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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
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 pursuant to Rule 14a-11(c) or Rule 14a-12
Tellabs, 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.
(1) Title of each class of securities to which transaction applies:
____________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
____________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined.):
____________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
____________________________________________________________________
(5) Total fee paid:
____________________________________________________________________
( ) 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:
- 0 -
____________________________________________________________________
(2) Form, schedule or registration statement no.:
DEF 14A
____________________________________________________________________
(3) Filing party:
Tellabs, Inc.
____________________________________________________________________
(4) Date filed:
March 16, 1998
____________________________________________________________________
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Tellabs, Inc., 4951 Indiana Avenue, Lisle, Illinois 60532-1698
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Notice of Annual Meeting of Stockholders
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To Be Held April 15, 1998
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The Annual Meeting of Stockholders of Tellabs, Inc., a Delaware
corporation, will be held on Wednesday, April 15, 1998, at 2 p.m. local
time, in the Grand Ballroom of the Holiday Inn Naperville, 1801 Naper
Boulevard, Naperville, Illinois 60563, for the following purposes:
1. To elect two directors to serve until the 2001 Annual Meeting of
Stockholders;
2. To approve the 1998 Stock Option Plan; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on February
16, 1998, as the record date for the meeting, and only stockholders of
record at that time are entitled to notice of and to vote at the
meeting.
All stockholders are cordially invited to attend the meeting.
Whether or not you expect to attend the meeting, please fill in, date
and sign the accompanying proxy and mail it promptly in the enclosed
envelope.
By Order of the Board of Directors,
Carol Coghlan Gavin
Secretary
March 16, 1998
Tellabs, Inc., 4951 Indiana Avenue, Lisle, Illinois 60532-1698
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Proxy Statement
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Tellabs, Inc.
4951 Indiana Avenue
Lisle, Illinois 60532-1698
The enclosed proxy is solicited by the Board of Directors of
Tellabs, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held at 2 p.m. on Wednesday, April
15, 1998.
Only stockholders of record as of the close of business on February
16, 1998, will be entitled to notice of and to vote at the meeting. At
the close of business on that date, the Company had 181,771,682 shares
of common stock outstanding.
Stockholders are entitled to one vote for each share held. Any
proxy given may be revoked by a stockholder at any time before it is
voted by filing a written revocation notice with the Secretary of the
Company or by duly executing a proxy bearing a later date. Proxies may
also be revoked by any stockholder present at the meeting who expresses
a desire to vote his or her shares in person. Subject to any such
revocation, all shares represented by properly executed proxies that are
received prior to the meeting will be voted in accordance with the
directions on the proxy. If no direction is made, the proxy will be
voted (i) FOR the election of directors; and (ii) FOR the approval of
the 1998 Stock Option Plan.
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Votes cast in person or by proxy at the Annual Meeting of
Stockholders will be tabulated by the inspectors of election appointed
for the meeting who will determine whether a quorum, a majority of the
shares entitled to be voted, is present. Abstentions will be treated as
shares present and entitled to vote for purposes of determining whether
a quorum is present, but not voted for purposes of the election of
directors and the other proposal. If a proxy returned by a broker
indicates that the broker does not have discretionary authority to vote
some or all of the shares covered thereby with respect to the election
of directors or with respect to the other proposal and does not
otherwise authorize the voting of such shares, such shares, or
"non-votes," will be considered to be present for the purpose of
determining whether a quorum is present, but will not be considered to
be present and entitled to vote with respect to the election of
directors or the other proposal. Assuming a quorum is present, the
favorable vote of a plurality of the shares present and entitled to vote
at the Annual Meeting will be necessary for a nominee to be elected as a
director; abstentions and shares for which authority to vote is not
given will thus have no effect on the election of directors. Shares
cannot be voted for more than two nominees; there is no right to
cumulative voting. Approval of the 1998 Stock Option Plan requires the
favorable vote of a majority of the shares present and entitled to vote
at the meeting; therefore, abstentions will be taken into account as if
such shares were voted against the proposal, but non-votes will have no
effect on the proposal.
A separate notice of annual meeting of stockholders, proxy statement
and proxy will be provided to each participant in the Tellabs Advantage
Program (the "Program"). Pursuant to the Program, each participant is a
"named fiduciary" entitled to direct the trustee with respect to voting
of the shares of common stock allocated to the participant's accounts
and with respect to a proportion of the shares allocated to accounts of
participants who do not return voting instructions to the trustee.
Subject to its fiduciary duties, the trustee will vote allocated shares
in accordance with the instructions received, and will vote shares with
respect to which no instructions are received in the same proportions as
the shares with respect to which instructions are received. Program
participants should return the proxy as provided therein. Pursuant to
the Program, the trustee will not disclose the directions set forth on
the proxy to the Company or its directors or officers, except as may
otherwise be required by law.
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A copy of the Annual Report of the Company for the fiscal year ended
January 2, 1998, accompanies this proxy statement. The approximate date
on which this proxy statement and the accompanying form of proxy are
first being sent to stockholders is March 16, 1998.
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Election of Directors
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The Company has three classes of directors, with staggered terms,
with the members of each class serving a three-year term. At this
Annual Meeting, the terms of the Class III directors will expire.
The two nominees for Class III director are Michael J. Birck and
Frederick A. Krehbiel. Each of the nominees is currently a Class III
director of the Company. These persons have been nominated for election
to three-year terms expiring in 2001 or until their successors are
elected and qualified. Unless otherwise instructed by the stockholder,
it is intended that the shares represented by the enclosed proxy will be
voted for the nominees named below, each of whom has been selected by
the Board of Directors. Class I and Class II directors will continue in
office for the remainder of their terms.
Management is not aware of any other proposed nominees for
directors. Although management anticipates that both of the nominees
will be able to serve, if either nominee is unable to serve at the time
of the meeting, the proxy will be voted for a substitute nominee chosen
by management.
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<TABLE>
<CAPTION>
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Principal Occupation or Employment Director
Name Age for Past Five Years Since
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<S> <C> <C> <C>
Nominees for Election Whose Terms Will Expire in 2001
Michael J. Birck 60 President and Chief Executive Officer, 1975
Tellabs, Inc.
Frederick A. Krehbiel 56 Chief Executive Officer, since 1988, 1985
Vice Chairman, 1988-1993, Chairman of
the Board, since 1993, Molex Incorporated
(electrical components manufacturer)
Class I Directors Continuing in Office Until 1999
Brian J. Jackman 56 President, since 1993, Tellabs Operations, 1993
Inc.; Executive Vice President, since 1990,
Tellabs, Inc.
Stephanie Pace Marshall, Ph.D. 52 President, since 1986, Illinois Mathematics 1996
and Science Academy
William F. Souders 69 Chairman and Chief Executive Officer 1990
(retired), Emery Air Freight Corporation
(air freight carrier); formerly Executive
Vice President, Xerox Corporation (business
machines and systems)
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Class II Directors Continuing in Office Until 2000
John D. Foulkes, Ph.D. 73 Director of Engineering Studies (retired), 1988
University of Puget Sound; Professor
(retired), University of Washington
Peter A. Guglielmi 55 Executive Vice President and Chief Financial 1993
Officer, since 1990, Secretary, 1988-1993,
Treasurer, since 1988, Tellabs, Inc.;
President, 1993-1997, Tellabs
International, Inc.
Jan H. Suwinski 56 Professor of Strategy and Operations 1997
Management, The Johnson School of Cornell
University, since 1996; Executive Vice
President (retired), Opto-Electronics
Group, Corning Incorporated (optical fiber
and cable manufacturer); Chairman (retired),
Siecor Corporation (optical cable and
hardware manufacturer)
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</TABLE>
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Mr. Birck is a director of USF&G Corporation, Molex Incorporated and
Illinois Tool Works Inc. Mr. Krehbiel is a director of Molex
Incorporated, Northern Trust Corporation, Nalco Chemical Company and
DeVry Inc. Mr. Foulkes is a director of Dantel, Inc. Mr. Guglielmi is
a director of The Cherry Corporation and Internet Communications
Corporation. Mr. Jackman is a director of Spyglass, Inc. No director
has any family relationship with any other director.
The Board of Directors has a standing Audit and Ethics Committee,
the members of which are Messrs. Krehbiel and Souders. The Audit and
Ethics Committee is responsible for reviewing the auditor's examination
and reporting to the Board with respect thereto and for overseeing the
execution of corporate financial and ethical responsibilities and risk
management programs. In addition, the Board has a standing Compensation
Committee, the members of which are Messrs. Foulkes, Souders and
Suwinski and Ms. Marshall. The Compensation Committee is responsible
for determining compensation for the executive officers of the Company
and for administering the Company's stock option plans. During 1997,
four meetings of the Board of Directors, two meetings of the Audit and
Ethics Committee and four meetings of the Compensation Committee were
held. Each of the directors attended at least 75 percent of the
aggregate of the total number of Board meetings and the meetings of the
committees on which such director served during 1997.
