-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RF85XSuM8JaTBN2vj3pxwTBv7w6gwZhBLaaogdd/kCDXAsd4wh/u/oXFd4MoDUOQ tUNIS8jGs53/di8zzMac1g== 0000317771-97-000071.txt : 19970725 0000317771-97-000071.hdr.sgml : 19970725 ACCESSION NUMBER: 0000317771-97-000071 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970627 FILED AS OF DATE: 19970724 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELLABS INC CENTRAL INDEX KEY: 0000317771 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 363831568 STATE OF INCORPORATION: DE FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09692 FILM NUMBER: 97644812 BUSINESS ADDRESS: STREET 1: 4951 INDIANA AVE CITY: LISLE STATE: IL ZIP: 60532 BUSINESS PHONE: 6303788800 MAIL ADDRESS: STREET 1: 4951 INDIANA AVE CITY: LISLE STATE: IL ZIP: 60532 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 27, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-9692 --------- TELLABS, INC. --------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-3831568 --------------------------- -------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 4951 Indiana Avenue, Lisle, Illinois 60532 ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (630) 378-8800 ---------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None N/A --------------------------- --------- Securities registered pursuant to Section 12 (g) of the Act: Common shares, with $ .01 par value ----------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO[ ] On July 15, 1997, 181,008,358 common shares of Tellabs, Inc. were outstanding. -1- TELLABS, INC. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Comparative Balance Sheets 3 Condensed Consolidated Comparative Statements of Earnings 4 Condensed Consolidated Comparative Statements of Cash Flow 5 Notes to Condensed Consolidated Comparative Financial Statements 7 Item 2. Management's Discussion and Analysis 8 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURE 13 -2- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS (Unaudited) June 27, Dec. 27, 1997 1996 Assets --------- --------- Current assets (In thousands) Cash and cash equivalents $86,157 $90,446 Investments in marketable securities 341,138 136,421 Accounts receivable, less allowance 171,126 167,928 Inventories Raw materials 42,249 30,961 Work in process 7,646 12,046 Finished goods 35,770 35,512 --------- --------- 85,665 78,519 Other current assets 2,246 2,150 --------- --------- Total Current Assets 686,332 475,464 Property, plant, and equipment 294,840 267,014 Less accumulated depreciation 114,278 104,254 --------- --------- 180,562 162,760 Goodwill 65,749 64,785 Intangible and other assets 41,398 40,814 --------- --------- $974,041 $743,823 Liabilities ========= ========= Current Liabilities Accounts payable $44,479 $36,931 Accrued liabilities 98,912 71,258 Income taxes 24,646 23,435 --------- --------- Total Current Liabilities 168,037 131,624 Long-term debt 4,083 2,850 Other long-term liabilities 12,741 10,964 Deferred income taxes 5,869 7,109 Stockholders' Equity Preferred stock, with $.01 par value- 5,000,000 shares authorized, no shares issued - - Common stock, with $.01 par value - 500,000,000 shares authorized 180,996,477 shares issued and outstanding at June 27, 1997 and 179,652,633 at December 27, 1996 1,810 1,797 Additional paid-in capital 114,689 94,854 Cumulative foreign currency translation adjustment (18,000) 3,937 Unrealized net holding gains on available-for-sale securities 93,827 21,551 Retained earnings 590,985 469,137 --------- --------- Total Stockholders' Equity 783,311 591,276 --------- --------- $974,041 $743,823 ========= ========= The accompanying notes are an integral part of these statements. -3- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF EARNINGS (Unaudited) Three Months Ended Six Months Ended June 27, June 28, June 27, June 28, 1997 1996 1997 1996 --------- --------- --------- --------- (In thousands, except per-share data) Net sales $292,701 $189,473 $539,824 $361,729 Cost of sales 111,445 77,158 206,865 151,640 --------- --------- --------- --------- Gross Profit 181,256 112,315 332,959 210,089 Marketing, general & admin expense 55,850 39,264 101,424 72,877 Research and development expense 37,532 24,890 70,768 46,492 Acquired in-process research and development - 74,658 - 74,658 Goodwill amortization 1,517 706 3,023 1,317 --------- --------- --------- --------- Total Operating Expense 94,899 139,518 175,215 195,344 Operating Profit (Loss) 86,357 (27,203) 157,744 14,745 Interest income 3,032 1,887 5,415 3,862 Interest expense (182) (501) (298) (529) Other income (expense), net 687 (152) 21,758 420 --------- --------- --------- --------- Earnings (Loss) before income taxes 89,894 (25,969) 184,619 18,498 Income taxes (benefit) 31,133 (7,291) 62,771 6,049 --------- --------- --------- --------- Net Earnings (Loss) $58,761 ($18,678) $121,848 $12,449 ========= ========= ========= ========= Earnings (Loss) per share * $0.32 ($0.10) $0.66 $0.07 ========= ========= ========= ========= Average number of shares of common stock outstanding * 186,356 184,284 186,006 184,162 * 1996 share amounts are restated to give effect to the two-for-one stock split effective November 15, 1996. The accompanying notes are an integral part of these statements. -4- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW (Unaudited - In thousands) For The Six Months Ended June 27, June 28, 1997 1996 Cash Flows from Operating Activities: --------- --------- Net earnings $121,848 $12,449 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 21,435 14,445 Provision for doubtful receivables 1,545 955 Deferred income taxes (1,293) (21,056) Acquired in-process research and development --- 74,658 Gain on sale of stock held as an investment (20,803) --- Net (increase) decrease in current assets, net of effects from acquisitions: Accounts receivable (10,194) 3,913 Inventories (9,466) (3,549) Other current assets (169) (392) Net increase (decrease) in current liabilities, net of effects from acquisitions: Accounts payable 8,302 (1,248) Accrued liabilities (12,896) (7,722) Income taxes 2,461 (8,494) Net increase in other assets (10,265) (2,259) Net increase in other liabilities 1,913 1,643 --------- --------- Net Cash Provided by Operating Activities 92,418 63,343 Cash Flows from Investing Activities: Acquisition of property, plant and equipment, net (36,885) (23,797) Payments for purchases of marketable securities (124,882) (54,247) Proceeds from sales of marketable securities 56,844 69,738 Payments for acquisitions, net of cash acquired (7,821) (91,732) Origination of loan receivable --- (5,822) --------- --------- Net Cash Used by Investing Activities (112,744) (105,860) Cash Flows from Financing Activities: Proceeds from notes payable --- 40,000 Payments of notes payable --- (5,000) Common stock sold through stock-option plans 19,848 4,020 --------- --------- Net Cash Provided by Financing Activities 19,848 39,020 Effect of exchange rate changes on cash (3,811) (54) --------- --------- Net decrease in cash and cash equivalents (4,289) (3,551) Beginning of period cash and cash equivalents 90,446 92,485 --------- --------- End of period cash and cash equivalents $86,157 $88,934 ========= ========= -5- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW (continued) (Unaudited - In thousands) For The Six Months Ended June 27, June 28, 1997 1996 Supplemental Disclosures: --------- --------- Interest paid $123 $482 Income taxes paid $46,130 $34,790 Supplemental Schedule of Non-Cash Investing and Financing Activities: During 1997, in acquiring all of the outstanding shares of Trelcom Oy and certain wavelength-division multiplexing and optical networking technology and related assets from IBM, the Company paid direct costs totaling $8,434,000. During 1996, in acquiring all of the outstanding shares of Steinbrecher Corporation and TRANSYS Network's SONET product line, the Company paid direct costs totaling $94,261,000. In conjunction with the acquisitions, the purchase prices are currently allocated as follows: (in thousands) 1997 1996 --------- --------- Fair value of assets acquired $1,777 $104,944 Cost in excess of fair value 8,098 22,977 Liabilities assumed (1,441) (33,660) --------- --------- Cash paid for acquisitions $8,434 $94,261 ========= ========= The accompanying notes are an integral part of these statements. -6- TELLABS, INC. NOTES TO CONDENSED CONSOLIDATED COMPARATIVE FINANCIAL STATEMENTS 1. Financial Information: The unaudited financial information reflects all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the statements contained herein. Certain reclassifications have been made in the 1996 financial statements to conform to the 1997 presentation. 2. Basis of Presentation: These financial statements are presented in accordance with the requirements of Form 10-Q and consequently may not include all disclosures normally required by generally accepted accounting principles or those normally reflected in the Company's Annual Report on Form 10-K. Accordingly, the financial statements and notes herein should be read in conjunction with the financial statements and related notes in the Company's Form 10-K for the year ended December 27, 1996. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES During the first half of 1997, the Company's cash, cash equivalents and marketable securities portfolio increased by $200,428,000 to $427,295,000. The increase was primarily due to a mark-to-market adjustment of $118,872,000 for a certain investment and additions to the remainder of the Company's marketable securities portfolio of $85,845,000. The Company's record earnings, combined with the $21,396,000 received from the sale of stock held as an investment, produced the increase in cash during the first half of 1997, offset by payments for two first-quarter acquisitions. Record second-quarter sales contributed to an increase of $3,198,000 in accounts receivable, net of allowance, when compared to the balance at the 1996 fiscal year-end. The inventory increase of $7,146,000 during the first half of 1997 reflects additions late in the second quarter in anticipation of sales during the remainder of 1997. Goodwill increased $964,000 during the first half of 1997 primarily due to the goodwill created as part of the first quarter acquisitions, offset by the negative effects of exchange rate fluctuations and amortization of the goodwill balances. Other long-term assets increased $584,000 from the year-end balance reflecting additional capitalization of the Company's costs to develop a globally-integrated information system, offset by the reclassification of the remaining portion of an