<PAGE> 1
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF L933
TELCO SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-2178777
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
- --------------------------------------------------------------------------------
63 NAHATAN STREET, NORWOOD, MA 02062
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
TELCO SYSTEMS, INC. AMENDED AND RESTATED 1990 STOCK OPTION PLAN
RESTRICTED STOCK GRANT AGREEMENTS, EACH DATED FEBRUARY 15, 1996, BETWEEN
THE COMPANY AND EACH OF ITAI AARONSON, AL BANNIS, JEFFREY BLACK, KAREN
BRIM, RICHARD CAMERON, JOHN CAUGHRON, JASWANT DHALIWAL, DANIEL FRETZ,
STANLEY GARDNER, ZUREN HSI, BRYAN KNYSH, STEPHEN MILLS, LARRY ORR,
JOSEPH SCHICK, EDWARD SCHLOEMAN, LAWRENCE WALKER, GEORGE WEIGT, AND
JEFFREY WEISS.
- --------------------------------------------------------------------------------
(Full title of the plan)
JOHN A. RUGGIERO, CHIEF EXECUTIVE OFFICER
TELCO SYSTEMS, INC.
63 NAHATAN STREET
NORWOOD, MA 02062
(617) 551-0300
- --------------------------------------------------------------------------------
(Name and address, including zip code, and
telephone number, including area code, of agent for service)
WITH A COPY TO:
EDWARD N. GADSBY, JR., ESQUIRE
FOLEY, HOAG & ELIOT
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 832-1000
- --------------------------------------------------------------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Proposed
Title of Proposed maximum
securities Amount maximum aggregate Amount of
to be to be offering price offering registration
registered registered per share price fee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 32,205 $11.38(1) $ 366,492.90(1) $ 126.38(1)
(par value $.01) shares
- -------------------------------------------------------------------------------------------------------------
Common Stock 12,884 $10.50(2) $ 135,282(2) $ 46.65(2)
(par value $.01) shares
- -------------------------------------------------------------------------------------------------------------
Common Stock 304,911 $11.26(3) $3,433,297.86(3) $1,183.90(3)
(par value $.01) shares
- -------------------------------------------------------------------------------------------------------------
Common Stock 92,000 $11.26(4) $1,035,920(4) $ 357.21(4)
(par value $.01) shares
- -------------------------------------------------------------------------------------------------------------
Totals 442,000 $4,966,592.76 $1,714.14
shares
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
(1) For shares issuable pursuant to stock options granted through
February 15, 1996, calculated pursuant to Rule 457(h) based on the exercise
price of such options.
(2) For shares issuable pursuant to stock options granted through
February 15, 1996, calculated pursuant to Rule 457(h) based on the exercise
price of such options.
(3) For shares issuable pursuant to stock options not granted as of
February 15, 1996, estimated pursuant to Rule 457(c) based on the average of the
high and low prices of the Common Stock as reported in the National Association
of Securities Dealers Automated Quotation National Market System
(the "Nasdaq NMS") on February 9, 1996.
(4) For all shares issuable pursuant to the Restricted Stock
Agreements, estimated pursuant to Rule 457(c) based on the average of the high
and low prices of the Common Stock as reported in the National Association of
Securities Dealers Automated Quotation National Market System ("Nasdaq NMS") on
February 9, 1996.
I-2
<PAGE> 3
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents filed with the Securities and Exchange
Commission ("Commission") are incorporated in this registration statement by
reference:
(a) the Annual Report on Form 10-K of the Company for the fiscal year
ended August 27, 1995;
(b) the Company's Quarterly Report on Form 10-Q for the quarter ended
November 26, 1995; 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 Securities Exchange Act of 1934 ("Exchange Act"),
including any amendment or description filed for the purpose of updating such
description.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this registration statement and to be part
thereof from the date of filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides as
follows:
"(a) A corporation may indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he
<PAGE> 4
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
"(b) A corporation may indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
"(c) To the extent that a director, officer, employee
or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding
referred to in subsections (a) and (b) of this section, or in
defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection
therewith.
"(d) Any indemnification under subsections (a) and
(b) of this section (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case
upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set
forth in subsections (a) and (b) of this section. Such
determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there
are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (3) by the
stockholders.
"(e) Expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may
be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be
II-2
<PAGE> 5
determined that he is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any,
as the board of directors deems appropriate.
"(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of
this section shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another
capacity while holding such office.
"(g) A corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him
against such liability under this section.
"(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is
or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request
of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or
surviving corporation as he would have with respect to such
constituent corporation if its separate existence had
continued.
"(i) For purposes of this section, references to
"other enterprises" shall include employee benefit plans;
reference to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or
agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the
II-3
<PAGE> 6
best interests of the corporation" as referred to in
this section.
"(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this section shall,
unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
"(k) The Court of Chancery is hereby vested with
exclusive jurisdiction to hear and determine all actions for
advancement of expenses or indemnification brought under this
section or under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise. The Court of Chancery
may summarily determine a corporation's obligations to advance
expenses (including attorneys' fees)."
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.
The Company has a Directors' and Officers' Liability insurance policy
insuring its directors and officers for certain claims up to $5,000,000.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
ITEM 8. EXHIBITS.
