "Company" shall thereafter be deemed to refer to such issuer,
(iii) each such issuer shall take such steps in connection with such
consummation as may be necessary to assure that the provisions hereof (including
the provisions of Sections 11(a) and 11(c)) shall thereafter be applicable, as
nearly as reasonably may be, in relation to its Capital Shares thereafter
deliverable upon the exercise of the Rights, and (iv) the number of Capital
Shares of each such issuer thereafter receivable upon exercise of any Right
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions of Sections 11 and 12, and
the provisions of Section 7, 9 and 10 with respect to the Preferred Shares shall
apply, as nearly as reasonably may be, on like terms to any such Capital Shares.
SECTION 12. Certain Adjustments. (a) To preserve the actual or
potential economic value of the Rights, if at any time after the date of this
Rights Agreement there shall be 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,
then, in each such event the Board of Directors of the Company shall make such
appropriate adjustments in the number of Preferred Shares (or the number and
kind of other securities) issuable upon exercise of each Right, the Purchase
Price and Redemption Price in effect at such time and the number of Rights
outstanding at such time (including the number of Rights or fractional Rights
associated with each Capital Share) such that following such adjustment such
event shall not have had the effect of reducing or limiting the benefits the
holders of the Rights would have had absent such event.
(b) If, as a result of an adjustment made pursuant to Section
12(a), the holder of any Right thereafter exercised shall become entitled to
receive any securities other than Preferred Shares, thereafter the number of
such securities so receivable upon
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<PAGE> 24
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions of
Sections 11 and 12, and the provisions of Sections 7, 9 and 10 with respect to
the Preferred Shares shall apply, as nearly as reasonably may be, on like term,
to any such other securities.
(c) All Rights originally issued by the Company subsequent to
any adjustment made to the amount of Preferred Shares or other securities
relating to a Right shall evidence the right to purchase, for the Purchase
Price, the adjusted number and kind of securities purchasable from time to time
hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.
(d) Irrespective of any adjustment or change in the Purchase
Price or the number of Preferred Shares or number or kind of other securities
issuable upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the terms which were expressed in the
initial Right Certificates issued hereunder.
(e) In any case in which action taken pursuant to Section
12(a) requires that an adjustment be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the Preferred Shares and/or other securities, if any, issuable upon such
exercise over and above the Preferred Shares and/or other securities, if any,
issuable before giving effect to such adjustment; provided, however, that the
Company shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional securities upon the
occurrence of the event requiring such adjustment.
SECTION 13. Certificate of Adjustment. Whenever an adjustment
is made as provided in Section 11 or 12, the Company shall (a) promptly prepare
a certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) promptly file with the Rights Agent and with
each transfer agent for the Preferred Shares a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate (or, prior to
the Distribution Date, of the Capital Shares) in accordance with Section 25. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained.
SECTION 14. Additional Covenants. (a) Notwithstanding any
other provision of this Rights Agreement, no adjustment to the number of
Preferred Shares (or fractions of a share) or other securities for which a Right
is exercisable or the number of Rights outstanding or associated with each
Capital Share or any similar or other adjustment shall be made or be effective
if such adjustment
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<PAGE> 25
would have the effect of reducing or limiting the benefits the holders of the
Rights would have had absent such adjustment, including, without limitation, the
benefits under Sections 11 and 12, unless the terms of this Rights Agreement are
amended so as to preserve such benefits.
(b) The Company covenants and agrees that, after the
Distribution Date, except as permitted by Section 26, it will not take (or
permit any Subsidiary of the Company to take) any action if at the time such
action is taken it is intended or reasonably foreseeable that such action will
reduce or otherwise limit the benefits the holders of the Rights would have had
absent such action, including, without limitation, the benefits under Sections
11 and 12. Any action taken by the Company during any period after any Person
becomes an Acquiring Person but prior to the Distribution Date shall be null and
void unless such action could be taken under this Section 14(b) from and after
the Distribution Date. The Company shall not consummate any Business Combination
if any issuer of Capital Shares for which Rights may be exercised after such
Business Combination in accordance with Section 11(c) shall have taken any
action that reduces or otherwise limits the benefits the holders of the Rights
would have had absent such action, including, without limitation, the benefits
under Sections 11 and 12.
SECTION 15. Fractional Rights and Fractional Shares. (a) The
Company may, but shall not be required to, issue fractions of Rights or
distribute Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, the Company may pay to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 15(a), the current market
value of a whole Right shall be the closing price of the Rights (as determined
in a manner similar to that of Common Stock pursuant to the second and third
sentences of the definition of Market Value contained in Section 1) for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable.
