SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. _____ )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
ADTRAN, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box).
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
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pursuant to exchange act rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(4) Date Filed:
[LOGO]
NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
[ADTRAN, INC. LETTERHEAD]
March 6, 2001
Dear Stockholder:
You are cordially invited to attend the 2001 Annual Meeting of Stockholders
of ADTRAN, Inc. to be held at the Company's headquarters at 901 Explorer
Boulevard, Huntsville, Alabama, on Friday, April 20, 2001, at 10:30 a.m., local
time. The meeting will be held in the Company's new building, the East Tower,
on the second floor.
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. During the meeting, we also
will report on the operations of the Company during the past year and our plans
for the future. Directors and officers of the Company, as well as
representatives from the Company's independent accountants,
PricewaterhouseCoopers LLP, will be present to respond to appropriate questions
from stockholders.
Please mark, date, sign and return your proxy card in the enclosed envelope
at your earliest convenience. This will assure that your shares will be
represented and voted at the meeting, even if you do not attend.
Sincerely,
/s/ Mark C. Smith
-------------------------------
MARK C. SMITH
Chairman of the Board
and Chief Executive Officer
ADTRAN, Inc.
901 Explorer Boulevard
Huntsville, Alabama 35806
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 20, 2001
NOTICE HEREBY IS GIVEN that the 2000 Annual Meeting of Stockholders of
ADTRAN, Inc. (the "Company") will be held at the Company's headquarters at 901
Explorer Boulevard, Huntsville, Alabama, on the second floor of the East Tower,
on Friday, April 20, 2001, at 10:30 a.m., local time, for the purposes of
considering and voting upon:
1. A proposal to elect seven directors to serve until the 2002 Annual
Meeting of Stockholders;
2. A proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year ending
December 31, 2001;
3. A proposal to approve amendments to the Company's 1996 Employees
Incentive Stock Option Plan which:
(a) increase the aggregate number of shares of Common Stock
authorized for issuance under the plan from 5,488,100 shares to
8,488,100 shares; and
(b) place limits on the number of options that may be granted under
the plan with an 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 eligible to receive such options; and
4. Such other business as properly may come before the Annual Meeting or
any adjournments thereof. The Board of Directors is not aware of any
other business to be presented to a vote of the stockholders at the
Annual Meeting.
Information relating to the above matters is set forth in the attached
Proxy Statement. Stockholders of record at the close of business on February 23,
2001 are entitled to receive notice of and to vote at the Annual Meeting and any
adjournments thereof.
By Order of the Board of Directors.
/s/ Mark C. Smith
-----------------
MARK C. SMITH
Chairman of the Board
and Chief Executive Officer
Huntsville, Alabama
March 6, 2001
PLEASE READ THE ATTACHED PROXY STATEMENT AND THEN PROMPTLY COMPLETE, EXECUTE AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. IF
YOU ATTEND THE ANNUAL MEETING, YOU MAY REVOKE THE PROXY CARD AND VOTE IN PERSON
IF YOU SO DESIRE.
ADTRAN, Inc.
901 Explorer Boulevard
Huntsville, Alabama 35806
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 20, 2001
This Proxy Statement is furnished to the stockholders of ADTRAN, Inc. (the
"Company") in connection with the solicitation of proxies by the Board of
Directors of the Company to be voted at the 2001 Annual Meeting of Stockholders
and at any adjournments thereof (the "Annual Meeting"). The Annual Meeting will
be held at the headquarters of the Company, 901 Explorer Boulevard, Huntsville,
Alabama, on Friday, April 20, 2001, at 10:30 a.m., local time. The meeting will
be held in the Company's new building, the East Tower, on the second floor.
The approximate date on which this Proxy Statement and form of proxy card
are first being sent or given to stockholders is March 12, 2001.
VOTING
General
The securities that can be voted at the Annual Meeting consist of common
stock of the Company, $.01 par value per share (the "Common Stock"), with each
share entitling its owner to one vote on each matter submitted to the
stockholders. The record date for determining the holders of Common Stock who
are entitled to receive notice of and to vote at the Annual Meeting is February
23, 2001. On the record date, 39,451,088 shares of Common Stock were
outstanding and eligible to be voted at the Annual Meeting.
Quorum and Vote Required
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock of the Company is necessary to constitute a quorum at the
Annual Meeting. In counting the votes to determine whether a quorum exists at
the Annual Meeting, the proposal receiving the greatest number of all votes
"for" or "against" and abstentions (including instructions to withhold authority
to vote) will be used.
In voting with regard to the proposal to elect directors (Proposal 1),
stockholders may vote in favor of all nominees, withhold their votes as to all
nominees or withhold their votes as to specific nominees. The vote required to
approve Proposal 1 is governed by Delaware law and is a plurality of the votes
cast by the holders of shares entitled to vote, provided a quorum is present.
As a result, in accordance with Delaware law, votes that are withheld will be
counted in determining whether a quorum is present but will have no other effect
on the election of directors.
In voting with regard to the proposal to ratify the directors' appointment
of independent accountants (Proposal 2), stockholders may vote in favor of the
proposal or against the proposal or may abstain from voting. The vote required
to approve Proposal 2 is governed by Delaware law and is the affirmative vote of
the holders of a majority of the shares represented and entitled to vote at the
Annual
Meeting, provided a quorum is present. As a result, abstentions will be
considered in determining whether a quorum is present and the number of votes
required to obtain the necessary majority vote and therefore, will have the same
legal effect as voting against the proposal.
In voting with regard to the proposal (i) to approve an increase in the
aggregate number of shares of Common Stock of the Company authorized for
issuance under the 1996 Employees Incentive Stock Option Plan from 5,488,100 to
8,488,100 shares of Common Stock of the Company (Proposal 3(a)) and (ii) to
place certain limits on the Company's ability to grant options under that plan
at an exercise price below the fair market value of the Company's Common Stock
on the date of grant (Proposal 3(b)), stockholders may vote in favor of the
proposals or against the proposals or may abstain from voting. The vote
required to approve Proposals 3(a) and 3(b) is governed by Delaware law and is
the affirmative vote of the holders of a majority of the shares represented and
entitled to vote at the Annual Meeting, provided a quorum is present. As a
result, abstentions will be considered in determining whether a quorum is
present and the number of votes required to obtain the necessary majority vote
and therefore, will have the same legal effect as voting against the proposals.
Under the rules of the New York and American Stock Exchanges (the
"Exchanges") that govern most domestic stock brokerage firms, member firms that
hold shares in street name for beneficial owners may, to the extent that such
beneficial owners do not furnish voting instructions with respect to any or all
proposals submitted for stockholder action, vote in their discretion upon
proposals which are considered "discretionary" proposals under the rules of the
Exchanges. Member brokerage firms that have received no instructions from their
clients as to "non-discretionary" proposals do not have discretion to vote on
these proposals. Although "broker non-votes" will be considered in determining
whether a quorum exists at the Annual Meeting, "broker non-votes" will not be
considered as votes cast in determining the outcome of any proposal. The
Company believes that Proposal 1 and Proposal 2 are discretionary.
As of February 23, 2001 (the record date for the Annual Meeting), the
directors and executive officers of the Company beneficially owned or controlled
approximately 18,541,527 shares of Common Stock of the Company, constituting
approximately 46.4% of the outstanding Common Stock. The Company believes that
these holders will vote all of their shares of Common Stock in favor of each of
the three proposals and, therefore, that the presence of a quorum and the
approval of the proposals is reasonably assured.
Proxies
Stockholders should specify their choices with regard to each of the three
proposals on the enclosed proxy card. All properly executed proxy cards
delivered by stockholders to the Company in time to be voted at the Annual
Meeting and not revoked will be voted at the Annual Meeting in accordance with
the directions noted thereon. In the absence of such instructions, the shares
represented by a signed and dated proxy card will be voted "FOR" the election of
all director nominees, "FOR" the ratification of the appointment of independent
accountants and "FOR" the amendments to the 1996 Employees Incentive Stock
Option Plan. If any other matters properly come before the Annual Meeting, the
persons named as proxies will vote upon such matters according to their
judgment.
Any stockholder delivering a proxy has the power to revoke it at any time
before it is voted (i) by giving written notice to Charlene Little, Assistant
Secretary of the Company, at 901 Explorer Boulevard, Huntsville, Alabama 35806
(for overnight delivery) or at P.O. Box 140000, Huntsville, Alabama 35814-4000
(for mail delivery), (ii) by executing and delivering to Ms. Little a proxy card
bearing a later date or (iii) by voting in person at the Annual Meeting;
provided, however, that under the rules of the Exchanges and the Nasdaq National
Market, any beneficial owner of the Company's Common Stock whose shares
2
are held in street name by a member brokerage firm may revoke his proxy and vote
his shares in person at the Annual Meeting only in accordance with applicable
rules and procedures of the Exchanges or the Nasdaq National Market, as employed
by the beneficial owner's brokerage firm.