4.1 Amended and Restated 1990 Stock Option Plan.
4.2 Restricted Stock Grant Agreement dated February 15, 1996 between the
Company and Itai Aaronson, together with a Schedule 4.2 setting forth
information regarding certain substantially identical Restricted Stock
Grant Agreements of even date therewith.
5.1 Opinion of Counsel.
23.1 Consent of Independent Auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (contained on the signature page).
ITEM 9. UNDERTAKINGS.
1. 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 in 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.
II-4
<PAGE> 7
2. The undersigned registrant hereby undertakes:
(a) 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 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 and of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(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 2(a)(i) and
2(a)(ii) do not apply if the information required to be included in a
post-effectiveamendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference herein.
(b) 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 herein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) 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.
3. 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 of 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.
II-5
<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Norwood, Commonwealth of Massachusetts, on the 11th
day of February, 1996.
TELCO SYSTEMS, INC.
By: /s/ John A. Ruggiero
------------------------------
John A. Ruggiero
Chief Executive Officer and
Chief Financial Officer
II-6
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints John A. Ruggiero and William B. Smith,
his true and lawful attorney-in-fact and agent 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 attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing he 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 attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John A. Ruggiero
___________________________ Director and Chief February 11, 1996
John A. Ruggiero Executive Officer
(Principal Executive
Officer)
/s/ John A. Ruggiero
___________________________ Director and February 11, 1996
John A. Ruggiero Chief Financial Officer
(Principal Financial Officer)
/s/ Daniel A. DiPietro
___________________________ Vice President and Corporate February 14, 1996
Daniel A. DiPietro Controller (Principal
Accounting Officer)
/s/ William B. Smith
___________________________ Director and President February 11, 1996
William B. Smith
/s/ Dean C. Campbell
___________________________ Director February 13, 1996
Dean C. Campbell
/s/ Steward S. Flaschen
___________________________ Director February 10, 1996
Steward S. Flaschen
/s/ Sheldon Horing
___________________________ Director February 10, 1996
Sheldon Horing
</TABLE>
II-7
<PAGE> 10
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C>
4.1 Amended and Restated 1990 Stock Option Plan.
4.2 Restricted Stock Grant Agreement dated February 15, 1996 between the
Company and Itai Aaronson, together with a Schedule 4.2 setting forth
information regarding certain substantially identical Restricted Stock
Grant Agreements of even date therewith.
5.1 Opinion of Counsel.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (contained on the signature page).
</TABLE>
II-8
<PAGE> 1
EXHIBIT 4.1
TELCO SYSTEMS, INC.
1990 Stock Option Plan, as Amended
----------------------------------
(including amendments through February 15, 1996)
SECTION 1. PURPOSE
The 1990 Stock Option Plan (the "Plan") is intended to attract and
retain highly qualified and competent employees and directors, to serve as a
performance incentive for officers and employees of Telco Systems, Inc., a
Delaware corporation (the "Company"), or its Subsidiaries (as hereinafter
defined) and for certain other individuals providing services to or acting as
directors of the Company or its Subsidiaries, to encourage the persons to whom
options are granted (a "Grantee" or "Grantees") to acquire or increase a
proprietary interest in the success of the Company and to maintain and enhance
the Company's long-term performance and profitability. The Company intends that
this purpose will be effected by the granting of incentive stock options
("Incentive Options") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") and other stock options ("Non-Statutory Options")
under the Plan. The term "Subsidiaries" means any corporations in which stock
possessing 50% or more of the total combined voting power of all classes of
stock of any such corporation or corporations is owned directly or indirectly by
the Company.
SECTION 2. OPTIONS TO BE GRANTED AND ADMINISTRATION
2.1 OPTIONS TO BE GRANTED. Options granted under the Plan may be
either Incentive Options or Non-Statutory Options.
2.2 ADMINISTRATION BY AND POWERS OF THE COMMITTEE. The Plan shall be
administered by a committee (the "Committee") consisting of at least two
"Outside Directors." As used herein, the term "Outside Director" means any
director of the Company who (i) is not an officer or employee of the Company or
of an "affiliated group" (as such term is defined in Section 1504(a) of the
Code) which includes the Company (an "Affiliate"), (ii) is not a former employee
of the Company or any Affiliate who is receiving compensation for prior services
(other than benefits under a tax-qualified retirement plan) during the Company's
or any Affiliate's taxable year, (iii) has not been an officer of the Company or
any Affiliate and (iv) does not receive remuneration from the Company or any
Affiliate, either directly or indirectly, in any capacity other than as a
director. It is the intention of the Company that the Plan shall be administered
by "disinterested persons" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act"), but the authority and validity of any
act taken or not taken by the Committee shall not be affected if any person
administering the Plan is not a disinterested person. Except as specifically
reserved to the Board under the terms of the Plan, and subject to Section 4.2
hereof, the Committee shall have full and final authority to operate, manage and
administer the Plan on behalf of the Company. This authority shall include, but
not be limited to: (i) the power
<PAGE> 2
to grant options conditionally or unconditionally; (ii) the power to prescribe
the form or forms of the instruments evidencing options granted under this Plan;
(iii) the power to interpret the Plan; (iv) the power to provide regulations for
the operation of the incentive features of the Plan, and otherwise to prescribe
regulations for interpretation, management and administration of the Plan; (v)
the power to delegate to other persons the responsibility for performing
ministerial acts in furtherance of the Plan's purpose; and (vi) the power to
engage the services of persons or organizations in furtherance of the Plan's
purpose, including but not limited to banks, insurance companies, brokerage
firms and consultants.
