-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BfkfKpTHoS44FBA2P4vua/QPQjEvq1tuRcRBrk/SuRjycJEDTbWG0OuoTBKfKJdf +TGSJkKsA0qZhH0Xw16+VA== 0000950135-98-001169.txt : 19980226 0000950135-98-001169.hdr.sgml : 19980226 ACCESSION NUMBER: 0000950135-98-001169 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19980225 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELCO SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0000736893 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 942178777 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-46877 FILM NUMBER: 98549355 BUSINESS ADDRESS: STREET 1: 63 NAHATAN ST CITY: NORWOOD STATE: MA ZIP: 02062 BUSINESS PHONE: 6175510300 MAIL ADDRESS: STREET 1: 63 NAHATAN ST CITY: NORWOOD STATE: MA ZIP: 02062 FORMER COMPANY: FORMER CONFORMED NAME: TELCO SYSTEMS INC DATE OF NAME CHANGE: 19880208 S-3 1 TELCO SYSTEMS, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1998 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------ TELCO SYSTEMS, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 94-2178777 (State or Other Jurisdiction (I.R.S.Employer of Incorporation or Organization) Identification Number) 63 NAHATAN STREET NORWOOD, MASSACHUSETTS 02062 (781) 551-0300 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) WILLIAM B. SMITH PRESIDENT AND CHIEF EXECUTIVE OFFICER TELCO SYSTEMS, INC. 63 NAHATAN STREET NORWOOD, MASSACHUSETTS 02062 (781) 551-0300 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) ------------ Copies to: EDWARD N. GADSBY, JR., ESQUIRE ROBERT W. SWEET, JR., ESQUIRE FOLEY, HOAG & ELIOT LLP ONE POST OFFICE SQUARE BOSTON, MASSACHUSETTS 02109 (617) 832-1000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------ CALCULATION OF REGISTRATION FEE
==================================================================================================================== PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM TITLE OF SHARES TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value............. 101,636 shares $11.875 $1,206,927.50 $356.04 ====================================================================================================================
(1) Estimated solely for the purpose of determining the registration fee. In accordance with Rule 457(c) under the Securities Act of 1933, the above calculation is based on the average of the high and low sale prices reported in the consolidated reporting system of the Nasdaq National Market on February 18, 1998. ------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 PROSPECTUS - ---------- TELCO SYSTEMS, INC. 101,636 SHARES OF COMMON STOCK -------------------- The 101,636 shares (the "Shares") of common stock, par value $.01 per share (the "Common Stock"), of Telco Systems, Inc. (the "Company") covered by this Prospectus are being offered by a stockholder of the Company (the "Selling Stockholder") on a delayed or continuous basis, pursuant to the exercise of registration rights. See "Selling Stockholder." The Company will not receive any proceeds from the offering. The Company will bear the costs relating to the registration of the Shares offered hereby (other than selling commissions). The Selling Stockholder named herein or any pledgees, donees, transferees or other successors in interest of such stockholder may offer the Shares, from time to time during the effectiveness of this Registration Statement, for sale through the Nasdaq National Market, in the over-the-counter market, in one or more negotiated transactions or through a combination of methods of sale, at prices and on terms then prevailing or at negotiated prices. Sales may be effected to or through broker-dealers, who may receive compensation in the form of discounts, concessions or commissions in connection therewith. See "Plan of Distribution." The Common Stock is traded on the Nasdaq National Market under the symbol "TELC." On February 18, 1998, the closing price for the Common Stock, as reported on the Nasdaq National Market, was $11.625 per share. -------------------- FOR A DESCRIPTION OF CERTAIN RISKS ASSOCIATED WITH THE COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 4 THROUGH 8 HEREOF. -------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------- ALL SECURITIES TO BE REGISTERED HEREBY ARE TO BE OFFERED BY A STOCKHOLDER OF THE COMPANY. THE DATE OF THIS PROSPECTUS IS FEBRUARY 25, 1998. 3 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company can be inspected and copied, at prescribed rates, at the public reference facilities of the Commission in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. The Company files certain documents with the Commission electronically and these documents may be inspected and copied at the Commission's Web site, located at http://www.sec.gov. The Common Stock of the Company is quoted on the Nasdaq National Market and, thus, reports, proxy statements and other information concerning the Company may also be inspected at the offices of The Nasdaq Stock Market, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. This Prospectus constitutes a part of a registration statement on Form S-3 (the "Registration Statement") filed by the Company with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus omits certain of the information contained in the Registration Statement and the exhibits and schedules thereto, in accordance with the rules and regulations of the Commission. For further information concerning the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement and the exhibits and schedules filed therewith, which may be inspected without charge at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of which may be obtained from the Commission at prescribed rates. Any statements contained herein concerning the provisions of any document are not necessarily complete and, in each instance, reference is made to the copy of such documents filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. INFORMATION INCORPORATED BY REFERENCE The following documents previously filed by the Company with the Commission are hereby incorporated in this Prospectus by reference and made a part hereof: (a) The Company's annual report on Form 10-K for the Company's fiscal year ended August 31, 1997; (b) The Company's quarterly report on Form 10-Q for the Company's quarter ended November 30, 1997; and (c) The description of the Company's Common Stock contained in the registration statement on Form 8-A filed with the Commission on June 28, 1984 under Section 12 of the Exchange Act, including any amendment or report filed for the purpose of updating such description. All reports and other documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Common Stock offered hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the respective dates of the filing of such reports and documents. Any statement or information contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed modified or superseded for the purposes of this Prospectus to the extent that a statement contained herein or in any subsequently filed document incorporated or deemed to be incorporated by reference herein modifies or -3- 4 supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. This Prospectus incorporates by reference documents that are not presented herein or delivered herewith. These documents (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference herein) are available, without charge, upon written or oral request by any person to whom this Prospectus is delivered, including any beneficial owner, to: Telco Systems, Inc., 63 Nahatan Street, Norwood, MA 02062, Attention: Chief Financial Officer, telephone (781) 551-0300. FORWARD-LOOKING STATEMENTS Certain statements in this Prospectus and in the documents incorporated by reference into this Prospectus constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Further, any statements contained in or incorporated into this Prospectus that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "expect," "anticipate," "plan," "believe," "seek," "estimate," "internal," "backlog" and similar words are also intended to identify expressions that may be forward-looking statements. Such statements are not guarantees of future performance, and involve risks, uncertainties and assumptions that could cause the Company's future results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Many of such factors are beyond the Company's ability to control or predict. Readers are accordingly cautioned not to place undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly any forward-looking statements whether in response to new information, future events or otherwise. Important factors that may cause the Company's actual results to differ from such forward-looking statements include, but are not limited to, the risk factors discussed below. RISK FACTORS In addition to other information in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing shares of Common Stock offered hereby: ORDERS AND BACKLOG Order delays and cancellations could have an immediate and materially adverse effect on the Company's business, financial condition, results of operations and cash flow. The Company's customers may revise scheduled delivery dates, product configuration or cancel orders. For example, during the first quarter of the Company's fiscal year ended August 30, 1998, the Company was notified by one of its major customers, MCI Communications Corporation ("MCI"), that such customer would cancel an order for Access60 products of the Company in the amount of $6.9 million. The Company's backlog of orders may not mitigate the effect of such delays and cancellations. The backlog may not be representative of actual sales for any succeeding period because of the timing of orders, delivery intervals, customer and product mix, the possibility of changes in delivery schedules and additions or cancellation of orders. Historically, a significant portion of the Company's sales in any quarter result from orders received in the same period. The Company's customers and distributors are typically not contractually obligated to purchase a particular quantity of the Company's products in any period. -4- 5 CONCENTRATION OF CUSTOMERS Recent merger activity among some of the Company's large customers could have a material adverse effect on the Company's future orders as those customers reassess their strategic direction. NYNEX, the Company's largest customer, recently merged with Bell Atlantic. A material curtailment by Bell Atlantic in the rate at which NYNEX ordered products from the Company, if not offset by increased sales to other customers of the Company, would reduce the Company's revenues so that the Company could not cover its current level of operating costs, having a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Although the Company believes that its products offer a competitive advantage to Bell Atlantic, there can be no assurance that Bell Atlantic will continue the historic order levels of NYNEX. Also, MCI recently agreed to be acquired by WorldCom, Inc. ("WorldCom"); both are customers of the Company. It is currently unclear what impact the acquisition will have on the Company's sales to MCI and WorldCom. Reductions in orders by other customers of the Company could also have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. The Company is dependent for a significant amount of its sales on MCI and Walker and Associates, which represented 11% and 10%, respectively, of the Company's sales in the Company's fiscal year ended August 31, 1997 ("fiscal 1997"). In the Company's fiscal year ended August 25, 1996, Sprint Corporation ("Sprint") and Walker and Associates represented 13% and 11%, respectively, of sales and, in the Company's fiscal year ended August 27, 1995, Sprint represented 18%. There can be no assurance that any of the Company's customers, including its significant customers, will continue to utilize the Company's services at levels similar to previous years or at all. The loss of, or a significant curtailment of purchases by, one or more of the Company's significant customers, including a loss or curtailment due to factors outside of the Company's control, could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. In addition, delays in collection or the uncollectability of accounts receivable from any of the Company's significant customers could have a material adverse effect on the Company's liquidity and working capital position. COMPETITION The Company operates in highly competitive markets and experiences intense competitive pressure that places significant pressure on the prices of the Company's products and may cause the Company's operating results to vary from those expected. Competitive pressures could cause reduced demand for the Company's products. If the Company is not successful in winning future business opportunities, it is possible that the Company will not have sufficient revenue to cover costs and expenses incurred in anticipation of these opportunities and its business, financial condition, results of operations and cash flow could be materially and adversely affected. There can be no assurance that the Company will be able to compete successfully with its existing competitors or with new competitors. Competition could increase if new companies enter the market or if existing competitors expand their service offerings. In addition, current and potential