(b) The Company may, but shall not be required to, issue
fractions of Preferred Shares upon exercise of the Rights or distribute
certificates which evidence fractional Preferred Shares. In lieu of fractional
Preferred Shares, the Company may elect to (i) utilize a depository arrangement
as provided by the terms of the Preferred Shares or (ii) in the case of a
fraction of a Preferred Share (other than one one-hundredth (1/100th) of a
Preferred Share or any integral multiple thereof), pay to the registered holders
of Right Certificates at the time such Rights are exercised as herein provided
an amount in cash equal to the same fraction of the current market value of one
Preferred Share, if any are outstanding and publicly traded (or the Formula
Number
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<PAGE> 26
times the current market value of one share of Common Stock if the Preferred
Shares are not outstanding and publicly traded). If, as a result of an
adjustment made pursuant to Section 12(a), the holder of any Right thereafter
exercised shall become entitled to receive any securities other than Preferred
Shares, the provisions of this Section 15(b) shall apply, as nearly as
reasonably may be, on like terms to such other securities.
(c) The Company may, but shall not be required to, issue
fractions of shares of Common Stock upon exchange of Rights pursuant to Section
11(b), or to distribute certificates which evidence fractional shares of Common
Stock. In lieu of such fractional shares of Common Stock, the Company may pay to
the registered holders of the Right Certificates with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount in cash
equal to the same fraction of the current Market Value of one share of Common
Stock as of the date on which a Person became an Acquiring Person.
(d) The holder of Rights by the acceptance of the Rights
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right except as provided in this Section 15.
SECTION 16. Rights of Action. (a) All rights of action in
respect of this Rights Agreement are vested in the respective registered holders
of the Right Certificates (and, prior to the Distribution Date, the registered
holders of the Capital Shares); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Capital Shares), without
the consent of the Rights Agent or of the holder of any other Right Certificate
(or, prior to the Distribution Date, of the Capital Shares) may, in his own
behalf and for his own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, his right to exercise the Rights evidenced by such Right Certificate
in the manner provided in such Right Certificate and in this Rights Agreement.
Without limiting the foregoing or any remedies available to the holders of
Rights, it is specifically acknowledged that the holders of Rights would not
have an adequate remedy at law for any breach of this Rights Agreement and shall
be entitled to specific performance of the obligations of any Person under, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to, this Rights Agreement.
(b) Any holder of Rights who prevails in an action to enforce
the provisions of this Rights Agreement shall be entitled to recover the
reasonable costs and expenses, including attorneys' fees, incurred in such
action.
SECTION 17. Transfer and Ownership of Rights and Right
Certificates. (a) Prior to the Distribution Date, the Rights will
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<PAGE> 27
be transferable only in connection with the transfer of the Capital Shares.
(b) After the Distribution Date, the Right Certificates will
be transferable, subject to Section 7(e), only on the registry books of the
Rights Agent if surrendered at the office of the Rights Agent, duly endorsed or
accompanied by a proper instrument of transfer.
(c) The Company and the Rights Agent may deem and treat the
Person in whose name a Right Certificate (or, prior to the Distribution Date,
the associated Capital Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated certificate for
Capital Shares made by anyone other than the Company or the Rights Agent) for
all purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
SECTION 18. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote or
receive dividends or be deemed, for any purpose, the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything
contained herein or in any Right Certificate be construed to confer upon the
holder of any Right Certificate, as such, any of the rights of a stockholder of
the Company, including, without limitation, any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting stockholders, or to receive
dividends or other distributions or subscription rights, or otherwise, until the
Right or Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
SECTION 19. Concerning the Rights Agent. (a) The Company
agrees to pay to the Rights Agent reasonable compensation for all services
rendered by it hereunder and from time to time, on demand of the Rights Agent,
its reasonable expenses and counsel fees and other disbursements incurred in the
administration and execution of this Rights Agreement and the exercise and
performance of its duties hereunder.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Rights Agreement in reliance upon any
Right Certificate or certificate for the Capital Shares or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent,
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<PAGE> 28
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons.
SECTION 20. Merger or Consolidation or Change of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the stock
transfer or corporate trust business of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Rights Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 22. In
case, at the time such successor Rights Agent shall succeed to the agency
created by this Rights Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and, in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and, in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Rights Agreement.
SECTION 21. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Rights Agreement upon the following terms
and conditions, by all of which the Company and the holders of Right
Certificates (or, prior to the Distribution Date, of the Capital Shares), by
their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the advice or opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken, suffered or
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omitted by it in good faith and in accordance with such advice or opinion.