In addition to soliciting proxies through the mail, the Company may solicit
proxies through its directors, officers and employees in person and by telephone
or facsimile. Brokerage firms, nominees, custodians and fiduciaries also may be
requested to forward proxy materials to the beneficial owners of shares held of
record by them. All expenses incurred in connection with the solicitation of
proxies will be borne by the Company.
Share Ownership of Principal Stockholders and Management
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 2000, by (i) each
person known to the Company to be the beneficial owner of more than 5% of the
Company's Common Stock, (ii) each director of the Company, (iii) each of the
executive officers of the Company named in the Summary Compensation Table herein
and (iv) all directors and executive officers of the Company as a group, based
in each case on information furnished to the Company by such persons. The
Company believes that each of the named individuals and each director and
executive officer included in the group has sole voting and investment power
with regard to the shares shown except as otherwise noted.
Common Stock
Beneficially Owned (1)
-------------------------------------
Name and Number Percent of
Relationship to Company of Shares Class
----------------------- --------- ----------
Mark C. Smith (2)
Chairman of the Board, Chief Executive
Officer.................................................... 12,498,800 31.7%
Lonnie S. McMillian (2)
Senior Vice President, Secretary,
Director................................................... 5,343,972 (3) 13.5%
James L. North
Director................................................... 143,000 (1) *
Howard A. Thrailkill
President, Chief Operating Officer
and Director............................................... 110,000 (1) *
Roy J. Nichols
Director................................................... 44,000 (1)(3) *
William L. Marks
Director................................................... 19,364 (1) *
W. Frank Blount
Director................................................... 15,000 (1) *
Robert A. Fredrickson
Vice President - Carrier Networks Sales.................... 48,987 (1) *
Thomas R. Stanton
Vice President and General
Manager, Carrier Networks.................................. 43,879 (1) *
Steven L. Harvey
Vice President - Competitive
Service Provider Sales..................................... 42,500 (1) *
All directors and executive officers as a group
(19 persons)............................................... 18,542,427 (1)(3) 46.4%
3
____________
* Represents less than one percent of the outstanding shares of Common Stock
of the Company.
(1) Beneficial ownership as reported in the table has been determined in
accordance with Securities and Exchange Commission (the "SEC") regulations
and includes shares of Common Stock of the Company that may be issued upon
the exercise of stock options that are exercisable within 60 days of
December 31, 2000 as follows: Mr. North - 16,000 shares; Mr. Thrailkill -
100,000 shares; Mr. Nichols - 16,000 shares; Mr. Marks - 19,000 shares; Mr.
Blount - 15,000 shares; Mr. Fredrickson - 26,687 shares; Mr. Stanton -
40,979 shares; Mr. Harvey - 42,500 shares; and all directors and executive
officers as a group - 473,979 shares. Pursuant to SEC regulations, all
shares not currently outstanding which are subject to options exercisable
within 60 days are deemed to be outstanding for the purpose of computing
"Percent of Class" held by the holder thereof but are not deemed to be
outstanding for the purpose of computing the "Percent of Class" held by any
other stockholder of the Company.
(2) The address of Messrs. Smith and McMillian is 901 Explorer Boulevard,
Huntsville, Alabama 35806.
(3) The shares shown include: as to Mr. McMillian, 1,660,291 shares held by
trusts for which Mr. McMillian is the trustee, 133,642 shares owned by his
wife and 1,000,000 shares owned by a private foundation (as to which
beneficial ownership is disclaimed); as to Mr. Nichols, 28,000 shares held
in two charitable remainder trusts; as to Mr. Fredrickson, 17,400 shares
owned jointly with his daughters; as to M. Melvin Bruce, Jr. (Vice
President - Carrier Networks), 200 shares owned jointly with his daughters;
as to John R. Cooper (Vice President of Finance, Treasurer and Chief
Financial Officer), 500 shares owned by his wife and 900 shares owned by
his stepfather (as to which beneficial ownership is disclaimed); and as to
all directors and executive officers as a group, 152,642 shares owned by
spouses and other immediate family members (as to which beneficial
ownership of 900 shares is disclaimed) as well as 1,660,291 shares held by
trusts for which Mr. McMillian is a trustee.
PROPOSAL 1 - ELECTION OF DIRECTORS
Nominees
The Board of Directors has set the authorized number of directors of the
Company at seven and has nominated Mark C. Smith, Lonnie S. McMillian, Howard A.
Thrailkill, W. Frank Blount, William L. Marks, Roy J. Nichols and James L. North
for re-election as directors at the 2001 Annual Meeting. Each of the nominees
is currently a director of the Company. If re-elected as a director at the
Annual Meeting, each of the nominees would serve a one year term expiring at the
2002 Annual Meeting of Stockholders and until his successor has been duly
elected and qualified. There are no family relationships among the directors or
the executive officers.
Each of the nominees has consented to serve another term as a director if
re-elected. If any of the nominees should be unavailable to serve for any
reason (which is not anticipated), the Board of Directors may designate a
substitute nominee or nominees (in which event the persons named on the enclosed
proxy card will vote the shares represented by all valid proxy cards for the
election of such substitute nominee or nominees), allow the vacancies to remain
open until a suitable candidate or candidates are located, or by resolution
provide for a lesser number of directors.
The Board of Directors unanimously recommends that the stockholders vote
"FOR" the proposal to re-elect Mark C. Smith, Lonnie S. McMillian, Howard A.
Thrailkill, W. Frank Blount, William L. Marks, Roy J. Nichols and James L. North
as directors for a one year term expiring at the 2002 Annual Meeting of
Stockholders and until their successors have been duly elected and qualified.
4
Information Regarding Nominees for Director
Set forth below is certain information as of December 31, 2000, regarding
the seven nominees for director, including their ages and principal occupations
(which have continued for at least the past five years unless otherwise noted).
MARK C. SMITH is one of the co-founders of the Company and has served as
Chairman of the Board and Chief Executive Officer of the Company since it
commenced operations in January 1986. He also served as President of the
Company from 1986 until November 1995. Mr. Smith is 60.
LONNIE S. MCMILLIAN is one of the co-founders of the Company and currently
serves as Senior Vice President, Secretary and a director of the Company. Mr.
McMillian served as Vice President - Engineering of the Company from January
1986 until August 1996 and as Treasurer of the Company from January 1986 to
January 1997. Mr. McMillian has served as Secretary and a director of the
Company since January 1986. Mr. McMillian is 72.
HOWARD A. THRAILKILL joined the Company in 1992 as Executive Vice
President. In November 1995, Mr. Thrailkill became the President and Chief
Operating Officer of the Company. Mr. Thrailkill has served as a director of
the Company since October 1995. Mr. Thrailkill is 62.
W. FRANK BLOUNT has served as Chairman and Chief Executive Officer of
Cypress Communications, Inc., a leading building-centric communications
provider, since June, 2000. He has also served as Chairman and Chief Executive
Officer of JI Ventures, Inc., a high tech venture capital fund, since May, 2000.
Mr. Blount served as Chief Executive Officer and as a director of Telstra
Corporation, LTD, Australia's principal telecommunications company, from January
1992 until March 1999. Prior to joining Telstra, he served in various executive
positions for AT&T Corp., including Group President from 1988 to 1991. He
currently serves as a director of Caterpillar, Inc., Entergy Corporation, Hanson
Ltd., Sphera Optical Networks, Inc. and Alcatel, Inc. Mr. Blount has served as
a director of the Company since April 1999. Mr. Blount is 62.
WILLIAM L. MARKS has served as Chairman of the Board and Chief Executive
Officer of Whitney Holding Corp., the holding company for Whitney National Bank
of New Orleans, since 1990, and served in various executive and management
capacities with AmSouth Bank, N.A. from 1984 to 1990. Mr. Marks has served as a
director of the Company since 1993. Mr. Marks is 57.
ROY J. NICHOLS has served as Vice Chairman of the Board of InnoVerity, Inc.
since January 2000, and as its acting Chief Executive Officer since August 2000.
Mr. Nichols served as Vice Chairman of the Board and Chief Technical Officer of
Nichols Research Corporation (a defense and information systems company) from
1976 until its merger with Computer Sciences Corporation in November 1999. Mr.