investment to short-term. Accrued liabilities increased $27,654,000 from the balance at December 27, 1996 due to a $41,806,000 increase in deferred taxes, most of which was related to the mark-to-market adjustment of the marketable securities, offset by payments for normal year-end obligations. The Company invested approximately $37,000,000 in property, plant and equipment during the first half of the year (exclusive of the acquisitions). These expenditures included the Company's on-going expansion of the manufacturing and research and development capacity at its Bolingbrook, Illinois and Espoo, Finland facilities. The Company currently expects net capital additions for 1997 to approximate $95,000,000, the majority of which is planned for the aforementioned expansions, the purchase of equipment and other tangible assets to be installed in the newly-expanded facilities, and the initial phase of the construction of the recently announced 130,000-square-foot manufacturing and research and development facility in Shannon, Ireland. Completion of the Shannon facility is anticipated to occur in mid-1998. Net working capital at June 27, 1997 was $518,295,000, compared with net working capital of $343,840,000 at December 27, 1996. The Company's current ratio at the end of the second quarter was 4.1 to 1. The increase in net working capital was primarily due to the increase in the value of the Company's marketable securities portfolio and the cash generated by operating activities. Management believes that this level of working capital will be adequate for the Company's liquidity needs related to normal operations, both currently and in the foreseeable future. Sufficient financial resources exist to support the Company's growth either through currently available cash, through cash generated from future operations, or through additional short-term or long-term financing. -8- RESULTS OF OPERATIONS Sales for the second quarter of 1997 were a record $292,701,000, up 55 percent from the previous second quarter record of $189,473,000 set in 1996. The growth in sales was primarily the result of the combined record sales of the Company's SONET-based TITAN (a registered trademark of Tellabs Operations, Inc.) 5500 digital cross-connect systems (the TITAN 5500 system), the MartisDXX (a trademark of Tellabs Oy) integrated access and transport systems (the MartisDXX system), and digital echo cancellers. The continued strength of domestic sales was led by sales of the TITAN 5500 system, which increased 82 percent over the same period last year. The increase in sales of the TITAN 5500 system has been driven by the continued demand for transportation of ever-increasing quantities of voice, data and multimedia information across telecommunications networks worldwide. International sales, which grew almost 60 percent compared to the same quarter last year, were led by a 70 percent increase in sales of the MartisDXX system as sales of the system continue to expand outside the Scandinavian markets. Also contributing to the record second quarter sales were digital echo cancellers, which experienced an 89 percent increase over the same period in 1996. Earnings for the second quarter of 1997 were $58,761,000, up from the 1996 second quarter loss of $18,678,000. The loss in the second quarter of 1996 was principally the result of a one-time research and development charge of $74,658,000 ($54,100,000 net of tax) related to the acquisition of Tellabs Wireless. Earnings per share were 32 cents in the second quarter of 1997, compared with a loss of 10 cents per share (or, excluding the effect of the research and development charge, earnings of 19 cents per share) for the second quarter of 1996. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share," (FAS No. 128) which is required to be adopted for the 1997 fiscal year end. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options will be excluded. The impact is expected to result in an increase of one cent to basic earnings per share for the second quarter of 1997 and no change to the earnings per share for the second quarter of 1996. Basic earnings per share for the six months ended June 27, 1997 are expected to increase by two cents per share, while no change is expected for the six months ended June 28, 1996. The gross profit margin percentage for the second quarter of 1997 increased to 61.9 percent from 59.3 percent in the second quarter of 1996. This increase reflects highly productive and efficient manufacturing operations during the quarter in addition to a more profitable product mix. Operating expenses for the second quarter of 1997 increased by 46.3 percent over the second quarter of 1996, excluding the one-time charge to earnings for the acquired in-process research and development. This increase in expenses reflects the Company's commitment to continued product research and development and expansion of service and support capabilities, both domestically and internationally. In addition, the 1997 expenses include the operational expenses for the Tellabs Transport -9- and Optical Networking Groups, which were not included in operations at this time last year. In contrast, total operating expenses for the second quarter of 1997 decreased as a percentage of sales from 34.2 percent in 1996, excluding the one-time charge, to 