competitors have established or may in the future establish collaborative relationships among themselves or with third parties, including third parties with whom the Company has a relationship, to increase the visibility and utility of their products and services. Accordingly, it is possible that new competitors or alliances may emerge and -5- 6 rapidly acquire a significant market share. An increase in competition could result in price reductions or the loss of market share by the Company and could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. To remain competitive in the telecommunications industry, the Company will need to continue to invest in engineering, research and development and sales and marketing. There can be no assurance that the Company will have sufficient resources to make such investments or that the Company will be able to make the technological advances necessary to remain competitive. In addition, most of the Company's competitors have greater financial, technological and personnel resources than the Company. As a result, the Company's competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or may be able to devote greater resources to the promotion and sale of their products and services. If the Company is not able to remain competitive, the Company's business, financial condition, results of operations and cash flow could be materially adversely affected. RAPID TECHNOLOGICAL CHANGE The introduction of new technologies by the Company's competitors could result in lower demand for the Company's products and could cause the Company's inventory on hand to become obsolete. The telecommunications industry has been changing rapidly as a result of increasing competition, technological advances and evolving industry practices and standards, and the Company expects these changes to continue. Network service providers in the telecommunications market have also been changing quickly as the result of consolidation among established providers and the rapid entrance of new providers into the market. The Company's future success will depend on the continued use of its existing products and services, market acceptance of its new products and services and the Company's ability to develop and market new offerings or adapt existing offerings to keep pace with changes in the telecommunications industry. Specifically, the acceptance of the Access60 and Access45 products and certain broadband products is critical to the Company's growth strategy. Due to rapid changes in the telecommunications industry, the Company intends to continue devoting substantial financial, managerial and personnel resources to product development efforts for the foreseeable future. The development of the Company's product and service offerings is based on a complex process requiring high levels of innovation and the accurate anticipation of technological and market trends. There can be no assurance that the Company will be successful in developing or marketing its existing or future product and service offerings in a timely manner, or at all, nor can there be any assurance that products or services developed by others will not render the Company's products or services non-competitive or obsolete. Moreover, the Company recently acquired substantially all of the assets of Jupiter Technology, Inc. ("Jupiter"). Some of the product lines acquired by the Company from Jupiter require further development. There can be no assurance that the Company will complete the development of and subsequently market such products in a timely manner, or at all. If the Company is unable, due to resource, technical or other constraints, to anticipate or respond adequately to changing market, customer or technological requirements, the Company's business, financial condition, results of operations and cash flow will be materially adversely affected. DEPENDENCE ON SKILLED EMPLOYEES The failure of the Company to hire and retain qualified personnel could have a material adverse effect upon the Company's business, financial condition, results of operations and cash flow. The Company experiences intense competition for the recruitment and retention of highly skilled engineering, managerial, sales, marketing and product development employees. The Company believes that its future success will -6- 7 depend in large part on its ability to attract and retain highly qualified management, engineering, research and development, sales and operational personnel. Competition for all of these personnel is intense and there can be no assurance that the Company will be successful in attracting and retaining key personnel. DEPENDENCE ON SUPPLIERS The Company is dependent on a few suppliers to provide certain custom-designed components, and any significant interruption in the supply, or degradation in the quality, of components manufactured by such suppliers could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. On-time delivery of the Company's products depends upon the availability of components manufactured by suppliers and used in the Company's products. There can be no assurance that such suppliers will continue to be able and willing to meet the Company's requirements for any such components. The Company has recently begun to rely on two contract manufacturers, US Assemblies, New England, Inc. ("US Assemblies") and SCI Technology, Inc. ("SCI"), to produce its products. Delivery of the Company's products by such manufacturers may be interrupted if the manufacturers encounter production, quality or financial problems. Moreover, the Company may fail to order sufficient quantities of its products from the manufacturers to satisfy orders from the Company's customers. Such interruptions or failures could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. FLUCTUATIONS IN OPERATING RESULTS The Company has experienced fluctuations in its quarterly operating results and anticipates that such fluctuations will continue and could intensify. The Company's quarterly operating results may vary significantly depending on a number of factors, including the announcement of technological innovations or new products by the Company, its competitors and other third parties, the timing of the introduction or acceptance of new products and services offered by the Company or its competitors, changes in the mix of products and services provided by the Company, market conditions in the telecommunications industry, the nature and timing of changes in the Company's customers or their use of the Company's products and services, consolidation among participants and other changes in the telecommunications industry, changes in the customer markets served by the Company, changes in regulations affecting the telecommunications industry, changes in the Company's operating expenses, changes in personnel and changes in general economic conditions. Such factors may cause the market price of the Common Stock to vary significantly. In addition, the stock market in general has experienced substantial price and volume fluctuations, which have particularly affected the market prices of may technology companies and which have often been unrelated to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of the Common Stock. The Company's financial results in any particular fiscal period are not necessarily indicative of results for future periods. Historically, the Company has generated a disproportionate amount of its operating revenues toward the end of each quarter, making precise prediction of revenues and earnings particularly difficult and resulting in risk of variance of actual results from those forecast at any time. In addition, announcements by the Company or its competitors of new products, services or technologies could cause customers to defer or cancel purchases of the Company's products and services, and any such deferral or cancellation could also have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Revenue shortfalls can cause significant variations in operating results from -7- 8 quarter to quarter and could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Due to all of the foregoing factors, it is possible that in some future quarter the Company's results of operations will be below prior results or the expectations of market analysts and investors. In such an event, the price of the Common Stock would likely be materially adversely affected. ENTRY INTO INTERNATIONAL MARKETS The Company may seek opportunities to expand its offerings in international markets. Between fiscal 1996 and fiscal 1997, the Company's international sales increased from 4% of its total revenue to 7%. The Company believes that such expansion is important to the Company's ability to continue to grow and to market its products and services. Increased sales by the Company outside the United States could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. In marketing its products and services internationally, the Company will face new competitors, some of whom may have established strong relationships with network service providers. There can be no assurance that the Company will be successful in marketing or distributing its services abroad or that, if the Company is successful, its international revenues will be adequate to offset the expense of establishing and maintaining international operations. The Company's conduct of business outside the United States is subject to certain risks, including longer payment cycles, unexpected changes in regulatory requirements and tariffs, difficulties in staffing and managing foreign operations, greater difficulty in the collection of accounts receivable and potentially adverse tax consequences. Also, to the extent that any of the Company's sales are denominated in foreign currencies, the Company's revenue and results of operations may also be directly affected by fluctuations in foreign currency exchange rates. Finally, in order to sell its products internationally, the Company must meet standards established by telecommunications authorities in various countries. In addition, the Company follows recommendations of the Consultative Committee on International Telegraph and Telephony. A delay in obtaining, or the failure to obtain, certification of its products in foreign countries could delay or preclude the Company's marketing and sales efforts in such countries. REGULATORY MATTERS The Telecommunications Act of 1996, which in large measure deregulated the telecommunications industry, has caused, and is likely to continue to cause, significant changes in the industry, including the entrance of new competitors and the consolidation of industry participants. Those changes could in turn subject the Company to increased pricing pressures, decrease the demand for the Company's products and services, increase the Company's cost of doing business or otherwise have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Changes in existing laws and regulations which govern the telecommunications industry could adversely affect the Company's business. Regulations promulgated by the Federal Communications Commission affect various of the Company's products. Certain regulations currently require that products which reside on a customer's premises and interconnect the public switched network meet certain standards to prevent harm to the network. Other regulations currently limit the levels of electromagnetic radiation which may emanate from an electronic device located on a customer's premises. Changes in these regulations could force the Company to change its products, slowing or halting sales of such products. -8- 9 THE COMPANY The Company is a manufacturer of three major product lines which are designed to provide integrated access for network services: (1) broadband transmission products; (2) network access products; and (3) bandwidth optimization products. The Company's products are deployed at the edge of service providers' networks to provide organizations with a flexible, cost-effective means of transmitting voice, data, video and image traffic over public or private networks. These products are used in a wide variety of applications by network service providers, such as long distance carriers, Bell Operating Companies, independent and competitive local access providers, as well as government agencies, electric utilities, wireless service operators, and major corporations. Its products, which can be found most often in telephone company central offices and in private communications networks, perform functions that range from basic signaling and multiplexing of DS0 (64kbps) low speed data and voice traffic to digital fiber optic transmission of high-speed, high-capacity services over SONET OC-3 (155Mbps) networks. In January 1983, the Company acquired the fiber optics transmission business from Raytheon Company, which evolved into the Broadband product line. Sales of broadband transmission products in fiscal year 1997 comprised approximately 54% of the Company's total revenue. In August 1984, the Company acquired TeleBit, Inc., a manufacturer of digital transmission systems based in Lombard, Illinois. Later, the products from this acquisition were merged with the Company's Voice Frequency products which together evolved into the Access product line. In fiscal 1997, sales of access products were 41% of total sales. In May 1992, the Company acquired Magnalink Communications Corporation, a