EX-99.(D)(3) 12 dex99d3.txt ADTRAN, INC. 1986 EMPLOYEE INCENTIVE STOCK OPTION Exhibit (d)(3) ADTRAN, INC. EMPLOYEE INCENTIVE STOCK OPTION PLAN February 14, 1986 1. Plan Summary The Plan provides that an aggregate of 200,000 shares of the Corporation's common stock may be optioned to key employees of the grantor Corporation. The Plan provides authority for a Stock Option Plan Committee to select the employees of the Corporation to whom incentive stock options will be granted. No person may be granted any option unless he agrees to remain an employee of the Corporation for at least one (1) year and to become a party to a stock buy and sell agreement. There are approximately three (3) officers and directors of the Corporation plus other key employees eligible to receive options under the Plan. All officers and directors may participate in the Plan. Following the statutory requirements of Code (S)422A, the Plan provides that the Committee may establish the purchase price of the stock at the time the option is granted. However, the purchase price may not be less than 100 percent of the fair market value of the Corporation's common stock on the date the option is granted. In addition, for employees possessing more than ten (10) percent of the issued shares of common stock of the Corporation at the time the option is granted, the purchase price may not be less than 110 percent of the fair market value of the Corporation's common stock on the date the option is granted. Options granted by the Committee will be ten (10) years or less in duration, with the exception of options granted to employees possessing more than ten (10) percent of the issued shares of common stock of the Corporation at the time the option is granted, which options will be five (5) years or less in duration. In addition, if fifty (50) percent or more of the Corporation's assets are sold, the Committee, in its sole discretion, may reduce the duration of all outstanding options so as to terminate within ninety (90) days after the date of said sale of assets. The aggregate fair market value of the stock for which any employee may be granted options in any calendar year shall not exceed $100,000 plus any unused limit carried over (as defined in Plan (S)3(d)) to such year from any prior calendar year. The Plan terminates ten (10) years from its effective date. All new options to be granted are nontransferable. The Corporation is to receive no cash consideration for granting options under the Plan. However, when an option is exercised, the holder is required to pay the option price, in cash or certified bank check, shares of the Corporation's common stock or in any combination of the above, for the number of shares of common stock to be issued on exercise of the option. No adjustment shall be made for cash dividends or the issuance to shareholders of rights to subscribe to additional common stock or other securities. 2. Administration of the Plan The Board of Directors shall appoint a Stock Option Plan Committee (hereinafter called the "Committee") which shall consist of not less than two (2) members, -1- at least one of whom shall be a director of the Corporation. Subject to the provisions of the Plan, the Committee shall have plenary authority, in its discretion: (a) to determine the employees of the Corporation (from among the class of employees eligible under Section 3 to receive options under the Plan) to whom options shall be granted; (b) to determine the time or times at which options shall be granted; (c) to determine the option price of the shares subject to each option, which price shall not be less than the minimum specified in Section 5; (d) to determine (subject to Section 7) the time or times when each option shall become exercisable and the duration of the exercise period; and (e) to interpret the Plan and to prescribe, amend, and rescind rules and regulations relating to it. The Board may from time to time appoint members of the Committee in substitution for members previously appointed and may fill vacancies, however caused, in the Committee; provided, however that at all times at least one member shall be a director of the Corporation. 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. All actions of the Committee shall be taken by unanimous vote of its members. Any action may be taken by a written instrument signed by all the members of the Committee, and action so taken shall be fully as effective as if it had been taken by a unanimous vote of the members at a meeting duly called and held. The Committee may appoint a Secretary to keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable. 3. Eligibility and Limitations on Options Granted under this Plan (a) Options will be granted only to persons who are key employees of the grantor Corporation who agree, in writing, to (1) remain in the employ of, and render services to, the Corporation or a subsidiary corporation of the Corporation for a period of at least one (1) year from the date of granting of the option; and (2) become a party to that certain Stock Buy and Sell Agreement dated February 14, 1986, for its duration. The term "key employees" shall include officers, directors, executives, and supervisory personnel, as well as other employees of the Corporation. (b) No option may be granted to any employee, who at the time of such grant, owns more than ten percent (10%) of the issued common stock of the Corporation, unless at the time of such grant, the option price is fixed at not less than one hundred and ten percent (110%) of the fair market value of