32.4 percent in 1997. Interest income contributed $3,032,000 to pretax income in the second quarter of 1997, up 60.7 percent from $1,887,000 in the second quarter of 1996. This increase was due to higher investment balances, offset by lower market interest rates. Interest expense decreased to $182,000 for the second quarter of 1997 from $501,000 for the second quarter of 1996, in the absence of the outstanding bank debt used to finance the Tellabs Wireless acquisition in 1996. Other income was $687,000 for the second quarter of 1997 compared to a loss of $152,000 for the second quarter of 1996. The strength of the U.S. dollar against the Finnish markka and the Irish punt during 1997 was the primary reason for the shift to income from the loss incurred a year earlier, when the U.S. dollar was weaker against these same currencies. The effective tax rate was approximately 34.6 percent for the second quarter of 1997 and a benefit of 28.1 percent for the second quarter of 1996. The increase in the effective tax rate for 1997 in comparison to the rate for 1996 is primarily due to the increase in domestic taxable income in 1997, offset by the tax effects in 1996 of the in-process research and development one-time charge taken in conjunction with the Tellabs Wireless acquisition. The Company's 1997 and 1996 effective tax rates reflect the benefits of lower foreign tax rates as compared to the U.S. Federal statutory rate. Sales for the first six months of 1997 exceeded the half-billion dollar mark, reaching $539,824,000, which was an increase of 49 percent from sales of $361,729,000 for the same period in 1996. Domestic sales increased 47 percent for the first six months of 1997, compared to 1996, primarily due to a 72 percent increase in TITAN 5500 system sales. International sales for the first half of 1997 increased by 54 percent from the same period in 1996. This increase was driven by a 67 percent increase in MartisDXX system sales reflecting continued expansion outside of the Scandinavian markets. Net earnings for the first six months of 1997, which included a pre-tax gain of $20,803,000 ($13,855,000 net of tax) for the sale of stock held as an investment, were $121,848,000 compared to $12,449,000 in 1996, including the one-time charge of $74,658,000 ($54,100,000 net of tax) for acquired in-process research and development relating to the Tellabs Wireless acquisition. Earnings per share were 66 cents for the first six months of the year (59 cents excluding the effect of the stock sale) compared to 7 cents for the same time period in 1996 (36 cents per share excluding the one-time research and development charge). The gross profit margin for the first six months of 1997 improved to an all-time record 61.7 percent versus 58.1 percent for the first six months of 1996. This improvement was primarily driven by a sales mix that featured higher-margin products as well as continued manufacturing efficiencies. -10- Operating expenses for the first six months of 1997 increased 45.2 percent over the same period in 1996, excluding the one-time charge to earnings for the acquired in-process research and development. Contributing to the overall increase are the expenses of Tellabs Wireless, Tellabs Transport Group, and Tellabs Optical Networking Group, along with continuing international and domestic research and development of products and expansion of service and support capabilities. However, consistent with the results of the second quarter of 1997, operating expenses during the first six months of 1997 decreased as a percentage of sales to 32.5 percent compared from 33.4 percent for the same period in 1996, excluding the one-time charge. Interest income contributed $5,415,000 to pretax income during the first six months of 1997, an increase of 40.2 percent from $3,862,000 in 1996. This increase was due to higher investment balances, offset by lower market interest rates. Interest expense was $298,000 during the first six months of 1997 compared to $529,000 during the same period in 1996. The higher 1996 interest expense resulted from the bank debt used to finance the Tellabs Wireless acquisition. Other income was $21,758,000 for the first half of 1997 compared to $420,000 during the first half of 1996. The majority of the increase represents the gain on the sale of stock held as an investment of $20,803,000. In addition, foreign exchange gains increased to $875,000 during the first six months of 1997 from $236,000 during the same period in 1996. The larger gains in 1997 were a result of the strength of the U.S. dollar versus the Finnish markka and Irish punt. The effective tax rate was approximately 34.0 percent for the first six months of 1997 compared to 32.7 percent for the same period in 1996. The increase in the effective tax rate for 1997 is primarily due to the increase in domestic taxable income and the gain on the stock sale, offset by the tax effects of the in-process research and development one-time charge taken in conjunction with the Tellabs Wireless acquisition during 1996. The Company's 1997 and 1996 effective tax rates reflect the benefits of lower foreign tax rates as compared to the U.S. Federal statutory rate. The Company cautions that except for historical information, the matters discussed or incorporated by reference in this Quarterly Report