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Security Ownership of Management and Certain Other Beneficial Owners
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The table below sets forth certain information as of February 16,
1998, with respect to each person known by the Company to be the
beneficial owner of more than 5 percent of its outstanding shares of
common stock, each director, each nominee for director, each Named
Executive Officer (as hereinafter defined), and all current executive
officers and directors as a group.
<TABLE>
<CAPTION>
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Beneficial Amount of
Name Ownership Percent (1)
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<S> <C> <C>
Michael J. Birck 19,831,614 (2) 10.5%
Putnam Investments, Inc. 10,912,543 (3) 5.8%
American Express Company 9,894,657 (4) 5.3%
Peter A. Guglielmi 527,046 (5) *
Brian J. Jackman 429,927 (6) *
Richard T. Taylor 89,275 (7) *
Frederick A. Krehbiel 77,000 (8) *
William F. Souders 66,000 (9) *
John D. Foulkes, Ph.D. 32,000 (10) *
Stephanie Pace Marshall, Ph.D. 19,334 (11) *
John E. Vaughan 10,000 (12) *
Jan H. Suwinski 4,334 (13) *
All current executive officers 23,732,163 (14) 12.6%
and directors as a group (17 persons)
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</TABLE>
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(1) Based on 181,771,682 shares of common stock outstanding as of
February 16, 1998, and 6,380,489 shares that may be acquired under
stock options exercisable within 60 days of such date.
(2) Includes 584,000 shares held by Mr. Birck's spouse. Mr. Birck
disclaims beneficial ownership of such shares. Also includes
12,500,000 shares held by Oak Street Investments, L.P., a family
limited partnership of which Mr. Birck is a general partner.
The address of Mr. Birck is 4951 Indiana Avenue, Lisle, Illinois
60532-1698.
(3) Putnam Investments, Inc., a wholly owned subsidiary of Marsh &
McLennan Companies, Inc., has shared voting power with respect to
1,370,334 shares and shared dispositive power with respect to
10,912,543 shares. Putnam Investments, Inc. is the parent holding
company to two investment advisors: Putnam Investment Management,
Inc., which has shared dispositive power with respect to 8,787,418
shares, and The Putnam Advisory Company, Inc., which has shared
voting power with respect to 1,370,334 shares and shared
dispositive power with respect to 2,125,125 shares. Marsh &
McLennan Companies, Inc. has no voting or dispositive power with
respect to the shares. The address of Putnam Investments, Inc. is
One Post Office Square, Boston, Massachusetts 02109.
(4) American Express Company, a parent holding company, and its
subsidiary, American Express Financial Corporation, an investment
advisor, have shared voting power with respect to 4,069,207 shares
and shared dispositive power with respect to 9,894,657 shares.
American Express Company disclaims beneficial ownership of such
shares. The address of American Express Company is American
Express Tower, 200 Vesey Street, New York, New York 10285.
(5) Includes 428,000 shares that Mr. Guglielmi has rights to acquire
under currently exercisable stock options.
(6) Includes 190 shares held by Mr. Jackman's daughter. Mr. Jackman
disclaims beneficial ownership of such shares. Also includes
390,000 shares that Mr. Jackman has rights to acquire under
currently exercisable stock options.
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(7) Includes 85,000 shares that Mr. Taylor has rights to acquire under
currently exercisable stock options.
(8) Includes 1,000 shares held by Mr. Krehbiel's sons. Mr. Krehbiel
disclaims beneficial ownership of such shares. Also includes
30,000 shares that Mr. Krehbiel has rights to acquire under
currently exercisable stock options.
(9) Includes 54,000 shares that Mr. Souders has rights to acquire
under currently exercisable stock options.
(10) Includes 4,000 shares held by Mr. Foulkes as trustee of a trust
for the benefit of his minor grandchildren. Mr. Foulkes disclaims
beneficial ownership of such shares. Also includes 18,000 shares
that Mr. Foulkes has rights to acquire under currently exercisable
stock options.
(11) Includes 13,334 shares that Ms. Marshall has rights to acquire
under currently exercisable stock options.
(12) Includes 10,000 shares issuable to Mr. Vaughan under a restricted
stock award made at the time Mr. Vaughan joined the Company. Mr.
Vaughan will not have voting or dispositive power over such shares
until earned.
(13) Includes 3,334 shares that Mr. Suwinski has rights to acquire under
stock options either currently exercisable or exercisable within 60
days of February 16, 1998.
(14) Includes 589,190 shares of which Messrs. Birck, Jackman, Krehbiel
and Foulkes disclaim beneficial ownership, as noted above. Also
includes 1,781,700 shares that certain officers have rights to
acquire under currently exercisable stock options and 118,668
shares that certain outside directors have rights to acquire under
stock options currently exercisable or exercisable within 60 days
of February 16, 1998.
* Less than 1%
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Executive Compensation
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The table below sets forth certain information for fiscal years
1997, 1996 and 1995 with respect to the annual and other compensation
paid by the Company to (i) the chief executive officer; and (ii) the
other four executive officers of the Company who were most highly
compensated in fiscal year 1997 (collectively, the "Named Executive
Officers") for services in all capacities to the Company and its
subsidiaries.
<TABLE>
<CAPTION>
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Summary Compensation Table
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Long Term Compensation
Annual Compensation Awards
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Name Other Restricted Securities
and Annual Stock Underlying All Other
Principal Compen- Awards Options/ Compen-
Position Year Salary Bonus sation(1) ($)(2) SARs#(3) sation(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Birck 1997 $392,548 $175,000 $11,823 0 0 $163,981
President ----
and Chief Executive Officer, 1996 $366,700 $195,000 $11,031 0 0 $149,071
Tellabs, Inc. ----
1995 $341,354 $150,000 $18,621 0 0 $129,351
Brian J. Jackman 1997 $270,058 $130,000 $8,785 0 20,000 $78,184
President, ----
Tellabs Operations, Inc. 1996 $252,347 $135,000 $11,138 0 40,000 $67,194
----
1995 $234,808 $110,000 $13,519 0 40,000 $54,970
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Peter A. Guglielmi 1997 $270,058 $100,000 $9,863 0 20,000 $83,983
Chief Financial Officer, ----
Tellabs, Inc. 1996 $252,347 $135,000 $8,010 0 40,000 $74,688
----
1995 $234,808 $100,000 $12,797 0 40,000 $44,583
John E. Vaughan 1997 $163,462 $100,000 $808 $410,000 100,000 $14,595
President
Tellabs International, Inc.
Richard T. Taylor 1997 $171,173 $75,000 $2,385 0 15,000 $31,545
Senior Vice President ----
and General Manager, 1996 $156,924 $76,000 $2,276 0 20,000 $24,659
Digital Systems Division, ----
Tellabs Operations, Inc. 1995 $141,153 $60,000 $3,723 0 20,000 $20,512
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</TABLE>
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(1) Amounts of Other Annual Compensation are amounts paid as
reimbursement to the Named Executive Officers for taxes paid on
certain medical and life insurance benefits. All Other Compensation
for 1997 includes amounts accrued as preferential above-market
interest on deferred compensation, contributions to the deferred
compensation plan to provide benefits in excess of applicable tax
law limitations, premiums paid for life insurance policies owned by
the Named Executive Officers, matching contributions under the
Company's Profit Sharing and Savings Plan, and contributions under
the Company's Retirement Plan in the respective amounts of $51,765,
$22,541, $20,294, $4,803 and $8,000 for Mr. Birck; $38,890, $12,664,
$13,830, $4,800 and $8,000 for Mr. Jackman; $54,213, $6,305,
$10,665, $4,800 and $8,000 for Mr. Guglielmi; $13,669, $0, $926, $0
and $0 for Mr. Vaughan; and $14,077, $0, $6,063, $4,502, and $6,903
for Mr. Taylor. All Other Compensation for 1997 for Mr. Birck also
includes $56,578, which represents the present value to Mr. Birck of
premiums paid by the Company with respect to a split dollar life
insurance arrangement between the Company and Mr. Birck. The
present value was calculated as an interest-free loan of the whole
life portion of the premium over the maturation of the policy. Mr.
Birck pays the term portion of the premium.
(2) As a portion of his employment offer, 10,000 shares of restricted
stock were awarded to Mr. Vaughan and the award amount listed above
is based on the closing price of $41.00 on May 1, 1997 (the date of
grant). One-half of the shares will vest on each of the first and
second year anniversaries of the grant provided Mr. Vaughan remains
employed by the Company on such dates. The value of such shares at
the end of the Company's fiscal year (based on the closing price of
$54.75 on January 2, 1998) was $547,500.
