<PAGE> 1
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
TELCO SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 94-2178777
(State or Other Jurisdiction (I.R.S.Employer
of Incorporation or Organization) Identification Number)
63 NAHATAN STREET
NORWOOD, MASSACHUSETTS 02062
(781) 551-0300
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------
TELCO SYSTEMS, INC.
1983 EMPLOYEE STOCK PURCHASE PLAN
TELCO SYSTEMS, INC.
1990 STOCK OPTION PLAN
(Full Title of the Plan)
----------------
WILLIAM B. SMITH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TELCO SYSTEMS, INC.
63 NAHATAN STREET
NORWOOD, MASSACHUSETTS 02062
(781) 551-0300
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copies to:
EDWARD N. GADSBY, JR., ESQUIRE
ROBERT W. SWEET, JR., ESQUIRE
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 832-1000
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value............. 350,000 shares(1) $13.81 $4,833,500 $1,425.88
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</TABLE>
(1) Consists of 100,000 shares issuable pursuant to the 1983 Employee Stock
Purchase Plan, as amended, and 250,000 shares issuable pursuant to the 1990
Stock Option Plan, as amended.
(2) Estimated solely for the purpose of determining the registration fee. In
accordance with Rule 457(c) under the Securities Act of 1933, the above
calculation is based on the average of the high and low sale prices
reported in the consolidated reporting system of the Nasdaq National Market
on June 19, 1998.
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<PAGE> 2
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
The contents of Part II of the Registration Statements on Form S-8, file
numbers 333-00959, 033-67320 and 033-42751, filed with the Securities and
Exchange Commission by Telco Systems, Inc. on February 15, 1996, August 13, 1993
and September 16, 1991, respectively, except for the contents of Items 8
thereof, are incorporated herein by reference.
ITEM 8. EXHIBITS.
4.1 1983 Employee Stock Purchase Plan, as amended.
4.2 Form of Stock Purchase Plan Application and Payroll Deduction
Authority.
4.3 1990 Stock Option Plan, as amended.
5.1 Opinion of Counsel.
23.1 Consent of Independent Auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (contained on the signature page).
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Norwood, state of Massachusetts, on this 7th day of
May, 1998.
TELCO SYSTEMS, INC.
By: /s/ William B. Smith
------------------------------------
William B. Smith, President,
Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints William B. Smith and William J. Stuart, and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing which
they, or either of them, may deem necessary or advisable to be done in
connection with this Registration Statement, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or any substitute or
substitutes for any of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of May 7, 1998.
Signature Title
- --------- -----
/s/ William B. Smith President, Chief Executive Officer
- ------------------------- and Director
William B. Smith (Principal Executive Officer)
/s/ William J. Stuart Vice President and Chief Financial
- ------------------------- Officer
William J. Stuart (Principal Financial and Accounting
Officer)
/s/ Dean C. Campbell Director
- -------------------------
Dean C. Campbell
/s/ Sheldon Horing Director
- -------------------------
Sheldon Horing
3
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Signature Title
- --------- -----
/s/ Steward Flaschen Director
- -------------------------
Steward Flaschen
/s/ Edward J. Fontenot Director
- -------------------------
Edward J. Fontenot
4
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EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
4.1 1983 Employee Stock Purchase Plan, as amended.
4.2 Form of Stock Purchase Plan Application and Payroll Deduction
Authority.
4.3 1990 Stock Option Plan, as amended.
5.1 Opinion of Counsel.
23.1 Consent of Independent Auditors.
5
<PAGE> 1
Exhibit 4.1
TELCO SYSTEMS, INC.
1983 EMPLOYEE STOCK PURCHASE PLAN
(As Amended as of November 19, 1997)
1. PURPOSE:
The TELCO SYSTEMS, INC. 1983 EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is
designed to foster continued cordial employee relations, to encourage and assist
its employees and the employees of any present or future subsidiaries in
acquiring a stock ownership interest in TELCO SYSTEMS, INC. (the "Corporation")
and to help them provide for their future security. The Plan is intended to be
an Employee Stock Purchase Plan under Internal Revenue Code Section 423.
2. STOCK SUBJECT TO THE PLAN:
Subject to adjustment pursuant to Section 12 of the Plan, the aggregate
number of shares of Common Stock (the "shares") which may be sold under the Plan
is 100,000. The shares may be authorized, but unissued, or reacquired Common
Stock of the Corporation. The Corporation, during the term of the Plan, shall at
all times reserve and keep available, such number of shares as shall be
sufficient to satisfy the requirements of the Plan.
3. BI-ANNUAL PERIODS:
Bi-annual periods shall mean the six-month periods ending the last day of
February and August 31st of each year. The first period under this Plan shall
commence on March 1, 1984.
4. ELIGIBILITY:
Anyone who was an employee at the inception of the Plan (except those
employees who own or hold options to purchase five percent (5%) or more of the
capital stock of the Corporation or any subsidiary of the Corporation at the
start of any bi-annual period and part-time employees, all as defined in
Internal Revenue Code (ss.423)) is eligible to become a member of the Plan.
