Amended and Restated 1996 Employee Incentive Stock Option Plan


  EXHIBIT 10.3(a)
 ADTRAN,
INC.
 AMENDED AND RESTATED
1996 EMPLOYEES INCENTIVE STOCK OPTION PLAN
 ARTICLE 1
Purpose
 1.1               General Purpose. The purpose of this Plan is to further the growth and development of the Company by
encouraging employees to obtain a proprietary interest in the Company by owning its stock. The Company intends that the Plan will provide such persons with an added incentive to continue in the employ of the Company and will stimulate their efforts
in promoting the growth, efficiency and profitability of the Company. The Company also intends that the Plan will afford the Company a means of attracting to its service persons of outstanding quality.
 1.2               Intended Tax Effects of Options. It is
intended that part of the Plan qualify as an ISO (as hereinafter defined) plan and that any option granted in accordance with such portion of the Plan qualify as an ISO, all within the meaning of Code §422. The tax effects of any NQSO (as
hereinafter defined) granted hereunder should be determined under Code §83.
 ARTICLE 2
Definitions
 The following words and phrases as used in this Plan shall have the meanings set forth in this Article unless a different meaning is clearly required by the
context:
 2.1               1933
Act shall mean the Securities Act of 1933, as amended.
 2.2               1934 Act shall mean the Securities Exchange Act of 1934, as amended.
 2.3               Beneficiary shall mean, with respect to
an Optionee, the Person or Persons to whom the Optionee’s Options shall be transferred upon the Optionee’s death (i.e., the Optionee’s Beneficiary).
 (a)    Designation of Beneficiary. An Optionee’s Beneficiary shall be the Person who is
last designated in writing by the Optionee as such Optionee’s Beneficiary hereunder. An Optionee shall designate his or her original Beneficiary in writing on his or her Option Agreement. Any subsequent modification of the Optionee’s
Beneficiary shall be in a written executed and notarized letter addressed to the Company and shall be effective when it is received and accepted by the Committee, determined in the Committee’s sole
discretion.
 (b)    No Designated Beneficiary. If, at any time, no
Beneficiary has been validly designated by an Optionee, or the Beneficiary designated by the Optionee is no longer living or in existence at the time of the Optionee’s death, then the Optionee’s Beneficiary shall be deemed to be the
individual or individuals in the first of the following classes of individuals with one or more members of such class surviving or in existence as of the Optionee’s death, and in the absence thereof, the Optionee’s estate: (a) the
Optionee’s surviving spouse; or (b) the Optionee’s then living lineal descendants, per stirpes.
 (c)    Designation of Multiple Beneficiaries. An Optionee may, consistent with subsection (a) above, designate
more than one Person as a Beneficiary, if, for each such Beneficiary, the Optionee also designates a percentage of the Optionee’s Options to be transferred to such Beneficiary upon the Optionee’s death. Unless otherwise specified by the
Optionee, any designation by the Optionee of multiple Beneficiaries shall be interpreted as a designation by the Optionee that each such Beneficiary (to the extent such Beneficiary is alive or in existence as of the Optionee’s date of death)
should be entitled to an equal percentage of the Optionee’s Options. Each 
 
 





  Beneficiary shall have complete and non-joint rights with respect to the portion of an Optionee’s Options to be transferred to such Beneficiary upon the
Optionee’s death.
 (d)    Contingent Beneficiaries. An Optionee may
designate one or more contingent Beneficiaries to receive all or a portion of the Optionee’s Option in the event that one or more of the Optionee’s original Beneficiaries should predecease the Optionee; otherwise, in the event that one or
more Beneficiaries predeceases the Optionee, then the individual or individuals specified in subsection (b) above shall take the place of each such deceased Optionee’s Beneficiary.
 2.4               Board shall mean the Board of Directors of the
Company.
 2.5               Cause shall mean an act or acts by an individual involving personal dishonesty, incompetence, willful misconduct, moral turpitude, intentional failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses), the use for profit or disclosure to unauthorized persons of confidential information or trade secrets of the Company, the breach of any
contract with the Company, the unlawful trading in the securities of the Company or of another corporation based on information gained as a result of the performance of services for the Company, a felony conviction or the failure to contest
prosecution for a felony, embezzlement, fraud, deceit or civil rights violations, any of which acts causing the Company or any subsidiary liability or loss, as determined by the Committee in its sole discretion.
 2.6               Change of Control
shall mean the occurrence of any one of the following events:
 (a)    Acquisition By Person of
Substantial Percentage. The acquisition by a Person (including “affiliates” and “associates” of such Person, but excluding the Company, any “parent” or “subsidiary” of the Company, or
any employee benefit plan of the Company or of any “parent” or “subsidiary” of the Company) of a sufficient number of shares of the Common Stock, or securities convertible into the Common Stock, and whether through direct
acquisition of shares or by merger, consolidation, share exchange, reclassification of securities or recapitalization of or involving the Company or any “parent” or “subsidiary” of the Company, to constitute the Person the actual
or beneficial owner of greater than 50% of the Common Stock; or
 (b)    Disposition of Assets.
Any sale, lease, transfer, exchange, mortgage, pledge or other disposition, in one transaction or a series of transactions, of all or substantially all of the assets of the Company or of any “subsidiary” of the
Company to a Person described in subsection (a) above.
 For purposes of this Section, the terms “affiliate,” “associate,”
“parent” and “subsidiary” shall have the respective meanings ascribed to such terms in Rule 12b-2 under Section 12 of the 1934 Act.
 2.7               Code shall mean the Internal Revenue Code of 1986, as amended.
 2.8               Committee
shall mean the committee appointed by the Board to administer and interpret the Plan in accordance with Article 3 below.
 2.9               Common Stock shall mean the common stock, par value $0.01 per share, of the Company.
 2.10             Company shall mean
ADTRAN, Inc., and shall also mean any parent or subsidiary corporation of ADTRAN, Inc. unless the context clearly indicates otherwise.
 2.11             Director shall mean individuals who are serving as a member of the Board (i.e., a director of the Company) or who are serving as a member of the board of directors of a parent or subsidiary corporation of the Company.
 2.12             Disability shall mean, with respect to an individual, the total and permanent disability of
such individual as determined by the Committee in its sole discretion.
 