developer and manufacturer of high speed data compression and bandwidth optimization products, which evolved into the Bandwidth Optimization product line. In fiscal 1997, bandwidth optimization products represented 5% of sales. In January 1998, the Company acquired substantially all of the assets of Jupiter Technology, Inc. ("Jupiter"). Jupiter was a developer of Frame Relay and ATM access technologies, and the Company expects that the assets it acquired from Jupiter will strengthen the Company's integrated access product offerings. The Company's executive offices are located at 63 Nahatan Street, Norwood, Massachusetts 02062, and its telephone number is (781) 551-0300. The Company was incorporated in California in 1972 and reincorporated in Delaware in 1986. USE OF PROCEEDS The Company will not receive any proceeds from the sale of Common Stock offered hereunder by the Selling Stockholder. SELLING STOCKHOLDER The Shares are being offered for sale from time to time during the period of effectiveness of the Registration Statement for the account of the Selling Stockholder set forth below or any of its pledgees, donees, transferees or other successors in interest. The Selling Stockholder acquired the Shares being offered hereunder pursuant to an Asset Purchase Agreement dated as of January 26, 1998 (the "Purchase Agreement") by and among the Company, the Selling Stockholder and certain other parties. The Company has filed with the Commission a Registration Statement on Form S-3, of which this prospectus forms a part, with respect to the resale of the Shares from time to time on the Nasdaq Stock -9- 10 Market or in privately-negotiated transactions. The Company has agreed to use its best efforts to keep such Registration Statement effective until the first anniversary of the closing of the Purchase Agreement (such anniversary shall occur on January 26, 1999) or, if earlier, until the distribution contemplated by this Prospectus has been completed. Based on the information supplied by the Selling Stockholder to the Company, the Company believes that neither it nor any of its predecessors or affiliates have had any material relationship with the Selling Stockholder during the last three years. The following table sets forth, as of February 18, 1998, certain information regarding the beneficial ownership of the Common Stock by the Selling Stockholder:
SHARES BENEFICIALLY SHARES TO BE BENEFICIALLY OWNED PRIOR TO OFFERING NUMBER OF OWNED AFTER OFFERING ----------------------- SHARES BEING ------------------------- NAME NUMBER PERCENT(1) OFFERED(2) NUMBER(3) PERCENT(1) - ---------------- ------ ---------- ------------ --------- ---------- Tempus Technology, Inc.(4)(5)... 101,636 * 101,636 0 *
- ------------------ * Less than 1%. (1) Represents the percentage beneficially owned relative to the aggregate of 10,987,547 shares of Common Stock outstanding as of February 18, 1998. (2) This Registration Statement shall also cover any additional shares of Common Stock that become issuable in connection with the shares registered for sale hereby by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration that results in an increase in the number of the Company's outstanding shares of Common Stock. (3) Assumes all shares offered hereby are sold. (4) When it acquired the Shares, the name of the Selling Stockholder was Jupiter Technology, Inc. The Selling Stockholder changed its name to Tempus Technology, Inc. on January 28, 1998. (5) The Selling Stockholder has informed the Company that it does not expect to sell the Shares itself. Instead, the Selling Stockholder plans to distribute the Shares to its parent company, Jupiter Communications, Inc. ("Parent"). The Company anticipates that Parent will then transfer the Shares to a trust established for the benefit of the stockholders (the "Stockholders") of Parent, the Tempus Liquidating Trust (the "Trust"), and that the Trust will sell the Shares. The Stockholders are: Cyberfin Corp., Joseph F. Kruy, the Kruy Family Trust, Peter Kruy, Bruce Rozelle, Craig Rozelle, Alexa Rozelle, Joseph N. Kruy, Victoria Kruy, Richard Howell, Ken Osborne, Jennifer Taggart, Ken Ingham, Nicholas Cuccaro, John Zornig, Sanford Goldfless, Paul Toldalagi, Anura Guruge, Robert Caouette, Kevin McPartlin, Dorothy Elliott, Daniel Bergman, James Martel, Keith Giles, Tracy Brookings and Ben Rachman. In addition, the following persons are currently not Stockholders but hold options to purchase shares of the common stock of Parent and may become Stockholders by exercising such options: Philip Kountz, William Kwan, Jeff R. Meikle, Paul Schilling and Chin-Kue Wen. PLAN OF DISTRIBUTION The Shares may be sold from time to time by the Selling Stockholder or by any of its pledgees, donees, transferees or other successors in interest, including, without limitation, the Trust. Such sales may be made on one or more exchanges or in the over-the-counter market, or otherwise at prices and at terms then prevailing or at prices related to the then current market price, or in negotiated transactions. The Shares may be sold by one or more of the following: (a) a block trade in which the broker or dealer so engaged will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate -10- 11 the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus; (c) an exchange distribution in accordance with the rules of such exchange; and (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers. In effecting sales, brokers or dealers engaged by the Selling Stockholder may arrange for other brokers or dealers to participate. Brokers or dealers will receive commissions or discounts from the Selling Stockholder in amounts to be negotiated immediately prior to the sale. Such brokers or dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales, and any commission received by them and profit on any resale of the Shares as principal might be deemed to be underwriting discounts and commissions under the Securities Act. In addition, any securities covered by this Prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to the Prospectus. Upon the Company being notified by the Selling Stockholder that any material arrangement has been entered into with a broker-dealer for the sale of the Shares through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this Prospectus will be filed, if required, pursuant to Rule 424(c) under the Securities Act, disclosing (i) the name of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such shares were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this Prospectus and (vi) other facts material to the transaction. The Company has agreed to pay the expenses incurred in connection with preparing and filing the Registration Statement and this Prospectus (other than selling commissions). The Company has agreed to indemnify the Selling Stockholder against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the Shares will be passed upon for the Company by Foley, Hoag & Eliot LLP, Boston, Massachusetts. EXPERTS The consolidated financial statements of Telco Systems, Inc. appearing in Telco Systems, Inc.'s Annual Report (Form 10-K) for the year ended August 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. -11- 12 No person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offering covered by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Selling Stockholder. This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any securities other than the securities to which it relates or an offer to sell or the solicitation of an offer to buy such securities in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date. 101,636 Shares TELCO SYSTEMS, INC. Common Stock (par value $.01 per share) --------------------- PROSPECTUS --------------------- 13 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses to be paid by the Company in connection with the issuance and distribution of the securities being registered. All amounts shown are estimates except for amounts of registration and listing fees. The Company will pay all expenses in connection with the issuance and distribution of any securities sold by the Selling Stockholder (including fees and expenses of counsel for the Selling Stockholder) up to a maximum of $5,000, but will not pay for any discounts, concessions, commissions or other compensation due to any broker or dealer in connection with the sale of any of the shares offered hereby. Securities and Exchange Commission registration fee......... $ 356.04 ---------- Nasdaq Stock Market, Inc. listing fee ...................... 2,032.72 ---------- Legal fees and expenses .................................... 7,500.00 ---------- Accounting fees and expenses ............................... 3,000.00 ---------- Printing, EDGAR formatting and mailing expenses ............ 2,000.00 ---------- Miscellaneous .............................................. 811.24 ========== Total ................................................. 15,700.00 ---------- ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law affords a Delaware corporation the power to indemnify its present and former directors and officers under certain conditions. Article VII of the Company's By-Laws provides that the Company shall indemnify any person made or threatened to be made a party to any action or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer or employee of the Company or serves or served any other enterprise as a director, officer or employee at the request of the Company. Section 102(b)(7) of the Delaware General Corporation Law gives a Delaware corporation the power to adopt a charter provision eliminating or limiting the personal liability of directors to the corporation or its stockholders for breach of fiduciary duty as directors, provided that such provision may not eliminate or limit the liability of directors for (i) any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) any payment of a dividend or approval of a stock purchase that is illegal under Section 174 of the Delaware Corporation Law or (iv) any transaction from which the director derived an improper personal benefit. Article TWELFTH of the Company's Certificate of Incorporation provides that no director of the Company shall be personally liable to the Company or to any of its stockholders for monetary damages arising out of such director's breach of fiduciary duty as a director of the Company except to the extent not permitted by the General Corporation Law of the State of Delaware. A principal effect of such Article TWELFTH is to limit or eliminate the potential liability of the Company's directors for monetary damages arising from breaches of their duty of care, unless the breach involves on of the four exceptions described in (i) through (iv) above. Article TWELFTH does not prevent stockholders from obtaining injunctive or other equitable relief against directors, nor does it shield directors from liability under federal or state securities laws. Section 145 of the Delaware General Corporation Law also affords a Delaware corporation the power to obtain insurance on behalf of its directors and officers against liabilities incurred by them in those capacities. -13- 14 The Company has a directors' and officers' liability policy insuring its directors and officers for certain claims up to $7,000,000. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 4.1 Certificate of Incorporation of Telco Systems, Inc. 4.2 By-Laws of Telco Systems, Inc., as amended. 5.1 Opinion of Foley, Hoag & Eliot LLP. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1). 24.1 Power of Attorney (contained on the signature page). ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table upon effectiveness hereof; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the Registration Statement is on Form S-3, Form S-8 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. -14- 15 (3) To remove from registration, by means of a post-effective amendment, any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference to the Registration Statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. -15- 16 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Norwood, state of Massachusetts, on this 25th day of February, 1998. TELCO SYSTEMS, INC. By: /s/ William B. Smith ----------------------------------------- William B. Smith, President, Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints William B. Smith and William J. Stuart, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing which they, or either of them, may deem necessary or advisable to be done in connection with this Registration Statement, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or any substitute or substitutes for any of them, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated as of February 25, 1998. Signature Title - --------- ----- /s/ William B. Smith President, Chief Executive Officer - -------------------------- and Director William B. Smith (Principal Executive Officer) /s/ William J. Stuart Vice President and Chief Financial - -------------------------- Officer William J. Stuart (Principal Financial and Accounting Officer) /s/ Dean C. Campbell Director - -------------------------- Dean C. Campbell -16- 17 Signature Title - --------- ----- /s/Sheldon Horing Director - --------------------------- Sheldon Horing /s/ Steward Flaschen Director - --------------------------- Steward Flaschen /s/ Edward J. Fontenot Director - --------------------------- Edward J. Fontenot -17- 18 EXHIBIT INDEX Exhibit No. Description - ------- ----------- 4.1 Certificate of Incorporation of Telco Systems, Inc. 4.2 By-Laws of Telco Systems, Inc., as amended. 