Anyone who became or becomes an employee of the Corporation or of any of its
present or future subsidiaries thereafter (subject to the exceptions stated in
the preceding sentence), is eligible to become a member of the Plan, on the
first day of the bi-annual period following the completion of ninety (90) days
of continuous service. Notwithstanding the foregoing, no employee shall be
entitled to purchase shares of stock under the Plan and all other purchase plans
of the Corporation and any parent or subsidiary of the Corporation with an
aggregate fair market value (determined at date of grant) exceeding $25,000 per
year for each calendar year in which such option is outstanding at any time.
For purposes of this Plan, "subsidiary" shall mean a corporation of which
not less than fifty percent (50%) of the voting shares are held by the
Corporation or a subsidiary of the Corporation.
<PAGE> 2
5. JOINING THE PLAN;
Any eligible employees' participation in the Plan shall be effective on the
seventh working day after the employee has completed, signed, and returned to
the Corporation, or one of its present or future subsidiaries, a Stock Purchase
Plan Application and Payroll Deduction Authority form indicating his or her
acceptance and agreement to the Plan.
Membership of any employee in the Plan is entirely voluntary.
Any employee receiving shares shall have no rights with respect to
continuation of employment, nor with respect to continuation of any particular
Corporation business, policy or product.
6. MEMBER'S CONTRIBUTIONS:
Each member shall elect to make contributions by payroll deduction of a
percentage between one percent (1%) and fifteen percent (15%), inclusive, of his
or her base pay (before overtime, commissions or bonuses), such elections to be
made in integral one percentage point increments.
Subject to the maximum described above, a member may elect in writing to
increase or decrease his or her rate of contribution; such change will become
effective the first day of the bi-annual period following receipt by the
Corporation of such written election.
The amount of each member's contribution shall be held by the Corporation
in a special account and such contributions, free of any obligation of the
Corporation to pay interest thereon, shall be credited to such member's
individual account as soon as practicable after each pay day.
No member will be permitted to make contributions for any period during
which he or she is not receiving pay from the Corporation or one of its present
or future subsidiaries.
7. ISSUANCE OF SHARES:
On the last day of February, 1984, and on the last trading day of each
bi-annual period thereafter so long as the Plan shall remain in effect, and
provided the member has not before that date advised the Corporation that he or
she does not wish shares purchased for his or her account on that date, the
Corporation shall apply the funds then in the member's account to the purchase
of authorized but unissued shares of its Common Stock in units of one share or
multiples thereof. If the Corporation's shares are not publicly traded, the
Board of Directors shall set, on or before the first day of each bi-annual
period, the cost to each member for shares purchased for member's accounts on
the last day of such bi-annual period. The cost as determined by the Board of
Directors shall be communicated to the members on or before the first day of
each bi-annual period. The cost shall be eighty-five percent (85%) of the fair
market value of the shares as determined by the Board of Directors.
If the Corporation's shares are publicly traded, the cost to each member
for the shares so purchased shall be eighty-five percent (85%) of the lower of:
2
<PAGE> 3
1. The mean between the average bid and ask prices of the stock in the
over-the-counter market as quoted on the National Association of Security
Dealers Automatic Quotation System (NASDAQ) or as reported by National
Quotation Bureau, Inc., or if the stock is traded on one or more securities
exchanges, the average of the closing prices on all such exchanges, on the
first trading day of the bi-annual period;
2. The mean between the average bid and ask prices of the stock in the
over-the-counter market as quoted on the National Association of Securities
Dealers Automatic Quotation System (NASDAQ) or as reported by National
Quotation Bureau, Inc., or if the stock is traded on one or more securities
exchanges, the average of the closing prices on all such exchanges, on the
last trading day of the bi-annual period.
Any monies remaining in such member's account equaling less than the sum
required to purchase one share, or moneys remaining in such member's account by
reason of his or her prior election not to purchase shares in a given bi-annual
period, as aforesaid, or moneys remaining in such member's account by reason of
application of the provisions of the next paragraph hereof, shall be promptly
returned to the member. The Corporation shall, as expeditiously as possible,
after the 31st day of August, 1984, and the last day of each February and August
thereafter, issue to the member entitled thereto the certificates evidencing the
shares issuable to him or her as provided herein.
Notwithstanding anything above to the contrary, (a) If the number of shares
members desire to purchase at the end of any bi-annual period exceeds the number
of shares then available under the Plan, the shares available shall be allocated
among such members in proportion to their contributions during the bi-annual
period, and (b) no funds in an employee's account shall be applied to the
purchase of shares and no shares hereunder shall be issued unless such shares
are covered by an effective registration statement under the Securities Act of
1933, as amended, or by an exemption therefrom.
8. TERMINATION OF MEMBERSHIP:
A member's membership in the Plan will be terminated when the member (a)
voluntarily elects to withdraw his or her entire account, (b) resigns or is
discharged from the Corporation or one of its present or future subsidiaries,
(c) dies, or (d) does not receive pay from the Corporation or one of its present
or future subsidiaries for twelve (12) consecutive months, unless this period is
due to illness, injury or for other reasons approved by the persons or person
appointed by the Corporation to administer the Plan as provided in Paragraph 10
below. Upon termination of membership, the terminated member shall not be
entitled to rejoin the Plan until the first day of the bi-annual period
immediately following the bi-annual period in which the termination occurs.
Upon termination of membership, the member shall be entitled to the amount of
his or her individual account within fifteen (15) days after termination.