2





  2.13             Effective
Date shall mean February 14, 1996, subject to shareholder approval. See Article 9 herein.
 2.14             Fair Market Value of the Common Stock as of a date
of determination shall mean the following:
 (a)    Stock Listed and Shares Traded.
If the Common Stock is listed and traded on a national securities exchange (as such term is defined by the 1934 Act) or on The Nasdaq National Market on the date of determination, the Fair Market Value per share shall be the
closing price of a share of the Common Stock on said national securities exchange or National Market System on the date of determination. If the Common Stock is traded in the over-the-counter market, the Fair Market Value per share shall be the
average of the closing bid and asked prices on the date of determination.
 (b)    Stock Listed
But No Shares Traded. If the Common Stock is listed on a national securities exchange or on the National Market System but no shares of the Common Stock are traded on the date of determination but there were shares traded on
dates within a reasonable period before the date of determination, the Fair Market Value shall be the closing price of the Common Stock on the most recent date before the date of determination. If the Common Stock is regularly traded in the
over-the-counter market but no shares of the Common Stock are traded on the date of determination (or if records of such trades are unavailable or burdensome to obtain) but there were shares traded on dates within a reasonable period before the date
of determination, the Fair Market Value shall be the average of the closing bid and asked prices of the Common Stock on the most recent date before the date of determination.
 (c)    Stock Not Listed. If the Common Stock is not listed on a national securities exchange or on the National Market System and is
not regularly traded in the over-the-counter market, then the Committee shall determine the Fair Market Value of the Common Stock from all relevant available facts, which may include the average of the closing bid and ask prices reflected in the
over-the-counter market on a date within a reasonable period either before or after the date of determination or opinions of independent experts as to value and may take into account any recent sales and purchases of such Common Stock to the extent
they are representative.
 The Committee’s determination of Fair Market Value, which shall be made pursuant to the foregoing provisions, shall be final and
binding for all purposes of this Plan.
 2.15             ISO shall mean an incentive stock option within the meaning of Code §422(b).
 2.16             NQSO shall mean an option to which Code §421 (relating generally to certain ISO and other options) does
not apply.
 2.17             Option shall mean ISO’s, or NQSO’s granted to individuals pursuant to the terms and provisions of this
Plan.
 2.18             Option
Agreement shall mean a written agreement, executed and dated by the Company and an Optionee, evidencing an Option granted under the terms and provisions of this Plan, setting forth the terms and conditions of such Option, and
specifying the name of the Optionee and the number of shares of stock subject to such Option.
 2.19             Option Price shall mean the purchase price of the shares of Common Stock underlying an Option.
 2.20             Optionee shall mean an
individual who is granted an Option pursuant to the terms and provisions of this Plan.
 2.21             Person shall mean any individual, organization, corporation, partnership, trust or other entity.
 2.22             Plan shall mean this
ADTRAN, Inc. Amended and Restated 1996 Employees Incentive Stock Option Plan.
 

3





  ARTICLE 3
Administration
 3.1               General Administration. The Plan shall be administered and
interpreted by the Committee. Subject to the express provisions of the Plan, the Committee shall have authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions
of the Option Agreements by which Options shall be evidenced (which shall not be inconsistent with the terms of the Plan), and to make all other determinations necessary or advisable for the administration of the Plan, all of which determinations
shall be final, binding and conclusive.
 3.2               Appointment. The Board shall appoint the Committee from among its members to serve at the pleasure of the
Board. The Board from time to time may remove members from, or add members to, the Committee and shall fill all vacancies thereon. The Committee at all times shall be composed of two or more directors who shall meet the following
requirements:
 (a)    Disinterested Administration Rule. During the
period any director is serving on the Committee and during the 1-year period immediately preceding the commencement of such service, he shall not be or have been granted or awarded any Option or other equity securities of the Company under the Plan
(or any other discretionary stock plan of the Company or any Company affiliate as defined by Rule 144(a)(1) of the 1933 Act). Notwithstanding the preceding sentence, a member of the Committee may participate during such period in (A) a formula plan
(such as the ADTRAN, Inc. Amended and Restated 1996 Directors Stock Option Plan), (B) an ongoing securities acquisition program with broad-based employee participation, and/or (C) a program to elect to receive all or part of his annual retainer in
equity securities of the Company, all as defined and limited by Rule 16b-3 promulgated under Section 16 of the 1934 Act. The requirements of this subsection are intended to comply with the “disinterested administration rule” of Rule 16b-3
under Section 16 of the 1934 Act or any successor rule or regulation, and shall be interpreted and construed in a manner which assures compliance with said Rule. To the extent said Rule 16b-3 is modified to reduce or increase the restrictions on who
may serve on the Committee, the Plan shall be deemed modified in a similar manner.
 (b)    Outside Director Rule. No director serving on the Committee may be a current employee of the Company or a former employee of the Company (or any corporation affiliated with the Company under Code §1504) receiving
compensation for prior services (other than benefits under a tax-qualified retirement plan) during each taxable year during which the director serves on the Committee. Furthermore, no director serving on the Committee shall be or have ever been an
officer of the Company (or any Code §1504 affiliated corporation), or shall be receiving remuneration (directly or indirectly) from such a corporation in any capacity other than as a director. The requirements of this subsection are intended to
comply with the “outside director” requirements of Treas. Reg. §1.162-27(e)(3) or any successor regulation, and shall be interpreted and construed in a manner which assures compliance with the “outside” director requirement
of Code §162(m)(4)(C)(i) A director who meets the requirements of subsection (a) above shall be treated as meeting the requirements of this subsection (b) until the first meeting of shareholders at which directors are to be elected occurring on
or after January 1, 1996.
 3.3               Organization. The Committee may select one of its members as its chairman and shall hold its meetings at such times, in such manner and at such places as it shall deem advisable. A majority of the Committee shall
constitute a quorum, and such majority shall determine its actions. The Committee shall keep minutes of its proceedings and shall report the same to the Board at the meeting next succeeding.
 3.4               Indemnification. In addition to such
other rights of indemnification as they have as directors or as members of the Committee, the members of the Committee, to the extent permitted by applicable law, shall be indemnified by the Company against reasonable expenses (including, without
limitation, attorneys’ fees) actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal, to which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Options granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved to the extent required by and in the manner provided by the
articles or certificate of incorporation or the bylaws of the Company relating to indemnification of directors) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall
be
 

