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                                                     As amended through 11/12/91

                               TELCO SYSTEMS INC.

                      1988 NON-STATUTORY STOCK OPTION PLAN
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1.       PURPOSE OF THE PLAN.
         This 1988 Non-Statutory Stock Option Plan (the "Plan") of Telco
Systems, Inc., a Delaware corporation (the "Company"), is designed to provide
financial and investment incentives to present and future key employees of the
Company and of its subsidiaries, and to persons who are or become directors of
any such subsidiary, by affording them an opportunity to acquire or increase
their proprietary interest in the Company through the acquisition of shares of
its Common Stock. By encouraging stock ownership by such key employees and such
other persons, the Company seeks to attract and retain in its employ persons of
exceptional competence, to attract as directors persons of wide experience and a
high degree of competence, and to furnish an added incentive for all of such
persons to increase their efforts on behalf of the Company.

2.       ADMINISTRATION.
         The Plan shall be administered by the Board of Directors of the Company
(the "Board"). All questions of interpretation and application of the Plan, of
options granted hereunder (the "Options") and of the value of shares of Common
Stock subject to an Option, shall be subject to the determination, which shall
be final and binding, of a majority of the Board. The Board may appoint a Stock
Option Committee (the "Committee"), which shall be constituted as determined by
the Board and which, subject to the provisions of the Plan and the approval of
the Board, shall have and exercise all powers of the Board to administer the
Plan. In the event that the powers of the Board are so delegated to the
Committee, the term "Board" as used herein shall be deemed to refer to the
Committee. Notwithstanding the foregoing, the Committee shall not have the right
to amend or terminate the Plan, which right shall be reserved solely to the
Board.

3.       OPTION SHARES.
         The stock subject to the Options and other provisions of the Plan shall
be shares of the Company's Common Stock, $.01 par value (the "Common Stock").
The total amount of the Common Stock with respect to which Options may be
granted shall not exceed in the aggregate 350,000 shares; provided, however,
that the class and aggregate number of shares which may be subject to options
granted hereunder shall be subject to adjustment in accordance with the
provisions of paragraph 15 hereof. Such shares may be treasury shares or
authorized but unissued shares. 


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In the event that any outstanding Option for any reason shall expire or
terminate prior to exercise, the shares of Common Stock allocable to the
unexpired portion of such option may again be subject to an Option under the
Plan.

4.       AUTHORITY TO GRANT OPTIONS AND AMOUNT OF GRANTS.
         The Board may grant Options from time to time to such eligible persons
as it shall determine ("Optionees"). The number of shares of Common Stock to be
covered by any option shall be as determined by the Board.

5.       ELIGIBILITY.
         The individuals who shall be eligible to participate in the Plan shall
be such key employees and directors of any subsidiary corporation as the Board
shall determine from time to time; provided, however, that no person shall
participate in the Plan who in the opinion of the Board may be deemed to be a
director or officer of the Company within the meaning of Section 16(b) of the
Securities Exchange Act of 1934 and the rules and regulations thereunder. For
all purposes of the Plan the term "subsidiary corporation" shall mean any
corporation of which 50% or more of its outstanding voting stock is at the time
owned by the Company or by one or more subsidiary corporations.

6.       OPTION PRICE.
         The price at which shares may be purchased pursuant to Options shall be
specified by the Board at the time the Option is granted, and may not be less
than 85% of the fair market value of the shares of Common Stock on the date the
option is granted; provided, however, that no Option may be granted to an
individual who, at the time such Option is granted, owns more than 10% of the
total combined voting power or value of all classes of stock of the Company or
any subsidiary corporation of the Company unless such Option provides that the
purchase price per share shall not be less than 110% of the fair market value of
the Common Stock on the date the Option is granted.


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7.       DURATION OF OPTIONS.
         The Board in its discretion may provide that an option shall be
exercisable during any specified period of time of not more than 10 years
commencing on the date such option is granted.

8.       AMOUNT EXERCISABLE.
         Each Option may be exercised, so long as it is valid and outstanding,
from time to time in part or as a whole, subject to any limitations with respect
to the number of shares for which the Option may be exercised at a particular
time and to such other conditions as the Board in its discretion may specify
upon granting the option, provided, however, that each Option shall be
exercisable as to not less than one-fifth of the shares for which it may be
exercised on the first anniversary date from the date of such grant, and not
less than an additional one-fifth of such shares on each of the second, third,
fourth and fifth anniversary dates from the date of such grant.