9. BENEFICIARY:
Each member shall designate a beneficiary or beneficiaries and may, without
their consent, change his or her designation. Any designation shall be effective
only after it is received by the Corporation and shall become effective as of
the date it is signed and shall be controlling over any disposition by will or
otherwise.
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Upon the death of a member his or her account shall be paid or distributed
to the beneficiary or beneficiaries designated by such member, or in the absence
of such designation, to the executor or administrator of his or her estate, and
in either event the Corporation shall not be under any further liability to
anyone. If more than one beneficiary is designated, then each beneficiary shall
receive an equal portion of the account unless the member indicates to the
contrary in his or her designation, provided that the Corporation may in its
sole discretion make distributions in such form as will avoid the creation of
fractional shares.
10. ADMINISTRATION OF THE PLAN:
The Plan shall be administered by such officers or other employees of the
Corporation as the Corporation may from time to time select, and the persons so
selected shall be responsible for the administration of the Plan. All costs and
expenses incurred in administering the Plan shall be paid by the Corporation.
Any taxes applicable to the member's account shall be charged or credited to the
member's account by the Corporation.
11. MODIFICATION AND TERMINATION:
The Corporation expects to continue the Plan until such time as the shares
reserved for issuance under the Plan have been sold. The Corporation reserves,
however, the right to amend, alter, or terminate the Plan in its discretion.
Upon termination, each member shall be entitled to the amount of his or her
individual account within fifteen (15) days after termination.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION: .
Appropriate and proportionate adjustments shall be made in the number and
class of shares of stock subject to this Plan, and to the rights granted
hereunder and the prices applicable to such rights, in the event of a stock
dividend, stock split, reverse stock split, recapitalization, reorganization,
merger, consolidation, acquisition, separation, or like change in the capital
structure of the Corporation.
13. ASSIGNABILITY OF RIGHTS:
No rights of any employee under this Plan shall be assignable by him or
her, by operation of law, or otherwise, except to the extent that a member is
permitted to designate a beneficiary or beneficiaries as hereinabove provided,
and except to the extent permitted by the law of descent and distribution if no
such beneficiary be designated. Prior to the issuance of any shares under this
Plan, each employee member shall be required to sign a statement as set forth in
Exhibit "A" attached hereto and incorporated herein.
14. PARTICIPATION IN OTHER PLANS:
Nothing herein contained shall affect an employee's right to participate in
and receive benefits under and in accordance with the then current provisions of
any pension, insurance, or other employee welfare plan or program of the
Corporation.
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15. APPLICABLE LAW:
The interpretation, performance, and enforcement of this Plan shall be
governed by the laws of the State of California.
16. EFFECTIVE DATE OF PLAN; SHAREHOLDER APPROVAL:
The Plan shall become effective upon adoption by the Board; provided, that
the Plan shall also be subject to approval by the shareholders of the
Corporation as provided in Section 315(b) of the California Corporation Code.
17. LEGEND CONDITIONS:
The shares of Common Stock to be issued pursuant to the provisions of this
Plan shall have endorsed upon their face the following:
1. Any legend condition imposed as a condition of qualification by the
California Commissioner of Corporations;
2. Unless the shares to be issued under this Plan have been registered
under the Securities Act of 1933, the following additional legend shall be
placed on the certificates:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be pledged or hypothecated, and may not be sold or
transferred in the absence of an effective Registration Statement for the
shares under the Securities Act of 1933 or an opinion of counsel to the
Company that registration is not required under said Act."
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Exhibit 4.2
TELCO SYSTEMS, INC.
Employee Stock Purchase Plan
Membership Application o Payroll Deduction Authority
THIS IS (Please check appropriate box):
|_| ENROLLMENT. I hereby apply for membership in the Telco Systems, Inc.,
Employee Stock Purchase plan and I authorize Telco Systems to deduct
from my regular base pay (check appropriate deduction rate):
CONTRIBUTION PERCENTAGE _________% (1%-15% IN INCREMENTS OF 1%)
|_| CHANGE OF PAYROLL DEDUCTION RATE. I am a member of the Plan. Effective
with beginning of the next plan period, change my payroll deduction
rate (check the appropriate deduction rate):
NEW CONTRIBUTION PERCENTAGE _________% (1%-15% IN INCREMENTS OF 1%)
|_| TERMINATION OF MEMBERSHIP PRIOR TO END OF PLAN PERIOD. Refund all
monies withheld.
|_| TERMINATION OF MEMBERSHIP AT END OF PLAN PERIOD. Issue shares, but
discontinue payroll deductions beginning with the next plan period.
|_| CHANGE OF BENEFICIARY DESIGNATION.
PLEASE PRINT THE FOLLOWING INFORMATION: (Use black ink or type)
You NAME as it will appear on the stock certificate:
____________________________________________________________
ADDRESS: ____________________________________________________________
(Number and Street)
____________________________________________________________
(City, State, and Zip Code)
SOCIAL SECURITY NO. ______________ EMPLOYEE NO. _____________ DEPT. NO. ________
OWNERSHIP IN ALL SHARES PURCHASED UNDER THE PLAN WILL BE DESIGNATED IN
EMPLOYEE'S SOLE NAME.