4





  adjudged in such action, suit or proceeding that such Committee member or members did not act in good faith and in a manner he or they reasonably believed to
be in or not opposed to the best interest of the Company.
 ARTICLE 4
Stock
 The stock subject to the Options and other provisions of the Plan shall be authorized but unissued or reacquired shares of Common Stock. Subject to readjustment in accordance with the provisions of
Article 7, the total number of shares of Common Stock for which Options may be granted to persons participating in the Plan shall not exceed in the aggregate 2,488,100 shares of Common Stock. Notwithstanding the foregoing, shares of Common Stock
allocable to the unexercised portion of any expired or terminated Option again may become subject to Options under the Plan.
 ARTICLE
5
Eligibility to Receive and Grant of Options
 5.1               Individuals Eligible for Grants of Options. The individuals eligible to receive Options hereunder shall
be employees of the Company, including such employees who are also members of the Board or of the board of directors of any parent or subsidiary corporation of the Company; provided, no non-employee director shall be eligible to receive any Options
pursuant to this Plan, and provided further, that only employees of the Company and its “parent” or “subsidiary” corporations within the meaning of subsections (e) and (f) of Code §424 shall be eligible to receive
ISO’s. Such eligible individuals may receive Options hereunder in accordance with the provisions of Section 5.2 below.
 5.2               Grants of Options. Subject to the provisions of the Plan, the Committee shall have the authority and sole
discretion to determine and designate, from time to time, those individuals (from among the individuals eligible for a grant of Options under the Plan pursuant to Section 5.1 above) to whom Options will actually be granted, the Option Price of the
shares covered by any Options granted, the manner in and conditions under which Options are exercisable (including, without limitation, any limitations or restrictions thereon), and the time or times at which Options shall be granted. In making such
determinations, the Committee may take into account the nature of the services rendered by the respective employees to whom Options may be granted, their present and potential contributions to the Company’s success and such other factors as the
Committee, in its sole discretion, shall deem relevant. In its authorization of the granting of an Option hereunder, the Committee shall specify the name of the Optionee, the number of shares of stock subject to such Option and whether such Option
is an ISO or a NQSO. The Committee may grant, at any time, new Options to an Optionee who previously has received Options, whether such Options include prior Options that still are outstanding, previously have been exercised in whole or in part,
have expired or are canceled in connection with the issuance of new Options. No individual shall have any claim or right to be granted Options under the Plan.
 5.3               Limitation on Exercisability of ISO’s. Notwithstanding anything herein to the
contrary, the aggregate Fair Market Value of ISO’s which are granted to any employee under the Plan or under any other ISO stock option plan adopted by the Company that are first exercisable in any one calendar year shall not exceed $100,000.
The Committee shall interpret and administer the limitations set forth in this Section in accordance with Code §422(d).
 5.4               Restriction on Grant of Stock Options. No more than 100,000 shares of Common Stock may be made subject to
Options granted during a calendar year to any one individual.
 ARTICLE 6
Terms and Conditions of Options
 Options granted hereunder and Option Agreements shall comply with and be subject to the following terms and conditions:
 

5





  6.1               Requirement of Option Agreement. Upon the grant of an Option hereunder, the Committee shall prepare (or cause to be prepared) an Option Agreement. The Committee shall present such Option Agreement to the Optionee. Upon
execution of such Option Agreement by the Optionee, such Option shall be deemed to have been granted effective as of the date of grant. The failure of the Optionee to execute the Option Agreement within 30 days after the date of the receipt of same
shall render the Option Agreement and the underlying Option null and void ab initio.
 6.2               Optionee and Number of Shares. Each Option Agreement shall state the name of the Optionee and the total
number of shares of the Common Stock to which it pertains, the Option Price, the Beneficiary of the Optionee and the date as of which the Option was granted under this Plan.
 6.3               Vesting. Each Option shall first become exercisable
(i.e., vested) with respect to the shares subject to such Option as of the first anniversary of the date the Option is granted; provided, the Committee may, in its sole discretion, waive the application
of this section and may provide a different vesting schedule in an Option Agreement. Prior to said date, the Option shall be unexercisable in its entirety. Notwithstanding the foregoing, all Options granted to an Optionee shall become immediately
vested and exercisable for 100% of the number of shares subject to the Options upon the Optionee’s becoming Disabled (within the meaning of Section 2.12 hereof) or upon his death or upon a Change in Control. Other than as provided in the
preceding sentences, if an Optionee ceases to be an employee of the Company, his rights with regard to all non-vested Options shall cease immediately.
 6.4               Option Price. The Option Price of the shares of Common Stock underlying each
Option shall be the Fair Market Value of the Common Stock on the date the Option is granted, unless otherwise determined by the Committee; provided, in no event shall the Option Price of any ISO be less than 100% (110% in the case of ISO’s of
Optionees who own more than ten percent of the voting power of all classes of stock of either the Company or any “parent” or “subsidiary” corporation of the Company (within the meaning of subsections (e) and (f) of Code
§424)) of the Fair Market Value of the Common Stock on the date the Option is granted. Upon execution of an Option Agreement by both the Company and Optionee, the date as of which the Committee granted the Option as specified in the Option
Agreement shall be considered the date on which such Option is granted.
 6.5               Terms of Options. Terms of Options granted under the Plan shall commence on the date of grant and shall
expire on such date as the Committee may determine for each Option; provided, in no event shall any Option be exercisable after ten years (five years in the case of ISO’s granted to Optionees who own more than ten percent of the voting power of
all classes of stock of either the Company or any parent or subsidiary) from the date the Option is granted. No Option shall be granted hereunder after ten years from the earlier of (a) the date the Plan is approved by the shareholders, or (b) the
date the Plan is adopted by the Board.
 6.6               Terms of Exercise. The exercise of an Option may be for less than the full number of shares of Common
Stock subject to such Option, but such exercise shall not be made for less than (i) 100 shares or (ii) the total remaining shares subject to the Option, if such total is less than 100 shares. Subject to the other restrictions on exercise set forth
herein, the unexercised portion of an Option may be exercised at a later date by the Optionee.
 6.7               Method of Exercise. All Options granted hereunder shall be exercised by written notice directed to the
Secretary of the Company at its principal place of business or to such other person as the Committee may direct. Each notice of exercise shall identify the Option which the Optionee is exercising (in whole or in part) and shall be accompanied by
payment of the Option Price for the number of shares specified in such notice and by any documents required by Section 8.1. The Company shall make delivery of such shares within a reasonable period of time; provided, if any law or regulation
requires the Company to take any action (including, but not limited to, the filing of a registration statement under the 1933 Act and causing such registration statement to become effective) with respect to the shares specified in such notice before
the issuance thereof, then the date of delivery of such shares shall be extended for the period necessary to take such action. For Options which are ISO’s, written statements on Form 3921 shall be furnished to the Optionee in accordance with
Code §6039 on or before January 31 of the year following the year in which the Option was exercised. See Treas. Reg. §§1.6039-1 and -2, and 301.6039.1.
 