(3) Figures for the year 1996 reflect the effect of the 2-for-1 stock
split in the form of a stock dividend effective November 15, 1996.
Figures for the year 1995 reflect the effect of the 2-for-1 stock
splits in the form of stock dividends effective November 15, 1996
and May 19, 1995.
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The table below sets forth certain information with respect to stock
options granted during fiscal 1997 to the Named Executive Officers under
the Company's employee stock option plans.
<TABLE>
<CAPTION>
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Option/SAR Grants in Last Fiscal Year
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Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants(1) Option Term(2)
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# of Total
Options/
SARs
Options Granted to Exercise or
Granted Employees Base Price Expiration
Name (#) in Fiscal Year ($/Shares) Date 5%($) 10%($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Birck 0 N/A N/A N/A N/A N/A
Brian J. Jackman 20,000 1.1% $50.50 10/24/07 $636,300 $1,605,900
Peter A. Guglielmi 20,000 1.1% $50.50 10/24/07 $636,300 $1,605,900
John E. Vaughan 100,000 5.5% $41.00 5/01/07 $2,583,000 $6,519,000
Richard T. Taylor 15,000 0.8% $50.50 10/24/07 $477,225 $1,204,425
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</TABLE>
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(1) All options reported were granted on October 24, 1997 (except Mr.
Vaughan's options, which were granted on May 1, 1997) and become
exercisable in cumulative annual installments of 25 percent of the
shares covered thereby on each of the first, second, third and
fourth anniversaries of the grant date. No stock appreciation
rights (SARs) were granted to the Named Executive Officers during
fiscal 1997.
(2) The amounts set forth represent the value that would be received by
the Named Executive Officer upon exercise of the option on the day
before the expiration date of the option based upon assumed annual
growth rates in the market value of the Company's common stock of 5
percent and 10 percent, rates prescribed by applicable Securities
and Exchange Commission rules. Actual gains, if any, on stock
option exercises are dependent on the future performance of the
Company's common stock and other factors such as the general
condition of the stock markets and the timing of the exercise of the
options. The Company did not use an alternative formula for a
potential realizable value as the Company is not aware of any
formula that will determine with reasonable accuracy a present value
based on future unknown or volatile factors.
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The table below sets forth certain information with respect to
options and SARs exercised by the Named Executive Officers during fiscal
1997 and with respect to options and SARs held by the Named Executive
Officers at the end of fiscal 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Value
- ----------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)(1)
Number of Securities
Underlying Options/ Value Realized
Name SARs Exercised (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Birck 0 $0 0 0 $0 $0
Brian J. Jackman 80,000 $4,146,816 390,000 70,000 $19,626,240 $1,630,000
Peter A. Guglielmi 142,500 $6,464,893 428,000 70,000 $21,961,649 $1,630,000
John E. Vaughan 0 $0 0 100,000 $0 $1,375,000
Richard T. Taylor 55,000 $2,678,092 85,000 40,000 $4,110,625 $836,250
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The value of unexercised options at the end of fiscal 1997 is
based on the closing price of $54.75 reported on the Nasdaq
National Market System on January 2, 1998, the last trading
day of fiscal 1997.
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Employment Agreements
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The Company has entered into Employment Agreements (the
"Agreements") with each of the Named Executive Officers. The Agreements
with Messrs. Birck, Jackman, Guglielmi and Taylor become effective upon
the occurrence of a change in control of the Company (as defined in the
Agreements). The Agreements provide for (i) an employment term of three
years, in the event of a change in control not approved in advance by
the Board of Directors, or one year, in the event of a change in control
approved in advance by the Board of Directors, in either case commencing
on the date of the change in control; and (ii) compensation, including
annual salary, incentive bonuses and employee benefits, no less
favorable than those in effect on such date. In addition, if an
individual's employment is terminated within such employment term, he
will be entitled to receive (i) a lump sum cash payment equal to the sum
of salary payments for 36 months (or 12 months, if the change in control
is approved in advance by the Board of Directors) plus a pro rata share
of the estimated amount of any target bonus which would have been
payable for the bonus period that includes the termination date; (ii) an
amount equal to 36 months (or 12 months, if the change in control is
approved in advance by the Board of Directors) of bonus at the greater
of (A) the monthly rate of the target bonus payment for the bonus
period immediately prior to his termination date, or (B) the estimated
amount of the target bonus for the period which includes his termination
date; and (iii) the value of the incentive compensation, if any, to
which he would have been entitled had he remained in the employ of the
Company for 36 calendar months (or 12 months, if the change in control
is approved in advance by the Board of Directors). In addition, the
Company will be obligated to continue to maintain the individual's
employee benefits for such 36-month period (or 12-month period, if the
change in control is approved in advance by the Board of Directors) and
to pay to the individual the amount of any excise taxes, together with
the additional income tax related thereto, imposed upon the payments and
benefits provided under the Agreements.
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The Agreement with Mr. Vaughan becomes effective upon the
termination of Mr. Vaughan's employment other than "for cause," as
defined in the Agreement, at any time before May 1, 2001. Upon such
termination the Company agrees (i) to immediately vest the stock options
granted to him on May 1, 1997; (ii) to immediately vest the restricted
shares granted to him on May 1, 1997; and (iii) to continue his
then-current salary for one year beyond his termination date. In
exchange for the foregoing Agreement, Mr. Vaughan, for a period of two
years after termination, agrees (i) to comply with the Company's
confidentiality and patent agreements; (ii) not to compete with the
Company by accepting employment with a direct competitor of the Company
in the provisioning of networking and/or transport equipment to service
providers or end users of such equipment; and (iii) not to solicit,
induce or attempt to persuade any supplier, distributor, client,
customer or employee of the Company or any of its affiliates to
terminate or breach its, his or her relationship with the Company or any
of its affiliates.
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Director Compensation
- ------------------------------------------------------------------------
Each director who is not an officer of the Company was paid an
annual retainer of $15,000 plus a fee of $1,500 and expenses for each
Board of Directors meeting attended during 1997. No fees are paid for
attendance at Audit and Ethics Committee or Compensation Committee
meetings.
The Company's 1987 Stock Option Plan for Non-Employee Corporate
Directors (the "1987 Plan") provides for the non-discretionary grant of
options to non-employee directors of the Company. The 1987 Plan provides
that each non-employee director, on the date such person becomes a non-
employee director, will be granted options to purchase 10,000 shares of
the Company's stock and, provided such person is still serving as a non-
employee director, automatically will be granted options to purchase
6,000 additional shares each year thereafter on the anniversary of the
last day of the month in which the initial options were granted.
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The options for the initial 10,000 shares become exercisable in
cumulative annual installments equal to one-third of the total number of
shares covered. Annual options granted on the anniversaries of the
initial grants become exercisable in full six months from the date of
grant.
Options granted under the 1987 Plan may not be assigned and, during
the lifetime of the director, may be exercised only by him or her. If a
director ceases to be a director of the Company for any reason other
than death or disability, the option may be exercised, subject to the
expiration date of the option, for three months after such termination,
but only to the extent it was exercisable on the date of termination.
If a directorship is terminated because of death or disability, the
option may be exercised subject to the expiration date of the option,
for up to one year after such termination, but only to the extent it was
exercisable on the date of death or disability.
- ------------------------------------------------------------------------
Section 16(a) Beneficial Ownership Reporting Compliance
- ------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") requires the Company's officers and directors and
persons who own more than 10 percent of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. During 1997, all
such persons filed on a timely basis all reports required by Section
16(a) of the Exchange Act during the most recent fiscal year, however,
one report filed on behalf of Mr. Guglielmi and one report filed on
behalf of Mr. John C. Kohler were filed late during 1997. Each report
related to a stock option transaction.
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Compensation Committee Interlocks and Insider Participation
- ------------------------------------------------------------------------
All decisions regarding the compensation of the executive officers
were made by the Compensation Committee of the Board of Directors, which
is composed entirely of non-employee, independent members of the Board
of Directors. Although Mr. Birck made recommendations to the Committee
with regard to the compensation of the other executive officers,
including the other Named Executive Officers, he did not participate in
the Committee's deliberations with respect to his own compensation.
- ------------------------------------------------------------------------
Compensation Committee Report on Executive Compensation
- ------------------------------------------------------------------------
The Compensation Committee of the Board of Directors has furnished
the following report on executive compensation:
The Compensation Committee follows a compensation philosophy that
utilizes as a significant determinant the financial performance of the
Company, along with the achievement of non-financial corporate
objectives and the individual performance of the executive officers. By
doing so, it is the belief of the Compensation Committee that the
Company's management will focus on meeting both financial and
non-financial corporate goals that, in turn, should enhance stockholder
value. The Company's compensation package for executive officers is a
combination of base annual compensation, in the form of salary and other
benefits, annual incentives in the form of fiscal year-end bonuses, and
long-term compensation consisting of options and SARs awarded under the
Company's stock option plans.