<PAGE> 2
Pursuant to the plan, I hereby designate the following as my beneficiary(ies):
|_| Executor or administrator of my estate.
|_| Name ____________________________________ Relationship____________ Age ____
Address _________________________________________________________________
|_| Name ____________________________________ Relationship____________ Age ____
Address _________________________________________________________________
I hereby acknowledge that I have reviewed a copy of the Telco Systems, Inc.,
Employee Stock Purchase Plan and that I understand its contents.
EMPLOYEE'S SIGNATURE: _______________________________________ DATE ____________
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Exhibit 4.3
TELCO SYSTEMS, INC.
1990 STOCK OPTION PLAN, AS AMENDED
(including amendments through November 19, 1997)
SECTION 1. PURPOSE
The 1990 Stock Option Plan (the "Plan") is intended to attract and retain
highly qualified and competent employees and directors, to serve as a
performance incentive for officers and employees of Telco Systems, Inc., a
Delaware corporation (the "Company"), or its Subsidiaries (as hereinafter
defined) and for certain other individuals providing services to or acting as
directors of the Company or its Subsidiaries, to encourage the persons to whom
options are granted (a "Grantee" or "Grantees") to acquire or increase a
proprietary interest in the success of the Company and to maintain and enhance
the Company's long-term performance and profitability. The Company intends that
this purpose will be effected by the granting of incentive stock options
("Incentive Options") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") and other stock options ("Non-Statutory Options")
under the Plan. The term "Subsidiaries" means any corporations in which stock
possessing 50% or more of the total combined voting power of all classes of
stock of any such corporation or corporations is owned directly or indirectly by
the Company.
SECTION 2. OPTIONS TO BE GRANTED AND ADMINISTRATION
2.1 OPTIONS TO BE GRANTED. Options granted under the Plan may be either
Incentive Options or Non-Statutory Options.
2.2 ADMINISTRATION BY AND POWERS OF THE COMMITTEE. The Plan shall be
administered by a committee (the "Committee") consisting of at least two
"Outside Directors." As used herein, the term "Outside Director" means any
director of the Company who (i) is not an officer or employee of the Company or
of an "affiliated group" (as such term is defined in Section 1504(a) of the
Code) which includes the Company (an "Affiliate"), (ii) is not a former employee
of the Company or any Affiliate who is receiving compensation for prior services
(other than benefits under a tax-qualified retirement plan) during the Company's
or any Affiliate's taxable year, (iii) has not been an officer of the Company or
any Affiliate and (iv) does not receive remuneration from the Company or any
Affiliate, either directly or indirectly, in any capacity other than as a
director. It is the intention of the Company that the Plan shall be administered
by "Non-Employee Directors" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934 (the "Exchange Act"), but the authority and
validity of any act taken or not taken by the Committee shall not be affected if
any person administering the Plan is not a Non-Employee Director. Except as
specifically reserved to the Board under the terms of the Plan, and subject to
Section 4.2 hereof, the Committee shall have full and final authority to
operate, manage and administer the Plan on behalf of the Company. This authority
shall include, but not be limited to: (i) the power to grant options
conditionally or unconditionally; (ii) the power to prescribe
<PAGE> 2
the form or forms of the instruments evidencing options granted under this Plan;
(iii) the power to interpret the Plan; (iv) the power to provide regulations for
the operation of the incentive features of the Plan, and otherwise to prescribe
regulations for interpretation, management and administration of the Plan; (v)
the power to delegate to other persons the responsibility for performing
ministerial acts in furtherance of the Plan's purpose; and (vi) the power to
engage the services of persons or organizations in furtherance of the Plan's
purpose, including but not limited to banks, insurance companies, brokerage
firms and consultants.
In addition, as to each option, except for options granted pursuant to
Section 4.2, the Committee shall have full and final authority in its
discretion: (i) to determine the number of shares subject to each option; (ii)
to determine the time or times at which options will be granted; (iii) to
determine the price for the shares subject to each option, which price shall be
subject to the applicable requirements, if any, of Section 5(c) hereof; and (iv)
subject to the provisions of the Plan, to determine the time or times when each
option shall become exercisable and the duration of the exercise period, which
shall not exceed the limitations specified in Section 5(a). The Committee may,
in its sole and unilateral discretion, and on either a case by case or aggregate
basis, accelerate the schedule of the time or times when an outstanding option
may be exercised, reduce the exercise price of an outstanding option, or extend
the duration of an outstanding option past the times set for in Section 5(e),
other than Section 5(e)(i); provided that the Committee may not accelerate
unexercised and unexpired options pursuant to this Section 2.2 if in the opinion
of the Company's independent auditors to do so would adversely affect pooling of
interests treatment intended to be effected in connection with a Transaction, as
such term is defined in Section 8.2 hereof.
No member of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any option granted hereunder.
2.3 LIMITATION ON OPTION REPRICING. Notwithstanding the foregoing, it is
the intention of the Company that the discretion of the Committee with respect
to Option Repricing (as hereinafter defined) be limited as hereinafter set
forth. For purposes of this paragraph, the term "Option Repricing" shall be
deemed to refer to (i) any amendment of an outstanding option that has the
effect of reducing the exercise price of such option, or (ii) any option grant
that is by its terms contingent upon the surrender or exchange by the grantee of
an outstanding option having a higher exercise price. It is the policy of the
Company that Option Repricing is to be employed only in exceptional
circumstances, where necessary to restore the incentive value of outstanding
options and where the Committee has determined that such Option Repricing is
necessary to fulfill a legitimate corporate purpose, including the retention of
one or more key employees.