6





  6.8               Medium and Time of Payment.
 (a)    The Option Price shall be payable upon the exercise
of the Option in an amount equal to the number of shares then being purchased times the per share Option Price. Payment, at the election of the Optionee (or his Beneficiary as provided in subsection (c) of Section 6.9), shall be (A) in cash; (B) by
delivery to the Company of a certificate or certificates for shares of the Common Stock duly endorsed for transfer to the Company with signature guaranteed by a member firm of a national stock exchange or by a national or state bank or a federally
chartered thrift institution (or guaranteed or notarized in such other manner as the Committee may require) or by instructing the Company to retain shares of Common Stock upon the exercise of the Option with a Fair Market Value equal to the exercise
price as payment; or (C) by a combination of (A) and (B).
 (b)    If the Optionee delivers Common
Stock with a value that is less than the total Option Price, then such Optionee shall pay the balance of the total Option Price in cash, other property or services, as provided in subsection (a) above.
 (c)    In addition to the payment of the purchase price of the shares then being purchased, an Optionee also shall pay in cash (or have
withheld from his normal pay) an amount equal to, or by instructing the Company to retain Common Stock upon the exercise of the Option with a Fair Market Value equal to, the amount, if any, which the Company at the time of exercise is required to
withhold under the income tax or Federal Insurance Contribution Act tax withholding provisions of the Code, of the income tax laws of the state of the Optionee’s residence, and of any other applicable law.
 6.9               Effect of Termination of Employment,
Disability or Death. Except as provided in subsections (a), (b) and (c) below, no Option shall be exercisable unless the Optionee thereof shall have been an employee of the Company from the date of the granting of the Option
until the date of exercise; provided, the Committee, in its sole discretion, may waive the application of this Section with respect to any NQSO’s granted hereunder and, instead, may provide a different expiration date or dates in a NQSO Option
Agreement.
 (a)    Termination of Employment. In the event an Optionee
ceases to be an employee of the Company for any reason other than death or Disability, any Option or unexercised portion thereof granted to him shall terminate on and shall not be exercisable after the earliest to occur of (1) the expiration
date of the Option, (2) three months after termination of employment or (3) the date on which the Company gives notice to such Optionee of termination of employment if employment is terminated by the Company for Cause (an Optionees resignation
in anticipation of termination of employment by the Company for Cause shall constitute a notice of termination by the Company); provided, the Committee may provide in the Option Agreement that such Option or any unexercised portion thereof shall
terminate sooner. Notwithstanding the foregoing, in the event that an Optionee’s employment terminates for a reason other than death or Disability at any time after a Change of Control, the term of all Options of that Optionee shall be extended
through the end of the three-month period immediately following the date of such termination; provided, this extension shall apply to ISO’s only to the extent it does not cause the term of such ISO’s to exceed the maximum term permitted
under Code §422 or does not cause such ISO’s to lose their status as ISO’s. Prior to the earlier of the dates specified in the preceding sentences of this subsection (a), the Option shall be exercisable only in accordance with its
terms and only for the number of shares exercisable on the date of termination of employment. The question of whether an authorized leave of absence or absence for military or government service or for any other reason shall constitute a termination
of employment for purposes of the Plan shall be determined by the Committee, which determination shall be final and conclusive.
 (b)    Disability. Upon the termination of an Optionee’s employment due to Disability, any Option or unexercised portion thereof granted to him which is otherwise
exercisable shall terminate on and shall not be exercisable after the earlier to occur of (1) the expiration date of such Option, or (2) one year after the date on which such Optionee ceases to be an employee of the Company due to Disability;
provided, the Committee may provide in the Option Agreement that such Option or any unexercised portion thereof shall terminate sooner. Prior to the earlier of such date, such Option shall be exercisable only in accordance with its terms and only
for the number of shares exercisable on the date such Optionee’s employment ceases due to Disability.
 (c)    Death. In the event of the death of the Optionee (1) while he is an employee of the Company, (2) within three months after the date on which such Optionee’s
employment terminated (for a reason
 