the stock subject to the option, and the exercise of such option is prohibited by its terms after the expiration of five (5) years from the date such option is granted. (c) The aggregate fair market value of the stock for which any employee may be granted options in any calendar year shall not exceed $100,000 plus any unused limit carryover (as defined in 3(d) hereof) to such year from any prior calendar year. (d) The unused limit carryover from any such calendar year shall be one-half of any excess of $100,000 over the aggregate fair market value of the common stock for which an employee was granted options under the Plan. The unused limit for any calendar year shall be carried forward for three (3) years. Options granted under the Plan in any year shall be applied against the current year limitation first and -2- then against the remaining unused limit carryovers to such year in the order of the calendar year in which the carryovers arose. 4. Shares of Stock Subject to the Plan There will be reserved for use upon the exercise of options to be granted from time to time under the Plan (subject to the provisions of Section 12) an aggregate of 200,000 shares of common stock of the par value of $.01 per share (hereinafter called the "common stock") of the Corporation, which shares may be in whole or in part, as the Board of Directors of the Corporation (hereinafter called the "Board") shall from time to time determine, authorized but unissued shares of the common stock or issued shares of the common stock which shall have been reacquired by the Corporation. Any shares subject to an option under the Plan, which option for any reason expires or is terminated unexercised as to such shares, may again be subjected to an option under the Plan. 5. Option Price The purchase price under each option issued shall be determined by the Committee at the time the option is granted, but in no event shall such purchase price be less than 100 percent of the fair market value of the Corporation's common stock on the date of grant. However, if the option is granted to an employee described in Section 3(b), the purchase price shall not be less than 110 percent of the fair market value of the Corporation's common stock on the date of grant. 6. Dilution or Other Agreement In the event that additional shares of common stock are issued pursuant to a stock split or stock dividend, the number of shares of common stock then covered by each outstanding option granted hereunder shall be increased proportionately with no increase in the total purchase price of the shares then so covered, and the number of shares of common stock reserved for the purpose of the plan shall be increased by the same proportion. In the event that the shares of common stock of the Corporation from time to time issued and outstanding are reduced by a combination of shares, the number of shares of common stock then covered by each outstanding option granted hereunder shall be reduced proportionately with no reduction in the total price of the shares then so covered, and the number of shares of common stock reserved for the purposes of the Plan shall be reduced by the same proportion. In the event that the Corporation should transfer assets to another corporation and distribute the stock of such other corporation without the surrender of common stock of the Corporation, and if such distribution is not taxable as a dividend and no gain or loss is recognized by reason of Section 355 of the Internal Revenue Code of 1954, or some similar section, then the total purchase price of the shares covered by each outstanding option shall be reduced by an amount which bears the same ratio to the total purchase price then in effect as the fair market value of the stock distributed in respect of a share of the common stock of the Corporation immediately following the distribution, bears to the aggregate of the fair market value at such time of a share of the common stock of the Corporation -3- and the stock distributed in respect thereof. All such adjustments shall be made by the Committee, whose determination upon the same shall be final and binding upon the optionees. No fractional shares shall be issued, and any fractional shares resulting from the computations pursuant to this Section 6 shall be eliminated from the respective option. No adjustment shall be made for cash dividends or the issuance to shareholders of rights to subscribe to additional common stock or other securities. 7. Period of Option and Certain Limitations on Right to Exercise (a) All options issued under the Plan shall be for such period as the Committee shall determine, but for not more than ten (10) years from the grant thereof. However, if the option is granted to an employee described in Section 3(b), the option shall be for a period not more than five (5) years from the date of grant thereof. (b) The period of the option, once it is granted, may be reduced only as provided for in Section 9 in connection with the termination of employment or death of the optionee or in Section 7(c) in the case of less than satisfactory performance or the purchase of fifty (50) percent or more of the Corporation's assets. (c) Each option granted under this Plan shall become exercisable only (1) after the employee consents in writing to that certain Buy and Sell Agreement between the Corporation and the shareholders dated February 14, 1986, provided that said agreement is still in effect and (2) after one (1) year continued employment of the optionee with the Corporation immediately following the date the