2.4 APPOINTMENT AND PROCEEDINGS OF COMMITTEE. The Board may from time to
time appoint members of the Committee in substitution for or in addition to
members previously appointed, and subject to Section 2.2 hereof may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and shall hold its meetings at such times and places
as it shall deem advisable. A majority of its members shall constitute a quorum,
and all actions of the Committee shall require the affirmative vote of a
majority of its members. Any action may be taken by a written instrument signed
by all of the members, and any action so taken shall be as fully effective as if
it had been taken by a vote of a majority of the members at a meeting duly
called and held.
2
<PAGE> 3
SECTION 3. STOCK
3.1 SHARES SUBJECT TO PLAN. The stock subject to options granted under the
Plan shall be shares of the Company's common stock, $.01 par value ("Common
Stock"), either authorized but unissued or held in treasury. The total number of
shares that may be issued pursuant to options granted under the Plan shall not
exceed an aggregate of 2,550,000 shares of Common Stock, of which not more than
325,000 shares may be issued pursuant to Section 4.2 hereof. Such numbers of
shares shall be subject to adjustment in accordance with Section 7.
3.2 LAPSED OR UNEXERCISED OPTIONS. Whenever any outstanding option under
the Plan expires, is cancelled or is otherwise terminated (other than by
exercise), the shares of Common Stock allocable to the unexercised portion of
such option shall be restored to the Plan and shall again become available for
the grant of other options under the Plan.
SECTION 4. ELIGIBILITY
4.1 ELIGIBLE GRANTEES. Incentive Options may be granted only to officers
and other employees of the Company or its Subsidiaries, including members of the
Board who are also employees of the Company or a Subsidiary. Non-Statutory
Options may be granted to officers or other employees of the Company or its
Subsidiaries, including members of the Board or the board of directors of any
Subsidiary, and to certain other individuals providing services to the Company
or its Subsidiaries. Non-Statutory Options may be granted to members of the
Board who are not full-time employees of the Company or a Subsidiary ("Outside
Directors") only as provided in Section 4.2 hereof.
4.2 NON-DISCRETIONARY OPTION GRANTS TO OUTSIDE DIRECTORS. Any other
provision of this Plan to the contrary notwithstanding, Outside Directors shall
not be eligible to receive options under the Plan except pursuant to this
Section 4.2. On the first business day following the Company's Annual Meeting of
Stockholders or, if the Annual Meeting has not been held by the last business
day of March in any year, then on the last business day of March in such year
(the "Grant Date"), (i) any Outside Director who was elected a director by the
stockholders of the Company for the first time at the most recent annual meeting
of stockholders shall, without any action of the Committee, be granted a
Non-Qualified Option to purchase 10,000 shares of Common Stock, (ii) each
Outside Director elected prior to January 22, 1997 who holds Non-Qualified
Options to purchase fewer than 50,000 shares of Common Stock shall, without any
action of the Committee, be granted a Non-Qualified Option to purchase 10,000
shares of Common Stock, and (iii) each other Outside Director shall, without any
action of the Committee, be granted a Non-Qualified Option to purchase 5,000
shares of Common Stock. Options shall be granted pursuant to this Section 4.2
only to persons who are serving as Outside Directors on the Grant Date. No
Outside Director shall receive more than one grant pursuant to clause (i) of
this Section. The 5,000-share and 10,000-share amounts referred to in this
Section shall be subject to adjustment in accordance with Section 7 hereof. The
purchase price per share of the Common Stock under each option granted pursuant
to this Section shall be equal to the fair market value of the Common Stock on
the date the option is granted. Each such option shall expire on the tenth
anniversary of the date of grant and shall not be exercisable until after the
expiration of six months following the date of grant,
3
<PAGE> 4
becoming exercisable at that time for a whole number of shares equal, as nearly
as practicable, to one-eighth of the total number of shares subject to such
option, and becoming exercisable ratably thereafter in monthly installments
until fully exercisable on the fourth anniversary of the date of grant.
4.3 LIMITATIONS ON 10% STOCKHOLDERS. No Incentive Option shall be granted
to an individual who, at the time the Incentive Option is granted, owns
(including ownership attributed pursuant to Section 424 of the Code) more than
l0% of the total combined voting power of all classes of stock of the Company or
any parent or Subsidiary of the Company (a "greater-than-10% stockholder"),
unless such Incentive Option provides that (i) the purchase price per share
shall not be less than 110% of the fair market value of the Common Stock at the
time such Incentive Option is granted, and (ii) such Incentive Option shall not
be exercisable to any extent after the expiration of five years from the date it
is granted.
4.4 LIMITATION ON EXERCISABLE OPTIONS. The aggregate fair market value
(determined at the time the Incentive Option is granted) of the Common Stock
with respect to which Incentive Options are exercisable for the first time by
any person during any calendar year under the Plan and under any other option
plan of the Company (or a parent or subsidiary as defined in Section 424 of the
Code) shall not exceed $100,000. Any option granted in excess of the foregoing
limitation shall be specifically designated as being a Non-Statutory Option.