7





  other than Cause) as provided in subsection (a) above, or (3) within one year after the date on which such Optionee’s employment terminated due to his
Disability as provided in subsection (b), any Option or unexercised portion thereof granted to him which is otherwise exercisable may be exercised by his Beneficiary at any time prior to the expiration of one year from the date of death of such
Optionee, but in no event later than the date of expiration of the option period; provided, the Committee may provide in the Option Agreement that such Option or any unexercised portion thereof shall terminate sooner. Such exercise shall be effected
pursuant to the terms of this Section as if such Beneficiary is the named Optionee.
 6.10             Restrictions on Transfer and Exercise of Options. No Option shall be assignable or transferable by the Optionee
except by transfer to a Beneficiary upon the death of the Optionee, and any purported transfer (other than as excepted above) shall be null and void. After the death of an Optionee and upon the death of the Optionee’s Beneficiary, an Option
shall be transferred only by will or by the laws of descent and distribution. During the lifetime of an Optionee, the Option shall be exercisable only by him; provided, however, that in the event the Optionee is incapacitated and unable to exercise
Options, such Options may be exercised by such Optionee’s legal guardian, legal representative, fiduciary or other representative whom the Committee deems appropriate based on applicable facts and circumstances.
 6.11             Rights as a Shareholder. An
Optionee shall have no rights as a shareholder with respect to shares covered by his Option until date of the issuance of the shares to him and only after the Option Price of such shares is fully paid. Unless specified in Article 7, no adjustment
will be made for dividends or other rights for which the record date is prior to the date of such issuance.
 6.12             No Obligation to Exercise Option. The granting of an Option shall impose no obligation upon the Optionee to exercise
such Option.
 6.13             Acceleration. The Committee shall at all times have the power to accelerate the vesting date of Options previously granted under this Plan.
 6.14             Designation of Option as ISO or NQSO. Subject to the provisions of
this Article, each Option granted under the Plan shall be designated either as an ISO or a NQSO. An Option Agreement evidencing both an ISO and a NQSO shall identify clearly the status and terms of each Option.
 6.15             ISO’s Converted to NQSO’s. In the event any part or all of an Option granted under the Plan which is intended to be an ISO at any time fails to satisfy all of the requirements of an ISO, then such ISO shall be split into an ISO and NQSO so that the portion of the
Option, if any, that still qualifies as an ISO shall remain an ISO and the portion that does not qualify as an ISO shall become a NQSO. Such split of an Option into an ISO portion and a NQSO portion shall be evidenced by one or more Option
Agreements, as long as each Option is identified clearly as to its status as an ISO or NQSO.
 ARTICLE 7
Adjustments Upon
Changes in Capitalization
 7.1               Recapitalization. In the event that the outstanding shares of the Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of a recapitalization, reclassification, stock split, combination of shares or dividend payable in shares of the Common Stock, the following rules shall apply:
 (a)    The Committee shall make an appropriate adjustment in the number and kind of shares available for the granting of Options under the
Plan.
 (b)    The Committee also shall make an appropriate adjustment in the number and kind of
shares as to which outstanding Options, or portions thereof then unexercised, shall be exercisable; any such adjustment in any outstanding Options shall be made without change in the total price applicable to the unexercised portion of such Option
and with a corresponding adjustment in the Option Price per share. No fractional shares shall be issued or optioned in making the foregoing adjustments, and the number of shares available under the Plan or the
 

8





  number of shares subject to any outstanding Options shall be the next lower number of shares, rounding all fractions downward.
 (c)    Any adjustment to or assumption of ISO’s under this Section shall be made in accordance with Code
§424(a) and the regulations promulgated thereunder so as to preserve the status of such Options as ISO’s under Code §422.
 (d)    If any rights or warrants to subscribe for additional shares are given pro rata to holders of outstanding shares of the class or classes of stock then
set aside for the Plan, each Optionee shall be entitled to the same rights or warrants on the same basis as holders of the outstanding shares with respect to such portion of his Option as is exercised on or prior to the record date for determining
shareholders entitled to receive or exercise such rights or warrants.
 7.2               Reorganization. Subject to any required action by the shareholders, if the Company shall be a party to
any reorganization involving merger, consolidation, acquisition of the stock or acquisition of the assets of the Company which does not constitute a Change of Control, the Committee, in its discretion, may declare that:
 (a)    any Option granted but not yet exercised shall pertain to and apply, with appropriate adjustment as determined by
the Committee, to the securities of the resulting corporation to which a holder of the number of shares of the Common Stock subject to such Option would have been entitled;
 (b)    any or all outstanding Options granted hereunder shall become immediately nonforfeitable and fully exercisable or vested (to the extent permitted under
federal or state securities laws); and/or
 (c)    any or all Options granted hereunder shall become
immediately nonforfeitable and fully exercisable or vested (to the extent permitted under federal or state securities laws) and are to be terminated after giving at least 30 days’ notice to the Optionees to whom such Options have been
granted.
 7.3               Dissolution
and Liquidation. If the Board adopts a plan of dissolution and liquidation that is approved by the shareholders of the Company, the Committee shall give each Optionee written notice of such event at least ten days prior to
its effective date, and the rights of all Optionees shall become immediately nonforfeitable and fully exercisable or vested (to the extent permitted under federal or state securities laws).
 7.4               Limits on Adjustments. Any issuance by
the Company of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of the Common Stock subject to any
Option, except as specifically provided otherwise in this Article. The grant of Options pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge, consolidate or dissolve, or to liquidate, sell or transfer all or any part of its business or assets. All adjustments the Committee makes under this Article shall be conclusive.
 ARTICLE 8
Agreement by Optionee and Securities Registration
 8.1               Agreement. If, in the opinion of counsel to the Company, such action is necessary
or desirable, no Options shall be granted to any Optionee, and no Option shall be exercisable, unless, at the time of grant or exercise, as applicable, such Optionee (i) represents and warrants that he will acquire the Common Stock for investment
only and not for purposes of resale or distribution, and (ii) makes such further representations and warranties as are deemed necessary or desirable by counsel to the Company with regard to holding and resale of the Common Stock. The Optionee shall,
upon the request of the Committee, execute and deliver to the Company an agreement or affidavit to such effect. Should the Committee have reasonable cause to believe that such Optionee did not execute such agreement or affidavit in good faith, the
Company shall not be bound by the grant of the Option or by the exercise of the Option. All certificates representing shares of Common Stock issued pursuant to the Plan shall be marked with the following restrictive legend or similar legend, if such
marking, in the opinion of counsel to the Company, is necessary or desirable:
 