(b) Whenever in the performance of its duties under this
Rights Agreement the Rights Agent shall deem it necessary or desirable that any
fact or matter (including, without limitation, the identity of any Acquiring
Person) be proved or established by the Company prior to taking, refraining from
taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed to
be conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Officer, the Chief Financial Officer, the Treasurer, a Vice President
(whether preceded by any additional title) or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Rights Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or wilful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Rights Agreement or
in the Right Certificates (except as to its countersignature thereof) or be
required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Rights Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Rights Agreement or in any Right
Certificate; nor shall it be responsible for any adjustment required under the
provisions of Section 11 or 12 or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after actual notice of any such adjustment); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any Preferred Shares or Capital Shares
to be issued pursuant to this Rights Agreement or any Right Certificate or as to
whether any Preferred Shares or Capital Shares will, when so issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
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<PAGE> 30
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer, a Vice President (whether preceded by any additional title) or the
Secretary of the Company, in connection with its duties and it shall not be
liable for any action taken or suffered to be taken by it in good faith in
accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Rights Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct provided reasonable care was exercised in
the selection and continued employment thereof.
(j) The Company agrees to indemnify and to hold the Rights
Agent harmless against any loss, liability, damage or expense (including
reasonable fees and expenses of legal counsel) which the Rights Agent may incur
resulting from its actions as Rights Agent pursuant to this Rights Agreement;
provided, however, that the Rights Agent shall not be indemnified or held
harmless with respect to any such loss, liability, damage or expense incurred by
the Rights Agent as a result of, or arising out of, its own gross negligence,
bad faith or wilful misconduct. In no case shall the Company be liable with
respect to any action, proceeding, suit or claim against the Rights Agent unless
the Rights Agent shall have notified the Company, by letter or by facsimile
confirmed by letter, of the assertion of any action, proceeding, suit or claim
against the Rights Agent, promptly after the Rights Agent shall have notice of
any such assertion of an action, proceeding, suit or claim or have been served
with the summons or
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other first legal process giving information as to the nature and basis of the
action, proceeding, suit or claim. The Company shall be entitled to participate
at its own expense in the defense of any such action, proceeding, suit or claim,
and, if the Company so elects, the Company shall assume the defense of any such
action, proceeding, suit or claim. In the event that the Company assumes such
defense, the Company shall not thereafter be liable for the fees and expenses of
any additional counsel retained by the Rights Agent, so long as the Company
shall retain counsel satisfactory to the Rights Agent, in the exercise of its
reasonable judgment, to defend such action, proceeding, suit or claim. The
Rights Agent agrees not to settle any litigation in connection with any action,
proceeding, suit or claim with respect to which it may seek indemnification from
the Company without the prior written consent of the Company.
SECTION 22. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Rights Agreement upon 30 days' notice in writing mailed to the Company and to
each transfer agent of the Capital Shares and the Preferred Shares by registered
or certified mail, and to the holders of the Right Certificates (or, prior to
the Distribution Date, of the Capital Shares) by first-class mail, postage
prepaid. The Company may remove the Rights Agent or any successor Rights Agent
upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Capital Shares and
the Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates (or, prior to the Distribution Date, of the Capital Shares)
by first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (or, prior to
the Distribution Date, of the Capital Shares) (who shall, with such notice,
submit his Right Certificate or, prior to the Distribution Date, the certificate
representing his Capital Shares, for inspection by the Company), then the
registered holder of any Right Certificate (or, prior to the Distribution Date,
of the Capital Shares) may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or of any state of the United
States, in good standing, which is authorized under such laws to exercise stock
transfer or corporate trust powers and is subject to supervision or examination
by Federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50,000,000; provided
that the principal transfer agent for the Capital Shares shall in any event
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be qualified to be the Rights Agent. After appointment, the successor Rights
Agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Rights Agent without further act or deed;
but the predecessor Rights Agent shall deliver and transfer to the successor
Rights Agent any property at the time held by it hereunder, and execute and
deliver any further assurance, conveyance, act or deed necessary for the
purpose. Not later than the effective date of any such appointment, the Company
shall file notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Capital Shares and the Preferred Shares, and mail a notice
thereof in writing to the registered holders of the Right Certificates (or,
prior to the Distribution Date, of the Capital Shares). Failure to give any
notice provided for in this Section 22, however, or any defect therein shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
SECTION 23. Issuance of Additional Rights and Right
Certificates. Notwithstanding any of the provisions of this Rights Agreement or
of the Rights to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change made in accordance with the
provisions of this Rights Agreement. In addition, in connection with the
issuance or sale of Capital Shares following the Distribution Date and prior to
the earlier of the Redemption Date and the Expiration Date, the Company (a)
shall, with respect to Capital Shares so issued or sold pursuant to the exercise
of stock options or under any employee plan or arrangement, or upon the
exercise, conversion or exchange of securities, notes or debentures issued by
the Company, and (b) may, in any other case, if deemed necessary or appropriate
by its Board of Directors, issue Right Certificates representing the appropriate
number of Rights in connection with such issuance or sale; provided, however,
that (i) no such Right Certificate shall be issued if, and to the extent that,
the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Right Certificate would be issued, and (ii) no such Right
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
SECTION 24. Redemption and Termination. (a) The Board of
Directors of the Company may, at its option, at any time prior to the earlier of
(i) such time as a Person becomes an Acquiring Person and (ii) the Expiration
Date, order the redemption of all, but not fewer than all, the then outstanding
Rights at the Redemption Price (the date of such redemption being the
"Redemption Date"), and the Company, at its option, may pay the Redemption Price
either in cash or Capital Shares or other securities of the
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<PAGE> 33
Company deemed by the Board of Directors of the Company, in the exercise of its
sole discretion, to be at least equivalent in value to the Redemption Price.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, and without any further
action and without any notice, the right to exercise the Rights will terminate
and the only right thereafter of the holders of Rights shall be to receive the
Redemption Price. Within 10 Business Days after the action of the Board of
Directors of the Company ordering the redemption of the Rights, the Company
shall give notice of such redemption to the holders of the then outstanding
Rights by mailing such notice to all such holders at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Capital
Shares. Each such notice of redemption will state the method by which payment of
the Redemption Price will be made. The notice, if mailed in the manner herein
provided, shall be conclusively presumed to have been duly given, whether or not
the holder of Rights receives such notice. In any case, failure to give such
notice by mail, or any defect in the notice, to any particular holder of Rights
shall not affect the sufficiency of the notice to other holders of Rights.