option is granted. Each option shall be exercisable in full, or as to any part thereof, at any time after the expiration of one (1) year following the date such option is granted, but only if the optionee chooses to exercise such option and to pay for such option in the manner set forth in Section 7(e) hereof (i.e., in cash or certified bank check or shares of the Corporation's common stock or any combination of the foregoing in an amount equal to the full option price of the shares being purchased). Notwithstanding the foregoing, the Committee may, in its sole discretion, (i) prescribe longer time periods and additional requirements with respect to the exercise of an option; (ii) terminate in whole or in part such portion of any option as has not yet become exercisable at the time of termination if it determines that, within one (1) year after the option is granted, the optionee is not performing satisfactorily the duties to which he was assigned on the date the option was granted or duties of at least equal responsibility; or (iii) reduce the duration of all outstanding options, upon the purchase of fifty (50) percent or more of the fair market value of the Corporation's assets, so that all outstanding options will terminate within ninety (90) days after the purchase of said assets. (d) No option under the Plan may be exercised while there is outstanding in the hands of the optionee any prior option under the Plan. For purposes of this Section 7(d), any option shall be treated as outstanding until such option is exercised in full or expires by reason of lapse of time. - 4- (e) The exercise of any option shall also be contingent upon receipt by the Corporation of cash or certified bank check to its order, shares of the Corporation's common stock, or any combination of the foregoing in an amount equal to the full option price of the shares being purchased. For purposes of this paragraph, shares of the Corporation's common stock that are delivered in payment of the option price shall be valued at their fair market value as of the date of the exercise of the option. However, in order to facilitate the accumulation of funds to enable employees to exercise their option, they will have the right, if they so elect, to direct the Corporation to withhold from their compensation regular amounts to be applied toward the exercise of the options. Funds credited to their stock option accounts will be under the control of the Corporation until applied to the payment of the option price at the direction of the employee or returned to the employee in the event the amount is not used for purchase of shares under option, and all funds received or held by the Corporation under the Plan may be used for any corporate purpose, and interest shall be payable to a participant on account of any amounts so held, to be calculated so as to equal the ninety (90) day U.S. Treasury Bill bond equivalent yield as determined by the Committee in its sole discretion. Such amounts may be withdrawn by the employee at any time, in whole or in part, for any reason. In addition, the establishment of such a stock option account by an employee shall not constitute an election to pay for shares with cash upon the exercise of an option. (f) No optionee or his legal representative, legatees, or distributees, as the case may be, will be, or will be deemed to be, a holder of any share subject to an option unless and until certificates for such shares are issued to him or them under the terms of the Plan. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. (g) In no event may an option be exercised after the expiration of its term. (h) Exercise of an option in any manner shall result in a decrease in the number of shares of common stock which thereafter may be available under the Plan by the number of shares as to which the option is exercised. 8. Assignability Each option granted under this Plan shall be transferable only by will or the laws of descent and distribution and shall be exercisable, during his lifetime, only by the employee to whom the option is granted. Except as permitted by the preceding sentence, no option granted under the Plan or any of the rights and privileges thereby conferred shall be transferred, assigned, pledged, or hypothecated in any way (whether by operation of law or otherwise), and no such option, right, or privilege shall be subject to execution, attachment, or similar process. Upon any attempt so to transfer, assign, pledge, hypothecate, or otherwise dispose of the option, or of any right or privilege conferred thereby, contrary to the provisions hereof, or upon the levy of any attachment or similar process upon such option, right or privilege, the option and such rights and privileges shall immediately become null and void. - 5- 9. Effect of Termination of Employment, Death or Disability (a) In the event of the termination of employment of an optionee during the one (1) year period after the date of issuance of an option to him either by reason of (i) a discharge for cause or (ii) voluntary separation on the part of the optionee and without consent of the Corporation, any option or options theretofore granted to him under this Plan shall forthwith terminate. (b) In the event of the termination of employment of an optionee (otherwise than by reason of death or retirement of the optionee at his Retirement Date by the Corporation), any option or options granted to him under the Plan to the extent not theretofore exercised shall be deemed cancelled and terminated forthwith, except that, subject to the