9.       EXERCISE OF OPTIONS.
         Options shall be exercised by the delivery of written notice to the
Company setting forth the number of shares with respect to which the Option is
to be exercised and the address to which certificates therefor are to be mailed,
together with (a) cash, check, bank draft or postal or express money order
payable to the order of the Company for an amount equal to the option price of
such shares, or (b) with the consent of the Board, shares of Common Stock of the
company having a fair market value equal to the option price of such shares, or
(c) with the consent of the Board, the purchaser's promissory note (secured by
collateral, which may be the shares purchased, having a value equal to the
principal amount of the note) bearing interest at such rate as the Board in its
discretion may specify upon exercise of the Option, or (d) with the consent of
the Board, a combination of (a), (b) or (c). For the purpose of the preceding
sentence, the fair market value of the shares of Common Stock so delivered to
the Company shall be the fair market value as determined in good faith by the
Board. As promptly as practicable after receipt of such written notification and
payment, the Company shall deliver to the Optionee certificates for the number
of shares with respect to which such Option has been so exercised, issued in the
Optionee's name; provided, however, that such delivery shall be deemed effected
for all purposes when a stock transfer agent of the Company shall have deposited
such certificates in the United States mail, addressed to the Optionee, at the
address referred to above.


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10.      TRANSFERABILITY OF OPTIONS.
         Options shall not be transferable by an Optionee otherwise than by will
or under the laws of descent and distribution, and shall be exercisable, during
his lifetime, only by him.

11.      TERMINATION OF EMPLOYMENT OR DEATH OF EMPLOYEE-OPTIONEES.
         Except as may be otherwise expressly provided in any Option, Options
issued to employees of the Company or a subsidiary shall terminate on the
earlier of:

         (i)       the date of expiration thereof;

         (ii)      the date of termination of the employment relationship
                   between the Company and the Optionee for cause; or

         (iii)     30 days after the date of termination of the employment
                   relationship between the Company and the Optionee without
                   cause, other than death or retirement in good standing from
                   the employ of the Company for reasons of age or disability
                   under the then established rules of the Company.

         Whether authorized leave of absence, or absence on military or
government service, shall constitute termination of the employment relationship
between the Company and the Optionee shall be determined by the Board at the
time thereof. In the event of the death of an Optionee while in the employ of
the Company and before the date of expiration of such Option, such Option shall
terminate on the earlier of such date of expiration or 180 days following the
date of such death. After the death of such Optionee, his executors,
administrators or any person or persons to whom his Option may be transferred by
will or by the laws of descent and distribution shall have the right, at any
time prior to the expiration of such 180-day period, to exercise the Option to
the extent the Optionee was entitled to exercise such Option immediately prior
to his death. If, before the date of expiration of the Option, an Optionee shall
be retired in good standing from the employ of the Company for reasons of age or
disability under the then established rules of the Company, the Option shall
terminate on the earlier of such date of expiration or 90 days after the date of
such retirement. In the event of such retirement, the Optionee shall have the
right prior to the termination of such Option to exercise the Option to the
extent to which he was entitled to exercise such Option immediately prior to
such retirement. An employment relationship between the Company and an Optionee
shall be deemed to exist during any period in which the Optionee is employed by
the Company or by any subsidiary corporation.


12.      TERMINATION OF ENGAGEMENT OR DEATH OF OTHER OPTIONEES.
         Except AS may be otherwise expressly provided in any Option and except
in case of the death of the Optionee, Options issued to directors of subsidiary
corporations who are not employees of the Company or such subsidiary
corporations shall terminate on the earlier of:


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         (i)       the date of expiration thereof;

         (ii)      the date of termination for cause of the engagement of the
                   Optionee as a director; or

         (iii)     30 days after the date of termination, other than for cause,
                   of such engagement. In the event of the death of an Optionee
                   while engaged as a director by a subsidiary corporation, and
                   before the date of expiration of such Option, such Option
                   shall terminate on the earlier of such date of expiration or
                   180 days following the date of death. After the death of such
                   Optionee, his executors, administrators or any person or
                   persons to whom his option may be transferred by will or by
                   the laws of descent and distribution shall have the right, at
                   any time prior to the expiration of such 180-day period, to
                   exercise the Option to the extent the Optionee was entitled
                   to exercise such option immediately prior to his death.