In determining base salaries for the executive officers, including
the Named Executive Officers, for 1997, the Compensation Committee
considered the performance of each executive officer and the Company
during the preceding fiscal year, such executive officer's salary
history and, to a lesser extent, market survey data for comparable
positions. Mr. Birck's 1997 base salary was set based upon a
consideration of the same factors.
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The 1997 annual bonus plan was structured based upon the
accomplishment of specific financial and non-financial objectives.
These objectives applied to all executive officers. Achievement of the
financial objectives was a prerequisite to the funding of a bonus pool.
If those financial objectives were met, each of the non-financial
objectives would be considered for the individual bonus amounts.
Individual performance and overachievement of the financial objectives
were considered in determining whether bonuses in excess of the target
would be granted.
For 1997, individual pay-outs for executive officers, including the
Named Executive Officers, were targeted at 30 percent of annual salary
and were contingent on achievement of both the financial and
non-financial objectives. The financial objectives included targets for
revenue, gross margin, net earnings after taxes and earnings per share.
The non-financial objectives related to making significant progress in
the areas of (i) customer satisfaction; (ii) product strategy; and (iii)
management of globalization initiatives.
During 1997, all of the financial objectives were exceeded, and the
non-financial objectives were achieved. Based upon these successes, the
Compensation Committee awarded bonuses in excess of 30 percent to each
of the Named Executive Officers, including Mr. Birck.
The final piece of the compensation package for executive officers
is awards under the Company's stock option plans. In general, the
Company has used stock options and SARs as an integral part of its
compensation program for executive officers and for employees throughout
the Company with a view toward giving the executive officers and
employees a stake in the Company's future and compensation opportunities
directly aligned with the creation of stockholder value. The
Compensation Committee granted options to each of the executive
officers, including the Named Executive Officers other than Mr. Birck,
during fiscal 1997 in furtherance of this long-standing philosophy. The
number of options granted to each executive officer reflects the
Compensation Committee's assessment of the particular officer's level of
responsibility. In light of Mr. Birck's personal holdings of Company
stock, the award of options or SARs was not deemed necessary by the
Compensation Committee in order to provide the incentives fostered by
grants to the other executive officers.
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The Compensation Committee has adopted guidelines to encourage
outright share ownership by the executive officers, including the Named
Executive Officers. The Compensation Committee considered whether each
executive officer, including the Named Executive Officers, had met those
guidelines in deciding whether to grant additional stock options to such
officer.
The Compensation Committee does not believe that the provisions of
Code Section 162(m) relating to the deductibility of compensation paid
to the Named Executive Officers will limit the deductibility of such
compensation expected to be paid by the Company. The Compensation
Committee will continue to evaluate the impact of such provisions and
take such actions as it deems appropriate.
March 16, 1998 John D. Foulkes, Ph.D.,
Stephanie Pace Marshall, Ph.D.,
William F. Souders and
Jan H. Suwinski
Members of the Compensation
Committee as of January 2, 1998.
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- ------------------------------------------------------------------------
Performance Graph
- ------------------------------------------------------------------------
The graph below sets forth a comparison of the yearly change in the
cumulative total stockholder return on the Company's common stock
against the cumulative total return of the Nasdaq/NMS Market Index, a
broad-based market index, and the Dow Jones Communications Technology
Group, a peer group of common stocks of 249 communications technology
manufacturers, for the five-year period beginning January 1, 1993.
<TABLE>
<CAPTION>
A FIVE-YEAR CUMULATIVE TOTAL RETURN COMPARISON
(STOCK PERFORMANCE IN DOLLARS)
- ------------------------------------------------------------------------------
Company 1992 1993 1994 1995 1996 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tellabs, Inc. 100 286.21 675.4 896.49 1914.3 2653.13
Peer Group Index 100 140.03 149.01 194.61 244.41 292.25
NASDAQ Market Index 100 119.95 125.94 163.35 202.99 248.3
- ------------------------------------------------------------------------------
Assumes $100 invested on January 1, 1993, dividends reinvested,
fiscal year ended January 2, 1998
</TABLE>
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Approval of the 1998 Stock Option Plan
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- ------------------------------------------------------------------------
Background And Purpose
- ------------------------------------------------------------------------
Due to the limited number of shares remaining under the Company's
1984, 1986, 1989, 1991 and 1994 Stock Option Plans for option grants to
Company employees, the Board of Directors of the Company adopted on
January 21, 1998, subject to stockholder approval, the 1998 Stock Option
Plan (the "1998 Plan"). The purpose of the 1998 Plan is to enable the
Company to offer to certain present and future executives and other
employees stock-based incentives in the Company, thereby giving them a
stake in the growth and prosperity of the Company and encouraging the
continuance of their services with the Company. The 1998 Plan provides
for the grant to employees of incentive or non-qualified options
(individually or collectively referred to herein as "options") and stock
appreciation rights ("SARs"). The Board believes it is in the Company's
and its stockholders' best interests to provide to key employees an
opportunity to participate in the appreciation and value of the
Company's common stock. The following summary of the 1998 Plan is
qualified in its entirety by the full text of the 1998 Plan. Any
stockholder of the Company that wishes to obtain a full text copy of the
1998 Plan, may do so upon written request to the Company's Secretary at
the Company's headquarters, 4951 Indiana Avenue, Lisle, Illinois
60532-1698.
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Eligibility and Administration
- ------------------------------------------------------------------------
All employees of the Company and its subsidiaries, including
officers and directors who are employees, (or in the Compensation
Committee's discretion, individuals who have accepted employment, but
have not commenced employment) are eligible to receive options and SARs
granted under the 1998 Plan ("Awards"). As of February 16, 1998, there
were 4,037 employees, all of whom are eligible to participate in the
1998 Plan. Under the 1998 Plan, the maximum number of option and/or SAR
Awards that may be granted to an individual in any fiscal year is
100,000 (250,000, in the case of an individual's first fiscal year of
employment). The 1998 Plan authorizes the granting of option Awards
with respect to up to 8,000,000 shares of common stock and Awards for up
to 1,000,000 SARs. The shares subject to the options will be made
available from authorized but unissued shares, or from shares held or
acquired as treasury shares. To date, no options or SARs have been
granted under the 1998 Plan.
The 1998 Plan is administered by the Compensation Committee of the
Board of Directors of the Company comprised entirely of disinterested
outside directors within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code") and Rule 16b-3 of the
Exchange Act. The Compensation Committee has full authority to grant
Awards under the 1998 Plan, to establish the terms of the agreements
evidencing such Awards and to take all other actions deemed appropriate
for the administration of the 1998 Plan.
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Options and SARs
- ------------------------------------------------------------------------
Incentive and non-qualified stock options and SARs (either
freestanding or in conjunction with an option either at the time of
grant or at any time thereafter during the term of the option) are
available for grant by the Compensation Committee.
Under the Code, incentive stock options will be treated as
non-qualified options to the extent that the aggregate fair market value
of the underlying shares (determined at the time the options are
granted) with respect to which incentive stock options are exercisable
for the first time by an individual during a calendar year (whether as a
result of acceleration of exercisability or otherwise) exceeds $100,000.
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Terms and Conditions of Options and SARs
- ------------------------------------------------------------------------
Unless the agreement evidencing an Award expressly provides
otherwise, Awards for options or SARs granted under the 1998 Plan become
exercisable in cumulative annual installments of 25 percent of the total
number of shares covered thereby on each of the first, second, third and
fourth anniversaries of the date of the grant. No option or SAR may be
exercised later than 10 years from the date of the grant. The option
price per share, and the SAR exercise price, shall not be less than the
fair market value per share of the common stock of the Company on the
date of grant. The Company reserves the right to deduct or withhold, or
require a participant to remit to the Company, any withholding tax
obligation. Alternatively, the participant may elect, with the
Compensation Committee's consent, to have withheld from the number of
shares to be issued that number of shares the fair market value of which
equals the amount of withholding tax.