Nichols also serves as a director of Applied Genomics, Inc. Mr. Nichols has
served as a director of the Company since 1994. Mr. Nichols is 62.
JAMES L. NORTH is an attorney with James L. North & Associates in
Birmingham, Alabama and has been counsel to the Company since the incorporation
of the Company in November 1985. Mr. North has been a practicing attorney since
1965. Mr. North has served as a director of the Company since 1993. Mr. North
is 64.
Meetings and Committees of the Board of Directors
The Board of Directors conducts its business through meetings of the full
Board and through committees of the Board, consisting of an Audit Committee, a
Compensation Committee and a Stock
5
Option Plan Committee. During the fiscal year ended December 31, 2000, the Board
of Directors held six meetings, the Audit Committee held three meetings, the
Stock Option Plan Committee held four meetings and the Compensation Committee
held two meetings. Attendance at meetings of the Board and its committees as a
whole averaged 98%. No director attended less than 75% of the aggregate of
meetings of the Board of Directors and meetings of the committees of which he is
a member.
The Audit Committee makes recommendations to the Board concerning the
appointment of the Company's independent accountants; reviews with such
accountants their audit plan, the scope and results of their audit engagement
and the accompanying management letter, if any; reviews the financial reports
and other financial information provided by the Company to the public or any
governmental body; consults with the independent accountants and management with
regard to the Company's accounting methods and the adequacy of its internal
accounting controls; approves professional services provided by the independent
accountants; reviews the independence of the independent accountants; and
reviews the range of the independent accountants' audit and non-audit fees. The
Audit Committee is composed of William L. Marks and Roy J. Nichols, each of whom
is independent as defined by Rule 4200(a)(14) of the National Association of
Securities Dealers' ("NASD") listing standards.
The Compensation Committee is responsible for setting the compensation of
the Chairman of the Board and Chief Executive Officer and reviewing his
recommendations regarding the compensation of the Company's other executive
officers. The Compensation Committee is composed of William L. Marks, Roy J.
Nichols and James L. North.
The Stock Option Plan Committee is responsible for administering the
Company's 1996 Employees Incentive Stock Option Plan. The Stock Option Plan
Committee is composed of William L. Marks and Roy J. Nichols.
The Board of Directors as a whole functions as the nominating committee to
select management's nominees for election as directors of the Company. The
Board of Directors will consider stockholders' nominees for election as
directors at the Company's 2002 Annual Meeting of Stockholders if submitted to
the Company on or before November 6, 2001. See "Stockholder Proposals for 2001
Annual Meeting" below.
Audit Committee Report
The primary function of the Audit Committee is to assist the Board of
Directors in its oversight and monitoring of the Company's financial reporting
process. The Board of Directors of the Company has adopted an Audit Committee
Charter, a copy of which is attached to this proxy statement as Appendix A,
which sets forth the responsibilities of the Audit Committee.
The Audit Committee has reviewed and discussed with management and
PricewaterhouseCoopers LLP, the Company's independent accountants, the Company's
audited financial statements for the fiscal year ended December 31, 2000. The
Audit Committee also has discussed with PricewaterhouseCoopers LLP the matters
required to be discussed by Statement on Auditing Standards No. 61 (Codification
of Statements on Auditing Standards, AU (S) 380).
The Audit Committee also received the written disclosures and the letter
from PricewaterhouseCoopers LLP that are required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees) and has
discussed with PricewaterhouseCoopers LLP their independence.
6
Based upon its review of the audited financial statements and the
discussions noted above, the Audit Committee recommended that the Board of
Directors include the audited financial statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 for filing with the
SEC.
Audit Committee:
William L. Marks
Roy J. Nichols
Director Compensation
Non-employee directors of the Company are paid an annual fee of $10,000,
plus $1,000 for each Board or committee meeting attended in person and $500 for
attendance at each Board or committee meeting conducted by telephone. Directors
who are employees of the Company receive no directors' fees. All directors are
reimbursed for their reasonable expenses in connection with the performance of
their duties.
Directors of the Company who are not employees of the Company are entitled
to participate in the Company's 1995 Directors Stock Option Plan (the "Directors
Plan"). As of December 31, 2000, there were a total of 200,000 shares reserved
for issuance under the Directors Plan, of which 83,000 shares were subject to
outstanding options. The Directors Plan provides for the grant of nonqualified
stock options to directors who are not otherwise employees of the Company. As of
December 31, 2000, there were four directors eligible to participate in the
Directors Plan. The Directors Plan is administered by the Board of Directors.
Subject to the terms of the Directors Plan, the Board has the authority to
determine the terms and provisions of the option agreements, to interpret the
provisions of the Directors Plan, to prescribe, amend and rescind any rules and
regulations relating to the Directors Plan, and to make all determinations
necessary or advisable for the administration of the Directors Plan.
Under the terms of the Directors Plan, an eligible director is granted a
nonqualified stock option to purchase 10,000 shares of Common Stock upon such
director's initial election to the Board, and receives an additional
nonqualified stock option to purchase 5,000 shares of Common Stock as of
December 31 of each subsequent calendar year in which the director is still
serving as an eligible director. The options have a term of ten years, and the
exercise price of the options is the fair market value of the Common Stock on
the date of grant. The exercise price may be paid in cash, shares of Common
Stock, or both. The options generally vest as of the first anniversary of the
grant date; however, all non-vested options previously granted to an eligible
director immediately vest upon such director becoming "Disabled" (as defined in
the Directors Plan), upon his death or upon a "Change in Control" of the Company
(as defined in the Directors Plan). Generally, unexercised options terminate
three months after an optionee ceases serving as a director. However, the post-
service exercise period is extended to a year after termination due to
"Disability," and unexercised options terminate immediately if the Director is
terminated for "Cause" (as defined in the Directors Plan) prior to a "Change in
Control." In addition, if a director dies during service, or during a period
following termination of service when his options have not yet terminated as
provided above, the director's beneficiary can exercise the options for up to
one year after the date of the director's death. The options will not be
exercisable past their expiration date, however, regardless of the reason for
termination of the director's service. No options may be granted under the
Directors Plan more than ten years after its date of adoption. The Directors
Plan will terminate on the later of (a) the complete exercise or lapse of the
last outstanding option granted under the Directors Plan or (b) the last date
upon which options may be granted under the Directors Plan, subject to its
earlier termination by the Board at any time.
7
For the fiscal year ended December 31, 2000, Messrs. Blount, Marks, Nichols
and North, the four directors eligible to participate in the Directors Plan,
each received nonqualified stock options to purchase 5,000 shares of the
Company's Common Stock.
EXECUTIVE COMPENSATION
Compensation Summary
The following table sets forth, for the fiscal years ended December 31,
2000, 1999 and 1998, the total compensation earned by the Company's Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company who were serving as executive officers as of December
31, 2000 (collectively referred to as the "named executive officers"). For
information regarding the various factors considered by the Board of Directors
in determining the compensation of the Chief Executive Officer and, generally,
the other executive officers of the Company, see "Board of Directors' Report on
Executive Compensation" below.
Table 1: Summary Compensation Table
Long Term
Annual Compensation Compensation
------------------- ------------
All Other Securities Under-
Name and Principal Position Year Salary (1) Bonus (2) Compensation(3) Lying Options(#)
- ---------------------------- ---- ---------- --------- --------------- -----------------
Mark C. Smith 2000 $300,000 $ 97,500 $4,000 -0-
Chairman of the Board 1999 278,252 287,819 4,000 -0-
and Chief Executive 1998 265,000 -0- 4,000 -0-
Officer
Howard A. Thrailkill 2000 295,000 95,875 4,000 75,000
President and Chief 1999 273,000 284,275 4,000 75,000
Operating Officer 1998 260,000 -0- 4,000 75,000
Robert A. Fredrickson 2000 175,000 284,620 4,000 40,000
Vice President - Carrier 1999 159,588 279,015 4,000 45,000
Networks Sales 1998 152,000 182,731 4,000 40,000
Steven L. Harvey 2000 175,000 316,172 4,000 40,000
Vice President - 1999 159,588 221,244 4,000 45,000
Competitive Service 1998 152,000 262,561 4,000 40,000
Provider Sales
Thomas R. Stanton 2000 250,000 125,000 4,000 60,000
Vice President and 1999 210,002 126,000 4,000 50,000
General Manager, 1998 200,000 80,000 4,000 50,000
Carrier Networks
____________________
(1) Includes amounts deferred at the election of the executive officers pursuant
to the Company's Section 401(k) retirement plan.