provisions of section (a) of this Section, such optionee may exercise any options therefore granted to him, which have not then expired and which are otherwise exercisable within the provisions of Sections 3(a) and 7(c) hereof, within three (3) months after such termination. If the employment of an optionee shall be terminated by reason of the optionee's retirement at his Retirement Date by the Corporation, the optionee shall have the right to exercise such option or options held by him to the extent that such options have not expired, at any time within three (3) months after such retirement. The one (1) year employment duration provisions of Sections 3(a) or 7(c) to the contrary notwithstanding, upon retirement, all options held by an optionee shall be immediately exercisable in full. (c) In the event that an optionee shall die while employed by the Corporation or shall die within three (3) months after retirement at his Retirement Date (by the Corporation), any option or options granted to him under this Plan and not theretofore exercised by him or expired shall be exercisable by the estate of the optionee or by any person who acquired such option by bequest or inheritance from the optionee in full, notwithstanding the one (1) year employment provisions of Sections 3(a) or 7(c), at any time within one (1) year after the death of the optionee. References hereinabove to the optionee shall be deemed to include any person entitled to exercise the option after the death of the optionee under the terms of this Section. (d) In the event of the termination of employment of an optionee by reason of the optionee's disability, the optionee shall have the right, notwithstanding the one (1) year employment duration provisions of Sections 3(a) or 7(c) hereof, to exercise all options held by him, to the extent that options have not previously expired or been exercised, at any time within one (1) year after such termination. (e) For the purposes of this Plan, "Retirement Date" shall mean any date an employee is otherwise entitled to retire and does retire under the Corporation's retirement plans and shall include normal retirement at age 65, early retirement at age 62, and retirement at age 60 after 30 years of service. (f) In the event that fifty (50) percent or more of the Corporation's assets, as determined by their fair market value, are purchased, then, notwithstanding the provisions of Sections 3(a), 7(c), 9(a), 9(b), 9(c) and 9(d), the Committee, in its sole discretion, may reduce the duration of all outstanding options so that all options terminate not later than ninety (90) days after said asset purchase. -6- 10. Listing and Registration of Shares Each option shall be subject to the requirement that if at any time the Committee shall determine, in its sole discretion, that the listing, registration, or qualification of the shares covered thereby upon any securities exchange or under any state or federal law or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issuance or purchase of shares thereunder, such option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 11. Expiration and Termination of the Plan Options may be granted under the Plan at any time or from time to time as long as the total number of shares optioned or purchased under the Plan does not exceed 200,000 shares of common stock. The Plan may be abandoned or terminated at any time by the Board of Directors of the Corporation except with respect to any options then outstanding under the Plan. No option shall be granted pursuant to the Plan after ten (10) years from the effective date of the Plan. 12. Amendment of Plan The Board of Directors may at any time and from time to time modify and amend the Plan (including any form of option agreement) in any respect; provided, however, that no such amendment shall: (a) increase (except in accordance with Section 6) the maximum number of shares for which options may be granted under the Plan either in the aggregate or to any individual employee; or (b) reduce (except in accordance with Section 6) the minimum option prices which may be established under the Plan; or (c) extend the period or periods during which options may be granted or exercised; or (d) change the provisions relating to the determination of employees to whom options shall be granted and the number of shares to be covered by such options; or (e) change the provisions relating to adjustments to be made upon changes in capitalization; or (f) change the method for the selection of the Committee as provided by Section 2 hereof. The termination or any modification or amendment of the Plan shall not, without the consent of an employee, affect his rights under an option theretofore granted to him. 13. Effective Date of Plan This Plan shall become effective on the later of the date of its adoption by the Board of Directors of the Corporation or its approval by the vote of the holders of a majority of the outstanding shares of common stock. This Plan shall not become effective unless such shareholder approval shall be obtained within twelve (12) months before or after the adoption of the Plan by the Board of Directors. -7- FIRST AMENDMENT TO ADTRAN, INC. EMPLOYEES INCENTIVE STOCK OPTION PLAN MINUTES OF ANNUAL MEETING OF THE STOCKHOLDERS OF ADTRAN, INC. HELD IN THE OFFICES OF THE COMPANY ON MARCH 16, 1994 AT 10:00 A.M., C.S.T. The annual meeting of the stockholders of ADTRAN, Inc. (hereinafter the "Company") was held at the offices of the Company at 901 Explorer Blvd., Huntsville, Alabama on March 16, 1994 at 10:00 a.m., C.S.T. Present