4.5 LIMITATION ON GRANT OF OPTIONS. In no event may any Plan participant be
granted options with respect to more than 100,000 shares of Common Stock in any
fiscal year. The number of shares of Common Stock issuable pursuant to an option
granted to a Plan participant in a fiscal year that is subsequently forfeited,
cancelled or otherwise terminated shall continue to count toward the foregoing
limitation in such fiscal year. In addition, if the exercise price of an option
is subsequently reduced, the transaction shall be deemed a cancellation of the
original option and the grant of a new one so that both transactions shall count
toward the maximum shares issuable in the fiscal year of each transaction.
SECTION 5. AGREEMENTS EVIDENCING STOCK OPTIONS
Each option agreement (each, a "Plan agreement") shall contain such
provisions as the Committee shall from time to time deem appropriate. Plan
agreements need not be identical, but each such agreement by appropriate
language shall include the substance of all of the following provisions:
(a) EXPIRATION. Subject to Section 4.2 hereof, notwithstanding any
other provision of the Plan or of any Plan agreement, each option shall expire
on the date specified in the Plan agreement, which date shall not be later than
the tenth anniversary of the date on which the option was granted (fifth
anniversary in the case of an Incentive Option granted to a greater-than-10%
stockholder).
(b) EXERCISE. Subject to Sections 4.2 and 6.4 hereof, each option
shall be exercisable in full or in installments (which need not be equal) and at
such times as designated by the Committee. To the extent not exercised,
installments shall accumulate and be
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exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the option expires.
(c) PURCHASE PRICE. The purchase price per share of the Common Stock
under each option shall be not less than the fair market value of the Common
Stock on the date the option is granted (110% of the fair market value in the
case of an Incentive Option granted to a greater-than-10% stockholder). For the
purpose of the Plan, the fair market value of the Common Stock shall be the
closing price per share on the date of grant of the option as reported by a
nationally recognized stock exchange, or, if the Common Stock is not listed on
such an exchange, as reported by the NASDAQ National Market System, or, if the
Common Stock is not quoted on the NASDAQ National Market System, the fair market
value as determined by the Committee.
(d) TRANSFERABILITY OF OPTIONS. Options granted under the Plan and the
rights and privileges conferred thereby may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by applicable laws of descent and distribution, and shall
not be subject to execution, attachment or similar process. Upon any attempt so
to transfer, assign, pledge, hypothecate or otherwise dispose of any option
under the Plan or any right or privilege conferred hereby, contrary to the
provisions of the Plan, or (if the Committee shall so determine) upon any levy
or any attachment or similar process upon the rights and privileges conferred
hereby, such option shall thereupon terminate and become null and void.
(e) TERMINATION OF EMPLOYMENT OR DEATH OF GRANTEE. Except as may be
otherwise expressly provided in the terms and conditions of the Plan agreements,
options granted hereunder shall terminate on the earlier to occur of:
(i) the date of expiration thereof; or
(ii) other than in the case of death of the Grantee or disability of
the Grantee within the meaning of Section 22(e)(3) of the Code ("disability"),
immediately upon termination of the employment or other relationship between the
Company and the Grantee for cause as determined by the Committee, or 30 days
after termination of the employment or other relationship between the Company
and the Grantee without cause.
An employment relationship between the Company and the Grantee shall be
deemed to exist during any period during which the Grantee is employed by the
Company or by any Subsidiary. Whether an authorized leave of absence or absence
on military government service shall constitute termination of the employment
relationship between the Company and the Grantee shall be determined by the
Committee at the time thereof.
As used herein, "cause" shall mean (x) any material breach by the Grantee
of any agreement to which the Grantee and the Company are both parties, (y) any
act or omission to act by the Grantee which may have a material and adverse
effect on the Company's business or on the Grantee's ability to perform services
for the Company, including, without limitation, the commission of any crime
(other than ordinary traffic violations), or (z) any material misconduct or
material neglect of duties by the Grantee in connection with the business or
affairs of the Company or any affiliate of the Company.
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In the event of the death of a Grantee while in an employment or other
relationship with the Company and before the date of expiration of an option
held by such Grantee, such option shall terminate on the earlier of such date of
expiration or 180 days following the date of such death. After the death of the
Grantee, his executors, administrators or any person or persons to whom his
option may be transferred by will or by laws of descent and distribution shall
have the right, at any time prior to such termination, to exercise the option to
the extent the Grantee was entitled to exercise such option immediately prior to
his death.
If a Grantee's employment or other relationship with the Company terminates
because of a disability, the Grantee's option shall terminate on the earlier of
the date of expiration thereof or 12 months following the termination of such
relationship; and unless by its terms it sooner terminates and expires during
such 12-month period, the Grantee may exercise that portion of his or her option
which is exercisable at the time of termination of such relationship.
(f) RIGHTS OF GRANTEES. No Grantee shall be deemed for any purpose to
be the owner of any shares of Common Stock subject to any option unless and
until (i) the option shall have been exercised pursuant to the terms thereof and
(ii) the Company shall have issued and delivered the shares to the Grantee.
SECTION 6. METHOD OF EXERCISE AND PAYMENT
6.1 NOTICE OF EXERCISE. Any option granted under the Plan may be exercised
by the Grantee by delivering to the Company on any business day a written notice
(the "Notice") specifying the number of shares of Common Stock with respect to
which the Grantee then desires to exercise the option, specifying the address to
which the certificates for such shares are to be mailed and accompanied by
payment for such shares.
