-----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, DNFxVQINVcJQNodUbjkVQFGI8ndD7/IFhWuHs0L6DiGtgg3TE5gSgwCr05K9JiwF ZHZI5ftlKRIpoyv3smKRaA== 0000950135-96-001052.txt : 19960216 0000950135-96-001052.hdr.sgml : 19960216 ACCESSION NUMBER: 0000950135-96-001052 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960215 EFFECTIVENESS DATE: 19960305 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-8 SEC ACT: 1933 Act SEC FILE NUMBER: 333-00959 FILM NUMBER: 96521227 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-8 1 TELCO SYSTEMS, INC. FORM S-8 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 - -------------------------------------------------------------------------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------
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 - ------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------
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 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 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 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 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 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 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 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. 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.
Signature Title Date --------- ----- ---- /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
II-7 10 EXHIBIT INDEX
Exhibit No. Description Page - ------- ----------- ---- 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).
II-8 EX-4.1 2 AMENDED STOCK OPTION PLAN 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 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- 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- 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- 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- 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- 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- 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- 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- 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- EX-4.2 3 NOTICE OF RESTRICTED GRANT AGREEMENT 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 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- 3 no cash or other consideration, a number of Shares determined as follows:
Employment Shares Termination Date to be Forfeited ---------------- --------------- 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
(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- 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- 5 SCHEDULE 4.2 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:
Number of Shares of Grantee Restricted Stock ------- ---------------- 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
EX-5.1 4 OPINION OF COUNSEL 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. 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 EX-23.1 5 CONSENT OF INDEPENDENT AUDITORS 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 -----END PRIVACY-ENHANCED MESSAGE-----