5.1 Opinion of Foley, Hoag & Eliot LLP. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1). 24.1 Power of Attorney (contained on the signature page). -18- EX-4.1 2 CERTIFICATE OF INCORPORATION 1 Exhibit 4.1 CERTIFICATE OF INCORPORATION OF TELCO SYSTEMS, INC. FIRST: The name of this Corporation is TELCO SYSTEMS, INC. SECOND: The address of the registered office of this Corporation in the State of Delaware is 1209 Orange Street, in the city of Wilmington, County of New Castle, and the name of its registered agent at that address is The Corporation Trust Company. THIRD: The name of the mailing address of the incorporator of the corporation is: Kent L. Robertson 333 Twin Dolphin Drive Suite 725 Redwood City, California 94065 FOURTH: The purpose of this Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FIFTH: (A) This Corporation is authorized to issue two classes of stock, preferred stock and common stock, and the authorized number of shares of preferred stock is Five Million (5,000,000) and the authorized number of shares of common stock is Twenty-Five Million (25,000,000). The stock, whether preferred stock or common stock, shall have a par value of $.01 per share. (B) (1) Shares of preferred stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to fix the voting rights, designations, powers, preferences and the relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, of any wholly unissued series of preferred stock; and to fix the number of shares constituting such series, and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding). (2) Twenty-Four Million (24,000,000) shares of the common stock authorized herein shall hereafter be designated "Common Stock," and, subject to reconstitution and conversion as provided in subparagraph (b) below, One Million (1,000,000) shares of the common stock authorized herein are designated "Series A Junior Common Stock." (a) The rights, preferences, privileges and restrictions of Common Stock and Series A Junior Common Stock shall be identical in all respects, except as follows: -1- 2 (i) VOTING RIGHTS. On all matters submitted to a vote of the holders of this Corporation's common stock, each share of Common Stock shall entitle the holder thereof to one vote. Series A Junior Common Stock shall have no voting rights. (ii) Liquidation. In the event of any liquidation, dissolution or winding up of this Corporation, whether voluntary or involuntary, the holders of Common Stock shall be entitled to receive for each share of Common Stock then held by them an amount equal to forty (40) times the amount which, after such distribution, would remain available for distribution to holders of Series A Junior Common Stock for each share of Series A Junior Common Stock then held by them. (iii) Dividends. In the event of any declaration or payment of dividends with respect to common stock, the dividend for each share of Common Stock shall be equal to twenty (20) times the dividend for each share of Series A Junior Common Stock. (b) Upon the occurrence of any of the following events, each share of Series A Junior Common Stock (whether issued or unissued) shall automatically be converted into or reconstituted as one (1) share of Common Stock: (i) On the date of issuance of the report of this Corporation's independent public accountants for any fiscal year of this Corporation in which the income of this Corporation, before provision for income tax and extraordinary items, exceeds $1.40 per share on a fully diluted basis, as determined under generally accepted accounting principles; (ii) Upon the sale of all or substantially all of the assets of this Corporation; (iii) Upon the effectiveness of any reorganization in which the stockholders of this Corporation immediately before the reorganization do not own immediately after the reorganization at least 50% of the voting power of this Corporation or its successor. For the purpose of this subsection (b), a reorganization shall be defined as: (x) A merger pursuant to Article IX of the Delaware General Corporation Law other than a merger pursuant to Section 253 of such law; (y) The acquisition by one corporation in exchange in whole or in part for its equity securities (or the equity securities of a corporation which is in control of the acquiring corporation) of shares of another corporation if, immediately after the acquisition, the acquiring corporation has control (defined as ownership, directly or indirectly, of shares possessing more than 50% of the votes eligible to be cast for the election of directors at the time in question) of such other corporation; or -2- 3 (z) The acquisition by one corporation in exchange in whole or in part for its equity securities (or the equity securities of a corporation which is in control of the acquiring corporation) or for its debt securities (or debt securities of a corporation which is in control of the acquiring corporation) which are not adequately secured and which have a maturity date in excess of five years after the consummation of the reorganization, or both, of all or substantially all of the assets of another corporation. (c) Each conversion of shares hereunder shall be effected by the surrender at the office of this Corporation or any transfer agent for such shares of the certificate therefor, in such form and accompanied by such documents, if any, as this Corporation may require. This Corporation shall, as soon as practicable thereafter, issue and deliver at such office a certificate or certificates representing the number and class or series of shares into which such shares are convertible hereunder. Such conversion shall be deemed to have occurred as of the time set forth in subparagraph (b) hereinabove. (d) In the event of any (i) stock split, reverse stock split, or other subdivision or combination of the Common Stock or (ii) stock dividend or other distribution on the Common Stock payable in Common Stock, unless there has been a corresponding change in or distribution of Series A Junior Common Stock, an appropriate pro rata adjustment or adjustments shall be made in the rights set forth in subparagraph (a) hereinabove and the conversion ratio and events set forth in subparagraph (b) hereinabove. No fractional shares shall be issued upon conversion of Series A Junior Common Stock. In lieu of any fractional share to which a stockholder would otherwise be entitled, this Corporation shall pay cash equal to such fraction multiplied by the then fair market value per share of Series A Junior Common Stock as determined in good faith by this Corporation's Board of Directors. SIXTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, amend or repeal from time to time any or all of the Bylaws of this Corporation. SEVENTH: The number of directors which shall constitute the whole Board of Directors of this Corporation shall be as specified in the Bylaws of this Corporation, subject to the provisions of Article SIXTH and this Article SEVENTH. EIGHTH: No action shall be taken by the stockholders except at an annual or special meeting of stockholders. No action shall be taken by stockholders by written consent. NINTH: Special meetings of the stockholders of this Corporation for any purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board of Directors, the President, by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as provided in resolution of the Board of Directors or in the Bylaws of this Corporation, include the power to call such -3- 4 meetings, and by stockholders of the Corporation owning, directly or indirectly, shares possessing not less than 20% of the votes eligible to be cast for the election of directors at the time in question, but such special meetings may not be called by any other person or persons; provided, that if and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any certificate filed under Section 151(g) of the Delaware General Corporation Law designating the number of shares of Preferred Stock to be issued and the rights, preferences, privileges and restrictions granted to or imposed on the holders of such designated Preferred Stock, as permitted by Article FIFTH hereof, then such special meeting may also be called by such person or persons in the manner, at the times and for the purposes so specified. TENTH: (A) In addition to any affirmative vote required by law or this Certificate of Incorporation or a certificate filed under Section 151(g) of the General Corporation Law of the State of Delaware or the Bylaws and except as otherwise expressly permitted in paragraph (b) of this Article TENTH, a Business Combination (as hereafter defined) with, for, or on behalf of, any Interested Shareholder (as hereafter defined) or any Affiliate or Associate (as hereafter defined) of such Interested Shareholder shall require the affirmative vote of at least 66 2/3% of the votes entitled to be cast by the holders of all the then-outstanding Voting Stock (as hereafter defined), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage of a separate class vote may otherwise be specified, by law or by any agreement between this Corporation and any national securities exchange or otherwise. (B) The provisions of paragraph A of this Article TENTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such vote, if any, as is required by law or by any other provisions of this Certificate of Incorporation or a certificate filed under Section 151(g) of the General Corporation Law of the State of Delaware or the Bylaws, or by any agreement between this Corporation and any national securities exchange, if (i) such Business Combination shall have been specifically approved by a majority of the Disinterested Directors (as hereafter defined) at the time or (ii) all the conditions specified in each of the following subparagraphs 1, 2, 3, 4, 5, and 6 are satisfied. (1) The aggregate amount of cash and the Fair Market Value (as hereafter defined) as of the Consummation Date (as hereafter defined) of any consideration other than cash to be received per share by holders of Voting Stock in such Business Combination, shall be at least equal to the highest amount determined under clauses (a) and (b) below; (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of such Interested Shareholder for any share of Voting Stock in connection with the acquisition by the Interested Shareholder of Beneficial Ownership (as hereafter defined) of shares of Voting Stock (i) within the five- year period immediately prior to the Announcement Date (as hereafter defined) or (ii) in -4- 5 the transaction or series of transactions in which it became an Interested Shareholder, whichever is higher, in either case adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Voting Stock; or (b) the Fair Market Value per share of Voting Stock on the Announcement Date or the Determination Date (as hereafter defined), whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Voting Stock. (2) The consideration to be received by holders of a particular class or series of outstanding Voting Stock shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Shareholder in connection with its direct or indirect acquisition of Beneficial Ownership of shares of such class or series of Voting Stock. If the consideration so paid for shares of any class or series of Voting Stock varied as to form, the form of consideration for such class or series of Voting Stock shall either be cash or the form used to acquire Beneficial Ownership of the largest number of shares of such class or series of Voting Stock acquired by the Interested Shareholder during the five-year period prior to the Announcement Date. If non-cash consideration is to be paid, the Fair Market Value of such non-cash consideration shall be determined on and as of the Consummation Date. (3) After the Determination Date and prior to the Consummation Date there shall have been (a) no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding Voting Stock; (b) no reduction in the annual rate of dividends paid on the Voting Stock (except as necessary to reflect any split or subdivision of the Voting Stock), except as approved by a majority of the Disinterested Directors; (c) an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the event of any reclassification (including any reverse stock split or combination of shares), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Voting Stock, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors; and (d) no transaction by which such Interested Shareholder has become the Beneficial Owner of any additional shares of Voting Stock except as part of the transaction that results in the Interested Shareholder becoming an Interested Shareholder and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Shareholder's percentage Beneficial Ownership of any class or series of Voting Stock. (4) After the Determination Date, such Interested Shareholder shall not have received the benefit, directly or indirectly (except as a stockholder of this Corporation, in proportion to its stockholding), of any loans, advances, guarantees or similar financial assistance or any tax credits or tax advantages provided by this Corporation (collectively, "Financial