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Payment for shares purchased upon the exercise of an option shall be
payable to the Company in full (i) in cash or its equivalent; (ii) in
previously-acquired shares of the outstanding common stock of the
Company; (iii) by any other means which the Compensation Committee
determines to be consistent with the 1998 Plan's purpose and applicable
law; or (iv) by a combination of (i), (ii) and/or (iii). Options and
SARs granted under the 1998 Plan may not be assigned and, during the
lifetime of the participant, may be exercised only by him or her,
provided that the Compensation Committee, in its discretion, may grant
limited transferability of options to or for the benefit of a
participant's immediate family members. Each participant may designate
a beneficiary under the 1998 Plan to receive benefits and/or exercise
Awards in case of such participant's death prior to receiving any or all
of such benefits or exercising any or all of such Awards. If a
participant ceases to be employed by the Company or any one of its
subsidiaries for any reason other than death or disability, any options
or SARs may be exercised, subject to the expiration date of the option
or SAR, for three months after such termination, but only to the extent
it was exercisable on the date of termination. If employment is
terminated because of death or disability, the option or SAR may be
exercised, subject to the expiration date of the option or SAR, for up
to one year after such termination, but only to the extent it was
exercisable on the date of death or disability.
To the extent shares related to an option Award are not issued,
either because the Award is forfeited or expires, or because shares are
used to satisfy the exercise price or tax withholding, then the number
of shares not so issued will again be available for Awards under the
1998 Plan. Any SARs which are forfeited or expire prior to exercise
will again be available for Awards under the 1998 Plan.
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Modification and Termination
- ------------------------------------------------------------------------
Like the Company's earlier stock option plans, the 1998 Plan
provides for adjustment in the number and class of shares available for
Awards subject to the 1998 Plan, the annual maximum number of shares for
which Awards may be made to an individual, and to the number, class of
and the exercise prices of shares subject to outstanding Awards granted
thereunder, in the event of a stock dividend, stock split, reverse stock
split, recapitalization, reorganization, merger, consolidation,
acquisition or other change in the capital structure of the Company.
The Board of Directors may at any time terminate the 1998 Plan or
amend it subject to any requirement of stockholder approval imposed by
applicable law, rule or regulation. No amendment or termination of the
1998 Plan by the Board of Directors may adversely affect any Award
previously granted under the 1998 Plan without the consent of the
participant.
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Federal Income Tax Consequences
- ------------------------------------------------------------------------
The following is a brief summary of the principal federal income tax
consequences under current federal income tax laws relating to Awards
under the 1998 Plan. This summary is not intended to be exhaustive and,
among other things, does not describe state or local tax consequences.
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In general, a participant will be subject to tax at the time a
non-qualified option or SAR Award is exercised (but not at the time of
grant). He or she will include in ordinary income in the taxable year
in which he or she exercises a non-qualified option or SAR an amount
equal to, in the case of a non-qualified option, the difference between
the exercise price and the fair market value of the shares acquired on
the date of exercise or, in the case of an SAR, the cash received. The
Company will generally be entitled to deduct such amounts for federal
income tax purposes, except as such deductions may be limited by Section
162(m) of the Code ("Section 162(m)") as described below. Upon
disposition of shares, the appreciation (or depreciation) after the date
of exercise will be treated by the participant as either short-term or
long-term capital gain (or loss), and the applicable tax rate will be
determined, depending on whether the shares have been held for the
then-required holding period.
In general, a participant will not be subject to tax at the time an
incentive option Award is granted or exercised. However, the excess, if
any, of the fair market value of the shares acquired pursuant to such
exercise over the exercise price is an adjustment for the purpose of
computing the alternative minimum tax, unless such shares are disposed
of in a "Disqualifying Disposition" (as defined below) in the year of
exercise. The alternative minimum tax applies only if it is greater
than a taxpayer's regular tax liability. Upon disposition of the shares
acquired upon exercise of an incentive option Award, long-term capital
gain or loss will be recognized in an amount equal to the difference
between the disposition price and the exercise price, provided that the
participant has not disposed of the shares within two years of the date
of grant or within one year from the date of exercise. The capital gains
tax rate applied will depend upon the participant's holding period. If
the participant disposes of the shares without satisfying both holding
period requirements (a "Disqualifying Disposition"), the participant
will recognize ordinary income at the time of such Disqualifying
Disposition to the extent of the difference between the exercise price
and the lesser of the fair market value of the shares on the date the
incentive option Award was exercised or the date of sale. Any remaining
gain or loss is treated as short-term or long-term capital gain or loss
depending upon how long the shares have been held. The Company is not
entitled to a tax deduction upon either the exercise of an incentive
option Award or upon disposition of the shares acquired pursuant to such
exercise, except to the extent that the participant recognizes ordinary
income in a Disqualifying Disposition and then only to the extent that
such deduction is not limited by Section 162(m).
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If the participant pays the exercise price, in full or in part, with
previously acquired shares, the exchange will not affect the tax
treatment of the exercise. However, if such exercise is effected using
shares previously acquired through the exercise of an incentive option
Award, the exchange of the previously acquired shares will be considered
a disposition of such shares for the purpose of determining whether a
Disqualifying Disposition has occurred.
The federal income tax deduction which the Company may take for
otherwise deductible compensation payable to executive officers who are
treated as Named Executive Officers in the Company's Proxy Statement for
such year will be limited by Section 162(m) to $1,000,000. The
deduction limit on compensation will apply to all compensation, except
compensation deemed under Section 162(m) to be "performance-based" and
certain compensation related to retirement and other employee benefit
plans. The determination of whether compensation related to the 1998
Plan is performance-based for purposes of Section 162(m) will be
dependent upon a number of factors, including stockholder approval of
the 1998 Plan and the exercise price at which options and SARs are
granted. Section 162(m) also prescribes certain limitations and
procedural requirements in order for compensation to qualify as
performance-based. Although the Company has structured the 1998 Plan to
satisfy the requirements of Section 162(m) with regard to its
"performance-based" criteria, there is no assurance Awards thereunder
will so satisfy such requirements, and accordingly, the Company may be
limited in the deductions it may take with respect to Awards under the
1998 Plan.
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Approval of the Plan
- ------------------------------------------------------------------------
The Board of Directors recommends that stockholders vote FOR
approval of the 1998 Plan. A majority vote of the shares represented in
person or by proxy at the Annual Meeting is required to approve the 1998
Plan.
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Selection of Auditors
- ------------------------------------------------------------------------
The Company has selected Ernst & Young LLP, independent auditors, as
the Company's independent auditors in 1998, as it did for 1997. A
representative of Ernst & Young LLP is expected to be present at the
meeting to answer appropriate questions and, if the representative so
desires, to make a statement.
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Other Matters
- ------------------------------------------------------------------------
Management knows of no other matters which will be brought before
the meeting, but if such matters are properly presented, the proxies
solicited hereby will be voted in accordance with the judgment of the
persons holding such proxies.
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Cost of Solicitation
- ------------------------------------------------------------------------
This proxy is solicited by the Board of Directors, and the cost of
solicitation will be paid by the Company. Additional solicitation may be
made by mail, personal interview, telephone and/or facsimile by Company
personnel, who will not be additionally compensated therefor. The cost
of any such additional solicitation will be borne by the Company.
- ------------------------------------------------------------------------
Stockholder Proposals
- ------------------------------------------------------------------------
For inclusion in the Company's proxy statement and form of proxy
with respect to the 1999 Annual Meeting of Stockholders, any proposals
of stockholders must be received by the Secretary of the Company no
later than November 16, 1998.
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To nominate one or more directors for consideration at the 1999
Annual Meeting of Stockholders, a stockholder must provide notice of the
intent to make such nomination or nominations by personal delivery or by
mail to the Secretary of the Company no later than November 16, 1998.
The Company's bylaws set specific requirements that such written notice
must satisfy. Copies of those requirements will be sent to any
stockholder upon written request.
By Order of the Board of Directors,
Carol Coghlan Gavin
Secretary
March 16, 1998
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APPENDIX
- ------------------------------------------------------------------------
Appendix 1. Proxy Card
Appendix 2. Tellabs, Inc. 1998 Stock Option Plan
<PAGE>
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Appendix 1
----------
PROXY
4951 Indiana Avenue, Lisle, Illinois 60532
This Proxy is Solicited By the Board of Directors
The undersigned stockholder(s) of Tellabs, Inc., a Delaware
corporation, does (do) hereby constitute and appoint Peter A. Guglielmi
and Carol Coghlan Gavin, and each of them, the true and lawful
attorney(s) of the undersigned with full power of substitution, to
appear and act as the proxy or proxies of the undersigned at the Annual
Meeting of Stockholders of said corporation to be held at the Holiday
Inn Naperville, 1801 Naper Boulevard, Naperville, Illinois 60563, on
Wednesday, April 15, 1998, at 2:00 p.m., and at any adjournment thereof,
and to vote all the shares of said corporation standing in the name of
the undersigned, or which the undersigned may be entitled to vote, as
fully as the undersigned might or could do if personally present, as set
forth herein.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder(s). If no direction is
made, this proxy will be voted FOR the election of directors and FOR the
approval of the 1998 Stock Option Plan.