SECTION 25. Notices. Notices or demands authorized by this
Rights Agreement to be given or made by the Rights Agent or by the holder of a
Right Certificate (or, prior to the Distribution Date, of the Capital Shares) to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Telco Systems, Inc.
63 Nahatan Street
Norwood, MA 02062
Attention of Chief Executive Officer
Subject to the provisions of Section 22, any notice or demand authorized by this
Rights Agreement to be given or made by the Company or by the holder of a Right
Certificate (or, prior to the Distribution Date, of the Capital Shares) to or on
the Rights Agent shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Company) as follows:
The First National Bank of Boston
150 Royall Street, Mail Stop 45-02-62
Canton, MA 02102
Attention of Shareholder Services Division
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<PAGE> 34
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to any holder of a Right Certificate (or, prior
to the Distribution Date, of the Capital Shares) shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed to such holder at
the address of such holder as shown on the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the transfer agent
for the Capital Shares.
SECTION 26. Supplements and Amendments. At any time prior to
the Distribution Date and subject to the last sentence of this Section 26, the
Company may, and the Rights Agent shall if the Company so directs, supplement or
amend any provision of this Rights Agreement (including, without limitation, the
date on which the Distribution Date shall occur, the time during which the
Rights may be redeemed pursuant to Section 24 or any provision of the
Certificate of Designation) without the approval of any holder of the Rights.
From and after the Distribution Date and subject to applicable law, the Company
may, and the Rights Agent shall if the Company so directs, amend this Rights
Agreement without the approval of any holders of Right Certificates (i) to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision of this Rights
Agreement or (ii) to make any other provisions in regard to matters or questions
arising hereunder which the Company may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Right Certificates
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person). Any supplement or amendment adopted during any period after any Person
has become an Acquiring Person but prior to the Distribution Date shall be null
and void unless such supplement or amendment could have been adopted under the
prior sentence from and after the Distribution Date. Any supplement or amendment
to this Rights Agreement duly approved by the Company that does not amend
Sections 19, 20, 21 or 22 in a manner adverse to the Rights Agent shall become
effective immediately upon execution by the Company, whether or not also
executed by the Rights Agent. In addition, notwithstanding anything to the
contrary contained in this Rights Agreement, no supplement or amendment to this
Rights Agreement shall be made which (a) reduces the Redemption Price (except as
required by Section 12(a)) or (b) provides for an earlier Expiration Date.
SECTION 27. Successors. All the covenants and provisions of
this Rights Agreement by or for the benefit of the Company or the Rights Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 28. Benefits of Rights Agreement; Determinations and
Actions by the Board of Directors, etc. (a) Nothing in this Rights Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of
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<PAGE> 35
the Right Certificates (and, prior to the Distribution Date, of the Capital
Shares) any legal or equitable right, remedy or claim under this Rights
Agreement; but this Rights Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, of the Capital Shares).
(b) Except as explicitly otherwise provided in this Rights
Agreement, the Board of Directors of the Company shall have the exclusive power
and authority to administer this Rights Agreement and to exercise all rights and
powers specifically granted to the Board of Directors of the Company or to the
Company, or as may be necessary or advisable in the administration of this
Rights Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Rights Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Rights Agreement (including, without limitation, a determination to redeem or
not redeem the Rights or to amend this Rights Agreement and a determination of
whether there is an Acquiring Person).