9





  The shares represented by this certificate [have not been registered under the Securities Act of 1933, as amended, or the securities laws
of any state] [and] [are held by an “affiliate” (as such term is defined in Rule 144 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended) of the Corporation]. Accordingly, these shares may not
be sold, hypothecated, pledged or otherwise transferred except (i) pursuant to an effective registration statement under the Securities Act of 1933, as amended, and any applicable securities laws or regulations of any state with respect to such
shares, (ii) in accordance with Securities and Exchange Commission Rule 144, or (iii) upon the issuance to the Corporation of a favorable opinion of counsel or the submission to the Corporation of such other evidence as may be satisfactory to the
Corporation that such proposed sale, assignment, encumbrance or other transfer will not be in violation of the Securities Act of 1933, as amended, or any applicable securities laws of any state or any rules or regulations thereunder. Any attempted
transfer of this certificate or the shares represented hereby which is in violation of the preceding restrictions will not be recognized by the Corporation, nor will any transferee be recognized as the owner thereof by the Corporation.
 If the Common Stock is (A) held by an Optionee who is not an “affiliate,” as that term is defined in Rule 144 of the 1933 Act, or who ceases to be an
“affiliate,” or (B) registered under the 1933 Act and all applicable state securities laws and regulations as provided in Section 8.2, the Committee, in its discretion and with the advice of counsel, may dispense with or authorize the
removal of the restrictive legend set forth above or the portion thereof which is inapplicable.
 8.2               Registration. In the event that the Company in its sole discretion shall deem it necessary or advisable
to register, under the 1933 Act or any state securities laws or regulations, any shares with respect to which Options have been granted hereunder, then the Company shall take such action at its own expense before delivery of the certificates
representing such shares to an Optionee. In such event, and if the shares of Common Stock of the Company shall be listed on any national securities exchange or on The Nasdaq National Market at the time of the exercise of any Option, the Company
shall make prompt application at its own expense for the listing on such stock exchange or The Nasdaq National Market of the shares of Common Stock to be issued.
 ARTICLE 9
Effective Date
 The Plan shall be effective as of the Effective Date, and no Options shall be granted
hereunder prior to said date. Adoption of the Plan shall be approved by the shareholders of the Company at the earlier of (i) the annual meeting of the shareholders of the Company which immediately follows the date of the first grant or award of
Options hereunder, or (ii) 12 months after the adoption of the Plan by the Board, but in no event earlier than 12 months prior to the adoption of the Plan by the Board. Shareholder approval shall be made by a majority of the votes cast at a duly
held meeting at which a quorum representing a majority of all outstanding voting stock is, either in person or by proxy, present and voting on the Plan, or by the written consent in lieu of a meeting of the holders of a majority of the outstanding
voting stock or such greater number of shares of voting stock as may be required by the Company’s articles or certificate of incorporation and bylaws and by applicable law; provided, however, such shareholder approval, whether by vote or by
written consent in lieu of a meeting, must be solicited substantially in accordance with the rules and regulations in effect under Section 14(a) of the 1934 Act. Failure to obtain such approval shall render the Plan and any Options granted hereunder
null and void ab initio.
 ARTICLE 10
Amendment and Termination
 10.1             Amendment and Termination By the
Board. Subject to Section 10.2 below, the Board shall have the power at any time to add to, amend, modify or repeal any of the provisions of the Plan, to suspend the operation of the entire Plan or any of its provisions for
any period or periods or to terminate the Plan in whole or in part. In the event of any such action, the Committee shall prepare written procedures which, when approved by the Board, shall govern the administration of the Plan resulting from such
addition, amendment, modification, repeal, suspension or termination.
 

10





  10.2             Restrictions
on Amendment and Termination. Notwithstanding the provisions of Section 10.1 above, the following restrictions shall apply to the Board’s authority under Section 10.1 above:
 (a)    Prohibition Against Adverse Affects on Outstanding Options. No addition, amendment, modification, repeal,
suspension or termination shall adversely affect, in any way, the rights of the Optionees who have outstanding Options without the consent of such Optionees;
 (b)    Shareholder Approval Required for Certain Modifications. No modification or amendment of the Plan may be made without the prior approval of the
shareholders of the Company if (1) such modification or amendment would cause the applicable portions of the Plan to fail to qualify as an ISO plan pursuant to Code §422, (2) such modification or amendment would materially increase the benefits
accruing to participants under the Plan, (3) such modification or amendment would materially increase the number of securities which may be issued under the Plan, or (4) such modification or amendment would materially modify the requirements as to
eligibility for participation in the Plan, or (v) such modification or amendment would modify the material terms of the Plan within the meaning of Treas. Reg. §1.162-27(e)(4). Clauses (ii), (iii) and (iv) of the preceding sentence shall be
interpreted in accordance with the provisions of paragraph (b)(2) of Rule 16b-3 of the 1934 Act. Shareholder approval shall be made by a majority of the votes cast at a duly held meeting at which a quorum representing a majority of all outstanding
voting stock is, either in person or by proxy, present and voting, or by the written consent in lieu of a meeting of the holders of a majority of the outstanding voting stock or such greater number of shares of voting stock as may be required by the
Company’s articles or certificate of incorporation and bylaws and by applicable law; provided, however, that for modifications described in clauses (ii), (iii) and (iv) above, such shareholder approval, whether by vote or by written consent in
lieu of a meeting, must be solicited substantially in accordance with the rules and regulations in effect under Section 14(a) of the 1934 Act as required by paragraph (b)(2) of Rule 16b-3 of the 1934 Act.
 ARTICLE 11
Miscellaneous Provisions
 11.1             Application of Funds. The proceeds received by the Company from the sale of the Common Stock subject to the Options
granted hereunder will be used for general corporate purposes.
 11.2             Notices. All notices or other communications by an Optionee to the Committee pursuant to or in connection with the
Plan shall be deemed to have been duly given when received in the form specified by the Committee at the location, or by the person, designated by the Committee for the receipt thereof.
 11.3             Term of Plan. Subject to the terms of Article 10, the Plan shall
terminate upon the later of (i) the complete exercise or lapse of the last outstanding Option, or (ii) the last date upon which Options may be granted hereunder.
 11.4             Compliance with Rule 16b-3. This Plan is intended to be in compliance with the requirements
of Rule 16b-3 as promulgated under Section 16 of the 1934 Act.
 11.5             Governing Law. The Plan shall be governed by and construed in accordance with the laws of the State of
Alabama.
 11.6             Additional Provisions By
Committee. The Option Agreements authorized under the Plan may contain such other provisions, including, without limitation, restrictions upon the exercise of an Option, as the Committee shall deem advisable.
 11.7             Plan Document Controls.
In the event of any conflict between the provisions of an Option Agreement and the Plan, the Plan shall control.
 11.8             Gender and Number. Wherever applicable, the masculine pronoun shall include the feminine pronoun, and the singular
shall include the plural.
 