Assistance"), whether in anticipation of or in connection with such Business Combination or otherwise. -5- 6 (5) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of this Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act, rules or regulations, or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent location, any statement as to the advisability or inadvisability of the Business Combination that the Disinterested Directors, or any of them, may desire to make and, if deemed advisable by a majority of the Disinterested Directors, the proxy or information statement shall contain the opinion of an independent investment banking firm selected by a majority of the Disinterested Directors as to the fairness or lack of fairness of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Voting Stock other than the Interested Shareholder and its Affiliates or Associates, such investment banking firm to be paid a reasonable fee for its services by this Corporation. (6) Such Interested Shareholder shall not have made any major change in this Corporation's business or equity capital structure without the approval of a majority of the Disinterested Directors. (C) The following definitions shall apply with respect to this Article TENTH: (1) The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to those terms in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, and as in effect on the date that this provision of this Corporation's Certificate of Incorporation is approved by the stockholders (the term "registrant" in said Rule 12b-2 meaning in this case this Corporation). (2) The term "Announcement Date" with respect to any Business Combination means the date of the first public announcement of the proposal of such Business Combination. (3) A person shall be a "Beneficial Owner" of, or have "Beneficial Ownership" of, or "Beneficially Own," any Voting Stock over which such person or any of its Affiliates or Associates, directly or indirectly, through any contract, arrangement, understanding or relationship, has or shares or, upon the exercise of any conversion right, exchange right, warrant, option or similar interest (whether or not then exercisable) would have or share, either (a) voting power (including the power to vote or to direct the voting) of such security or (b) investment power (including the power to dispose or direct the disposition) of such security. For the purposes of determining whether a person is an Interested Shareholder, the number of shares of Voting Stock deemed to be outstanding shall include any shares Beneficially Owned by such person even though not actually outstanding, but shall not include any other shares of Voting Stock which are not outstanding but which may be issuable to other persons pursuant to any -6- 7 agreement, arrangement or understanding, or upon exercise of any conversion right, exchange right, warrant, option or similar interest. (4) The term "Business Combination" shall mean: (a) any merger or consolidation of this Corporation or any Subsidiary (as hereafter defined) with (i) any Interested Shareholder (as hereafter defined) or (ii) any other corporation (whether or not itself an Interested Shareholder) which after such merger or consolidation would be an Affiliate or Associate of an Interested Shareholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security agreement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of related transactions) with or for the benefit of any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder, involving any assets, securities, or commitments of this Corporation, any Subsidiary or any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder which, together with all other such arrangements (including all contemplated future events) have an aggregate Fair Market Value (as hereafter defined) and/or involve aggregate commitments of $5,000,000 or more; or (c) the issuance or transfer by this Corporation or any Subsidiary (in one transaction or a series of related transactions) to an Interested Shareholder or Affiliate or Associate of an Interested Shareholder of any securities of this Corporation or any Subsidiary in exchange for cash, securities or other property (or a combination thereof, having an aggregate Fair Market Value as of the Announcement Date of $5,000,000 or more, other than the issuance of securities upon the conversion or exchange of securities of this Corporation or in exchange for securities of any Subsidiary which were acquired by an Interested Shareholder from this Corporation or a Subsidiary in a Business Combination which was approved by a vote of the shareholders pursuant to this Article TENTH; or (d) the adoption of any plan or proposal for the liquidation or dissolution of this Corporation; (e) any reclassification of any securities of this Corporation (including any reverse stock split), any recapitalization of the Voting Stock of this Corporation, any merger of consolidation of this Corporation with or into any Interested Shareholder, or any other transaction (whether or not with or otherwise involving any Interested Shareholder) that has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of Voting Stock or series thereof of this Corporation or of any Subsidiary Beneficially Owned by any Interested Shareholder or Affiliate or Associate of an Interested Shareholder or as a result of which the shareholders of this Corporation would cease to be shareholders of a corporation having, as part of its certificate or articles of incorporation, provisions to the same -7- 8 effect as this Article TENTH and the provisions of Article ELEVENTH of this Certificate of Incorporation relating to the provisions of this Article TENTH; or (f) any agreement, contract or other arrangement providing for one or more of the actions specified in the foregoing paragraphs (a) through (e), or any series of transactions which, if taken together, would constitute one or more of the actions specified in the foregoing paragraphs (a) through (e). (5) The term "Consummation Date" means the date of the consummation of a Business Combination. (6) The term "Determination Date" in respect to an Interested Shareholder means the date on which such Interested Shareholder first became an Interested Shareholder. (7) The term "Disinterested Director" with respect to a Business Combination means any member of the Board of Directors of this Corporation who is not an Interested Shareholder or an Affiliate or Associate of, and was not directly or indirectly a nominee of, any Interested Shareholder involved in such Business Combination or any Affiliate or Associate of such Interested Shareholder and who either (a) was a member of the Board of Directors prior to the time that such Interested Shareholder became an Interested Shareholder, or (b) is a successor of a Disinterested Director and was nominated to succeed a Disinterested Director by a majority of the Disinterested Directors at the time of his nomination. Any reference to "Disinterested Directors" shall refer to a single Disinterested Director if there be but one. (8) The term "Fair Market Value" as of any particular date means (a) in the case of cash, the amount of such cash, (b) in the case of stock (including Voting Stock), the highest closing price per share of such stock during the thirty-day period immediately preceding the date in question on the principal United States security exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed or, if such stock is not listed on any such exchange, the highest last sales price as reported by the National Association of Securities Dealers, Inc., Automated Quotation System ("NASDAQ") during the thirty-day period immediately preceding the date in question if the stock is a National Market System security, or, if such stock is not a National Market System security, the highest reported closing bid quotation for a share of such stock during the thirty-day period preceding the date in question on NASDAQ or any successor quotation reporting system or, if quotations are not available in such system, as furnished by the National Quotation Bureau Incorporated or any similar organization furnishing quotations, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (c) in the case of stock of any class or series which is not traded on any securities exchange or in the over-the-counter market, or in the case of property other than cash or stock, or in the case of Financial Assistance, the fair market value of such stock, property or Financial Assistance, as the case may be, on the date in question as determined by a majority of the Disinterested Directors in good faith. -8- 9 (9) The term "Interested Shareholder" shall mean any person, other than this Corporation, any Subsidiary or any employee benefit plan of this Corporation or any Subsidiary, who or which (a) is or has announced or publicly disclosed a plan or intention to become the Beneficial Owner, directly or indirectly, of shares of Voting Stock representing 20% or more of the total votes which all of the then- outstanding shares of Voting Stock are entitled to cast in the election of directors; or (b) is an Affiliate or Associate of any person described in subparagraph 9(a) at any time during the five-year period immediately preceding the date in question; or (c) acts with any other person as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding or disposing of securities of this Corporation, and such group is the Beneficial Owner, directly or indirectly, of shares of Voting Stock representing 15% or more of the total votes which all of the then-outstanding shares of Voting Stock are entitled to cast in the election of directors. Any reference to a particular Interested Shareholder involved in a Business Combination shall also refer to any Affiliate or Associate thereof, any predecessor thereto and any other person acting as a member of a partnership, limited partnership, syndicate or group with such particular Interested Shareholder within the meaning of the foregoing clause c of this subparagraph 9. (10) A "person" shall mean any individual, firm, company, corporation (which shall include a business trust), partnership, joint venture, trust or estate, association or other entity. (11) The term "Subsidiary" in respect of this Corporation means any corporation or partnership of which a majority of any class of its equity securities is owned, directly or indirectly, by this Corporation. (12) The term "Voting Stock" shall mean all shares of capital stock that entitle the holder to vote for the election of directors, including, without limitation, this Corporation's Common Stock. (D) A majority of the Disinterested Directors shall determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article TENTH, including, without limitation (1) whether a person is an Interested Shareholder, (2) the number of shares of Voting Stock Beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another person, (4) whether the requirements of paragraph B of this Article TENTH have been met with respect to any Business Combination, (5) -9- 10 whether the proposed transaction is with, or proposed by, or on behalf of an Interested Shareholder or an Affiliate or Associate of an Interested Shareholder, and (6) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by this Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $5,000,000 or more. The good faith determination of a majority of the Disinterested Directors on such matters shall be conclusive and binding for all purposes of this Article TENTH. (E) Nothing contained in this Article TENTH shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. (F) The fact that any Business Combination complies with paragraph (B) of this Article TENTH shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the Shareholders of this Corporation, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination. (G) For purposes of this Article TENTH, a Business Combination or any proposal to amend, repeal or adopt any provision of the Articles of Incorporation inconsistent with this Article TENTH (collectively, "Proposed Action") is presumed to have been prepared by, or on behalf of, an Interested Shareholder or an Affiliate or Associate of an Interested Shareholder or a person who thereafter would become such if (1) after the Interested Shareholder became such, the Proposed Action is proposed following the election of any director of this Corporation who, with respect to such Interested Shareholder, would not qualify to serve as a Disinterested Director or (2) such Interested Shareholder, Affiliate, Associate or person votes for or consents to the adoption of any such Proposed Action, unless as to such Interested Shareholder, Affiliate, Associate or person, a majority of the Disinterested Directors makes a good faith determination that such Proposed Action is not proposed by or on behalf of such Interested Shareholder, Affiliate, Associate or person, based on information known to them after reasonable inquiry. ELEVENTH: At all elections of directors of this Corporation, a holder of any class or series of stock then entitled to vote in such election shall be entitled to as many votes as shall equal the number of votes which (except for this Article as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected in the election in which his class or series of stock is entitled to vote, and each stockholder may cast all of such votes for a single nominee for director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit. TWELFTH: A director of this Corporation shall not be personally liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, -10- 11 except for liability (i) for any breach of the director's duty of loyalty to this Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. THIRTEENTH: (A) This Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained herein, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law, and all rights, preferences, and privileges of whatsoever nature conferred upon shareholders, directors, or any other person whomsoever by or pursuant to the Certificate of Incorporation in its present form or as hereafter are granted, subject to the rights reserved in this Article THIRTEENTH. (B) In addition to any requirements of law and any other provisions herein (and notwithstanding the fact that approval by a lesser vote may be permitted by law or any other provision hereof), the affirmative vote of the holders of 66 2/3% or more of the combined voting power of the then-outstanding shares of Voting Stock, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision inconsistent with, this Article THIRTEENTH or Articles EIGHTH or TENTH hereof. THE UNDERSIGNED, being of the incorporator hereinabove named, for the purpose of forming a corporation to do business both within and without the State of Delaware, and in pursuance of the Delaware General Corporation Law, does hereby make and file this Certificate. DATED: November 6, 1986 /s/ KENT L. ROBERTSON ----------------------------------------- Kent L. Robertson -11- 12 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF TELCO SYSTEMS, INC. Kent L. Robertson certifies that: 1. He is the sole incorporator of Telco Systems, Inc., a Delaware corporation. 