In addition, as to each option, except for options granted pursuant to
Section 4.2, the Committee shall have full and final authority in its
discretion: (i) to determine the number of shares subject to each option; (ii)
to determine the time or times at which options will be granted; (iii) to
determine the price for the shares subject to each option, which price shall be
subject to the applicable requirements, if any, of Section 5(c) hereof; and (iv)
subject to the provisions of the Plan, to determine the time or times when each
option shall become exercisable and the duration of the exercise period, which
shall not exceed the limitations specified in Section 5(a). The Committee may,
in its sole and unilateral discretion, and on either a case by case or aggregate
basis, accelerate the schedule of the time or times when outstanding options may
be exercised and extend the duration of outstanding options past the times set
forth in Section 5(e), other than Section 5(e)(i).
No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
hereunder.
2.3 APPOINTMENT AND PROCEEDINGS OF COMMITTEE. The Board may from time
to time appoint members of the Committee in substitution for or in addition to
members previously appointed, and subject to Section 2.2 hereof may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and shall hold its meetings at such times and places
as it shall deem advisable. A majority of its members shall constitute a quorum,
and all actions of the Committee shall require the affirmative vote of a
majority of its members. Any action may be taken by a written instrument signed
by all of the members, and any action so taken shall be as fully effective as if
it had been taken by a vote of a majority of the members at a meeting duly
called and held.
SECTION 3. STOCK
3.1 SHARES SUBJECT TO PLAN. The stock subject to options granted under
the Plan shall be shares of the Company's common stock, $.01 par value ("Common
Stock"), either authorized but unissued or held in treasury. The total number of
shares that may be issued pursuant to options granted under the Plan shall not
exceed an aggregate of 1,850,000 shares of Common Stock, of which not more than
150,000 shares may be issued pursuant to Section 4.2 hereof. Such numbers of
shares shall be subject to adjustment in accordance with Section 7.
3.2 LAPSED OR UNEXERCISED OPTIONS. Whenever any outstanding option
under the Plan expires, is cancelled or is otherwise terminated (other than
by exercise), the shares of Common
-2-
<PAGE> 3
Stock allocable to the unexercised portion of such option shall be restored to
the Plan and shall again become available for the grant of other options under
the Plan.
SECTION 4. ELIGIBILITY
4.1 ELIGIBLE GRANTEES. Incentive Options may be granted only to
officers and other employees of the Company or its Subsidiaries, including
members of the Board who are also employees of the Company or a Subsidiary.
Non-Statutory Options may be granted to officers or other employees of the
Company or its Subsidiaries, including members of the Board or the board of
directors of any Subsidiary, and to certain other individuals providing services
to the Company or its Subsidiaries. Non-Statutory Options may be granted to
members of the Board who are not full-time employees of the Company or a
Subsidiary ("Outside Directors") only as provided in Section 4.2 hereof.
4.2 NON-DISCRETIONARY OPTION GRANTS TO OUTSIDE DIRECTORS. Any other
provision of this Plan to the contrary notwithstanding, Outside Directors shall
not be eligible to receive options under the Plan except pursuant to this
Section 4.2. On the first business day following the Company's annual meeting of
stockholders or special meeting in lieu thereof in each year, or, if the annual
meeting of stockholders or special meeting in lieu thereof shall not have been
held by the last business day of March in any year, then on the last business
day of March in such year (the "Grant Date"), (i) any Outside Director who was
elected a director by the stockholders of the Company for the first time at the
most recent annual meeting of stockholders shall without any action of the
Committee be granted a Non-Statutory Option to purchase 5,000 shares of the
Common Stock, and (ii) each Outside Director, including, if applicable, any
Outside Director referred to in clause (i) of this sentence, shall without any
action of the Committee be granted a Non-Statutory Option to purchase a number
of shares of the Common Stock equal to the largest whole number resulting from
the product of 10,000 multiplied by a fraction, the numerator of which shall be
the number of days such Outside Director served as a director of the Company
during the period ending on the Grant Date and beginning on the calendar day
following the Grant Date in the immediately preceding calendar year, and the
denominator of which shall be the number of days in such period. Options shall
be granted pursuant to this Section 4.2 only to persons who are serving as
Outside Directors on the Grant Date. No Outside Director shall receive more than
one grant pursuant to clause (i) of this Section. The 5,000-share and
10,000-share grants referred to in this Section shall be subject to adjustment
in accordance with Section 7 hereof. The purchase price per share of the Common
Stock under each option granted pursuant to this Section shall be equal to the
fair market value of the Common Stock on the date the option is granted. Each
such option shall expire on the tenth anniversary of the date of grant and shall
not be exercisable until after the expiration of six months following the date
of grant, becoming exercisable at that time for a whole number of shares equal,
as nearly as practicable, to one-eighth of the total number of shares subject to
such option, and becoming exercisable ratably thereafter in monthly installments
until fully exercisable on the fourth anniversary of the date of grant.