(Please mark this proxy, date and sign it on the reverse side
hereof and return it in the enclosed envelope.)
(Continued and to be signed on the reverse side)
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<TABLE>
<CAPTION>
TELLABS, INC.
PLEASE MARK VOTE IN SQUARE IN THE FOLLOWING MANNER
USING DARK INK ONLY. (X)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" EACH OF THE LISTED PROPOSALS.
<S> <C> <C> <C> <C>
1. Election of two directors-- FOR WITHHELD FOR ALL Except the following Nominee
Nominees: Michael J. Birck and ( ) ( ) ( ) ________________________________
Frederick A. Krehbiel
2. Approval of the 1998 Stock FOR AGAINST ABSTAIN
Option Plan ( ) ( ) ( )
</TABLE>
3. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Meeting.
Please sign name exactly as imprinted (do not print). Please indicate
any change in address.
NOTE: Executors, administrators, trustees and others signing in a
representative capacity should indicate the capacity in which
they sign. If shares are held jointly, EACH stockholder should
sign.
Dated: ___________________, 1998
________________________________________________________________________
________________________________________________________________________
Signature of stockholder(s)
<PAGE>
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Appendix 2
----------
TELLABS, INC.
1998 STOCK OPTION PLAN
Article 1.
Establishment, Objectives, and Duration
1.1 Establishment of the Plan.
-------------------------
Tellabs, Inc., a Delaware corporation (hereinafter referred to as
the "Company"), hereby establishes the incentive compensation
plan to be known as the Tellabs, Inc. 1998 Stock Option Plan
(hereinafter referred to as the "Plan").
Subject to approval by the Company's stockholders, the Plan shall
become effective as of January 21, 1998 (the "Effective Date")
and shall remain in effect as provided in Section 1.3 hereof.
1.2 Purpose of the Plan.
-------------------
The purpose of this Plan is to benefit the Company and its
subsidiaries and affiliated companies by enabling the Company to
offer to certain present and future executives and key personnel
stock-based incentives and other equity interests in the Company,
thereby giving them a stake in the growth and prosperity of the
Company and encouraging the continuance of their services with
the Company or its subsidiaries or affiliated companies.
1.3 Duration of the Plan.
--------------------
The Plan shall commence on the Effective Date and shall remain in
effect, subject to the right of the Board of Directors to amend
or terminate the Plan at any time pursuant to Article 11 hereof,
until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions.
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Article 2.
Definitions
Whenever used in the Plan, the following terms shall have the meanings
set forth below, and when the meaning is intended, the initial letter of
the word shall be capitalized:
"Award" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options or Stock
Appreciation Rights.
"Award Date" means the date an Award is granted to the Participant.
"Award Agreement" means a writing provided by the Company to each
Participant setting forth the terms and provisions applicable to Awards
granted under this Plan. The Participant's acceptance of the terms of
the Award Agreement shall be evidenced by his or her continued
employment without written objection before any exercise or payment of
the Award. If the Participant objects in writing, the grant of the
Award shall be revoked. "Board" or "Board of Directors" means the Board
of Directors of the Company.
"Change in Control" of the Company shall be deemed to occur when and
only when the first of the following events occurs:
(a) Any person becomes the beneficial owner, directly or indirectly,
of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding voting
securities and a majority of the Incumbent Board (as defined below)
does not approve the acquisition before the acquisition occurs; or
(b) Members of the Incumbent Board cease to constitute a majority of
the Board.
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Notwithstanding the foregoing, a Change in Control shall not be
deemed to have occurred pursuant to clause (a) above solely because
20% or more of the combined voting power of the Company's then
outstanding securities is acquired by (A) one or more employee
benefit plans maintained by the Company or any of its subsidiaries,
or (B) by any person who, as of the Effective Date of this Plan, was
a beneficial owner of 10% or more of the combined voting power of
the Company's outstanding securities as of such Effective Date. The
terms "person" and "beneficial owner" shall have the meanings set
forth in Sections 3(a) and 13(d) of the Exchange Act and in the
regulations promulgated thereunder; the term "Incumbent Board" shall
mean (A) the members of the Board of Directors on the Effective Date
of this Plan and (B) any individual who becomes a member of the
Board of Directors after the Effective Date, if his or her election
or nomination for election as a director was approved by the
affirmative vote of a majority of the then Incumbent Board.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation thereto.
"Committee" means the Committee as specified in Article 3 herein
appointed by the Board to administer the Plan with respect to grants of
Awards.
"Common Stock" means the common stock of the Company.
"Company" means Tellabs, Inc., a Delaware corporation, as well as any
successor to such entity as provided in Article 13 herein.
"Director" means any individual who is a member of the Board of
Directors of the Company.
"Disability" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan. If no long-term
disability plan is in place with respect to a Participant, then with
respect to that Participant, Disability shall mean: for the first 24
months of disability, that the Participant is unable to perform his or
her job; thereafter, that the Participant is unable to perform any and
every duty of any gainful occupation for which the Participant is
reasonably suited by training, education or experience.
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"Effective Date" shall have the meaning ascribed to such term in Section
1.1 hereof.
"Employee" means any employee of the Company or any Subsidiary, and any
individual who has accepted employment with the Company or any
Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
"Fair Market Value" shall mean an amount equal to the closing price on
the applicable date for sales of shares of Common Stock made and
reported through the National Market System of the National Association
of Securities Dealers, Inc. or such national stock exchange on which the
Common Stock may then be listed and which constitutes the principal
market for the Common Stock, or, if no sales of Common Stock shall have
been reported with respect to that date, on the next preceding date with
respect to which sales were reported.
"Freestanding SAR" means an SAR that is granted independently of any
Options, as described in Article 7 herein.
"Incentive Stock Option" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive
Stock Option and which is intended to meet the requirements of Code
Section 422.
"Nonqualified Stock Option" or "NQSO" means an option to purchase Shares
granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
"Option" means an Incentive Stock Option or a Nonqualified Stock Option,
as described in Article 6 herein.
"Option Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
"Participant" means any individual who has outstanding an Award granted
under the Plan.
"Shares" means shares of Common Stock of the Company.
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"Stock Appreciation Right" or "SAR" means an Award, granted alone or in
connection with a related Option, designated as an SAR, pursuant to the
terms of Article 7 herein.
"Subsidiary" means any Company, partnership, joint venture, affiliate,
or other entity in which the Company is the direct or indirect
beneficial owner of not less than 20% of all issued and outstanding
equity interests.
"Tandem SAR" means an SAR that is granted in connection with a related
Option pursuant to Article 7 herein, the exercise of which shall require
forfeiture of the right to purchase a Share under the related Option
(and when a Share is purchased under the Option, the Tandem SAR shall
similarly be forfeited).
Article 3.
Administration
3.1 The Committee.
-------------
The Plan shall be administered by the Compensation Committee of
the Board, or by any other Committee appointed by the Board. If
and to the extent that no Committee exists that has the authority
to administer the Plan, the functions of the Committee shall be
exercised by the full Board.
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3.2 Authority of the Committee.
--------------------------
Except as limited by law or by the certificate of incorporation
or bylaws of the Company, and subject to the provisions herein,
the Committee shall have full power to select Employees and
others who shall participate in the Plan; determine the sizes and
types of Awards; determine the terms and conditions of Awards in
a manner consistent with the Plan; construe and interpret the
Plan and any agreement or instrument entered into under the Plan;
establish, amend, or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 11
herein) amend the terms and conditions of any outstanding Award
to the extent such terms and conditions are within the discretion
of the Committee as provided in the Plan. Further, the Committee
shall make all other determinations which may be necessary or
advisable for the administration of the Plan. As permitted by
law, the Committee may delegate the authority granted to it
herein.
3.3 Decisions Binding.
-----------------
All determinations and decisions made by the Committee pursuant
to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding
on all persons, including the Company, its stockholders,
Employees, Participants, and their estates and beneficiaries.
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Article 4.
Shares Subject to the Plan and Maximum Awards
4.1 Shares Available for Awards.
---------------------------
The aggregate number of Shares which may be delivered for
purposes of this Plan with respect to Awards shall not exceed
8,000,000 Shares (subject to adjustment as provided in Section
4.3), which may be either authorized and unissued Shares or
Shares held in or acquired for the treasury of the Company. Of
the aggregate number of Shares, up to all of such Shares may be
issued with respect to Incentive Stock Option Awards or
Nonqualified Stock Option awards. In addition, up to an
aggregate of 1,000,000 Freestanding SARs may be granted under the
Plan.