2. The following amendment of the Certificate of Incorporation of this Corporation is hereby adopted: Article ELEVENTH is amended to read as follows: ELEVENTH: At all elections of directors of this Corporation, a holder of any class or series of stock then entitled to vote in such election shall be entitled to as many votes as shall equal the number of votes which (except for this Article as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected in the election in which his class or series of stock is entitled to vote, and each stockholder may cast all of such votes for a single nominee for director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit. Elections of directors at an annual or special meeting of stockholders need not be by written ballot unless the Bylaws of this Corporation shall so provide. 3. This Corporation has not received any payment for any of its stock. 4. This amendment to the Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 241 of the Delaware Corporation Law. /s/ KENT L. ROBERTSON ----------------------------------------- Kent L. Robertson Date: NOVEMBER 17, 1986 ----------------- 13 AGREEMENT OF MERGER THIS AGREEMENT OF MERGER ("Merger Agreement") is made and entered into as of December 15, 1986 by and between TELCO SYSTEMS, INC., a California corporation ("Telco-California"), and TELCO SYSTEMS, INC., a Delaware corporation ("Telco-Delaware"). W I T N E S S E T H: WHEREAS, Telco-Delaware is a corporation duly organized and existing under the laws of the State of Delaware; WHEREAS, Telco-California is a corporation duly organized and existing under the laws of the State of California; WHEREAS, on the date of this Merger Agreement, Telco-Delaware has authority to issue 25,000,000 shares of common stock, par value $.01 per share (the "Delaware common stock"), of which 24,000,000 have been designated Common Stock and 1,000,000 have been designated Series A Junior Common Stock, and of which 100 shares of Common Stock are issued and outstanding and owned by Telco-California, and 5,000,000 shares of preferred stock, par value $.01 per share, none of which have been issued or are outstanding; WHEREAS, the respective Boards of Directors of Telco-Delaware and Telco-California have determined that, for the purpose of effecting the reincorporation of Telco-California in the State of Delaware, it is advisable and to the advantage of such corporations and their stockholders that Telco-California merge with and into Telco-Delaware upon the terms and conditions herein provided; and WHEREAS, the respective Boards of Directors of Telco-Delaware and Telco-California have approved this Merger Agreement and the Board of Directors of Telco-Delaware and Telco-California have directed that this Merger Agreement be submitted to a vote of their stockholders. NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein, Telco-California and Telco-Delaware hereby agree to merge as follows: (1) Merger. Telco-California shall be merged with and into Telco-Delaware, and Telco-Delaware shall survive the merger (the "Merger"), effective upon the date when this Merger Agreement is made effective in accordance with applicable law (the "Effective Date"). (2) Directors and Officers and Governing Documents. The directors and officers of Telco-Delaware shall be the same upon the Effective Date as they are immediately prior thereto. The Certificate of Incorporation of Telco-Delaware, as in effect on the Effective Date, shall continue to be the Certificate of Incorporation of Telco-Delaware as the surviving corporation without change or amendment until further 14 amended in accordance with the provision thereof and applicable laws. The Bylaws of Telco-Delaware, as amended and in effect on the Effective Date, shall continue to be the Bylaws of Telco-Delaware as the surviving corporation without change or amendment until further amended in accordance with the provisions thereof and applicable laws. (3) Succession. On the Effective Date, Telco-Delaware shall succeed to Telco-California in the manner of and as more fully set forth in Section 259 of the General Corporation Law of the State of Delaware. All corporate acts, plans, policies, agreements, arrangements, approvals and authorizations of Telco-California, its shareholders, Board of Directors and committees thereof, officers and agents which were valid and effective immediately prior to the Effective Date, shall be taken for all purposes as the acts, plans, policies, agreements, arrangements, approvals and authorizations of Telco-Delaware and shall be as effective and binding thereon as the same were with respect to Telco-California. The requirements of any plans or agreements of Telco-California involving the issuance or purchase by Telco-California of certain shares of its capital stock shall be satisfied by the issuance or purchase of a like number of shares of Telco-Delaware. (4) Further Assurances. From time to time, as and when required by Telco-Delaware or by its successors and assigns, there shall be executed and delivered on behalf of Telco-California such deeds and other instruments, and there shall be taken or caused to be taken by it such further and other action, as shall be appropriate or necessary in order to vest, perfect or confirm, of record or otherwise, in Telco-Delaware the title to and possession of all the property, interests, assets, rights, privileges, immunities, powers, franchises and authority of Telco-California, and otherwise to carry out the purposes of this Merger Agreement, and the officers and directors of Telco-Delaware are fully authorized in the name and on behalf of Telco-California or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments. (5) Common Stock of Telco-California. Upon the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof, each share of each series of common stock, no par value, of Telco-California (the "California common stock") outstanding immediately prior thereto shall be changed and converted into one fully paid and non-assessable share of the corresponding series of Delaware common stock. (6) Stock Certificates. On and after the Effective Date, all of the outstanding certificates which prior to that time represented shares of California common stock shall be deemed for all purposes to evidence ownership of and to represent the shares of Delaware common stock into which the shares of California common stock represented by such certificates have been converted as herein provided. The registered owner on the books and records of Telco-Delaware or its transfer agent of any such outstanding stock certificate shall, until such certificate shall have been surrendered for transfer or otherwise -2- 15 accounted for to Telco-Delaware or its transfer agent, have and be entitled to exercise any voting and other rights with respect to and to receive any dividend and other distributions upon the shares of Delaware common stock evidenced by such outstanding certificate as above provided. (7) Options. Forthwith upon the Effective Date, each outstanding option to purchase shares of California common stock granted under the 1980 Stock Option Plan and each right to purchase California common stock under the Employee Stock Purchase Plan (the "Plans") of Telco-California shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and become an option or right, respectively, to purchase the same number of shares of Delaware common stock at the same price per share as in effect on the Effective Date and upon the same terms and subject to the same conditions as set forth in said Plans or any agreements entered into by Telco-California pursuant thereto. A number of shares of Delaware common stock shall be reserved for purposes of said Plans equal to the number of shares of California common stock so reserved as of the Effective Date. As of the Effective Date, Telco-Delaware hereby assumes all obligations of Telco-California under said Plans and the outstanding options or portions thereof granted pursuant to said Plans. (8) Other Employee Benefit Plans. As of the Effective Date, Telco-Delaware hereby assumes all obligations of Telco-California under any and all employee benefit plans in effect as of said date or with respect to which employee rights or accrued benefits are outstanding as of said date. (9) Delaware Common Stock. Forthwith upon the Effective Date, the 100 shares of Delaware common stock presently issued and outstanding in the name of Telco-California shall be canceled and retired and resume the status of authorized and unissued shares of Delaware common stock, and no shares of Delaware common stock or other securities of Telco-Delaware shall be issued in respect thereof. (10) Covenants of Telco-Delaware. Telco-Delaware covenants and agrees that it will on or before the Effective Date: (a) Qualify to do business as a foreign corporation in the State of California, and in connection therewith irrevocably appoint an agent for service of process as required under the provisions of Section 2105 of the California Corporations Code. (b) File any and all documents with the California Franchise Tax Board necessary for the assumption by Telco-Delaware of all of the franchise tax liabilities of Telco-California. -3- 16 (11) Amendment. Subject to applicable law, at any time before or after approval and adoption by the stockholders of Telco-California, this Merger Agreement may be amended, supplemented or modified in any manner. (12) Abandonment. At any time before the Effective Date, this Merger Agreement may be terminated and the Merger may be abandoned by the Board of Directors of either Telco-California or Telco-Delaware, or both, notwithstanding approval of this Merger Agreement by the stockholders of Telco-Delaware or the stockholders of Telco-California or both. (13) Counterparts. In order to facilitate the filing and recording of this Merger Agreement, the same may be executed in any number of counterparts, each of which shall be deemed to be an original and the same agreement. IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved by resolutions of the Board of Directors of Telco-Delaware and Telco-California, is hereby executed on behalf of each of said two corporations by their respective officers thereunto duly authorized. TELCO SYSTEMS, INC. A Delaware corporation By: /s/ JACK SHIRMAN ---------------- President ATTEST: /S/ KENT L. ROBERTSON - --------------------- Secretary TELCO SYSTEMS, INC. A California corporation By: /s/ JACK SHIRMAN ---------------- President ATTEST: /s/ KENT L. ROBERTSON - --------------------- Kent L. Robertson, Secretary -4- 17 CERTIFICATE OF THE SECRETARY OF TELCO SYSTEMS, INC. I, Kent L. Robertson, Secretary of Telco Systems, Inc., a Delaware corporation ("Telco-Delaware"), do hereby certify, as such Secretary, in accordance with the General Corporation Law of the State of Delaware, that the Agreement of Merger to which this Certificate is attached, after having been first duly approved, adopted and executed by Telco-Delaware and Telco Systems, Inc., a California corporation, was duly submitted to the sole stockholder of Telco-Delaware at a special meeting of stockholders called for the purpose of acting on said Agreement of Merger, notice of the time, place and purpose of said meeting having been waived by the sole shareholder of Telco-Delaware, and that at said meeting the Agreement of Merger was considered and a vote taken for its adoption or rejection and that at said meeting all of the outstanding shares of Telco-Delaware entitled to vote thereon were voted for the adoption