6.2 EXERCISE OF OPTIONS. Payment for the shares of Common Stock purchased
pursuant to the exercise of an option shall be made either (i) in cash equal to
the option price for the number of shares specified in the Notice (the "Total
Option Price"), or (ii) if authorized by the applicable Plan agreement, in
shares of Common Stock having a fair market value equal to or less than the
Total Option Price, plus cash in an amount equal to the excess, if any, of the
Total Option Price over the fair market value of such shares of Common Stock.
For the purpose of the preceding sentence, the fair market value of the shares
of Common Stock so delivered to the Company shall be determined in the manner
specified in Section 5(c) hereof. As promptly as practicable after receipt of
such Notice and payment, the Company shall deliver to the Grantee certificates
for the number of shares with respect to which such option has been so
exercised, issued in the Grantee's name; provided, however, that such delivery
shall be deemed effected for all purposes when the Company or a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to the Grantee, at the address specified pursuant to Section
6.1.
6.3 SPECIAL LIMITS AFFECTING SECTION 16(b) GRANTEES. Options granted to a
person who in the opinion of the Committee may be deemed to be a director or
officer of the Company within the meaning of Section 16(b) of the Exchange Act
and the rules and regulations thereunder (a "Section 16(b) Grantee") shall not
be exercisable until after the expiration of six months following the date of
grant. At least six months shall elapse between
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the date an option is granted to a Section 16(b) Grantee and the date of
disposition of the option (other than upon exercise) or the Common Stock subject
to such option.
SECTION 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
7.1 NO EFFECT OF OPTIONS UPON CERTAIN CORPORATE TRANSACTIONS. The existence
of outstanding options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of Common Stock, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
7.2 STOCK DIVIDENDS, RECAPITALIZATIONS, ETC. If the Company shall effect a
subdivision or consolidation of shares or other capital readjustment, the
payment of a stock dividend, or other increase or reduction of the number of
shares of the Common Stock outstanding, without receiving compensation therefor
in money, services or property, then (i) the number, class and per share price
of shares of stock subject to outstanding options hereunder shall be
appropriately adjusted in such a manner as to entitle a Grantee to receive upon
exercise of an option, for the same aggregate cash consideration, the same total
number and class of shares that the owner of an equal number of outstanding
shares of Common Stock would own as a result of the event requiring the
adjustment; and (ii) the number and class of shares that may be issued under,
and with respect to which options may be granted pursuant to, the Plan shall be
adjusted by substituting for the total number of shares of Common Stock then
reserved for issuance under, and with respect to which options may be granted
pursuant to, the Plan that number and class of shares of stock that the owner of
an equal number of outstanding shares of Common Stock would own as the result of
the event requiring the adjustment.
7.3 DETERMINATION OF ADJUSTMENTS. Adjustments under this Section 7 shall be
determined by the Committee and such determinations shall be conclusive. The
Committee shall have the discretion and power in any such event to determine and
to make effective provision for acceleration of the time or times at which any
option or portion thereof shall become exercisable. No fractional shares of
Common Stock shall be issued under the Plan on account of any adjustment
specified above.
7.4 NO ADJUSTMENT IN CERTAIN CASES. Except as hereinbefore expressly
provided, the issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock then subject to outstanding options.
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SECTION 8. EFFECT OF CERTAIN TRANSACTIONS
8.1 MERGER WITHOUT CHANGE OF CONTROL. After a merger of one or more
corporations into the Company, or after a consolidation of the Company and one
or more corporations, in each case as a result of which the stockholders of the
Company immediately prior to such merger or consolidation own after such merger
or consolidation shares representing at least fifty percent (50%) of the voting
power of the merged or consolidated corporations, each holder of an outstanding
option shall, at no additional cost, be entitled upon exercise of such option to
receive (subject to any required action by stockholders), in lieu of the number
of shares as to which such option shall then be so exercisable, the number and
class of shares of stock or other securities to which such holder would have
been entitled pursuant to the terms of the agreement of merger or consolidation
if, immediately prior to such merger or consolidation, such holder had been the
record holder of a number of shares of Common Stock equal to the number of
shares as to which such option was exercisable.
8.2 SALE OR MERGER WITH CHANGE OF CONTROL. If the Company is merged or
consolidated with another corporation under circumstances in which the
stockholders of the Company immediately prior to such merger or consolidation do
not own after such merger or consolidation shares representing at least fifty
percent (50%) of the voting power of the merger or consolidated corporations, or
if the Company is liquidated or sells or otherwise disposes of substantially all
of its assets (each hereinafter referred to as a "Transaction"), then in such
event, immediately prior to the effective time of the Transaction and without
any further action by the Committee or the Board of Directors, all unexercised
and unexpired options outstanding under the Plan shall automatically be
accelerated so as to be exercisable in full immediately prior to the effective
time of the Transaction. Notwithstanding the foregoing, outstanding unexercised
and unexpired options shall not be automatically accelerated if, in the opinion
of the Company's independent auditors, to do so would adversely affect pooling
of interest treatment intended to be effected in connection with the
Transaction.