(2) Includes amounts paid pursuant to Officer Bonus Plan and earned as
commissions on sales.
(3) Includes Company contributions in the amount of $4,000 per year to the
executive officers' Section 401(k) retirement plan accounts.
8
Option Grants
The following table sets forth information regarding the number and terms of
stock options granted to the named executive officers during the fiscal year
ended December 31, 2000. Included in such information, in accordance with the
rules and regulations of the Securities and Exchange Commission, is the
potential realizable value of each option granted, calculated using the 5% and
10% option pricing model.
Table 2: Option Grants in Last Fiscal Year
Potential Realization
Individual Grants Value at Assumed
- ------------------------------------------------------------------------------------------ Annual Rates of Stock
Price Appreciation for
Option Term (4)
Number of % of Total ------------------------
Securities Options Exercise
Underlying Granted or Base
Options to Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) (2) Date (3) 5%($) 10%($)
- ---- ------------ --------------- ----------- ------------ --------- ----------
Mark C. Smith -0- - - - - -
Howard A. Thrailkill 75,000 (1) 5.5% $69.813 07/12/2010 $3,292,877 $8,344,796
Robert A. Fredrickson 40,000 (1) 2.9 69.813 07/12/2010 1,756,201 4,450,558
Steven L. Harvey 40,000 (1) 2.9 69.813 07/12/2010 1,756,201 4,450,558
Thomas R. Stanton 60,000 (1) 4.4 69.813 07/12/2010 2,634,301 6,675,837
______________
(1) The indicated number of options were granted to the named executive
officers on July 12, 2000 pursuant to the 1996 Employees Incentive Stock
Option Plan. Options for 25% of the shares vest on each anniversary of
the date of grant until fully vested.
(2) The exercise price of an option may be paid in cash, by delivery of
already owned shares of Common Stock of the Company, by instructing the
Company to retain shares of Common Stock upon exercise or by a combination
of the above, subject to certain conditions.
(3) The options were granted for a term of 10 years, subject to earlier
termination upon occurrence of certain events related to termination of
employment or change of control of the Company.
(4) Amounts represent hypothetical gains assuming exercise at the end of the
option term and assuming rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. The 5% and 10% assumed rates of appreciation are
mandated by the rules of the Securities and Exchange Commission. These
assumptions are not intended to forecast future appreciation of the
Company's stock price. The potential realizable value computation does not
take into account federal or state income tax consequences of option
exercises or sales of appreciated stock. The actual gains, if any, on the
stock option exercises will depend on the future performance of the
Company's Common Stock, the optionee's continued employment through
applicable vesting periods and the date on which the options are exercised
and the underlying shares are sold. The closing price of the Company's
Common Stock on February 23, 2001, the record date, was $23.9375 per
share.
9
Options
The following table sets forth option exercises by the named executive
officers during the fiscal year ended December 31, 2000, including the aggregate
value of gains on the date of exercise. The table also sets forth (i) the
number of shares covered by options (both exercisable and unexercisable) as of
December 31, 2000 and (ii) the respective value for "in-the-money" options,
which represents the positive spread between the exercise price of existing
options and the fair market value of the Company's Common Stock at December 31,
2000.
Table 3: Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
Number of Securities
Underlying Unexercised Value of the Unexercised
Shares Options at Fiscal In-the-Money Options at
Acquired Year-End(#) Fiscal Year-End($)
on Value ----------------------------- -----------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ -------------- ------------- ------------- -------------- ------------- --------------
Mark C. Smith -0- $ -0- -0- -0- $ -0- $-0-
Howard A. Thrailkill 20,000 1,311,260 100,000 210,000 187,500 -0-
Robert A. Fredrickson 30,374 1,188,343 24,687 119,939 -0- -0-
Steven L. Harvey 17,500 639,134 41,500 116,000 1,812 -0-
Thomas R. Stanton 14,000 623,370 40,979 145,021 -0- -0-
Board of Directors' Report on Executive Compensation
This Report on Executive Compensation of the Board of Directors of the
Company discusses the methods that were used to establish executive compensation
for the fiscal year ended December 31, 2000. The report specifically reviews
the methods employed in setting the compensation of the Company's Chairman of
the Board and Chief Executive Officer (the "Chief Executive Officer") and
generally with respect to all executive officers.
For 2000, the compensation of the Chief Executive Officer was established by
the Board of Directors without any reference to quantitative measures of
individual or Company performance but based instead solely on the Board's
subjective evaluation of the performance of the Chief Executive Officer and the
Company.
The compensation paid to the Company's other executive officers for 2000 was
established by the Chief Executive Officer in his discretion and was recommended
by him to the Board of Directors for
10
approval. Similar to the establishment of the Chief Executive Officer's
compensation by the Board of Directors, the Chief Executive Officer based the
compensation levels of the other executive officers not on any quantitative
measures of individual or Company performance but upon his subjective evaluation
of the performance of the individual executive officers and the Company. The
Board of Directors approved the recommendations of the Chief Executive Officer
with regard to the 2000 compensation of each of the other executive officers of
the Company.
In 1997, the Board of Directors established a bonus incentive compensation
program (the "Bonus Program") for certain executive officers of the Company.
Bonuses granted under the Bonus Program are determined by a formula based on (i)
targeted increases in per share after tax earnings of the Company from the end
of a fiscal year to the end of the following fiscal year and (ii) achievement of
specified operational targets on a divisional level such as unit volume targets
and revenue targets. In addition, from time to time, the Chief Executive Officer
has granted additional bonuses to executive officers based upon his assessment
of their individual performance; however, no individual performance bonuses were
granted in 2000.
Limitations on the Deductibility of Executive Compensation
Pursuant to the Omnibus Budget Reconciliation Act of 1993, certain non-
performance-based compensation in excess of $1,000,000 to executives of public
companies is no longer deductible to these companies. Qualifying performance-
based incentive compensation, however, would be both deductible and excluded for
purposes of calculating the $1,000,000 compensation threshold. In this regard,
the Compensation Committee must determine whether any actions with respect to
this new limit should be taken by the Company. The Company's executive
compensation for 2000 did not exceed the legal limitations. The Compensation
Committee will continue to monitor this situation and will take appropriate
action if it is warranted in the future.
Compensation Committee:
Williams L. Marks
Roy J. Nichols
James L. North.
Compensation Committee Interlocks and Insider Participation
James L. North, a partner in the law firm of James L. North & Associates,
is a director of the Company and as of December 31, 2000, beneficially owned
143,000 shares of the Common Stock of the Company. James L. North & Associates
provided legal services to the Company during 2000. All bills for services
rendered by James L. North & Associates are reviewed and approved by the
Company's Vice President - Finance and Chief Financial Officer. Management
believes that the fees for such services are comparable to those charged by
other firms for services rendered to the Company.
None of the Company's executive officers or directors serves as a member of
the board of directors or compensation committee of any entity that has one or
more of its executive officers serving as a member of the Company's board of
directors or compensation committee.
11
STOCK PERFORMANCE GRAPH
The Company's Common Stock began trading on the Nasdaq National Market on
August 9, 1994. The price information reflected for the Company's Common Stock
in the following performance graph and accompanying table represents the closing
sales prices of the Common Stock for the period from December 31, 1995 through
December 31, 2000 on an annual basis. The graph and the accompanying table
compare the cumulative total stockholders' return on the Company's Common Stock
with the Nasdaq Telecommunications Index and the Nasdaq US Index. The
calculations in the following graph and table assume that $100 was invested on
December 31, 1995 in each of the Company's Common Stock, the Nasdaq
Telecommunications Index and the Nasdaq US Index and also assume dividend
reinvestment. The closing sale price of the Common Stock on the Nasdaq National
Market was $23.9375 per share on February 23, 2001.
Comparison of Cumulative Total Return
Among the Company, Nasdaq Telecommunications Index and Nasdaq US Index
[GRAPH]
=========================================================================================================
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
=========================================================================================================
ADTRAN, Inc. $ 100 $ 76 $ 51 $ 34 $ 95 $ 39
=========================================================================================================
NASDAQ Telecommunications Index $ 100 $ 102 $ 149 $ 247 $ 438 $ 188
=========================================================================================================
NASDAQ US Index $ 100 $ 123 $ 151 $ 213 $ 395 $ 238
=========================================================================================================
12
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and regulations of the Securities and Exchange Commission
thereunder require the Company's directors, officers and persons who own more
than 10% of the Company's Common Stock, as well as certain affiliates of such
persons, to file initial reports of their ownership of the Company's Common
Stock and subsequent reports of changes in such ownership with the Securities
and Exchange Commission and the National Association of Securities Dealers, Inc.