11





  11.9             Headings. The titles in this Plan are inserted for convenience of reference; they constitute no part of the Plan and are not to be considered in the construction hereof.
 11.10           Legal References. Any references in this Plan to a provision
of law which is, subsequent to the Effective Date of this Plan, revised, modified, finalized or redesignated, shall automatically be deemed a reference to such revised, modified, finalized or redesignated provision of law.
 11.11           No Rights to Employment. Nothing contained
in the Plan, or any modification thereof, shall be construed to give any individual any rights to employment with the Company or any parent or subsidiary corporation of the Company.
 11.12           Unfunded Arrangement. The Plan shall not be funded, and except for reserving a
sufficient number of authorized shares to the extent required by law to meet the requirements of the Plan, the Company shall not be required to establish any special or separate fund or to make any
other segregation of assets to assure the payment of any grant under the Plan.
 ADOPTED BY BOARD OF DIRECTORS EFFECTIVE AS OF FEBRUARY 14,
1996
 APPROVED BY SHAREHOLDERS AS OF APRIL 19, 1996
 FIRST AMENDMENT ADOPTED BY BOARD OF DIRECTORS
AND APPROVED BY SHAREHOLDERS
EFFECTIVE AS OF APRIL 23, 1997
 SECOND AMENDMENT ADOPTED BY BOARD OF DIRECTORS
EFFECTIVE AS OF JULY 15, 1999
 AMENDED AND
RESTATED PLAN ADOPTED BY BOARD OF DIRECTORS
EFFECTIVE AS OF JANUARY 13, 2000
 FIRST AMENDMENT TO AMENDED AND RESTATED
PLAN
ADOPTED BY BOARD OF DIRECTORS AND APPROVED BY SHAREHOLDERS
EFFECTIVE AS OF APRIL 21, 2000
 SECOND AMENDMENT TO AMENDED AND RESTATED PLAN
ADOPTED BY BOARD OF DIRECTORS AND APPROVED BY SHAREHOLDERS
EFFECTIVE AS OF APRIL 20, 2001
 THIRD AMENDMENT TO AMENDED AND RESTATED PLAN
ADOPTED BY BOARD OF DIRECTORS 
EFFECTIVE AS OF MARCH 18,
2003
 

12





  FIRST AMENDMENT
TO THE ADTRAN, INC.
AMENDED AND
RESTATED
1996 EMPLOYEES INCENTIVE STOCK OPTION PLAN
 This First Amendment to the ADTRAN, Inc. Amended and Restated 1996
Employees Incentive Stock Option Plan (the “Plan”) is made and entered into this 21st day of April, 2000, by ADTRAN, Inc. (the “Company”).
 W I T N E S S E T H:
 WHEREAS, the Company maintains the Plan, which is administered by a committee appointed by the Board of
Directors of the Company (the “Board”), to provide for grants of options to employees of the Company; and
 WHEREAS, the Board has determined that it
is advisable to amend the Plan to increase the maximum aggregate number of shares available to be issued under the Plan from 2,488,100 shares of common stock to 5,488,100 shares of common stock (the “First Amendment”);
 WHEREAS, Article 10 of the Plan permits the Board to amend the Plan subject to certain restrictions, including stockholder approval of certain changes;
 WHEREAS, the Board adopted resolutions approving the First Amendment on January 13, 2000; and
 WHEREAS, the stockholders of the Company approved the First Amendment at the Company’s 2000 Annual Meeting of Stockholders held on April 21, 2000;
 NOW, THEREFORE, the Company hereby amends the Plan as follows:
 1.
 Effective as of April 21, 2000, Article 4 of the Plan shall be amended by striking “2,488,100” and by substituting “5,488,100” in lieu thereof.
 2.
 Except as specifically amended hereby, the Plan shall remain in full force and
effect.
 IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this First Amendment on the date first set forth above.

  

	  
 	  
 	 ADTRAN, INC.
 
 
 
	 
 
 
 	  
 	 By: 
 	 
 /s/ JOHN R. COOPER
 
	  
 	  
 	  
 	 
 
	  
 	  
 	  
 	 John R. Cooper
 Vice President - Finance, Chief Financial
 Officer and
Treasurer
 

  
 

13





  SECOND AMENDMENT
TO THE ADTRAN, INC.
AMENDED AND
RESTATED
1996 EMPLOYEES INCENTIVE STOCK OPTION PLAN
 This Second Amendment to the ADTRAN, Inc. Amended and Restated 1996
Employees Incentive Stock Option Plan (the “Plan”) is made and entered into this 20th day of April, 2001, by ADTRAN, Inc. (the “Company”).
 W I T N E S S E T H:
 WHEREAS, the Company maintains the Plan, which is administered by a committee appointed by the Board of Directors of the Company
(the “Board”), to provide for grants of options to employees of the Company; and
 WHEREAS, the Board has determined that it is advisable to amend the
Plan to increase the maximum aggregate number of shares available to be issued under the Plan by 3,000,000 shares, i.e., from 5,488,100 shares of Common Stock (as defined in the Plan) to 8,488,100 shares of Common Stock, and to place limits on the
number of options that may be granted under the Plan with an option exercise price that is below the fair market value of the Company’s common stock on the date of grant and on the class of employees to receive such options (the “Second
Amendment”);
 WHEREAS, Article 10 of the Plan permits the Board to amend the Plan subject to certain restrictions, including stockholder approval of
certain changes;
 WHEREAS, the Board adopted resolutions approving the Second Amendment, subject to shareholder approval, on February 12, 2001; and