 13.     REQUIREMENTS OF LAW.
         The Company shall not be required to sell or issue any shares under any
option if the issuance of such shares shall constitute a violation by the
optionee or by the Company of any provisions of any law or regulation of any
governmental authority. In addition, in connection with the Securities Act of
1933, as amended (the "Act"), upon exercise of any Option, the Company shall not
be required to issue such shares unless such shares are registered under the Act
or the Board has received evidence satisfactory to it to the effect that the
holder of such Option will not transfer such shares except pursuant to a
registration statement in effect under the Act or unless an opinion of counsel
to the Company has been received by the Company to the effect that such
registration is not required. Without limiting the generality of the foregoing,
the Company shall not be obligated to issue any such shares if in the Company's
sole judgment to do so would cause the Company or such issue not to be in
compliance with the requirements of Rule 504 promulgated under the Act. Any
determinations in this connection by the Board shall be final, binding and
conclusive. In the event the shares issuable on exercise of an option are not
registered under the Act, the Company may imprint on the certificate or
certificates evidencing such shares the following legend or any other legend
which counsel for the Company considers necessary or advisable to comply with
the Act:
                           "The shares of stock represented by this certificate
                  have not been registered under the Securities Act of 1933 or
                  under the securities laws of any State and may not be sold or
                  transferred except upon such registration or upon receipt by
                  the Corporation of an opinion of counsel satisfactory to the
                  Corporation, in form and substance satisfactory to the
                  Corporation, that registration is not required for such sale
                  or transfer."


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        The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act; and in the event any shares are
so registered 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.

14.      NO RIGHTS AS STOCKHOLDER.
         No Optionee shall have rights as a stockholder with respect to shares
covered by his option until the date of issuance of a stock certificate for such
shares; and, except as otherwise provided in paragraph 15 hereof, no adjustment
for dividends, or otherwise, shall be made if the record date therefor is prior
to the date of issuance of such certificate.

15.      EMPLOYMENT OBLIGATION.
         The granting of any Option shall not impose upon the Company any
obligation to employ or continue to employ any Optionee; and the right of the
Company to terminate the employment or engagement of any officer, employee or
other Optionee shall not be diminished or affected by reason of the fact that an
option has been granted to him.

16.      CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
         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 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.

         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
an Optionee to receive upon exercise of an Option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment had he exercised his
Option in full immediately prior to such event; and (ii) the number and class of
shares with respect to which Options may be granted under the Plan shall be
adjusted by substituting for the total number of shares of Common Stock then
reserved for issuance under 


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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. 

    After a merger of one or more corporations into the Company, or after a
consolidation of the Company and one or more corporations in which the Company
shall be the surviving corporation, 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
holder of record of a number of shares of Common Stock equal to the number of
shares as to which such Option shall be so exercised. 

    If the Company is merged into or consolidated with another corporation under
circumstances where the Company is not the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all its
assets to another corporation while unexercised Options remain outstanding under
the Plan, (i) subject to the provisions of clause (iii) below, after the
effective date of such merger, consolidation or sale, as the case may be, each
holder of an outstanding Option shall be 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 merger, consolidation or sale; (ii) the Board may
accelerate the time for exercise of all unexercised and unexpired options to and
after a date prior to the effective date of such merger, consolidation,
liquidation or sale, as the case may be, specified by the Board; or (iii) all
outstanding Options may be cancelled by the Board as of the effective date of
any such merger, consolidation, liquidation or sale provided that (x) notice of
such cancellation shall be given to each holder of an Option 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 Board shall have accelerated the time for
exercise of all unexercised and unexpired options, in full during the 30-day
period preceding the effective date of such merger, consolidation, liquidation,
sale or acquisition. 

    Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding Options.

 17.     AMENDMENT OR TERMINATION OF PLAN.


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         The Board may modify, revise or terminate this Plan at any time and
from time to time.

18.      WRITTEN AGREEMENT.
         Each Option granted hereunder shall be embodied in a written option
agreement which shall be subject to the terms and conditions prescribed above
and shall be signed by the President, any Vice President or the Chief Financial
officer of the Company for and in the name and on behalf of the Company. Such an
option agreement shall contain such other provisions as the Board in its
discretion shall deem advisable.

19.      EFFECTIVE DATE.
         The Plan became effective upon its adoption by the Board on May 12,
1988. Options may not be granted under the Plan more than 10 years after said
effective date. The Plan shall terminate (i) when the total amount of the Common
Stock with respect to which Options may be granted shall have been issued upon
the exercise of Options; (ii) by action of the Board pursuant to paragraph 16
hereof; or (iii) at the close of business on May 12, 1998, whichever shall first
occur.

20.      REPURCHASE RIGHTS.
         The Board may in its discretion provide, upon the grant of any option
hereunder, that the Company shall have an option to repurchase ALL or any number
of shares purchased upon exercise of such option within 60 days prior to, or at
any time after, the termination of the employment, or engagement by the Company
as a director, of the Optionee to whom the Option was granted. Therepurchase
price per share payable by the Company shall be such amount or be determined by
such formula as is fixed by the Board at the time the Option for the shares
subject to repurchase was granted. In the event the Board shall grant options
subject to the Company's repurchase option, the certificate or certificates
representing the shares purchased pursuant to such Option shall carry a legend
satisfactory to counsel for the Company referring to the Company's repurchase
option.


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