4.3 LIMITATIONS ON 10% STOCKHOLDERS. No Incentive Option shall be
granted to an individual who, at the time the Incentive Option is granted,
owns (including ownership attributed
-3-
<PAGE> 4
pursuant to Section 424 of the Code) more than l0% of the total combined voting
power of all classes of stock of the Company or any parent or Subsidiary of the
Company (a "greater-than-10% stockholder"), unless such Incentive Option
provides that (i) the purchase price per share shall not be less than 110% of
the fair market value of the Common Stock at the time such Incentive Option is
granted, and (ii) such Incentive Option shall not be exercisable to any extent
after the expiration of five years from the date it is granted.
4.4 LIMITATION ON EXERCISABLE OPTIONS. The aggregate fair market value
(determined at the time the Incentive Option is granted) of the Common Stock
with respect to which Incentive Options are exercisable for the first time by
any person during any calendar year under the Plan and under any other option
plan of the Company (or a parent or subsidiary as defined in Section 424 of the
Code) shall not exceed $100,000. Any option granted in excess of the foregoing
limitation shall be specifically designated as being a Non-Statutory Option.
4.5 LIMITATION ON GRANT OF OPTIONS. In no event may any Plan
participant be granted options with respect to more than 100,000 shares of
Common Stock in any fiscal year. The number of shares of Common Stock issuable
pursuant to an option granted to a Plan participant in a fiscal year that is
subsequently forfeited, cancelled or otherwise terminated shall continue to
count toward the foregoing limitation in such fiscal year. In addition, if the
exercise price of an option is subsequently reduced, the transaction shall be
deemed a cancellation of the original option and the grant of a new one so that
both transactions shall count toward the maximum shares issuable in the fiscal
year of each transaction.
SECTION 5. AGREEMENTS EVIDENCING STOCK OPTIONS
Each option agreement (each, a "Plan agreement") shall contain such
provisions as the Committee shall from time to time deem appropriate. Plan
agreements need not be identical, but each such agreement by appropriate
language shall include the substance of all of the following provisions:
(a) EXPIRATION. Subject to Section 4.2 hereof, notwithstanding
any other provision of the Plan or of any Plan agreement, each option shall
expire on the date specified in the Plan agreement, which date shall not be
later than the tenth anniversary of the date on which the option was granted
(fifth anniversary in the case of an Incentive Option granted to a
greater-than-10% stockholder).
(b) EXERCISE. Subject to Sections 4.2 and 6.4 hereof, each
option shall be exercisable in full or in installments (which need not be equal)
and at such times as designated by the Committee. To the extent not exercised,
installments shall accumulate and be exercisable, in whole or in part, at any
time after becoming exercisable, but not later than the date the option expires.
(c) PURCHASE PRICE. The purchase price per share of the
Common Stock under each option shall be not less than the fair market value of
the Common Stock on the date the option is granted (110% of the fair market
value in the case of an Incentive Option granted to
-4-
<PAGE> 5
a greater-than-10% stockholder). For the purpose of the Plan, the fair market
value of the Common Stock shall be the closing price per share on the date of
grant of the option as reported by a nationally recognized stock exchange, or,
if the Common Stock is not listed on such an exchange, as reported by the NASDAQ
National Market System, or, if the Common Stock is not quoted on the NASDAQ
National Market System, the fair market value as determined by the Committee.
(d) TRANSFERABILITY OF OPTIONS. Options granted under the
Plan and the rights and privileges conferred thereby may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by applicable laws of descent and distribution,
and shall not be subject to execution, attachment or similar process. Upon any
attempt so to transfer, assign, pledge, hypothecate or otherwise dispose of any
option under the Plan or any right or privilege conferred hereby, contrary to
the provisions of the Plan, or (if the Committee shall so determine) upon any
levy or any attachment or similar process upon the rights and privileges
conferred hereby, such option shall thereupon terminate and become null and
void.
(e) TERMINATION OF EMPLOYMENT OR DEATH OF GRANTEE. Except as
may be otherwise expressly provided in the terms and conditions of the Plan
agreements, options granted hereunder shall terminate on the earlier to occur
of:
(i) the date of expiration thereof; or
(ii) other than in the case of death of the Grantee or
disability of the Grantee within the meaning of Section 22(e)(3) of the Code
("disability"), immediately upon termination of the employment or other
relationship between the Company and the Grantee for cause as determined by the
Committee, or 30 days after termination of the employment or other relationship
between the Company and the Grantee without cause.
An employment relationship between the Company and the Grantee shall be
deemed to exist during any period during which the Grantee is employed by the
Company or by any Subsidiary. Whether an authorized leave of absence or absence
on military government service shall constitute termination of the employment
relationship between the Company and the Grantee shall be determined by the
Committee at the time thereof.
As used herein, "cause" shall mean (x) any material breach by the
Grantee of any agreement to which the Grantee and the Company are both parties,
(y) any act or omission to act by the Grantee which may have a material and
adverse effect on the Company's business or on the Grantee's ability to perform
services for the Company, including, without limitation, the commission of any
crime (other than ordinary traffic violations), or (z) any material misconduct
or material neglect of duties by the Grantee in connection with the business or
affairs of the Company or any affiliate of the Company.
In the event of the death of a Grantee while in an employment or other
relationship with the Company and before the date of expiration of an option
held by such Grantee, such option
-5-
<PAGE> 6
shall terminate on the earlier of such date of expiration or 180 days following
the date of such death. After the death of the Grantee, his executors,
administrators or any person or persons to whom his option may be transferred by
will or by laws of descent and distribution shall have the right, at any time
prior to such termination, to exercise the option to the extent the Grantee was
entitled to exercise such option immediately prior to his death.