(c) Nothing contained in this Rights Agreement shall be deemed
to be in derogation of the obligation of the Board of Directors of the Company
to exercise its fiduciary duty. Without limiting the foregoing, nothing
contained herein shall be construed to suggest or imply that the Board of
Directors shall not be entitled to reject any tender offer, or to recommend that
holders of Capital Shares reject any tender offer, or to take any other action
(including, without limitation, the commencement, prosecution, defense or
settlement of any litigation and the submission of additional or alternative
offers or other proposals) with respect to any tender offer that the Board of
Directors believes is necessary or appropriate in the exercise of such fiduciary
duty.
SECTION 29. Severability. If any term, provision, covenant or
restriction of this Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Rights
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
SECTION 30. Governing Law. This Rights Agreement and each
Right Certificate issued hereunder shall be deemed to be a contract made under
the law of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the law of such State applicable to contracts to be
made and performed entirely within such State.
SECTION 31. Counterparts; Effectiveness. This Rights Agreement
may be executed in any number of counterparts and each of
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<PAGE> 36
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
This Rights Agreement shall be effective as of the Close of Business on the date
hereof.
SECTION 32. Descriptive Headings. Descriptive headings of the
several Sections of this Rights Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
of this Rights Agreement.
-34-
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed as of the day and year first above written.
TELCO SYSTEMS, INC.,
By: /s/ William B. Smith
----------------------------------
Name: Dr. William B. Smith
Title: President and
Chief Executive Officer
THE FIRST NATIONAL BANK OF BOSTON,
as Rights Agent,
By: /s/ Gordon Stevenson
----------------------------------
Name: Gordon Stevenson
Title: Administration Manager
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<PAGE> 38
EXHIBIT A
CERTIFICATE OF THE VOTING POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE
PARTICIPATING, OPTIONAL AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS
OR RESTRICTIONS OF SERIES A
PARTICIPATING CUMULATIVE
PREFERRED STOCK OF
TELCO SYSTEMS, INC.
Pursuant to Section 151 of the General Corporation Law of the
State of Delaware, Telco Systems, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY
CERTIFY:
That, pursuant to the authority conferred upon the Board of
Directors of the Corporation by Paragraphs (A) and (B)(1) of Article FIFTH of
the Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation"), the Board of Directors of the Corporation on February 19, 1997,
adopted the following resolution creating a series of Preferred Stock designated
as Series A Participating Cumulative Preferred Stock:
RESOLVED, that, pursuant to the authority vested in the Board
of Directors of the Corporation in accordance with the provisions of
the Certificate of Incorporation of the Corporation, a series of
Preferred Stock of the Corporation is hereby created and that the
designation and number of shares thereof and the voting powers,
preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
SECTION 1. Designation and Number of Shares. The shares of
such series shall be designated as "Series A Participating Cumulative Preferred
Stock" (the "Series A Preferred Stock"), par value $.01 per share. The number of
shares initially constituting the Series A Preferred Stock shall be 200,000;
provided, however, that, if more than a total of 200,000 shares of Series A
Preferred Stock shall be issuable upon the exercise of Rights (the "Rights")
issued pursuant to the Rights Agreement dated as of February 19, 1997, between
the Corporation and The First National Bank of Boston, a national banking
association, as Rights Agent (the "Rights Agreement"), the Board of Directors of
the Corporation, pursuant to Section 151(g) of the General Corporation Law of
the State of Delaware, shall direct by resolution or resolutions that a
certificate be properly executed, acknowledged, filed and recorded, in
accordance with the provisions of Section 103 thereof, providing for the total
number of shares of Series A Preferred Stock authorized to be issued to be
increased (to the extent that the
<PAGE> 39
Certificate of Incorporation then permits) to the largest number of whole shares
(rounded up to the nearest whole number) issuable upon exercise of such Rights.