Upon a cancellation, termination, expiration, forfeiture, or
lapse for any reason (with the exception of the termination of a
Tandem SAR upon exercise of the related Options, or the
termination of a related Option upon exercise of the
corresponding Tandem SAR) of any Award, then the number of Shares
or SARs covered by the Award shall not be deemed to have been
delivered or used for purposes of determining the maximum number
of Shares which may be delivered or Freestanding SARs which may
be granted under the Plan. Upon payment of an Option Price with
previously-acquired shares and/or payment of any taxes arising
upon exercise of an Option with previously acquired Shares or by
withholding Shares which otherwise would be acquired on exercise,
then only the number of Shares issued net of the number of Shares
tendered or withheld shall be deemed delivered for purposes of
determining the maximum number of Shares which may be delivered
under the Plan.
4.2 Individual Participant Limitations.
----------------------------------
The following rules shall apply to grants of Awards under the
Plan:
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(a) Subject to adjustment as provided in Section 4.3 herein and
subsection (b) below, the maximum aggregate number of Shares
which may be issuable under Option Awards and used for
reference purposes for Awards of Freestanding SARs that may
be granted in any one fiscal year to a Participant shall be
100,000.
(b) Notwithstanding the foregoing and subject to adjustment as
provided in Section 4.3 herein, the maximum aggregate number
of Shares which may be issuable under Option Awards and used
for reference purposes for Awards of Freestanding SARs that
may be granted to a Participant in the first fiscal year of
the Participant's employment with the Company shall be
250,000.
4.3 Adjustments in Authorized Shares.
--------------------------------
In the event of any change in corporate capitalization, such as a
stock split, or a corporate transaction, such as any merger,
consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within
the definition of such term in Code Section 368) or any partial
or complete liquidation of the Company, such adjustment shall be
made in the number and class of Shares available for Awards, the
number and class of and/or price of Shares subject to outstanding
Awards granted under the Plan and the number of Shares set forth
in Sections 4.1 and 4.2, as may be determined to be appropriate
and equitable by the Committee, in its sole discretion, to
prevent dilution or enlargement of rights; provided, however,
that the number of Shares subject to any Award shall always be a
whole number.
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Article 5.
Eligibility and Participation
5.1 Eligibility.
-----------
Persons eligible to participate in this Plan include all officers
and other Employees of the Company and its Subsidiaries, as
determined by the Committee, including Employees who are members
of the Board and Employees who reside in countries other than the
United States of America. The Committee may, at its discretion,
permit the participation in the Plan by those individuals who
have accepted employment with the Company or a Subsidiary, but
as of the date of their initial Awards have not yet commenced
employment; provided, however, that in no event shall an ISO be
granted to any Employee prior to the date such Employee commences
employment with the Company or a Subsidiary.
5.2 Actual Participation.
--------------------
Subject to the provisions of the Plan, the Committee may, from
time to time, select from all eligible Employees as described in
Section 5.1 hereinabove those to whom Awards shall be granted and
shall determine the nature and amount of each Award.
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Article 6.
Stock Options
6.1 Grant of Options.
----------------
Subject to the terms and provisions of the Plan, Options may be
granted to one or more Participants in such number, and upon such
terms, and at any time and from time to time as shall be
determined by the Committee. The Committee may grant Nonqualified
Stock Options or Incentive Stock Options; provided, however, that
(a) no ISO may be granted more than ten years after the Effective
Date of the Plan, (b) the Option Price with respect to any ISO
granted to a Participant who is a 10% stockholder within the
meaning of Section 422 of the Code shall be not less than 110% of
the Fair Market Value of the Shares on the date of grant and such
ISO shall not be exercisable after the expiration of five years
from the date of grant, and (c) the aggregate Fair Market Value
(determined on the date the ISO is granted) of the Shares subject
to each installment becoming exercisable for the first time in
any calendar year under ISOs granted under all plans of the
Company and any Subsidiary, including this Plan, to a Participant
shall not exceed $100,000 (provided, that to the extent that the
aggregate Fair Market Value (determined on the date of grant of
the ISO) of the Shares subject to ISOs becoming exercisable for
the first time in a calendar year exceeds $100,000 due to the
acceleration of the exercisability of such installments or
otherwise, that portion of the ISOs (determined by taking ISOs
into account in the order in which they were granted) in excess
of such $100,000 amount shall be treated as Nonqualified Stock
Options). The Committee shall have complete discretion in
determining the number of Options granted to each Participant
(subject to Article 4 herein).
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6.2 Option Agreement.
----------------
Each Option grant shall be evidenced by an Award Agreement that
shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other
provisions as the Committee shall determine. The Award Agreement
with respect to the Option also shall specify whether the Option
is intended to be an ISO within the meaning of Code Section 422,
or an NQSO whose grant is intended not to fall under the
provisions of Code Section 422.
6.3 Option Price.
------------
The Committee shall designate the Option Price for each grant of
an Option under this Plan which Option Price shall be at least
equal to one hundred percent (100%) of the Fair Market Value of a
Share on the date the Option is granted, and which Option Price
may not be subsequently changed by the Committee except pursuant
to Section 4.3 hereof or to the extent provided in the Award
Agreement.
6.4 Duration of Options.
-------------------
Each Option granted to an Employee shall expire at such time as
the Committee shall determine at the time of grant; provided,
however, that unless otherwise designated by the Committee at the
time of grant, no Option shall be exercisable later than the
tenth (10th) anniversary date of its grant.
6.5 Exercise of Options.
-------------------
Options granted under this Article 6 shall be exercisable at such
times and be subject to such restrictions and conditions as the
Committee shall in each instance approve, which need not be the
same for each grant or for each Participant. Unless the Award
Agreement executed by the Participant expressly provides
otherwise, the Options shall be exercisable in accordance with
the following schedule:
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Years After Exercisable Percentage
Award Date of Shares
------------------ ----------------------
Less than 1 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 but less than 10 100%
6.6 Notice of Exercise and Payment.
------------------------------
Options granted under this Article 6 shall be exercised by the
delivery of a written notice of exercise to the Company, setting
forth the number of Shares with respect to which the Option is to
be exercised, accompanied by full payment for the Shares. The
Option Price upon exercise of any Option shall be payable to the
Company in full either:
(a) in cash or its equivalent (including for this purpose, the
proceeds from a cashless exercise as permitted under Federal
Reserve Board's Regulation T),
(b) by tendering (either actually or by attestation of ownership)
previously acquired Shares (Shares acquired on the open
market or which have been held for at least six months)
having an aggregate Fair Market Value at the time of exercise
equal to the total Option Price,
(c) by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law, or
(d) by any combination of (a), (b), and/or (c).
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the
Participant, in the Participant's name, Share certificates in an
appropriate amount based upon the number of Shares purchased
under the Option(s).
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6.7 Restrictions on Share Transferability.
-------------------------------------
The Committee may impose such restrictions on any Shares acquired
pursuant to the exercise of an Option granted under this Article
6 as it may deem advisable, including, without limitation,
restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such
Shares are then listed and/or traded, and under any blue sky or
state securities laws applicable to such Shares.
6.8 Termination of Employment.
-------------------------
In the event a Participant ceases to be an Employee for any
reason prior to the occurrence of a Change in Control (as
described in Article 2), any Option or unexercised portion
thereof granted under this Plan may be exercised, to the extent
such Option would have been exercisable by the Participant
hereunder on the date on which the Participant ceased to be an
Employee, within three months of such date, but in no event later
than the date of expiration of the term of the Option. In the
event a Participant ceases to be an Employee for any reason
following the occurrence of a Change in Control (as described in
Article 2), any Option or unexercised portion thereof granted
under this Plan may be exercised, to the extent such Option would
have been exercisable by the Participant hereunder on the date on
which the Participant ceased to be an employee, within seven
months of such date (provided, that any ISO exercised after the
expiration of three months following such termination of
employment shall be treated as an NQSO), but in no event later
than the date of expiration of the term of the Option. In the
event of the death or disability (as defined in Section 22(e)(3)
of the Code) of the Participant while an Employee of the Company
or any of its subsidiaries or within not more than three months
after the date on which the Participant ceases to be an Employee,
any Option or unexercised portion thereof may be exercised, to
the extent exercisable at the date of such death or disability,
by the Participant's personal representatives, heirs or legatees
at any time prior to one year after the date on which the
Participant ceased to be an Employee, but in no event later than
the date of the expiration of the term of the Option (provided
that any ISO which is exercised after the expiration of three
months following the cessation of employment for any reason other
than disability or one year after the date of termination of
employment due to disability, shall be treated as an NQSO).
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6.9 Limited Transferability of Options.
