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EXHIBIT 4.1
TELCO SYSTEMS, INC.
1990 Stock Option Plan, as Amended
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(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
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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
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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
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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
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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
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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
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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
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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
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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
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sufficient to satisfy all federal, state and other governmental withholding tax
requirements related thereto.
SECTION 12. EFFECTIVE DATE OF PLAN
The effective date of the Plan is October 26, 1990, the date on which
it was approved by the Board. No option may be granted under the Plan after the
tenth anniversary of such effective date. Subject to the foregoing, options may
be granted under the Plan at any time subsequent to October 26, 1990; provided,
however, that (a) no such option shall be exercised or exercisable unless the
stockholders of the Company shall have approved the Plan no later than one year
from such effective date, and (b) all options issued prior to the date of such
stockholders' approval shall contain a reference to such condition.
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