Directors, officers and persons owning more than 10% of the Company's Common
Stock are required by Securities and Exchange Commission regulations to furnish
the Company with copies of all Section 16(a) reports they file. Based solely on
its review of the copies of such reports received by it, the Company believes
that during the fiscal year ended December 31, 2000, its directors, officers and
owners of more than 10% of its Common Stock complied with all applicable filing
requirements, except that (i) the Form 3 for James D. Butler was filed after its
due date, (ii) Roy J. Nichols filed a report on Form 4 reporting five
transactions that were not reported on a timely basis, (iii) James L. North
filed one Form 4 reporting one transaction after the due date of the Form, and
(iv) Howard A. Thrailkill filed one Form 4 reporting five transactions after the
due date of the Form.
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company, upon the recommendation of the Audit
Committee, has appointed the firm of PricewaterhouseCoopers LLP to serve as
independent accountants of the Company for the fiscal year ending December 31,
2001, and has directed that such appointment be submitted to the stockholders of
the Company for ratification at the Annual Meeting. PricewaterhouseCoopers LLP
has served as independent accountants of the Company since 1986 and is
considered by management of the Company to be well qualified. If the
stockholders do not ratify the appointment of PricewaterhouseCoopers LLP the
Board of Directors will reconsider the appointment.
Representatives of PricewaterhouseCoopers LLP will be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do
so. They also will be available to respond to appropriate questions from
stockholders.
Fees Billed to the Company by PricewaterhouseCoopers LLP in 2000
Audit Fees
Audit fees billed to the Company by PricewaterhouseCoopers LLP during the
fiscal year ended December 31, 2000 for the audit of the Company's annual
financial statements and the review of the financial statements included in the
Company's Quarterly Reports on Form 10-Q totaled $128,500.
Financial Information Systems Design and Implementation Fees
The Company did not engage PricewaterhouseCoopers LLP to provide advice to
the Company regarding financial information systems design and implementation
during the fiscal year ended December 31, 2000.
All Other Fees
Fees billed to the Company by PricewaterhouseCoopers LLP during the fiscal
year ended December 31, 2000 for all other non-audit services rendered to the
Company, including benefit plan audit
13
services and tax-related services, totaled $608,811. The Audit Committee of the
Board of Directors has determined that the provision of these services is
compatible with the maintenance of the independence of PricewaterhouseCoopers
LLP.
The Board of Directors unanimously recommends that the stockholders vote
"FOR" the proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company.
PROPOSAL 3 - RATIFICATION OF PROPOSAL TO AMEND THE
1996 EMPLOYEES INCENTIVE STOCK OPTION PLAN
Introduction
The Company's 1996 Employees Incentive Stock Option Plan (the "1996 Stock
Option Plan") currently permits the Company to grant to key employees (including
officers and directors who are also employees) of the Company Incentive Stock
Options and Non-Qualified Stock Options to purchase up to an aggregate of
5,488,100 shares of common stock of the Company, subject to adjustment in the
event of a recapitalization, merger, stock split or any other change in the
corporate structure or shares of stock of the Company. The following description
of the 1996 Stock Option Plan is qualified in its entirety by reference to the
applicable provisions of the 1996 Stock Option Plan and agreements related to
the 1996 Stock Option Plan. A copy of the 1996 Stock Option Plan is attached to
this Proxy Statement as Appendix B.
Proposed Amendment
The Board of Directors of the Company has approved, and recommends that the
stockholders of the Company approve, two amendments to the 1996 Stock Option
Plan. The first amendment to the 1996 Stock Option Plan (Proposal 3(a)) will
increase the total number of shares authorized for issuance under the plan from
5,488,100 shares to 8,488,100 shares. The second amendment to the 1996 Stock
Option Plan (Proposal 3(b)) will place two limits on the Company's ability to
grant options at an exercise price that is below the fair market value of the
Company's Common Stock on the date of grant. The first limit prohibits the
aggregate number of shares subject to outstanding options granted under the 1996
Stock Option Plan at an exercise price less than the fair market value of the
Common Stock on the date of grant from exceeding 10% of the total number of
shares of Common Stock authorized under the 1996 Stock Option Plan. The second
limit prohibits the Company from granting any options with an exercise price
less than the fair market value of the Common Stock on the date of grant to
anyone who is an executive officer of the Company. The amendment to the 1996
Stock Option Plan defines "executive officer" as any officer of the Company who
must file reports with the SEC pursuant to Section 16(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
Stock Subject to Options
The stock subject to the options is the Company's authorized but unissued
or reacquired Common Stock. On March 1, 2001, the closing price of the Company's
Common Stock as reported by the Nasdaq National Market on that day was $24.625
per share. The unexercised portion of shares of Common Stock allocable to
expired or terminated options granted under the Plan may again become subject to
options under the Plan.
14
Types of Awards
Incentive stock options ("ISOs") and nonqualified stock options ("NQSOs")
may be granted under the 1996 Stock Option Plan (together, "Options").
Administration
The 1996 Stock Option Plan is administered by the Stock Option Plan
Committee (the "Committee"), consisting of two or more individuals appointed by
the Board of Directors of the Company from among its members. The members of the
Committee cannot participate in the 1996 Stock Option Plan and must be "outside
directors" within the meaning of Section 162(m)(4)(C)(i) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Board from time to time may remove
members from, or add members to, the Committee, and must fill all vacancies on
the Committee. The Committee currently consists of directors William L. Marks
and Roy J. Nochols.
Among other powers and duties, the Committee has authority (i) to determine
the individuals to whom Options will be granted from among those individuals who
are eligible, as well as the terms of Options and the number of shares of Common
Stock reserved in connection with such Options, (ii) to determine whether an
Option will constitute an ISO intended to qualify under Section 422 of the Code
or a NQSO not intended to qualify under Code Section 422 and (iii) to interpret
the provisions of, and prescribe, amend and rescind any rules and regulations
relating to, the 1996 Stock Option Plan.
Eligibility and Grants of Options
Under the terms of the 1996 Stock Option Plan, all employees of the Company
(and any parent or subsidiary corporations), including such employees who are
also members of the Board (or of the board of directors of a parent or
subsidiary corporation) are eligible for consideration for the granting of
Options by the Committee. As of December 31, 2000, there were approximately
1,756 employees of the Company, all of whom are eligible to participate in the
1996 Stock Option Plan. The Company has no definitive plans to grant stock
options to any particular employee at this time.
Shares Available
The stock subject to the Options and other provisions of the 1996 Stock
Option Plan is the authorized but unissued or reacquired shares of Common Stock
of the Company. Subject to adjustment in accordance with the terms of the 1996
Stock Option Plan, up to 5,488,100 shares of Common Stock, in the aggregate
(8,488,100 shares after adoption of the proposed amendment), may be granted or
purchased under the 1996 Stock Option Plan, and the unexercised portion of
shares of Common Stock allocable to expired or terminated Options may again
become subject to Options under the 1996 Stock Option Plan.
Options Granted
As of December 31, 2000, the Company has granted options under the 1996
Stock Option Plan to the named executive officers in the following amounts: Mr.
Smith - 0; Mr. Thrailkill - 300,000; Mr. Fredrickson - 175,000; Mr. Harvey -
175,000; and Mr. Stanton - 197,000. Mr. Thrailkill is also the only director who
has been granted options under the 1996 Stock Option Plan and the only
individual who has been granted more than 5% of the total options granted under
the 1996 Stock Option Plan. As of December 31, 2000, the current executive
officers, as a group, have been granted a total of 1,677,500 options under the
1996 Stock Option Plan, and all other employees have been granted a total of
2,904,025 options.
15
Terms of Options
Option Price. The purchase price of the Common Stock underlying each Option
granted under the 1996 Stock Option Plan will be the fair market value of the
Common Stock on the date the option is granted, unless otherwise determined by
the Committee. However, the option price for ISOs may not be less than 100%
(110% for options granted to an optionee who owns more than 10% of the total
combined voting power of all classes of stock of either the Company or any
parent or subsidiary corporation of the Company) of the fair market value of the
Common Stock on the date the ISO is granted.