SECTION 2. Dividends or Distributions. (a) Subject to the
prior and superior rights of the holders of shares of any other series of
Preferred Stock or other class of capital stock of the Corporation ranking prior
and superior to the shares of Series A Preferred Stock with respect to
dividends, the holders of shares of the Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
the assets of the Corporation legally available therefor, (1) quarterly
dividends payable in cash on the last day of each fiscal quarter in each year,
or such other dates as the Board of Directors of the Corporation shall approve
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or a fraction of a share of Series A Preferred Stock, in the
amount of $1.00 per whole share (rounded to the nearest cent) less the amount of
all cash dividends declared on the Series A Preferred Stock pursuant to the
following clause (2) since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Preferred Stock
(the total of which shall not, in any event, be less than zero) and (2)
dividends payable in cash on the payment date for each cash dividend declared on
the Common Stock in an amount per whole share (rounded to the nearest cent)
equal to the Formula Number (as hereinafter defined) then in effect times the
cash dividends then to be paid on each share of Common Stock. In addition, if
the Corporation shall pay any dividend or make any distribution on the Common
Stock payable in assets, securities or other forms of noncash consideration
(other than dividends or distributions solely in shares of Common Stock), then,
in each such case, the Corporation shall simultaneously pay or make on each
outstanding whole share of Series A Preferred Stock a dividend or distribution
in like kind equal to the Formula Number then in effect times such dividend or
distribution on each share of the Common Stock. As used herein, the "Formula
Number" shall be 100; provided, however, that if at any time after February 19,
1997, the Corporation shall (i) declare or pay any dividend on the Common Stock
payable in shares of Common Stock or make any distribution on the Common Stock
in shares of Common Stock, (ii) subdivide (by a stock split or otherwise) the
outstanding shares of Common Stock into a larger number of shares of Common
Stock or (iii) combine (by a reverse stock split or otherwise) the outstanding
shares of Common Stock into a smaller number of shares of Common Stock, then in
each such event the Formula Number shall be adjusted to a number determined by
multiplying the Formula Number in effect immediately prior to such event by a
fraction, the numerator of which is the number of shares of
-2-
<PAGE> 40
Common Stock that are outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event (and rounding the result to the
nearest whole number); and provided further, that, if at any time after February
19, 1997, the Corporation shall issue any shares of its capital stock in a
merger, reclassification, or change of the outstanding shares of Common Stock,
then in each such event the Formula Number shall be appropriately adjusted to
reflect such merger, reclassification or change so that each share of Series A
Preferred Stock continues to be the economic equivalent of a Formula Number of
shares of Common Stock prior to such merger, reclassification or change.
(b) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in Section 2(a) immediately prior to
or at the same time it declares a dividend or distribution on the Common
Stock(other than a dividend or distribution solely in shares of Common Stock);
provided, however, that, in the event no dividend or distribution (other than a
dividend or distribution in shares of Common Stock) shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per
share on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a dividend or distribution declared thereon, which
record date shall be the same as the record date for any corresponding dividend
or distribution on the Common Stock.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from and after the Quarterly
Dividend Payment Date next preceding the date of original issue of such shares
of Series A Preferred Stock; provided, however, that dividends on such shares
which are originally issued after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a quarterly
dividend and on or prior to the next succeeding Quarterly Dividend Payment Date
shall begin to accrue and be cumulative from and after such Quarterly Dividend
Payment Date. Notwithstanding the foregoing, dividends on shares of Series A
Preferred Stock which are originally issued prior to the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend on the first Quarterly Dividend Payment Date shall
be calculated as if cumulative from and after the last day of the fiscal quarter
next preceding the date of original issuance of such shares. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on
-3-
<PAGE> 41
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment or distribution, on the Common Stock
unless, in each case, the dividend required by this Section 2 to be declared on
the Series A Preferred Stock shall have been declared.
(e) The holders of the shares of Series A Preferred Stock
shall not be entitled to receive any dividends or other distributions except as
provided herein.
SECTION 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled
to a number of votes equal to the Formula Number then in effect, for each share
of Series A Preferred Stock held of record on each matter on which holders of
the Common Stock or stockholders generally are entitled to vote, multiplied by
the maximum number of votes per share which any holder of the Common Stock or
stockholders generally then have with respect to such matter (assuming any
holding period or other requirement to vote a greater number of shares is
satisfied).
(b) Except as otherwise provided herein or by applicable law,
the holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock shall vote together as one class for the election of directors of
the Corporation and on all other matters submitted to a vote of stockholders of
the Corporation.
(c) If, at the time of any annual meeting of stockholders for
the election of directors, the equivalent of six quarterly dividends (whether or
not consecutive) payable on any share or shares of Series A Preferred Stock are
in default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two. In addition to voting together with the
holders of Common Stock for the election of other directors of the Corporation,
the holders of record of the Series A Preferred Stock, voting separately as a
class to the exclusion of the holders of Common Stock, shall be entitled at said
meeting of stockholders (and at each subsequent annual meeting of stockholders),
unless all dividends in arrears have been paid or declared and set apart for
payment prior thereto, to vote for the election of two directors of the
Corporation, the holders of any Series A Preferred Stock being entitled to cast
a number of votes per share of Series A Preferred Stock equal to the Formula
Number. Until the default in payments of all dividends which permitted the
election of said directors shall
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<PAGE> 42
cease to exist, any director who shall have been so elected pursuant to the next
preceding sentence may be removed at any time, either with or without cause,
only by the affirmative vote of the holders of the shares of Series A Preferred
Stock at the time entitled to cast a majority of the votes entitled to be cast
for the election of any such director at a special meeting of such holders
called for that purpose, and any vacancy thereby created may be filled by the
vote of such holders. If and when such default shall cease to exist, the holders
of the Series A Preferred Stock shall be divested of the foregoing special
voting rights, subject to revesting in the event of each and every subsequent
like default in payments of dividends. Upon the termination of the foregoing
special voting rights, the terms of office of all persons who may have been
elected directors pursuant to said special voting rights shall forthwith
terminate, and the number of directors constituting the Board of Directors shall
be reduced by two. The voting rights granted by this Section 3(c) shall be in
addition to any other voting rights granted to the holders of the Series A
Preferred Stock in this Section 3.