at the meeting were Mark C. Smith, Lonnie S. McMillian, Roger W. Cain, James L. North, Michael McCleary, Clint S. Coleman, Robert E. Bowlin, Anthony Blackmon, Steven Smith, Michael Turner, Jerry D. Moore, and Danny Windham. Stockholders absent were Norm Harris, Tommy Killian, Sandra Jones, Trustee for Clay Smith and Cyndi Smith, Norris E. Birchfield, Barbara Fisk, Emily Key, Susan Whitehead, John Jurenko, Ruth Jurenko, Janet Brown, Carole Jones, Rickey Causey, Bethe A. Strickland, Michael Reynolds, Anita Anderson, Donald G. McDonald, Larry Owen, Dale Minton and Rose Marie Lee. Mr. Smith noted that a quorum was in attendance and called the meeting to order. He asked that the shareholders elect the Board of Directors for the new year. Mike McCleary moved and Jerry Moore seconded the following resolution: RESOLVED that Mark C. Smith, Lonnie S. McMillian, James L. North, and William L. Marks be elected to continue to serve on the Board of Directors of ADTRAN until their successors have been duly elected and qualified. Upon vote being taken, the resolution was unanimously adopted. Following a request by Mr. Smith that the shareholders appoint the Company auditors for 1994, Danny Windham moved and Mike Turner Moore seconded the following resolution: RESOLVED that Coopers and Lybrand continue to be retained as the Company auditors. Upon vote being taken, the resolution was unanimously adopted. Mr. Smith explained that the ADTRAN Employee Stock Option Plan which currently provides an aggregate of 1,200,000 shares should be increased. A motion by Jerry Moore and seconded by Ed Bowlin was unanimously approved: RESOLVED that the number of shares of the Company's Common Stock set aside for the ADTRAN Employee Stock Option Plan be increased from 1,200,000 to 1,400,000 shares. There being no further business to come before the meeting, a motion was made by Anthony Blackmon, seconded by Steve Smith, and unanimously adopted that the meeting be adjourned. /s/ Mark C. Smith --------------------------------- Mark C. Smith, President /s/ Lonnie McMillian --------------------------------- Lonnie McMillian, Secretary SECOND AMENDMENT TO ADTRAN, INC. EMPLOYEE INCENTIVE STOCK OPTION PLAN THIS SECOND AMENDMENT to the Adtran, Inc. Employee Incentive Stock Option Plan (the "Plan") is made by Adtran, Inc. (the "Company"), effective as noted below. W I T N E S S E T H: WHEREAS, the Board of Directors of the Company (the "Board") has previously adopted the Plan and, pursuant to Section 12 thereof, the Board has the right to amend the Plan at any time; and WHEREAS, the Board wishes to amend the Plan for compliance with Sections 162(m) and 422 of the Internal Revenue Code of 1986, as amended, and Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Act"); NOW, THEREFORE, the Plan is hereby amended as follows effective as noted below: I. The first sentence of the first paragraph of Section 1 of the Plan is amended as of June 27, 1994 by striking "200,000" and inserting in lieu thereof "1,400,000". II. The first paragraph of Section 1 of the Plan is amended effective as of the date on which any class of common equity securities issued by the Company is required to be registered under Section 12 of the Act by striking the words "and to become a party to a stock buy and sell agreement" and by striking the last two sentences thereof. III. The second paragraph of Section 1 of the Plan is amended for options granted after December 31, 1986, by striking the last sentence thereof. IV. Section 2 of the Plan is amended effective as of the date on which any class of common equity securities issued by the Company is required to be registered under Section 12 of the Act by striking the first sentence thereof and inserting in lieu thereof the following: The Board of Directors shall appoint a Stock Option Plan Committee (hereinafter called the "Committee") which shall consist of not less than two (2) members, all of whom shall be directors of the Corporation. V. Section 2 of the Plan is amended effective as of the date on which any class of common equity securities issued by the Company is required to be registered under Section 12 of the Act by striking the proviso at the end of the third sentence thereof and inserting in lieu thereof the following: (1) provided, however, that at all times all members shall be directors of the Corporation. VI. Subsection (a) of Section 3 of the Plan is amended effective as of the date on which any class of common equity securities issued by the Company is required to be registered under Section 12 of the Act by striking clause (2) of the first sentence thereof in its entirety and by striking the reference to clause "(1)" in said sentence. VII. Subsections (c) and (d) of Section 3 of the Plan are amended for options granted after December 31, 1986, to read as follows: (c) The aggregate fair market value of incentive stock options granted under the Plan or any other stock option plan adopted by the Corporation that are first exercisable in any one calendar year shall not exceed $100,000.00. The Committee shall interpret and administer the limitation set forth in this subsection in accordance with Code (S)422(d). (d) [Reserved.] VIII. A new subsection (e) is added to Section 3 of the Plan effective as of the date on which any class of common equity securities issued by the Company is required to be registered under Section 12 of the Act to read as follows: (e) No more than 100,000 shares of the Corporation's common stock may be subject to the aggregate options granted during a calendar year to