Vesting. Options granted under the 1996 Stock Option Plan will become
exercisable (i.e., vested) as of the first anniversary of the grant date, unless
otherwise provided by the Committee pursuant to a schedule established at the
time the Options are granted; provided, if the optionee ceases to be an employee
of the Company, the optionee's rights with regard to all non-vested Options
cease immediately. Notwithstanding the vesting schedule established by the
Committee, all non-vested Options previously granted to an optionee immediately
vest upon the optionee's becoming "Disabled" (as defined in the 1996 Stock
Option Plan), upon his or her death or upon a "Change of Control" of the Company
(as defined in the 1996 Stock Option Plan). "Change of Control" is discussed in
more detail below.
Term of Options. The term of any Option will be determined by the Committee
in accordance with the 1996 Stock Option Plan, but the term may not exceed 10
years from the date of grant (or 5 years in the case of ISOs granted to
optionees who own more than 10% of the total combined voting power of all
classes of stock of either the Company or any parent or subsidiary corporation).
No Option may be granted under the 1996 Stock Option Plan after February 14,
2006.
Termination of Employment. Vested Options must be exercised within the
earlier of: (i) three months after an employee optionee ceases to be in the
employ of the Company or any parent or subsidiary for any reason other than
death, disability or for "cause" (as defined in the 1996 Stock Option Plan),
unless the employee dies within this three month period; (ii) the expiration
date of the option; (iii) immediately upon the removal of the employee for
"cause"; (iv) one year after termination of employment with the Company or any
parent or subsidiary because of disability, unless the optionee dies within this
one year period; or (v) one year after the death of an optionee who dies (a)
while in the employ of the Company or any parent or subsidiary, (b) within three
months after termination of employment with the Company or any parent or
subsidiary for a reason other than disability or for "cause," or (c) within one
year after employment with the Company or any parent or subsidiary is terminated
due to disability. Notwithstanding the immediately preceding sentence, if an
optionee's employment terminates for any reason other than death or disability
at any time after a "Change of Control" (as defined under "Change of Control"
below), the term of all options of the optionee will be extended through the
three month period immediately following such termination of employment.
However, the Committee may waive the above expiration periods with respect to
any NQSOs granted under the 1996 Stock Option Plan and provide different
expiration dates in a NQSO option agreement.
Exercise of Options. An Option granted under the 1996 Stock Option Plan may
be exercised for less than the full number of shares of Common Stock subject to
such Option, provided that no Option may be exercised for less than (i) 100
shares or (ii) the total remaining shares subject to the Option, if less than
100 shares. Upon exercise of an Option, an optionee must pay for the Common
Stock subject to the exercise. Payment may be made in cash, in shares of Common
Stock (including the retention by the Company of optioned shares of Common Stock
with a fair market value equal to the exercise price), or by a combination of
the foregoing.
Transfers. The 1996 Stock Option Plan does not permit an optionee to sell,
assign or otherwise transfer Options except by transfer to a "Beneficiary" at
the death of the optionee, and any other purported
16
transfer is null and void. Options are exercisable during the optionee's life
only by the optionee (unless the optionee is incapacitated and unable to
exercise options). Upon the death of the optionee, Options will be exercisable
by the optionee's "Beneficiary."
Amendment and Termination
The Board of Directors of the Company may amend or terminate the 1996 Stock
Option Plan at any time, provided that (i) no amendment may adversely affect in
any way the rights of optionees without the consent of such optionees, and (ii)
no amendment may be effected without the prior approval of the stockholders of
the Company if (A) the amendment would cause the applicable portions of the 1996
Stock Option Plan to fail to qualify as an "incentive stock option plan"
pursuant to Section 422 of the Code, (B) the amendment would materially increase
the benefits accruing to participants under the 1996 Stock Option Plan, (C) the
amendment would materially increase the number of securities which may be issued
under the 1996 Stock Option Plan, (D) the amendment would materially modify the
requirements as to eligibility for participation in the 1996 Stock Option Plan,
or (E) the amendment would modify the material terms of the 1996 Stock Option
Plan within the meaning of regulations under Section 162(m) of the Code.
The 1996 Stock Option Plan will terminate on the later of (i) the complete
exercise or lapse of the last outstanding Option granted under the 1996 Stock
Option Plan or (ii) the last date upon which Options may be granted under the
1996 Stock Option Plan, February 14, 2006, subject to its earlier termination by
the Board at any time.
Change of Control
For purposes of the 1996 Stock Option Plan, the term "Change of Control" is
defined to mean any one of the following events:
(i) 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
(ii) 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 definition, the terms "affiliate," "associate,"
"parent" and "subsidiary" are defined as in Rule 12b-2 under the Exchange Act.
Adjustments
In the event of changes in the number or kind of outstanding shares of the
Common Stock by reason of a recapitalization, reclassification, stock split,
combination of shares or dividend payable in shares of Common Stock, an
appropriate and equitable adjustment will be made by the Committee to the number
and kind of shares subject to Options granted under the 1996 Stock Option Plan,
and to the number and kind of shares remaining available for the granting of
Options.
17
Additionally, in the event that the Company is involved in a reorganization
involving a merger, consolidation, acquisition of the stock or acquisition of
the assets of the Company that does not constitute a Change of Control, the
Committee, in its discretion, may declare that (i) outstanding Options apply to
the securities of the resulting corporation; (ii) outstanding Options are
nonforfeitable and fully exercisable or vested; and/or (iii) outstanding Options
are nonforfeitable and fully exercisable or vested and are to be terminated
after giving at least 30 days notice to all optionees. If the Board of
Directors adopts a plan of dissolution and liquidation that is approved by the
stockholders of the Company, all of the rights of all optionees will become
immediately nonforfeitable and exercisable through the date of dissolution.
Federal Income Tax Consequences
The Company intends that part of the 1996 Stock Option Plan qualify as an
incentive stock option plan and that any option granted in accordance with such
portion of the 1996 Stock Option Plan qualify as an ISO, all within the meaning
of Section 422 of the Code. The tax effects of any other stock option granted
under the 1996 Stock Option Plan should be determined under Section 83 of the
Code. The following is a brief description of the consequences under the Code
of the receipt or exercise of Options.
ISOs. An option holder has no tax consequences upon issuance or, generally,
upon exercise of an ISO. An option holder will recognize income when he sells or
exchanges the shares acquired upon exercise of an ISO. This income will be taxed
at the applicable capital gains rate if the sale or exchange occurs after the
expiration of the requisite holding periods. Generally, the requisite holding
periods expire two years after the date of grant of the ISO and one year after
the date of acquisition of the Common Stock pursuant to the exercise of the ISO.
If an option holder disposes of the Common Stock acquired pursuant to
exercise of an ISO before the expiration of the requisite holding periods, the
option holder will recognize compensation income in an amount equal to the
difference between the option price and the lesser of (i) the fair market value
of the shares on the date of exercise and (ii) the price at which the shares are
sold. This amount will be taxed at ordinary income rates. If the sale price of
the shares is greater than the fair market value on the date of exercise, the
difference will be recognized as gain by the option holder and taxed at the
applicable capital gains rate. If the sale price of the shares is less than the
option price, the option holder will recognize a capital loss equal to the
excess of the option price over the sale price.
For these purposes, the use of shares acquired upon exercise of an ISO to
pay the option price of another option (whether or not it is an ISO) will be
considered a disposition of the shares. If this disposition occurs before the
expiration of the requisite holding periods, the option holder will have the
same tax consequences as are described in the immediately preceding paragraph.
If the option holder transfers any such shares after holding them for the
requisite holding periods or transfers shares acquired pursuant to exercise of a
NQSO or on the open market, he generally will not recognize any income upon the
exercise. Whether or not the transferred shares were acquired pursuant to an
ISO and regardless of how long the option holder has held such shares, the basis
of the new shares received pursuant to the exercise will be computed in two
steps. In the first step, a number of new shares equal to the number of older
shares tendered (in payment of the option's exercise) is considered exchanged
under Section 1036 of the Code and the rulings thereunder; these new shares
receive the same holding period and the same basis that the option holder had in
the old tendered shares, if any, plus the amount included in income from the
deemed sale of the old shares and the amount of cash or other nonstock
consideration paid for the new shares, if any. In the second step, the number
of new shares received by the option holder in excess of the old tendered shares
receives a basis of zero, and the option holder's holding period with respect to
such shares commences upon exercise.
18
An option holder may have tax consequences upon exercise of an ISO if the
aggregate fair market value of shares of the Common Stock subject to ISOs which
first become exercisable by an option holder in any one calendar year exceeds
$100,000. If this occurs, the excess shares will be treated as though they are
subject to a NQSO instead of an ISO. Upon exercise of an option with respect to
these shares, the option holder will have the tax consequences described below
with respect to the exercise of NQSOs.