(d) Except as provided herein, in Section 11 or by applicable
law, holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for authorizing or taking
any corporate action.
SECTION 4. Certain Restrictions. (a) Whenever quarterly
dividends or other dividends or distributions payable on the Series A Preferred
Stock as provided in Section 2 are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
-5-
<PAGE> 43
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock; provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series
A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. Liquidation Rights. Upon the liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
no distribution shall be made (1) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock unless, prior thereto, the holders of shares of
Series A Preferred Stock shall have received an amount equal to the accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date
of such payment, plus an amount equal to the greater of (x) $100.00 per whole
share or (y) an aggregate amount per share equal to the Formula Number then in
effect times the aggregate amount to be distributed per share to holders of
Common Stock or (2) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up.
SECTION 6. Consolidation, Merger, etc.. In case the
Corporation shall enter into any consolidation, merger,
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<PAGE> 44
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash or any other
property, then in any such case the then outstanding shares of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share equal to the Formula Number then in effect times the aggregate
amount of stock, securities, cash or any other property (payable in kind), as
the case may be, into which or for which each share of Common Stock is exchanged
or changed. In the event both this Section 6 and Section 2 appear to apply to a
transaction, this Section 6 will control.
SECTION 7. No Redemption; No Sinking Fund. (a) The shares of
Series A Preferred Stock shall not be subject to redemption by the Corporation
or at the option of any holder of Series A Preferred Stock; provided, however,
that the Corporation may purchase or otherwise acquire outstanding shares of
Series A Preferred Stock in the open market or by offer to any holder or holders
of shares of Series A Preferred Stock.
(b) The shares of Series A Preferred Stock shall not be
subject to or entitled to the operation of a retirement or sinking fund.
SECTION 8. Ranking. The Series A Preferred Stock shall rank
junior to all other series of Preferred Stock of the Corporation, unless the
Board of Directors shall specifically determine otherwise in fixing the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series and the qualifications, limitations and restrictions
thereof.
SECTION 9. Fractional Shares. The Series A Preferred Stock
shall be issuable upon exercise of the Rights issued pursuant to the Rights
Agreement in whole shares or in any fraction of a share that is one
one-hundredth (1/100th) of a share or any integral multiple of such fraction
which shall entitle the holder, in proportion to such holder's fractional
shares, to receive dividends, exercise voting rights, participate in
distributions and to have the benefit of all other rights of holders of Series A
Preferred Stock. In lieu of fractional shares, the Corporation, prior to the
first issuance of a share or a fraction of a share of Series A Preferred Stock,
may elect (1) to make a cash payment as provided in the Rights Agreement for
fractions of a share other than one one-hundredth (1/100th) of a share or any
integral multiple thereof or (2) to issue depository receipts evidencing such
authorized fraction of a share of Series A Preferred Stock pursuant to an
appropriate agreement between the Corporation and a depository selected by the
Corporation; provided that such agreement shall provide that the holders of such
depository receipts shall have all the
-7-
<PAGE> 45
rights, privileges and preferences to which they are entitled as holders of the
Series A Preferred Stock.
SECTION 10. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock, without designation as to series until such shares
are once more designated as part of a particular series by the Board of
Directors pursuant to the provisions of Section (B)(1) of Article V of the
Certificate of Incorporation.
SECTION 11. Amendment. None of the powers, preferences and
relative, participating, optional and other special rights of the Series A
Preferred Stock as provided herein or in the Certificate of Incorporation shall
be amended in any manner which would alter or change the powers, preferences,
rights or privileges of the holders of Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of at least 66-2/3%
of the outstanding shares of Series A Preferred Stock, voting as a separate
class; provided, however, that no such amendment approved by the holders of at
least 66-2/3% of the outstanding shares of Series A Preferred Stock shall be
deemed to apply to the powers, preferences, rights or privileges of any holder
of shares of Series A Preferred Stock originally issued upon exercise of the
Rights after the time of such approval without the approval of such holder.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be duly executed in its corporate name on this 19th day of
February, 1997.
TELCO SYSTEMS, INC.
By:____________________________________
Name: Dr. William B. Smith
Title: President and
Chief Executive Officer
Attest:
__________________________________
Name: Edward N. Gadsby, Jr.
Title: Assistant Secretary
-8-
<PAGE> 46
Exhibit B
[Form of Right Certificate]
Certificate No. [R]-
_________________________ Rights
NOT EXERCISABLE AFTER FEBRUARY 19, 2007, OR EARLIER IF
REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION,
AT THE OPTION OF THE COMPANY, AT $.01 PER RIGHT, ON THE TERMS
SET FORTH IN THE RIGHTS AGREEMENT. RIGHTS BENEFICIALLY OWNED
BY AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND BY ANY SUBSEQUENT HOLDER OF SUCH RIGHTS ARE
NULL AND VOID AND NONTRANSFERABLE.