any one individual. IX. Subsection (c) of Section 7 of the Plan is amended effective as of the date on which any class of common equity securities issued by the Company is required to be registered under Section 12 of the Act by striking clause (1) of the first sentence thereof in its entirety and by striking the reference to clause "(2)" in said sentence. X. Subsection (d) of Section 7 of the Plan is amended as of June 27, 1994 by striking said subsection in its entirety and inserting in lieu thereof the following: (d) [Reserved.] XI. Section 11 of the Plan is amended by striking the second sentence thereof. XII. Section 12 of the Plan is amended effective as of the date on which any class of common equity securities issued by the Company is required to be registered under Section 12 of the Act to read as follows: 12. Amendment and Termination of Plan. (a) Subject to subsection (b) below, the Board of Directors shall have the power at any time and from time to time to add to, amend, modify or repeal any of the provisions of the Plan (including any form of option agreement) in any respect, 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. (b) Notwithstanding the provisions of subsection (a) above, the following restrictions shall apply to the Board's authority under subsection (a) above: (i) Prohibition against adverse effects on outstanding stock rights. No addition, amendment, modification, repeal, suspension or termination shall adversely affect, in any way, the rights of optionees who have outstanding options without the consent of such optionees; (ii) 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 Corporation if (1) such modification or amendment would cause the applicable portions of the Plan to fail to qualify as an incentive stock option plan pursuant to Code (S)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 (5) such modification or amendment would modify the material terms of the Plan within the meaning of Prop. Treas. Reg. (S)1.162-27(e)(4) or the corresponding provision of any future regulations. Clauses (2), (3), and (4) 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 entitled to vote, 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 Corporation's articles or certificate of incorporation and bylaws and by applicable law; provided, however, that for modifications described in clauses (2), (3) and (4) above, 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. XIII. All other provisions of the Plan not inconsistent herewith are hereby confirmed and ratified. Approved by Board of Directors of the Company on June 27, 1994. Approved by Shareholders of the Company on June 27, 1994. THIRD AMENDMENT TO ADTRAN, INC. EMPLOYEE INCENTIVE STOCK OPTION PLAN THIS THIRD AMENDMENT to the Adtran, Inc. Employee Incentive Stock Option Plan (the "Plan") is made by Adtran, Inc. (the "Company"), effective as stated below. W I T N E S S E T H: WHEREAS, the Board of Directors of the Company (the "Board") has previously adopted the Plan and, pursuant to Section 12 thereof, the Board has the right to amend the Plan at any time; and WHEREAS, the Board wishes to amend the Plan to provide that the Plan shall be administered by a Stock Option Plan Committee composed of disinterested directors within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Act"), and for other purposes; NOW, THEREFORE, the Plan is amended as follows effective as noted below: I. Section 2 of the Plan is amended by adding the following after the first sentence thereof effective as of August 9, 1994 (the date the Company's Common Stock was registered under Section 12 of the Act): Furthermore, 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 Corporation under the Plan (or any other discretionary stock plan of the Corporation or any Corporation affiliate as defined by Rule 144(a)(1) of the Securities Exchange Act of 1933, as amended (the "1933 Act"). Notwithstanding the preceding sentence, a member of the Committee may participate during such period in (A) a formula 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 Corporation, all as defined and limited by Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). The requirements of the preceding sentence 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. II. Section 2 of the Plan is amended effective as of August 9, 1994 by striking the proviso at the end of the third sentence thereof, and inserting in lieu thereof the following: provided, however, that at all times all members of the Committee shall be directors of the Corporation satisfying the "disinterested administration" requirement of the second sentence of this Section 2. III. Item V of the Second Amendment to the Plan (which would amend a proviso in Section 2 of the Plan) is repealed as if never adopted. IV. The first sentence of Section 4 of the Plan is amended effective as of June 27, 1994, by striking "200,000" and inserting in lieu thereof "1,400,000". V. Item XI of the Second Amendment to the Plan (which would strike the second sentence of Section II of the Plan) is amended by making such modification to the Plan effective as of the date on which any class of common equity securities issued by the Company is required to be registered under Section 12 of the Act. VI. The first sentence of Section 11 of the Plan is amended effective as of June 27, 1994, by striking "200,000" and inserting in lieu thereof "1,400,000". VII. All other provisions of the Plan not inconsistent herewith are hereby confirmed and ratified. Approved by Board of Directors of the Company on August 17, 1994.