of said Agreement of Merger and that thereby said Agreement of Merger was at said meeting duly adopted as the act of the stockholders of Telco-Delaware and as the agreement and act of Telco-Delaware. IN WITNESS WHEREOF, the undersigned has executed this certificate as of this December 15, 1986. /s/ KENT L. ROBERTSON --------------------- Kent L. Robertson Secretary CERTIFICATE OF THE SECRETARY OF TELCO SYSTEMS, INC. I, Kent L. Robertson, Secretary of Telco Systems, Inc., a California corporation ("Telco-California"), do hereby certify, as such Secretary, in accordance with the General Corporation Law of the State of Delaware, that the Agreement of Merger to which this Certificate is attached, after having been first duly approved, adopted and executed by Telco-California and Telco Systems, Inc., a Delaware corporation, was duly submitted to the stockholders of Telco-California at a special meeting of stockholders called for the purpose of acting on said Agreement of Merger after due notice of the time, place and purpose of said meeting was mailed to each holder of common stock of Telco-California at his address as it appears on the records of Telco-California in the manner provided under the provisions of Section 601 of the California Corporations Code, and that at said meeting the Agreement of Merger was considered and a vote taken for its adoption or rejection and that at said meeting a majority of the outstanding common stock of Telco-California entitled to vote thereon was voted for the adoption of said Agreement of Merger and that thereby said Agreement of Merger was at said meeting duly adopted as the act of the stockholders of Telco-California and as the agreement and act of Telco-California. IN WITNESS WHEREOF, the undersigned has executed this certificate as of this December 15, 1986. /s/ KENT L. ROBERTSON --------------------- Kent L. Robertson Secretary 18 CERTIFICATE OF OWNERSHIP AND MERGER MERGING TELCO TRANSMISSION SYSTEMS, INC., TELCO SYSTEMS FIBER OPTICS CORPORATION and TELCO SYSTEMS NETWORK ACCESS CORPORATION INTO TELCO SYSTEMS, INC. Telco Systems, Inc., a Delaware Corporation (the "Corporation"), does hereby certify; FIRST: That the Corporation was incorporated and duly organized pursuant to the General Corporation Law of the State of Delaware. SECOND: That the Corporation owns all of the outstanding shares of capital stock of Telco Transmission Systems, Inc., a Delaware corporation, Telco Systems Fiber Optics Corporation, a California corporation, and Telco Systems Network Access Corporation, an Illinois corporation (hereinafter referred to individually as a "Subsidiary Corporation" and collectively as the "Subsidiary Corporations"). THIRD: That the Corporation, by the following resolution duly adopted by its Board of Directors on the 24th day of August, 1993, determined to merge with and into itself each of the Subsidiary Corporations pursuant to Section 253 of the General Corporation Law of the State of Delaware, effective August 29, 1993: RESOLVED: That Telco Systems, Inc. merge with and into itself each of its subsidiaries, Telco Transmission Systems, Inc., Telco Systems Fiber Optics Corporation and Telco Systems Network Access Corporation and assume all of each of such subsidiaries' liabilities and obligations; that the merger shall be effective on August 29, 1993; and that the proper officers of this corporation be and they hereby are directed to prepare and execute a Certificate of Ownership and Merger setting forth a copy of the resolutions to merge into itself said Telco Transmission Systems, Inc., Telco Systems Fiber Optics Corporation and Telco Systems Network Access Corporation and assume all of their respective liabilities and obligations, and the date of adoption thereof, to cause the same to be filed with the secretary of State of Delaware and a certified copy recorded in the office of the Recorder of Deeds of New Castle County and to do all acts and things whatsoever, whether within or without the State of Delaware, which may be in any necessary or proper to effect said merger. 19 IN WITNESS WHEREOF, Telco Systems, Inc. has caused this Certificate to be signed by Paul D. Lazay, its President, and attested by John A. Ruggiero, its Secretary, this 24th day of August, 1993. By: /s/ PAUL D. LAZAY ---------------------------------- Paul D. Lazay, President ATTEST: By: /s/ JOHN A. RUGGIERO -------------------------------------- John A. Ruggiero Secretary -2- 20 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 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 21 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 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 -2- 22 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 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 -3- 23 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 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; (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 -4- 24 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, 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. -5- 25 (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 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. -6- 26 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: /s/ WILLIAM B. SMITH ------------------------- Name: Dr. William B. Smith Title: President and Chief Executive Officer Attest: /s/ EDWARD N. GADSBY, JR. - --------------------------- Name: Edward N. Gadsby, Jr. Title: Assistant Secretary -7- EX-4.2 3 BY-LAWS OF TELCO SYSTEMS, INC. 1 EXHIBIT 4.2 BYLAWS OF TELCO SYSTEMS, INC. ARTICLE I OFFICES Section 1.01. REGISTERED OFFICE. The registered office of Telco Systems, Inc. (hereafter called the Corporation) in the State of Delaware shall be at 100 West Tenth Street, Wilmington, Delaware, and the name of the registered agent at that address shall be the Corporation Trust Company. Section 1.02. PRINCIPAL OFFICE. The principal office for the transaction of the business of the Corporation shall be at 63 Nahatan Street, Norwood, Massachusetts 02062. The Board of Directors (hereafter called the "Board") is hereby granted full power and authority to change said principal office from one location to another. Section 1.03. OTHER OFFICES. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 2.01. ANNUAL MEETINGS. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings shall be held in November or December of 2 each year or at such other date as the Board shall determine by resolution. Section 2.02. SPECIAL MEETINGS. Special meetings of the stockholders for any purpose or purposes may be called by the Chairman of the Board, the President, the Board or a committee of the Board which has been duly designated by the Board and whose powers and authority, as provided in a resolution of the Board or in these Bylaws, include the power to call such meetings and by a person or persons owning, directly or indirectly, shares possessing not less than 20% of the votes eligible to be cast for the election of directors at the time any such determination is being made. Unless otherwise prescribed by statute or by the Certificate of Incorporation, special meetings may not be called by any other person or persons. No business may be transacted at any special meeting of stockholders other than such business as may be designated in the notice calling such meeting. Section 2.03. PLACE OF MEETINGS. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meeting and specified in the respective notices or waivers of notice thereof. Section 2.04. NOTICE OF MEETINGS. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to him personally, -2- 3 or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to him at his post office address furnished by him to the Secretary of the Corporation for such purpose or, if he shall not have furnished to the Secretary his address for such purpose, then at his post office address last known to the Secretary, or by transmitting a notice thereof to him at such address by telegraph, cable, or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting, shall also state the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall have waived such notice and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except for a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. Section 2.05. QUORUM. Except in the case of any meeting for the election of directors summarily ordered as provided by law, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, -3- 4 present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. No business may be transacted at a meeting in the absence of a quorum other than the adjournment of such meeting, except that if a quorum is present at the commencement of a meeting, business may be transacted until the meeting is adjourned even though the withdrawal of stockholders results in less than a quorum. Section 2.06. VOTING. (a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation having voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation: (i) on the date fixed pursuant to Section 6.05 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or -4- 5 (ii) if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by -5- 6 his attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority of the shares present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The vote at any meeting of the stockholders on any questions need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by is proxy, if there be such proxy, and it shall state the number of shares voted. Section 2.07. LIST OF STOCKHOLDERS. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be -6- 7 held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the duration thereof, and may be inspected by any stockholder who is present. Section 2.08. JUDGES. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint a judge or judges to act with respect to such vote. Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of his ability. Such judges shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such questions, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other than a vote for or against a proposal in which he shall have a material interest. ARTICLE III BOARD OF DIRECTORS Section 3.0l. GENERAL POWERS. The property, business and affairs of the Corporation shall be managed by the Board. -7- 8 Section 3.02. NUMBER AND TERM OF OFFICE. The authorized number of directors shall be such number as shall be determined from time to time by a resolution adopted by a majority of the Board or by the affirmative vote of the holders of not less than a majority of the total voting power of all outstanding shares of voting stock of the Corporation. Each of the directors of the Corporation shall hold office until his successor shall have been duly elected and shall qualify or until he shall resign or shall have been removed in the manner hereafter provided. Section 3.03. ELECTION OF DIRECTORS. The directors shall be elected by the stockholders of the Corporation, and at each election the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provisions contained in the Certificate of Incorporation relating thereto, including any provisions for cumulative voting. Section 3.04. RESIGNATIONS. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, it shall take effect immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.05. VACANCIES. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause, may be -8- 9 filled by vote of the majority of the remaining directors, although less than a quorum. Each director so chosen to fill a vacancy shall hold office until is successor shall have been elected and shall qualify or until he shall resign or shall have been removed in the manner hereafter provided. Section 3.06. PLACE OF MEETING, ETC. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting. Section 3.07. FIRST MEETING. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required. Section 3.08. REGULAR MEETINGS. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as provided by law, notice of regular meetings need not be given. -9- 10 Section 3.09. SPECIAL MEETINGS. Special meetings of the Board may be called by the Chairman of the Board of Directors or the President and shall be called by the President or Secretary on the written request of two directors. Notice of all special meetings of the Board shall be given to each director at his address as it appears on the records of the Corporation as follows: (a) by first-class mail, postage prepaid, deposited in the United States mail in the city where the principal office of the Corporation is located at least five (5) days before the date of such meeting; or (b) by telegram, charges prepaid, such notice to be delivered to the telegraph company in the city of the principal office of the Corporation at least forty-eight (48) hours before the time of holding such meeting; or (c) by personal delivery at least twenty-four (24) hours prior to the time of holding such meeting. Such notice may be waived by any director and any meeting shall be a legal meeting without notice having been given if all the directors shall be present thereat or if those not present shall, either before or after the meeting, sign a written waiver of notice of, or a consent to, such meeting or shall after the meeting sign the approval of the minutes thereof. All such waivers consents or approvals shall be filed with the corporate records or be made a part of the minutes of the meeting. Section 3.10. QUORUM AND MANNER OF ACTING. Except as otherwise provided in the Certificate of Incorporation or these -10- 11 Bylaws or by a law, the presence of a majority of the total number of directors then in office shall be required to constitute a quorum for the transaction of business at any meeting of the Board. Except as otherwise provided in the Certificate of Incorporation or these Bylaws or by law, all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such. Section 3.11. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. Section 3.12. COMPENSATION. The directors shall receive only such compensation for their services as directors as may be allowed by resolution of the Board. The Board may also provide that the Corporation shall reimburse each such director for any expense incurred by him on account of his attendance at any meetings of the Board or Committees of the Board. Neither the payment of such compensation nor the reimbursement of such expenses shall be construed to preclude any director from serving -11- 12 the Corporation or its subsidiaries in any other capacity and receiving compensation therefor. Section 3.13. EXECUTIVE COMMITTEE. There may be an Executive Committee of three or more directors appointed by the Board, who may meet at stated times, or on notice to all by any of their own number, during the intervals between the meetings of the Board; they shall advise and aid the officers of the Corporation in all matters concerning its interest and the management of its business, and generally perform such duties and exercise such powers as may be directed or delegated by the Board from time to time. To the full extent permitted by law, the Board may delegate to such committee authority to exercise all the powers of the Board while the Board is not in session. Vacancies in the membership of the committee shall be filled by the Board at a regular meeting or at a special meeting for that purpose. The Executive Committee shall keep written minutes of its meeting and report the same to the Board when required. The provisions of Sections 3.08, 3.09, 3.10 and 3.11 of these Bylaws shall apply, MUTATIS MUTANDIS, to any Executive Committee of the Board. Section 3.14. OTHER COMMITTEES. The Board may, by resolution passed by a majority of the whole Board, designate one or more other committees, each such committee to consist of one or more of the directors of the Corporation. To the full extent permitted by law, any such committee shall have and may exercise such powers and authority as the Board may designate in such resolution. Vacancies in the membership of a committee shall be filled by the Board at a regular meeting or a special meeting for -12- 13 that purpose. Any such committee shall keep written minutes of its meeting and report the same to the Board when required. The provisions of Sections 3.08, 3.09, 3.10 and 3.11 of these Bylaws shall apply, MUTATIS MUTANDIS, to any such committee of the Board. ARTICLE IV OFFICERS Section 4.0l. NUMBER. The officers of the corporation shall be a Chairman of the Board, a President, a Secretary and a Chief Financial Officer. The Board may also elect a Chief Executive Officer, one or more vice presidents, one or more Assistant Secretaries and Assistant Chief Financial Officers. A person may hold more than one office providing the duties thereof can be consistently performed by the same person. Section 4.02. OTHER OFFICERS. The Board may appoint such other officers as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. Section 4.03. ELECTION. Each of the officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 4.02 or Section 4.05 of this Article, shall be chosen annually by the Board and shall hold his office until be shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 4.04. SALARIES. The salaries of all officers of the Corporation shall be fixed by the Board. -13- 14 Section 4.05. REMOVAL; VACANCIES. Subject to the express provisions of a contract authorized by the Board, any officer may be removed, either with or without cause, at any time by the Board or by any officer upon whom such power of removal may be conferred by the Board. Any vacancy occurring in any office of the Corporation shall be filled by the Board. Section 4.06. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the stockholders and directors and shall have such other powers and duties as may be prescribed by the Board or by applicable law. He shall be an ex-officio member of standing committees, if so provided in the resolutions of the Board appointing the members of such committees. Section 4.06A. The Chief Executive Officer, if elected by the Board, shall be the chief executive officer of the Corporation and shall have such other powers and duties as may be prescribed by the Board. Section 4.07. THE PRESIDENT. The President shall be the managing officer of the Corporation. Subject to the control of the Chief Executive Officer or, if no Chief Executive Officer is elected, the Board, the President shall have general supervision, control and management of the affairs and business of the Corporation, and general charge and supervision of all officers, agents and employees of the Corporation; shall see that all orders and resolutions of the Board are carried into effect; shall, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and Board; and in general shall exercise all -14- 15 powers and perform all duties incident to President and managing officer of the Corporation and such other powers and duties as may from time to time be assigned to him by the Board or as may be prescribed in these Bylaws. The President may execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board to some other officer or agent of the Corporation. The President shall be an ex-officio member of standing committees, if so provided in the resolutions of the Board appointing the members of such committees. Section 4.08. THE VICE PRESIDENTS. In the absence of the President or in the event or his inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Board may from time to time prescribe. Section 4.09. THE SECRETARY AND ASSISTANT SECRETARY. The Secretary shall attend all meetings of the Board and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board in a book to be kept -15- 16 for that purpose and shall perform like duties for the standing and special committees of the Board when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board, and shall perform such other duties as may be prescribed by the Board or President, under whose supervision he shall act. He shall have custody of the corporate seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by is signature or by the signature of such assistant secretary. The Board may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or his refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board may from time to time prescribe. Section 4.l0. THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board. -16- 17 He shall disburse the funds of the Corporation as may be ordered by the Board making proper vouchers for such disburse ments, and shall render to the President and the Board, at its regular meetings, or when the Board so requires, an account of all his transactions as Chief Financial Officer and of the financial condition of the Corporation. If required by the Board, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 4.11. THE ASSISTANT CHIEF FINANCIAL OFFICER. The Assistant Chief Financial Officer, or if there be more than one, the Assistant Chief Financial Officers in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Chief Financial Officer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Chief Financial Officer and shall perform such other duties and have such other powers as the Board may from time to time prescribe. ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. Section 5.01. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment of money, notes or other evidence of -17- 18 indebtedness payable by the Corporation and all contracts or agreements shall be signed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such person or persons shall give such bond, if any, as the Board may require. Section 5.02. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the President, any Vice President or the Chief Financial Officer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. Section 5.03. GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank -18- 19 accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. ARTICLE VI SHARES AND THEIR TRANSFER Section 6.01. CERTIFICATES FOR STOCK. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman, Vice Chairman or President or a Vice President, and by the Secretary or an Assistant Secretary or the Chief Financial Officer or an Assistant Chief Financial Officer. Any of or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon, any such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation the -19- 20 respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in Section 6.04. Section 6.02. TRANSFERS OF STOCK. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. Section 6.03. REGULATIONS. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or -20- 21 more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. Section 6.04. LOST, STOLEN, DESTROYED, AND MUTILATED CERTIFICATES. In any case of loss, theft, destruction or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do. Section 6.05. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting nor more than sixty (60) days prior to any other action. If in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders the Board shall not fix such a record date, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting -21- 22 of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. ARTICLE VII INDEMNIFICATION The Corporation shall indemnify to the full extent authorized by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer or employee of the Corporation or any predecessor of the Corporation or serves or served any other enterprise as a director, officer or employee at the request of the Corporation or any predecessor of the Corporation. ARTICLE VIII MISCELLANEOUS Section 8.0l. SEAL. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and the year of incorporation. Section 8.02 WAIVER OF NOTICES. Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. Section 8.03. FISCAL YEAR. The fiscal year of the Corporation shall begin the first day of September in each year. -22- 23 Section 8.04. AMENDMENTS. Subject to the provisions of the Certificate of Incorporation, these Bylaws and applicable law, these Bylaws or any of them may be amended or repealed and new Bylaws may be adopted (a) by the Board, or (b) by the stockholders entitled to vote, at an annual meeting of stockholders, without previous notice, or at any special meeting of stockholders, provided that notice of such proposed amendment, repeal or adoption is given in the notice of special meeting. Subject to the provisions of the Certificate of Incorporation, any Bylaws adopted or amended by the stockholders may be amended or repealed by the Board or the stockholders. Section 8.05. VOTING STOCK. Any person so authorized by the Board, and in the absence of such authorization, the Chairman of the Board, the President or any Vice President, shall have full power and authority on behalf of the Corporation to attend and to act and vote at any meeting of the stockholders of any corporation in which the Corporation may hold stock and at any such meeting shall possess and may exercise any and all rights and powers which are incident to the ownership of such stock and which as the owner thereof the Corporation might have possessed and exercised if present. The Board by resolution from time to time may confer like powers upon any other person or persons. -23- EX-5.1 4 OPINION OF FOLEY, HOAG & ELIOT LLP 1 Exhibit 5.1 [LETTERHEAD OF FOLEY, HOAG & ELIOT LLP] February 25, 1998 Telco Systems, Inc. 63 Nahatan Street Norwood, Massachusetts 02062 Ladies and Gentlemen: We are familiar with the Registration Statement on Form S-3 (the "S-3 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-3 Registration Statement relates to the proposed offering by the Company of 101,636 shares (the "Shares") of its Common Stock, par value $0.01 per share, all of which Shares are now issued and outstanding. 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. 2 Telco Systems, Inc. February 25, 1998 Page 2 Based upon the foregoing, it is our opinion that: 1. The Company has taken all necessary corporate action required to authorize the issuance and sale of the Shares; and 2. The Shares have been validly and legally issued and are fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the S-3 Registration Statement. Very truly yours, FOLEY, HOAG & ELIOT LLP By: /s/ Edward N. Gadsby, Jr. ------------------------- A Partner 2 EX-23.1 5 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and related Prospectus of Telco Systems, Inc. for the registration of 101,636 shares of its common stock and to the incorporation by reference therein of our report dated October 15, 1997, with respect to the consolidated financial statements and schedule of Telco Systems, Inc. included in the 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 February 23, 1998 -----END PRIVACY-ENHANCED MESSAGE-----