Finally, except to the extent that an option holder has recognized income
with respect to the exercise of an ISO (as described in the preceding
paragraphs), the amount by which the fair market value of a share of the Common
Stock at the time of exercise of the ISO exceeds the option price will be
included in determining an option holder's alternative minimum taxable income
and may cause the option holder to incur an alternative minimum tax liability in
the year of exercise.
There will be no tax consequences to the Company upon the issuance or,
generally, upon the exercise of an ISO. However, to the extent that an option
holder recognizes ordinary income upon exercise, as described above, the Company
will have a deduction in the same amount.
NQSOs. Neither the Company nor the option holder has income tax
consequences from the issuance of NQSOs. Generally, in the tax year when an
option holder exercises NQSOs, the option holder recognizes ordinary income in
the amount by which the fair market value of the shares at the time of exercise
exceeds the option price for such shares. The Company will have a deduction in
the same amount as the ordinary income recognized by the option holder in the
Company's tax year in which or with which the option holder's tax year (of
exercise) ends.
If an option holder exercises a NQSO by paying the option price with
previously acquired shares of Common Stock, the option holder will recognize
income (relative to the new shares he is receiving) in two steps. In the first
step, a number of new shares equivalent to the number of older shares tendered
(in payment of the NQSO exercised) is considered to have been exchanged in
accordance with Section 1036 of the Code and the rulings thereunder, and no gain
or loss is recognized. In the second step, with respect to the number of new
shares acquired in excess of the number of old shares tendered, the option
holder will recognize income on those new shares equal to their fair market
value less any nonstock consideration tendered.
The new shares equal to the number of the older shares tendered will receive
the same basis the option holder had in the older shares, and the option
holder's holding period with respect to the tendered older shares will apply to
those new shares. The excess new shares received will have a basis equal to the
amount of income recognized by the option holder by exercise, increased by any
nonstock consideration tendered. Their holding period will commence upon the
exercise of the option.
Limitation on Company Deductions. No federal income tax deduction is
allowed for compensation paid to a "covered employee" in any taxable year of the
Company beginning on or after January 1, 1994, to the extent that such
compensation exceeds $1,000,000. For this purpose, "covered employees" are
generally the chief executive officer of the Company and the four highest
compensated officers of the Company whose annual salary and bonus exceeds
$100,000, and the term "compensation" generally includes amounts includable in
gross income as a result of the exercise of stock options or stock appreciation
rights, or the receipt of stock options. This deduction limitation does not
apply to compensation that is (1) commission-based compensation, (2)
performance-based compensation, (3) compensation which would not be includable
in an employee's gross income, and (4) compensation payable under a written
binding contract in existence on February 17, 1993, and not materially modified
thereafter. Currently, the Company does not have any covered employee to which
this limitation would apply.
19
Compensation attributable to a stock option will generally satisfy the
limitation exception for performance-based compensation if the grant or award is
made by a "compensation committee" (a committee composed of "outside"
directors), the "material terms" (including which employees are eligible to
receive compensation, the maximum number of shares that may be granted to an
optionee and the exercise price of the options) of the plan under which the
option or right is granted are disclosed to stockholders and approved by a
majority of the stockholder vote, the "compensation committee" certifies that
performance goals were in fact satisfied before the compensation is paid, and,
under the terms of the option or right, the amount of compensation the employee
could receive is based solely on an increase in the value of the stock after the
date of the grant or award. Stock options granted under the 1996 Stock Option
Plan may satisfy these requirements, depending upon the specific terms,
provisions, restrictions and limitations of such options or rights.
ERISA. The 1996 Stock Option Plan is not, and is not intended to be, an
employee benefit plan or qualified retirement plan. The 1996 Stock Option Plan
is not, therefore, subject to the Employee Retirement Income Security Act of
1974, as amended, or Section 401(a) of the Code.
The Board of Directors unanimously recommends that the stockholders vote
"FOR" the proposal to amend the 1996 Employees Incentive Stock Option Plan.
STOCKHOLDERS' PROPOSALS FOR 2002 ANNUAL MEETING
Proposals of stockholders, including nominations for the Board of Directors,
intended to be presented at the 2002 Annual Meeting of Stockholders should be
submitted by certified mail, return receipt requested, and must be received by
the Company at its executive offices in Huntsville, Alabama, on or before
November 6, 2001 to be eligible for inclusion in the Company's proxy statement
and form of proxy relating to that meeting and to be introduced for action at
the meeting. Any stockholder proposal must be in writing and must set forth (i)
a description of the business desired to be brought before the meeting and the
reasons for conducting the business at the meeting, (ii) the name and address,
as they appear on the Company's books, of the stockholder submitting the
proposal, (iii) the class and number of shares that are beneficially owned by
such stockholder, (iv) the dates on which the stockholder acquired the shares,
(v) documentary support for any claim of beneficial ownership, (vi) any material
interest of the stockholder in the proposal, (vii) a statement in support of the
proposal and (viii) any other information required by the rules and regulations
of the Securities and Exchange Commission.
20
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors of the Company knows of no matters other than those
referred to in the accompanying Notice of Annual Meeting of Stockholders which
may properly come before the Annual Meeting. However, if any other matter
should be properly presented for consideration and voting at the Annual Meeting
or any adjournments thereof, it is the intention of the persons named as proxies
on the enclosed form of proxy card to vote the shares represented by all valid
proxy cards in accordance with their judgment of what is in the best interest of
the Company.
By Order of the Board of Directors.
/s/ Mark C. Smith
-----------------------------------------
Mark C. Smith
Chairman of the Board and
Chief Executive Officer
Huntsville, Alabama
March 6, 2001
____________________________________
The Company's 2000 Annual Report, which includes audited financial
statements, has been mailed to stockholders of the Company with these proxy
materials. The Annual Report does not form any part of the material for the
solicitation of proxies.
21
APPENDIX A
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF
ADTRAN, INC.
CHARTER
1. Purpose
The primary function of the Audit Committee (the "Committee") of the Board
of Directors of ADTRAN, Inc. (the "Company") is to assist the Board of Directors
(the "Board") in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by the Company to the
public or any governmental body; the Company's systems of internal controls
regarding finance, accounting and legal compliance that have been established by
management and the Board; and the Company's auditing, accounting, and financial
reporting processes generally. Consistent with this function, the Committee will
encourage continuous improvement of, and will foster adherence to, the Company's
policies, procedures and practices at all levels.
The Committee will primarily fulfill its responsibilities by carrying out the
activities enumerated in Section V of this Charter.
2. Composition
The members of the Committee will be elected by the Board and will serve as
long as they remain an independent member of the Board, or until they resign or
are removed by the Board and their successors are duly elected and qualified.
Unless a chairman of the Committee (the "Chair") is elected by the full Board,
the members of the Committee may designate a Chair by majority vote of the full
Committee membership. On or before June 14, 2001, the Committee will consist of
three or more directors as determined by the Board, each of whom must be an
"independent" director and free from any relationship that, in the opinion of
the Board, would interfere with the exercise of his or her independent judgment
as a member of the Committee. Members of the Committee will be considered
independent if they have no relationship to the Company that may interfere with
the exercise of their independence from management and the Company. The
following persons will not be considered "independent":
. a director who has been employed by the Company or any of its affiliates
for the current year or any of the past three years;
. a director who accepts any compensation from the Company or any of its
affiliates in excess of $60,000 during the previous fiscal year, other than
compensation for Board service, benefits under a tax-qualified retirement
plan, or non-discretionary compensation;
. a director who is a member of the immediate family of an individual who is,
or has been in any of the past three years, employed by the Company or any
of its affiliates as an executive officer. Immediate family includes a
person's spouse, parents, children, siblings, mother-in-law, father-in-law,
brother-in-law, sister-in-law, son-in-law, daughter-in-law and anyone who
resides in such person's home;
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. a director who is a partner in, or a controlling stockholder or an
executive officer of, any for-profit business organization to which the
Company made, or from which the Company received, payments (other than
those arising solely from investments in the Company's securities) that
exceed 5% of the Company's or business organization's consolidated gross
revenues for that year, or $200,000, whichever is more, in any of the past
three years; and
. a director who is employed as an executive officer of another entity where
any of the Company's executives serve on such entity's compensation
committee.
Notwithstanding the preceding paragraph, the Board may appoint to the
Committee one director who is not "independent" and is not a current employee or
an immediate family member of any current employee of the Company if the Board:
(a) determines that membership on the Committee by the individual is required in
the best interests of the Company and its stockholders; and (b) discloses, in
the next annual proxy statement subsequent to such determination, the nature of
the relationship and the reasons for that determination.