Right Certificate
TELCO SYSTEMS, INC.
This certifies that , or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner, thereof, subject to the terms, provisions and
conditions of the Rights Agreement dated as of February 19, 1997 (the "Rights
Agreement"), between Telco Systems, Inc., a Delaware corporation (the
"Company"), and The First National Bank of Boston, a national banking
association, as Rights Agent (the "Rights Agent"), unless the Rights evidenced
hereby shall have been previously redeemed by the Company, to purchase from the
Company at any time after the Distribution Date (as defined in the Rights
Agreement) and prior to 5:00 p.m., New York City time, on the 10th anniversary
of the date of the Rights Agreement (the "Expiration Date"), at the office of
the Rights Agent, or its successors as Rights Agent, in Canton, Massachusetts,
one one-hundredth (1/100th) of a fully paid, nonassessable share of Series A
Participating Cumulative Preferred Stock, par value $.01 per share, of the
Company (the "Preferred Shares"), at a purchase price per one one-hundredth
(1/100th) of a share equal to $50.00 (the "Purchase Price") payable in cash,
upon presentation and surrender of this Right Certificate with the Form of
Election to Purchase duly executed.
The Purchase Price and the number and kind of shares which may
be purchased upon exercise of each Right evidenced by this Right Certificate, as
set forth above, are the Purchase Price and the number and kind of shares which
may be so purchased as of February 19, 1997. As provided in the Rights
Agreement, the Purchase Price and the number and kind of shares which may be
<PAGE> 47
purchased upon the exercise of each Right evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
If the Rights evidenced by this Right Certificate are at any
time beneficially owned by an Acquiring Person or an Affiliate or Associate of
an Acquiring Person (as such terms are defined in the Rights Agreement), such
Rights shall be null and void and nontransferable and the holder of any such
Right (including any purported transferee or subsequent holder) shall not have
any right to exercise or transfer any such Right.
This Right Certificate is subject to all the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
reference to the Rights Agreement is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Right Certificates. Copies
of the Rights Agreement are on file at the above-mentioned office of the Rights
Agent and are also available from the Company upon written request.
This Right Certificate, with or without other Right
Certificates, upon surrender at the stock transfer or corporate trust office of
the Rights Agent, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number and kind of shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall entitle such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Right Certificate may be redeemed by the Company at its option
at a redemption price (in cash or shares of 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 (which amount shall be subject to adjustment as provided in
the Rights Agreement) at any time prior to the earlier of (i) such time as a
Person becomes an Acquiring Person and (ii) the Expiration Date.
The Company may, but shall not be required to, issue fractions
of Preferred Shares or distribute certificates which evidence fractions of
Preferred Shares upon the exercise of any Right or Rights evidenced hereby. In
lieu of issuing fractional shares, the Company may elect to make a cash payment
as provided in the Rights Agreement for fractions of a share other than one
one-hundredth (1/100th) of a share or any integral multiple
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<PAGE> 48
thereof or to issue certificates or utilize a depository arrangement as provided
in the terms of the Rights Agreement and the Preferred Shares.
No holder of this Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company, including, without limitation,
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or other distributions or subscription rights, or otherwise, until the
Right or Rights evidenced by this Right Certificate shall have been exercised as
provided in accordance with the provisions of the Rights Agreement.
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<PAGE> 49
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of:
TELCO SYSTEMS, INC.,
By:______________________________
Name: Dr. William B. Smith
Title: President and
Chief Executive Officer
Attest:
__________________________________
Name:
Title:
Countersigned:
THE FIRST NATIONAL BANK OF BOSTON,
as Rights Agent,
By:_____________________________
Authorized Signatory
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<PAGE> 50
[On Reverse Side of Right Certificate]
FORM OF ELECTION TO PURCHASE
(To be executed by the registered holder if
such holder desires to exercise the Rights
represented by this Right Certificate.)
To the Rights Agent:
The undersigned hereby irrevocably elects to exercise
____________ Rights represented by this Right Certificate to purchase the
Preferred Shares (or other shares) issuable upon the exercise of such Rights and
requests that certificates for such shares be issued in the name of:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced
by this Right Certificate, a new Right
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<PAGE> 51
Certificate for the balance remaining of such Rights shall be registered in the
name of and delivered to: Please insert social security or other identifying
number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated:___________________, 19__
____________________________________________
Signature
Signature Guaranteed:
NOTICE
The signature on the foregoing Form of Election to Purchase
must correspond to the name as written upon the face of this Right Certificate
in every particular, without alteration or enlargement or any change whatsoever.
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