If a Grantee's employment or other relationship with the Company
terminates because of a disability, the Grantee's option shall terminate on the
earlier of the date of expiration thereof or 12 months following the termination
of such relationship; and unless by its terms it sooner terminates and expires
during such 12-month period, the Grantee may exercise that portion of his or her
option which is exercisable at the time of termination of such relationship.
(f) RIGHTS OF GRANTEES. No Grantee shall be deemed for any
purpose to be the owner of any shares of Common Stock subject to any option
unless and until (i) the option shall have been exercised pursuant to the terms
thereof and (ii) the Company shall have issued and delivered the shares to the
Grantee.
SECTION 6. METHOD OF EXERCISE AND PAYMENT
6.1 NOTICE OF EXERCISE. Any option granted under the Plan may be
exercised by the Grantee by delivering to the Company on any business day a
written notice (the "Notice") specifying the number of shares of Common Stock
with respect to which the Grantee then desires to exercise the option,
specifying the address to which the certificates for such shares are to be
mailed and accompanied by payment for such shares.
6.2 EXERCISE OF OPTIONS. Payment for the shares of Common Stock
purchased pursuant to the exercise of an option shall be made either (i) in cash
equal to the option price for the number of shares specified in the Notice (the
"Total Option Price"), or (ii) if authorized by the applicable Plan agreement,
in shares of Common Stock having a fair market value equal to or less than the
Total Option Price, plus cash in an amount equal to the excess, if any, of the
Total Option Price over the fair market value of such shares of Common Stock.
For the purpose of the preceding sentence, the fair market value of the shares
of Common Stock so delivered to the Company shall be determined in the manner
specified in Section 5(c) hereof. As promptly as practicable after receipt of
such Notice and payment, the Company shall deliver to the Grantee certificates
for the number of shares with respect to which such option has been so
exercised, issued in the Grantee's name; provided, however, that such delivery
shall be deemed effected for all purposes when the Company or a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to the Grantee, at the address specified pursuant to Section
6.1.
6.3 [Reserved.]
6.4 SPECIAL LIMITS AFFECTING SECTION 16(B) GRANTEES. Options granted
to a person who in the opinion of the Committee may be deemed to be a director
or officer of the Company within the meaning of Section 16(b) of the Exchange
Act and the rules and regulations
-6-
<PAGE> 7
thereunder (a "Section 16(b) Grantee") shall not be exercisable until after the
expiration of six months following the date of grant. At least six months shall
elapse between the date an option is granted to a Section 16(b) Grantee and the
date of disposition of the option (other than upon exercise) or the Common Stock
subject to such option.
SECTION 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
7.1 NO EFFECT OF OPTIONS UPON CERTAIN CORPORATE TRANSACTIONS. The
existence of outstanding options shall not affect in any way the right or power
of the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of Common Stock, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
7.2 STOCK DIVIDENDS, RECAPITALIZATIONS, ETC. If the Company shall
effect a subdivision or consolidation of shares or other capital readjustment,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the Common Stock outstanding, without receiving compensation therefor
in money, services or property, then (i) the number, class and per share price
of shares of stock subject to outstanding options hereunder shall be
appropriately adjusted in such a manner as to entitle a Grantee to receive upon
exercise of an option, for the same aggregate cash consideration, the same total
number and class of shares that the owner of an equal number of outstanding
shares of Common Stock would own as a result of the event requiring the
adjustment; and (ii) the number and class of shares that may be issued under,
and with respect to which options may be granted pursuant to, the Plan shall be
adjusted by substituting for the total number of shares of Common Stock then
reserved for issuance under, and with respect to which options may be granted
pursuant to, the Plan that number and class of shares of stock that the owner of
an equal number of outstanding shares of Common Stock would own as the result of
the event requiring the adjustment.
7.3 DETERMINATION OF ADJUSTMENTS. Adjustments under this Section 7
shall be determined by the Committee and such determinations shall be
conclusive. The Committee shall have the discretion and power in any such event
to determine and to make effective provision for acceleration of the time or
times at which any option or portion thereof shall become exercisable. No
fractional shares of Common Stock shall be issued under the Plan on account of
any adjustment specified above.
7.4 NO ADJUSTMENT IN CERTAIN CASES. Except as hereinbefore expressly
provided, the issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and
-7-
<PAGE> 8
no adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock then subject to outstanding options.
SECTION 8. EFFECT OF CERTAIN TRANSACTIONS
8.1 MERGER WITHOUT CHANGE OF CONTROL. After a merger of one or more
corporations into the Company, or after a consolidation of the Company and one
or more corporations, in each case as a result of which the stockholders of the
Company immediately prior to such merger or consolidation own after such merger
or consolidation shares representing at least fifty percent (50%) of the voting
power of the merged or consolidated corporations, each holder of an outstanding
option shall, at no additional cost, be entitled upon exercise of such option to
receive (subject to any required action by stockholders), in lieu of the number
of shares as to which such option shall then be so exercisable, the number and
class of shares of stock or other securities to which such holder would have
been entitled pursuant to the terms of the agreement of merger or consolidation
if, immediately prior to such merger or consolidation, such holder had been the
record holder of a number of shares of Common Stock equal to the number of
shares as to which such option was exercisable.