3. Qualifications
All members of the Committee must be able to read and understand
fundamental financial statements, including the Company's balance sheet, income
statement and cash flow statement, and at least one member of the Committee must
have accounting or related financial management expertise, including being or
having been a chief executive officer, chief financial officer, or other senior
officer with financial oversight responsibilities.
4. Meetings
The Committee will meet at least four times annually. As part of its job to
foster open communication, the Committee should meet at least annually with
management, the internal auditing department* and the outside auditors in
separate executive sessions to discuss any matters that the Committee or any of
these groups believe should be discussed privately. In addition, the Committee
or its Chair should meet with the outside auditors and management quarterly to
review the Company's financials, consistent with Section V below.
5. Responsibilities and Duties
To fulfill its responsibilities and duties the Committee will:
1. Document / Report Review
1. Review this Charter at least annually and update, as necessary.
2. Review the Company's annual financial statements and any reports or
other financial information submitted to any governmental body, or the
public, including any certification, report, opinion, or review
rendered by the outside auditors.
3. Review the regular internal reports to management prepared by the
internal auditing department* and management's response.
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4. Review with financial management and the outside auditors each Form
10-Q prior to its filing or prior to the release of earnings. The
Chair of the Committee may represent the entire Committee for purposes
of this review.
5. Review a formal written statement submitted by the outside auditors to
the Company at least annually which delineates all relationships
between the outside auditors and the Company, consistent with
Independence Standards Board Standard 1.
2. Outside Auditors
1. Recommend to the Board of Directors the selection of the outside
auditors, considering independence and effectiveness, and approve the
fees and other compensation to be paid to the outside auditors. On an
annual basis, the Committee should review and discuss with the outside
auditors all disclosed relationships the outside auditors have with
the Company to determine the outside auditors' objectivity and
independence, consistent with Independence Standards Board Standard 1.
2. Review and evaluate the performance of the outside auditors, when
circumstances warrant, recommend to the Board any proposed discharge
of the outside auditors and nominate outside auditors for stockholder
approval in any proxy statement. The outside auditors will be
accountable to the Board and the Committee, as representatives of the
stockholders of the Company.
3. Periodically consult with the outside auditors out of the presence of
management about internal controls and the fullness and accuracy of
the Company's financial statements.
3. Financial Reporting Processes
1. In consultation with the outside auditors and the internal auditors*,
review the integrity of the Company's internal and external financial
reporting processes.
2. Consider the outside auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
3. Consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested by the
outside auditors, management, or the internal auditing department*.
4. Process Improvement
1. Establish regular and separate systems of reporting to the Committee
by each of management, the outside auditors and the internal auditors*
regarding any significant judgments made in management's preparation
of the financial statements and the view of each as to appropriateness
of such judgments.
2. Following completion of the annual audit, review separately with each
of management, the outside auditors and the internal auditing
department* any
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significant difficulties encountered during the course of the audit,
including any restrictions on the scope of work or access to required
information.
3. Review any significant disagreement between management and the outside
auditors or the internal auditing department* in connection with the
preparation of the financial statements.
4. Review with the outside auditors, the internal auditing department*
and management the extent to which changes or improvements in
financial or accounting practices, as approved by the Committee, have
been implemented.
5. Legal Compliance
1. Ensure that management has the proper review system in place to ensure
that the financial statements, reports and other financial information
of the Company which are disseminated to the public or any
governmental organization satisfy all legal requirements.
2. Review activities, organizational structure, and qualifications of the
internal audit department*.
3. Review, with the Company's counsel, any legal matter that could have a
significant impact on the Company's financial statements.
4. Perform any other activities consistent with this Charter, the
Company's Bylaws and governing law, as the Committee or the Board
deems necessary or appropriate.
* At the time of adoption of this Charter, the Company does not have an
Internal Auditing Department. The inclusion in this Charter of
language concerning potential functions is not intended to indicate
that such a department will be created. Rather, the language is
intended to clarify the Committee's relationship with this department
should it be established by the Board of Directors.
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APPENDIX B
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 (S)422. The tax effects of any NQSO (as hereinafter defined)
granted hereunder should be determined under Code (S)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.
B-1
(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.
B-2
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.
2.13 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.
B-3
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
(S)422(b).
2.16 NQSO shall mean an option to which Code (S)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.
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
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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 (S)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 (S)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. (S)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 (S)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 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
B-5
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 5,488,100 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
(S)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 (S)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:
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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 (S)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
B-7
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 (S)6039 on or before January
31 of the year following the year in which the Option was exercised. See Treas.
Reg. (S)(S)1.6039-1 and -2, and 301.6039.1.
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
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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
I SO's only to the extent it does not cause the term of such ISO's to exceed the
maximum term permitted under Code (S)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 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
B-9
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 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 (S)424(a) and the regulations promulgated
thereunder so as to preserve the status of such Options as ISO's under Code
(S)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
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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
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with the following restrictive legend or similar legend, if such marking, in the
opinion of counsel to the Company, is necessary or desirable:
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
B-12
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.
10.2 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 (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 (v) such modification or amendment would modify the material terms of
the Plan within the meaning of Treas. Reg. (S)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.
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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.
11.9 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.
B-14
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
B-15
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
21/st/ 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
B-16
COMMON STOCK
ADTRAN, Inc.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE 2001 ANNUAL MEETING OF
STOCKHOLDERS
The undersigned hereby appoints Howard A. Thrailkill and John R. Cooper, and
each of them, proxies, with full power of substitution, to act for and in the
name of the undersigned to vote all shares of Common Stock of ADTRAN, Inc. (the
"Company") which the undersigned is entitled to vote at the 2001 Annual Meeting
of Stockholders of the Company, to be held at the headquarters of the Company,
901 Explorer Boulevard, Huntsville, Alabama, on the second floor of the East
Tower, on Friday, April 20, 2001, at 10:30 a.m., local time, and at any and all
adjournments thereof, as indicated below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE BELOW-LISTED
PROPOSALS
1) Elect as directors the seven nominees listed below to serve until the 2002
Annual Meeting of Stockholders and until their successors are elected and
qualified (except as marked to the contrary below):
[_] FOR ALL NOMINEES listed below [_] WITHHOLD AUTHORITY to vote
(except as marked to the contrary below). for all nominees listed below.
INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.
Mark C. Smith, Lonnie S. McMillian, Howard A. Thrailkill, W. Frank Blount,
William L. Marks, Roy J. Nichols, and James L. North
2) Ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31,
2001.
[_] FOR [_] AGAINST [_] ABSTAIN
3) Approve an amendment to the Company's 1996 Employees Incentive Stock Option
Plan which:
(a) increases the aggregate number of shares of Common Stock authorized
for issuance under the plan by 3,000,000 shares, i.e., from 5,488,100
shares to a total of 8,488,100 shares; and
[_] FOR [_] AGAINST [_] ABSTAIN
(b) limits the percentage of the total number of shares subject to options
under the plan that may be granted at an exercise price below fair
market value to no more than 10% of the total number of shares of
Common Stock for which options may be granted under the plan and
limits the class of employees to whom options may be granted below
fair market value to employees who are not executive officers of the
Company.
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as properly may come before the Annual Meeting and any and all
adjournments thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
(Continued, and to be signed and dated, on the reverse side)
(Continued from the other side)
PROXY - SOLICITED BY THE BOARD OF DIRECTORS
This proxy card will be voted as directed. If no instructions are specified,
this proxy card will be voted "FOR" each of the proposals listed on the reverse
side of this proxy card. If any other business is presented at the Annual
Meeting, this proxy card will be voted by the proxies in their best judgment. At
the present time, the Board of Directors knows of no other business to be
presented at the Annual Meeting.
The undersigned may elect to withdraw this proxy card at any time prior to its
use by giving written notice to Charlene Little, Assistant Secretary of the
Company, by executing and delivering to Ms. Little a duly executed proxy card
bearing a later date, or by appearing at the Annual Meeting and voting in
person.
___________________________________
Signature
___________________________________
Signature, if shares held jointly
Date:________________________, 2001
Please mark, date and sign exactly as your name appears on this proxy card. When
shares are held jointly, both holders should sign. When signing as attorney,
executor, administrator, trustee, guardian or custodian, please give your full
title. If the holder is a corporation or a partnership, the full corporate or
partnership name should be signed by a duly authorized officer.
Do you plan to attend the Annual Meeting? [_] YES [_] NO