----------------------------------
Except as provided below, no Option granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, otherwise than by will or by the laws of descent
and distribution. Further, all Options granted to a Participant
under the Plan shall be exercisable during his lifetime only by
such Participant. Notwithstanding the foregoing, the Committee
may, in its discretion, authorize all or a portion of the Options
(other than Incentive Stock Options) granted to a Participant to
be on terms which permit transfer by such Participant to:
(a) the spouse, children or grandchildren of the Participant
("Immediate Family Members");
(b) a trust or trusts for the exclusive benefit of such
Immediate Family Members, or;
(c) a partnership in which such Immediate Family Members are the
only partners, provided that:
(i) there may be no consideration for any such transfer;
(ii) the Award Agreement pursuant to which such Options
are granted expressly provides for transferability in
a manner consistent with this Section 6.9; and
(iii) subsequent transfers of transferred Options shall be
prohibited except those in accordance with Article 8.
Following transfer, any such Options shall continue to be subject
to the same terms and conditions as were applicable immediately
prior to transfer, provided that for purposes of Article 8 hereof
the term "Participant" shall be deemed to refer to the
transferee. The provisions of Article 6 relating to the period
of exercisability and expiration of the Option shall continue to
be applied with respect to the original Participant, and the
Options shall be exercisable by the transferee only to the
extent, and for the periods, set forth in said Article 6.
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Article 7.
Stock Appreciation Rights
7.1 Grant of SARs.
-------------
Subject to the terms and conditions of the Plan, SARs may be
granted to Participants at any time and from time to time as
shall be determined by the Committee. The Committee may grant
Freestanding SARs, Tandem SARs, or any combination of these forms
of SAR. The Committee shall have complete discretion in
determining the number of SARs granted to each Participant
(subject to Article 4 herein) and, consistent with the provisions
of the Plan, in determining the terms and conditions pertaining
to such SARs. The Committee shall designate, at the time of
grant, the grant price of a Freestanding SAR which grant price
shall at least equal the Fair Market Value of a Share on the date
of grant of the SAR. The grant price of Tandem SARs shall equal
the Option Price of the related Option. Grant prices of SARs
shall not subsequently be changed by the Committee except
pursuant to Section 4.3 hereof.
7.2 Exercise of Tandem SARs.
-----------------------
Tandem SARs may be exercised for all or part of the Shares
subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem
SAR may be exercised only with respect to the Shares for which
its related Option is then exercisable. Notwithstanding any other
provision of this Plan to the contrary, with respect to a Tandem
SAR granted in connection with an ISO: (i) the Tandem SAR will
expire no later than the expiration of the underlying ISO; (ii)
the value of the payout with respect to the Tandem SAR may be for
no more than one hundred percent (100%) of the difference between
the Option Price of the underlying ISO and the Fair Market Value
of the Shares subject to the underlying ISO at the time the
Tandem SAR is exercised; and (iii) the Tandem SAR may be
exercised only when the Fair Market Value of the Shares subject
to the ISO exceeds the Option Price of the ISO.
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7.3 Exercise of Freestanding SARs.
-----------------------------
Freestanding SARs granted under this Article 7 shall be
exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which
need not be the same for each grant or for each Participant.
Unless the Award Agreement executed by the Participant expressly
provides otherwise, the Freestanding SARs shall be exercisable in
accordance with the following schedule:
Years After Exercisable Percentage
Award Date of SARs
------------------ ----------------------
Less than 1 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 but less than 10 100%
7.4 SAR Agreement.
-------------
Each SAR grant shall be evidenced by an Award Agreement that
shall specify the grant price, the term of the SAR, and such
other provisions as the Committee shall determine.
7.5 Duration of SARs.
----------------
Each SAR granted to an Employee shall expire at such time as the
Committee shall determine at the time of grant; provided however,
that unless otherwise designated by the Committee at the time of
grant, no SAR shall be exercisable later than the tenth (10th)
anniversary date of its grant.
7.6 Notice of Exercise and Payment of SAR Amount.
--------------------------------------------
An SAR granted under this Article 7 shall be exercised by the
delivery of a written notice of exercise to the Company, setting
forth the number of Shares with respect to which the SAR is to be
exercised. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount
determined by multiplying:
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(a) The excess of the Fair Market Value of a Share on the date
of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is
exercised.
At the discretion of the Committee, the payment upon SAR exercise
may be in cash, in Shares of equivalent value, or in some
combination thereof.
7.7 Termination of Employment.
-------------------------
In the event a Participant ceases to be an Employee for any
reason prior to the occurrence of a Change in Control (as
described in Article 2), any SAR or unexercised portion thereof
granted under this Plan may be exercised, to the extent such SAR
would have been exercisable by the Participant hereunder on the
date on which the Participant ceased to be an Employee, within
three months of such date, but in no event later than the date of
expiration of the term of the SAR. In the event a Participant
ceases to be an Employee for any reason following the occurrence
of a Change in Control (as described in Article 2), any SAR or
unexercised portion thereof granted under this Plan may be
exercised, to the extent such SAR would have been exercisable by
the Participant hereunder on the date on which the Participant
ceased to be an Employee, within seven months of such date, but
in no event later than the date of expiration of the term of the
SAR. In the event of the death or disability (as defined in
Section 22(e)(3) of the Code) of the Participant while an
Employee or within not more than three months after the date on
which the Participant ceases to be an Employee, any SAR or
unexercised portion thereof may be exercised, to the extent
exercisable at the date of such death or disability, by the
Participant's personal representatives, heirs or legatees at any
time prior to one year after the date on which the Participant
ceased to be an Employee, but in no event later than the date of
the expiration of the term of the SAR.
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7.8 Nontransferability of SARs.
--------------------------
Except as otherwise provided in a Participant's Award Agreement,
no SAR granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by
will or by the laws of descent and distribution without the
express written consent of the Committee. Further, except as
otherwise provided in a Participant's Award Agreement, all SARs
granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant.
Article 8.
Beneficiary Designation
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in case
of his or her death before he or she receives any or all of such
benefit. Each such designation shall revoke all prior designations by
the same Participant, shall be in a form prescribed by the Company, and
will be effective only when filed by the Participant in writing with the
Secretary of the Company during the Participant's lifetime. In the
absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
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Article 9.
Rights of Employees
9.1 Employment.
----------
Nothing in the Plan shall interfere with or limit in any way the
right of the Company to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue
in the employ of the Company or any Subsidiary.
For purposes of this Plan, absence from employment because of
illness, vacation, approved leaves of absence, and transfers of
employment among the Company and its Subsidiaries, shall not be
considered to terminate employment or to interrupt continuous
employment.
9.2 Participation.
-------------
No Employee shall have the right to be selected to receive an
Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
Article 10.
Change in Control
Upon the occurrence of a Change in Control, unless otherwise
specifically prohibited under applicable laws, or by the rules and
regulations of any governing governmental agencies or national
securities exchanges any and all Options and SARs granted hereunder
shall become immediately exercisable, and shall remain exercisable
throughout their entire term.
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Article 11.
Amendment, Modification, and Termination
11.1 Amendment, Modification, and Termination.
----------------------------------------
The Board may at any time and from time to time, alter, amend,
suspend or terminate the Plan in whole or in part, subject to any
requirement of stockholder approval imposed by applicable law,
rule or regulation.
11.2 Awards Previously Granted.
-------------------------
No termination, amendment, or modification of the Plan shall
adversely affect in any material way any Award previously granted
under the Plan, without the written consent of the Participant
holding such Award.
Article 12
Withholding
12.1 Tax Withholding.
---------------
The Company shall have the power and the right to deduct or
withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal, state, and local taxes,
domestic or foreign, required by law or regulation to be withheld
with respect to any taxable event arising as a result of the
Plan.
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12.2 Share Withholding.
-----------------
With respect to withholding required upon the exercise of Options
or SARs, or upon any other taxable event arising as a result of
Awards granted hereunder, Participants may elect, subject to the
approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which would
be imposed on the transaction. All such elections shall be
irrevocable, made in writing, signed by the Participant, and
shall be subject to any restrictions or limitations that the
Committee, in its sole discretion, deems appropriate.
Article 13.
Successors
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or
indirect merger, consolidation, purchase of all or substantially all of
the business and/or assets of the Company or otherwise.
Article 14.
Legal Construction
14.1 Gender and Number.
-----------------
Except where otherwise indicated by the context, any masculine
term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the
plural.
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14.2 Severability.
------------
In the event any provision of the Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision had
not been included.
14.3 Requirements of Law.
-------------------
The granting of Awards and the issuance of Shares under the Plan
shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national
securities exchanges as may be required.
14.4 Securities Law Compliance.
-------------------------
Transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action
by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Committee.
14.5 Governing Law.
-------------
To the extent not preempted by Federal law, the Plan, and all
agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