8.2 SALE OR MERGER WITH CHANGE OF CONTROL. If the Company is merged or
consolidated with another corporation under circumstances in which the
stockholders of the Company immediately prior to such merger or consolidation do
not own after such merger or consolidation shares representing at least fifty
percent (50%) of the voting power of the merged or consolidated corporations, or
if the Company is liquidated or sells or otherwise disposes of substantially all
of its assets (each hereinafter referred to as a "Transaction"), the Committee
may take one or more of the following actions with respect to unexercised and
unexpired options then outstanding under the Plan: (i) after the effective date
of the Transaction, each holder of an outstanding option may remain entitled,
upon exercise of such option, to receive, in lieu of shares of Common Stock,
shares of such stock or other securities, cash or property as the holders of
shares of Common Stock received pursuant to the terms of the Transaction; (ii)
the time for exercise of all unexercised and unexpired options may be
accelerated to a date prior to the effective date of the Transaction specified
by the Committee; or (iii) all outstanding options may be cancelled as of the
effective date of the Transaction; provided that in the event of cancellation or
acceleration (x) notice of such cancellation or acceleration shall be given to
each holder of an option at least 20 days prior to the effective date of the
Transaction, and (y) each holder of an option shall have the right to exercise
such option to the extent that the same is then exercisable or, if the Committee
shall have accelerated the time for exercise of all unexercised and unexpired
options, in full, during the period between the date of such notice and the
effective date of the Transaction.
SECTION 9. AMENDMENT OF THE PLAN
The Board may terminate the Plan and may amend the Plan at any time,
and from time to time, subject to the limitation that, except as provided in
Sections 7 and 8 hereof, no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law and regulations,
at an annual or special meeting held within 12 months
-8-
<PAGE> 9
before or after the date of adoption of such amendment, in any instance in which
such amendment would: (i) increase the number of shares of Common Stock that may
be issued under, or as to which options may be granted pursuant to, the Plan; or
(ii) change in substance the provisions of Section 4 hereof relating to
eligibility to participate in the Plan. In addition, the formula provisions of
the Plan with respect to grants under Section 4.2 shall not be amended more than
once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act, or the rules thereunder. Without
limiting the generality of the foregoing, the Board is expressly authorized to
amend the Plan, at any time and from time to time, to conform it to the
provisions of Rule 16b-3 under the Exchange Act, as that Rule may be amended
from time to time.
SECTION 10. NON-EXCLUSIVITY OF THE PLAN; NON-UNIFORM DETERMINATIONS
Neither the adoption of the Plan by the Board nor the approval of the
Plan by the stockholders of the Company shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including without limitation the granting of options
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.
The Committee's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, awards under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee shall
be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Plan agreements, as
to (i) the persons to receive awards under the Plan, (ii) the terms and
provisions of awards under the Plan, (iii) the exercise by the Committee of its
discretion in respect of the exercise of options pursuant to the terms of the
Plan, and (iv) the treatment of leaves of absence pursuant to Section 5(e)
hereof.
SECTION 11. GOVERNMENT AND OTHER REGULATIONS; TAX WITHHOLDING
The obligation of the Company to sell and deliver shares of Common
Stock with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by government
agencies as may be deemed necessary or appropriate by the Committee. All shares
sold under the Plan shall bear appropriate legends. The Company may, but shall
in no event be obligated to, register or qualify any securities covered hereby
under applicable federal and state securities laws; and in the event any shares
are so registered or qualified the Company may remove any legend on certificates
representing such shares. The Company shall not be obligated to take any other
affirmative action in order to cause the exercise of an option or the issuance
of shares pursuant thereto to comply with any law or regulation of any
governmental authority. The Plan shall be governed by and construed in
accordance with the laws of the State of Delaware.
Whenever under the Plan shares are to be delivered upon exercise of an
option, the Company shall be entitled to require as a condition of delivery that
the Grantee remit an amount
-9-
<PAGE> 10
sufficient to satisfy all federal, state and other governmental withholding tax
requirements related thereto.
SECTION 12. EFFECTIVE DATE OF PLAN
The effective date of the Plan is October 26, 1990, the date on which
it was approved by the Board. No option may be granted under the Plan after the
tenth anniversary of such effective date. Subject to the foregoing, options may
be granted under the Plan at any time subsequent to October 26, 1990; provided,
however, that (a) no such option shall be exercised or exercisable unless the
stockholders of the Company shall have approved the Plan no later than one year
from such effective date, and (b) all options issued prior to the date of such
stockholders' approval shall contain a reference to such condition.
-10-
<PAGE> 1
EXHIBIT 4.2
NOTICE OF RESTRICTED STOCK GRANT
BY
TELCO SYSTEMS, INC.
Stockholder: Itai Aaronson
Social Security No.: ###-##-####
The Company's Board of Directors has authorized you to be granted shares of
restricted common stock, as follows:
TOTAL NUMBER OF SHARES: 5,000
DATE OF GRANT: 2/15/96
VESTING SCHEDULE: The shares of restricted stock are subject to a vesting
schedule which begins on the Date of Grant. Twenty-five percent (25%) of the
total number of shares granted vest each year, on each of the first four
anniversaries of the Date of Grant. Once shares have vested, you are entitled to
full ownership of, and the right to sell or hold, such shares. In the event that
your full-time employment by the Company terminates for any reason prior to the
fourth anniversary of the Date of Grant, any unvested shares will be forfeited
to the Company for no consideration.