SECTION 9. AMENDMENT OF THE PLAN
The Board may terminate the Plan and may amend the Plan at any time, and
from time to time, subject to the limitation that, except as provided in
Sections 7 and 8 hereof, no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law and regulations,
at an annual or special meeting held within 12 months before or after the date
of adoption of such amendment, in any instance in which such amendment would:
(i) increase the number of shares of Common Stock that may be issued under, or
as to which options may be granted pursuant to, the Plan; or (ii) change in
substance the provisions of Section 4 hereof relating to eligibility to
participate in the Plan.
SECTION 10. NON-EXCLUSIVITY OF THE PLAN; NON-UNIFORM DETERMINATIONS
Neither the adoption of the Plan by the Board nor the approval of the Plan
by the stockholders of the Company shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including without limitation the granting of options
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.
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The Committee's determinations under the Plan need not be uniform and may
be made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan (whether or not such persons are similarly situated).
Without limiting the generality of the foregoing, the Committee shall be
entitled, among other things, to make non-uniform and selective determinations,
and to enter into non-uniform and selective Plan agreements, as to (i) the
persons to receive awards under the Plan, (ii) the terms and provisions of
awards under the Plan, (iii) the exercise by the Committee of its discretion in
respect of the exercise of options pursuant to the terms of the Plan, and (iv)
the treatment of leaves of absence pursuant to Section 5(e) hereof.
SECTION 11. GOVERNMENT AND OTHER REGULATIONS; TAX WITHHOLDING
The obligation of the Company to sell and deliver shares of Common Stock
with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by government
agencies as may be deemed necessary or appropriate by the Committee. All shares
sold under the Plan shall bear appropriate legends. The Company may, but shall
in no event be obligated to, register or qualify any securities covered hereby
under applicable federal and state securities laws; and in the event any shares
are so registered or qualified the Company may remove any legend on certificates
representing such shares. The Company shall not be obligated to take any other
affirmative action in order to cause the exercise of an option or the issuance
of shares pursuant thereto to comply with any law or regulation of any
governmental authority. The Plan shall be governed by and construed in
accordance with the laws of the State of Delaware.
Whenever under the Plan shares are to be delivered upon exercise of an
option, the Company shall be entitled to require as a condition of delivery that
the Grantee remit an amount sufficient to satisfy all federal, state and other
governmental withholding tax requirements related thereto.
SECTION 12. EFFECTIVE DATE OF PLAN
The effective date of the Plan is October 26, 1990, the date on which it
was approved by the Board. No option may be granted under the Plan after the
tenth anniversary of such effective date. Subject to the foregoing, options may
be granted under the Plan at any time subsequent to October 26, 1990; provided,
however, that (a) no such option shall be exercised or exercisable unless the
stockholders of the Company shall have approved the Plan no later than one year
from such effective date, and (b) all options issued prior to the date of such
stockholders' approval shall contain a reference to such condition.
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Exhibit 5.1
[LETTERHEAD OF FOLEY, HOAG & ELIOT LLP]
June 22, 1998
Telco Systems, Inc.
63 Nahatan Street
Norwood, Massachusetts 02062
Ladies and Gentlemen:
We are familiar with the Registration Statement on Form S-8 (the "S-8
Registration Statement") filed today by Telco Systems, Inc., a Delaware
corporation (the "Company"), with the Securities and Exchange Commission under
the Securities Act of 1933, as amended. The S-8 Registration Statement relates
to 350,000 shares (the "Shares") of the common stock, par value $0.01 per share,
of the Company, 100,000 shares of which are issuable pursuant to the Company's
1983 Employee Stock Purchase Plan, as amended (the "1983 Purchase Plan"), and
250,000 shares of which are issuable pursuant to the Company's 1990 Stock Option
Plan, as amended (the "1990 Option Plan" and, together with the 1983 Purchase
Plan, the "Plans").
In arriving at the opinions expressed below, we have examined and relied on
the following documents: (a) the Certificate of Incorporation of the Company;
(b) the By-Laws of the Company, as amended; and (c) the records of meetings and
consents of the Board of Directors and stockholders of the Company provided to
us by the Company. In addition, we have examined and relied on the originals or
copies certified or otherwise identified to our satisfaction of all such
corporate records of the Company and such other instruments and other
certificates of public officials, officers and representatives of the Company
and such other persons, and we have made such investigations of law, as we have
deemed appropriate as a basis for the opinions expressed below.
Based upon the foregoing, it is our opinion that:
1. The Company has all adequate corporate power to effect the issuance and
sale of the Shares pursuant to the terms and provisions of the Plans;
2. The Company has taken all necessary corporate action required to
authorize the issuance and sale of the Shares; and
<PAGE> 2
3. When certificates for the Shares have been duly executed and
countersigned and delivered against due receipt of the exercise price for the
Shares as described in the Plans, the Shares will be validly and legally issued
and fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the S-8
Registration Statement.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
By: /s/ Robert W. Sweet, Jr.
------------------------------------
A Partner
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8) and related Prospectus of Telco Systems, Inc. pertaining to the Telco
Systems, Inc. 1983 Employee Stock Purchase Plan and the Telco Systems, Inc. 1990
Stock Option Plan of our report dated October 15, 1997, with respect to the
consolidated financial statements and schedule of Telco Systems, Inc. included
in its Annual Report (Form 10-K) for the year ended August 31, 1997, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
June 19, 1998