WHEREAS, the stockholders of the Company approved the Second Amendment at the Company’s 2001 Annual Meeting of Stockholders held on April 20, 2001;
 NOW, THEREFORE, the Company hereby amends the Plan as follows:
 1.
 Effective as of April 20, 2001, Article 4 of the Plan shall be amended by striking “5,488,100” and by substituting “8,488,100” in lieu
thereof.
 2.
 Effective as of April 20, 2001, the Plan shall be
amended by deleting Section 6.4 in its entirety and inserting in its place the following:
 “6.4          Option Price. The Option Price of the shares of Common Stock underlying each Option shall be the Fair Market Value of the Common Stock
on the date the Option is granted, unless otherwise determined by the Committee; provided, in no event shall the Option price of any ISO be less than 100% (110% in the case of ISO’s of Optionees who own more than ten percent of the voting power
of all classes of stock of either the Company or any “parent” or “subsidiary” corporation of the Company (within the meaning of subsections (e) and (f) of Code §424)) of the Fair Market Value of the Common Stock on the date
the Option is granted; provided, further, in no event shall the Option price of any Option granted to an executive officer of the Company be less than 100% of the Fair Market Value of the Common Stock on the date the Option is granted; provided,
further, that at no time may the aggregate number of Options hereunder that are neither expired nor terminated, without regard to exercisability, with respect to which the Option price is less than 100% of the Fair Market Value of the Common Stock
on the date the Option is granted, exceed 10% of the total number of shares of Common Stock for which Options may be granted pursuant to Article 4, including such total number of shares that are allocable to the unexercised portion of any expired
or
 

14





  terminated Option that have again become subject to Options under the Plan. Upon execution of an Option Agreement by both the Company and Optionee, the date
as of which the Committee granted the Option as specified in the Option Agreement shall be considered the date on which such Option is granted. For purposes of this Section, the term ‘executive officer of the Company’ shall mean an officer
of the Company who is a reporting person pursuant to §16(a) of the Securities Exchange Act of 1934, as amended.”
 3.
 Except as specifically amended hereby, the Plan shall remain in full force and effect.
 IN
WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Second Amendment on the date first set forth above.
  

	  
 	  
 	 ADTRAN, INC.
 
 
 
	 
 
 
 	  
 	 By: 
 	 
 /s/ JOHN R. COOPER
 
	  
 	  
 	  
 	 
 
	  
 	  
 	  
 	 John R. Cooper
 Vice President - Finance, Chief Financial
 Officer and
Treasurer
 

  
 

15





  THIRD AMENDMENT
TO THE ADTRAN, INC.
AMENDED AND
RESTATED
1996 EMPLOYEES INCENTIVE STOCK OPTION PLAN
 This Third Amendment to the ADTRAN, Inc. Amended and Restated 1996
Employees Incentive Stock Option Plan (the “Plan”) is made and entered into this 18th day of March, 2003, by ADTRAN, Inc. (the “Company”).
 W I T N E S S E T H:
 WHEREAS, the Company maintains the Plan, which is administered by a committee appointed by the Board of Directors of the Company
(the “Board”), to provide for grants of options to employees of the Company; and
 WHEREAS, in accordance with Section 13 of the Securities Exchange
Act of 1934, as amended, and guidance issued thereunder, the Board has determined that it is advisable to amend the Plan to eliminate provisions permitting an optionee to pay the exercise price of an option by instructing the Company to retain
shares of common stock of the Company upon the exercise of an option under the Plan with a fair market value equal to the exercise price; and
 WHEREAS, Article
10 of the Plan permits the Board to amend the Plan at any time, subject to consent of the outstanding optionees for any amendment that would adversely affect, in any way, the rights of such optionees; and
 WHEREAS, the Board adopted resolutions approving the Third Amendment, on March 18, 2003;
 NOW,
THEREFORE, the Company hereby amends the Plan as follows:
 1.
 Effective as of March 18, 2003, Section 6.8 of the Plan shall be amended to read as follows:
 “6.8             Medium and Time of Payment.
 (a)    The Option Price shall be payable upon the exercise of the Option in an amount equal to the number of shares then being purchased times the per share Option Price. Payment, at
the election of the Optionee (or his Beneficiary as provided in subsection (c) of Section 6.9), shall be (A) in cash; (B) by delivery to the Company of a certificate or certificates for shares of the Common Stock evidencing that the shares have been
owned by the Optionee for at least six months and duly endorsed for transfer to the Company with signature guaranteed by a member firm of a national stock exchange or by a national or state bank or a federally chartered thrift institution (or
guaranteed or notarized in such other manner as the Committee may require); or (C) by a combination of (A) and (B).
 (b)    If the Optionee delivers Common Stock with a value that is less than the total Option Price, then such Optionee shall pay the balance of the total Option Price in cash, as provided in subsection (a)
above.
 (c)    In addition to the payment of the purchase price of the shares
then being purchased, an Optionee also shall pay in cash (or have withheld from his normal pay) at least the minimum amount, if any, which the Company at the time of exercise is required to withhold under the income tax or Federal Insurance
Contribution Act tax withholding provisions of the Code, of the income tax laws of the state of the Optionee’s residence, and of any other applicable law.”
 

16





  2.
 Except as specifically amended hereby, the
Plan shall remain in full force and effect.
 IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Third Amendment on the date
first set forth above.
  

	  
 	  
 	 ADTRAN, INC.
 
 
 
	 
 
 
 	  
 	 By: 
 	 
 /s/ JAMES E. MATTHEWS
 
	  
 	  
 	  
 	 
 
	  
 	  
 	  
 	 James E. Matthews
 Senior Vice President – Finance and Administration
 and Chief Financial Officer
 

 
 17