By your signature below, you accept this grant and you and the Company agree
that these restricted shares are granted under and governed by the provisions of
the Grant Agreement, which is attached hereto as Appendix A and made a part of
this document. PLEASE READ THAT AGREEMENT CAREFULLY.
The parties have executed this agreement, or caused this agreement to be
executed, as of the Date of Grant.
TELCO SYSTEMS, INC.
/s/ John A. Ruggiero /s/ Itai Aaronson
By: _________________________ _________________________
John A. Ruggiero Itai Aaronson
Chief Executive Officer Stockholder
and Secretary
<PAGE> 2
Appendix A
GRANT AGREEMENT
---------------
This agreement is dated as of February 15, 1996 and is between the
person (the "Stockholder") whose name is set forth on the Notice of Restricted
Stock Grant (the "Notice") to which this agreement is attached and Telco
Systems, Inc., a Delaware corporation (the "Company").
1. ACKNOWLEDGEMENT OF GRANT. The Stockholder and the Company hereby
acknowledge the grant to the Stockholder by the Company as of the date of this
agreement of the number of shares of the Company's common stock, $.01 par value
("Common Stock"), set forth in the Notice, for consideration consisting of past
services rendered to the Company by the Stockholder. The shares of Common Stock
so granted are hereinafter sometimes referred to as the "Shares," which term
shall also include any shares of capital stock of the Company issued to the
Stockholder by virtue of his or her ownership of the Shares, by stock dividend,
stock split, recapitalization or otherwise. Shares that are subject to
forfeiture, as described in section 3 hereof, are hereinafter referred to as
"Unvested Shares," and Shares that are no longer so subject to forfeiture are
hereinafter referred to as "Vested Shares."
2. RESTRICTIONS ON TRANSFER. The following restrictions on transfer of
the Shares shall apply. No Shares, or any interest therein, may be sold, pledged
or otherwise disposed of, by operation of law or otherwise, at any time or under
any circumstances unless (i) the Shares proposed to be transferred are Vested
Shares, and EITHER (ii) such Shares have been registered under the Securities
Act of 1933, as amended (the "Act"), and qualified under applicable state
securities laws, OR (iii) the proposed transfer is exempt from such registration
and qualification, as determined by the Company. The Company hereby represents
that it has filed under the Act, and caused to become effective, a registration
statement on Form S-8 covering the Shares. The Company shall use reasonable
efforts to maintain such registration in effect so long as the Stockholder
holds, or has a right to hold, any of the Shares.
3. Employment and Forfeiture of Unvested Shares.
--------------------------------------------
(a) The parties hereby acknowledge that the Stockholder is
presently employed on a full-time basis by the Company. In the event that the
Stockholder's full-time employment by the Company, or by a subsidiary of the
Company, terminates for any reason whatsoever (including without limitation
voluntary termination, termination by the Company with or without cause, death
or disability) prior to February 15, 2000, then there shall be forfeited by the
Stockholder, and transferred to the Company for
-1-
<PAGE> 3
<TABLE>
no cash or other consideration, a number of Shares determined as follows:
<CAPTION>
Employment Shares
Termination Date to be Forfeited
---------------- ---------------
<S> <C>
Prior to February 15, 1997 100% of the total
February 15, 1997-February 14, 1998 75% of the total
February 15, 1998-February 14, 1999 50% of the total
February 15, 1999-February 14, 2000 25% of the total
February 15, 2000 and thereafter None
</TABLE>
(b) If the Stockholder shall have been continuously employed
full-time by the Company or a subsidiary of the Company from the date hereof
through February 15, 2000, then ownership of all of the Shares held by the
Stockholder as of such date shall be vested outright in the Stockholder, free
and clear of the forfeiture rights set forth in this section 3. The Shares
shall, however, remain subject to any restrictions contained or referred to in
section 2 hereof, to the extent then applicable.
4. PROCEDURES. No certificate representing Shares shall initially be
issued to the Stockholder. The shares shall be held in "Book Entry" form by the
Transfer Agent for the Common Stock until each vesting date. On or as soon as
practicable after each vesting date, the Company shall take the following
action:
(a) The Company shall notify the Stockholder of the amount of
the state and federal taxes required to be held by the Company with respect to
the vesting of the Shares that became Vested Shares on such date, which notice
shall specify that the Stockholder may deliver to the Company a check in the
amount of such withholding taxes.
(b) In the event that the Stockholder does not pay such
withholding taxes to the Company within the period specified in the notice, the
Company shall cause a sufficient number of such Vested Shares to be sold on the
NASDAQ market so that the net proceeds of such sale shall equal the amount of
such taxes. The Stockholder may also request that the Company sell additional
Vested Shares, at the time of the aforesaid sale, for the Stockholder's own
account.
(c) The Company shall retain withholding taxes, whether
provided by the Stockholder or though the sale of Vested shares, in accordance
with applicable withholding regulations.
(d) The Company shall deliver to the Stockholder (i) the net
proceeds of the sale of any Vested Shares sold by the Company for the account of
the Stockholder, as described in section 4(b), and (ii) a certificate
representing the balance (if any) of the Vested Shares. Such certificate shall
contain appropriate restrictive legends if the registration statement on Form
S-8 referred to in section 2 hereof is not then effective.
-2-
<PAGE> 4
The Stockholder hereby irrevocably constitutes and appoints the Company
as his or her attorney-in-fact and agent to execute and deliver all documents
and take such other action as may be necessary in order to take the action
described in the section 4, including the sale of Vested Shares as described
above.
5. Miscellaneous
-------------
(a) AMENDMENTS. Neither this agreement nor any provision
hereof may be changed or modified except by an agreement in writing executed by
the Stockholder and on behalf of the Company.
(b) BINDING EFFECT OF THE AGREEMENT. This agreement shall
inure to the benefit of, and be binding upon, the Company, the Stockholder and
their respective estates, heirs, executors, transferees, successors, assigns and
legal representatives.
(c) RIGHTS AS A STOCKHOLDER. The Stockholder shall have all
rights and privileges of a holder of Common Stock, including full voting power,
with respect to any and all Shares (whether vested or unvested).
(d) PROVISIONS SEPARABLE. In the event that any of the terms
of this agreement shall be or become or is declared to be illegal or
unenforceable by any court or other authority of competent jurisdiction, such
terms shall be null and void and shall be deemed deleted from this agreement,
and all the remaining terms of this agreement shall remain in full force and
effect.
(e) DEFINITION OF COMMON STOCK. The term "Common Stock" as
used in this agreement shall mean the Company's presently authorized Common
Stock, $.01 par value, and any class of capital stock of the Company that may,
through stock dividend, stock split, recapitalization, merger, reorganization or
otherwise replace such class of stock.
(f) NO EMPLOYMENT AGREEMENT. This agreement shall not be
construed as an agreement by the Company to employ the Stockholder, nor is the
Company obligated to continue employing the Stockholder by reason of this
agreement or the grant of the Shares to the Stockholder.
(g) APPLICABLE LAW. This agreement shall be construed
and enforced in accordance with the laws of the State of Delaware.
-3-
<PAGE> 5
SCHEDULE 4.2
<TABLE>
Exhibit 4.2 omits certain additional Restricted Stock Grant Agreements,
each dated February 15, 1996 and substantially identical to Exhibit 4.2. The
grantee and number of shares of Common Stock covered by each such agreement are
as follows:
<CAPTION>
Number of Shares of
Grantee Restricted Stock
------- ----------------
<S> <C>
Al Bannis 5,000
Jeffrey Black 10,000
Karen Brim 5,000
Richard Cameron 5,000
John Caughron 5,000
Jaswant Dhaliwal 5,000
Daniel Fretz 5,000
Stanley Gardner 5,000
Zuren Hsi 5,000
Bryan Knysh 3,000
Stephen Mills 5,000
Larry Orr 3,000
Joseph Schick 3,000
Edward Schloeman 5,000
Lawrence Walker 3,000
George Weigt 5,000
Jeffrey Weiss 10,000
</TABLE>
<PAGE> 1
EXHIBIT 5.1
February 15, 1996
Telco Systems, Inc.
63 Nahatan Street
Norwood, MA 02062
Ladies and Gentlemen:
We are familiar with the Registration Statement on Form S-8 (the "S-8
Registration Statement") filed today with the Securities and Exchange Commission
by Telco Systems, Inc., a Delaware corporation (the "Company") relating to
442,000 shares of the Company's common stock (the "Common Stock") issuable
pursuant to the Company's 1990 Amended and Restated Stock Option Plan (the
"Plan") and certain Restricted Stock Grant Agreements, each dated February 15,
1996, between the Company and certain employees of the Company named therein
(collectively, the "Agreements.")
We are familiar with the Company's Certificate of Incorporation, its
By-Laws, the records of all meetings and consents of its Board of Directors and
of its stockholders, and its stock records. We have examined such other records
and documents as we deemed necessary or appropriate for purposes of rendering
this opinion.
Based upon the foregoing, we are of the opinion that (a) the Company
has corporate power adequate for the issuance in the manner set forth in the S-8
Registration Statement of the 442,000 shares of its Common Stock to be issued
pursuant to the Plan and the Agreements and offered pursuant to the S-8
Registration Statement, (b) the Company has taken all necessary corporate action
required to authorize the issuance and sale of such 442,000 shares and (c) when
certificates for such shares have been duly executed and countersigned, and, in
the case of shares issued pursuant to the Plan, delivered against due receipt of
the exercise price for such shares as described in the Plan, such shares will be
validly and legally issued, fully paid and non-assessable.
<PAGE> 2
Telco Systems, Inc.
February 15, 1996
Page 2
We hereby consent to the filing of this opinion as part of the S-8
Registration Statement.
Very truly yours,
FOLEY, HOAG & ELIOT
/s/ Robert W. Sweet, Jr.
---------------------------
Robert W. Sweet, Jr.
A Partner
/mb
18/194741.01
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8) pertaining to the Telco Systems, Inc. Amended and Restated
1990 Stock Option Plan and certain Restricted Stock Grant Agreements of our
report dated October 12, 1995, with respect to the consolidated financial
statements and schedules of Telco Systems, Inc. included in its Annual
Report (Form 10-K) for the year ended August 27, 1995, filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
February 13, 1996