on Form 10-Q are forward-looking statements that involve risks and uncertainties that may affect the Company's actual results and cause results to differ materially from such forward-looking statements. Such risks and uncertainties include but are not limited to, economic conditions, product demand and industry capacity, competitive products and pricing, manufacturing efficiencies, research and new product development, protection of intellectual property, patents and technology, ability to attract and retain highly qualified personnel, availability of components and critical manufacturing equipment, facility construction and startups, the regulatory and trade environment, and other factors indicated from time to time in the Company's filings with the Securities and Exchange Commission. Such forward-looking statements reflect only information available at the time of the filing of this report. As a result, the Company undertakes no obligation to update the statements to reflect subsequent circumstances or events. -11- PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on April 16, 1997. At this meeting, John D. Foulkes and Peter A. Guglielmi were re-elected as directors and Jan H. Suwinski was elected to his first term as a director. Thomas H. ("Tommy") Thompson chose not to run for re-election. These directors were elected for a term of office expiring at the Company's Annual Meeting of Stockholders in 2000. In addition, the following directors are continuing in office for the terms indicated: Michael J. Birck and Frederick A. Krehbiel for terms expiring at the Company's Annual Meeting of Stockholders in 1998, and Brian J. Jackman, Stephanie Pace Marshall, and William F. Souders for terms expiring at the Company's Annual Meeting of Stockholders in 1999. Set forth below is a separate tabulation of the votes cast for and votes withheld with respect to each nominee for director elected at this meeting: Votes For Votes Withheld John D. Foulkes 163,298,945 739,551 Peter A. Guglielmi 163,174,992 863,504 Jan H. Suwinski 163,318,078 720,418 In addition, stockholders approved the amendment to the Restated Certificate of Incorporation which increased the authorized shares of common stock from 200,000,000 to 500,000,000 by the following vote: For 119,132,542 Opposed 44,542,727 Withheld 363,227 ITEM 6. Exhibits and Reports on Form 8-K (A) Exhibits: Exhibit 3.3 - Certificate of Amendment to Restated Certificate of Incorporation dated April 16, 1997. Exhibit 10.15 - Severance Arrangement for John E. Vaughan. Exhibit 10.16 - Restricted Stock Award for John E. Vaughan. Exhibit 27 - Financial Data Schedule. (B) Reports on Form 8-K The Registrant filed a report on Form 8-K on July 23, 1997, prior to the filing of this quarterly report of Form 10-Q, with respect to the issuance of a second quarter letter to stockholders. -12- TELLABS, INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TELLABS, INC. ---------------- (Registrant) s\ J. Peter Johnson ------------------- J. Peter Johnson Vice President/Controller & Chief Accounting Officer July 24, 1997 - ---------------- (Date) -13- EX-3.3 2 Exhibit 3.3 CERTIFICATE OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION OF TELLABS, INC. Adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware We, Michael J. Birck, President and Carol Coghlan Gavin, Secretary of Tellabs, Inc., a corporation existing under the laws of the State of Delaware (the "Corporation"), do hereby certify on behalf of the Corporation as follows: FIRST: That the name of the Corporation is Tellabs, Inc. SECOND: That the Restated Certificate of Incorporation of the Corporation was filed by the Secretary of State of Delaware on June 24, 1992, a Certificate of Correction thereto was filed by the Secretary of State of Delaware on March 24, 1993, a Certificate of Amendment thereto was filed by the Secretary of State of Delaware on April 21, 1994, and a Certificate of Amendment thereto was filed by the Secretary of State of Delaware on May 3, 1995. THIRD: That the Restated Certificate of Incorporation of said Corporation has been amended as follows: The first paragraph of Article Fourth of the Restated Certificate of Incorporation is amended to read as follows: 1. Authorized Capital Stock. The aggregate number of shares of stock which the Corporation has authority to issue is 505,000,000 shares, of which 500,000,000 shall be shares of common stock, $.01 par value per share (hereinafter "Common Stock"), and of which 5,000,000 shares shall be shares of preferred stock, $.01 par value per share (hereinafter "Preferred Stock"). FOURTH: That the aforesaid amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by the affirmative vote of the holders of a majority of all outstanding stock entitled to vote at the annual meeting of stockholders on April 16, 1997, which meeting was called and held upon notice in accordance with Section 222 of said Law. -1- IN WITNESS WHEREOF, we have signed this Certificate of Amendment this 16th day of April, 1997. TELLABS, INC. By: s\ Michael J. Birck --------------------------- Michael J. Birck, President Attest: s\ Carol Coghlan Gavin ------------------------------ Carol Coghlan Gavin, Secretary -2- EX-10.15 3 Exhibit 10.15 SEVERANCE ARRANGEMENT John E. Vaughan May 1, 1997 1. If you are terminated by Tellabs other than "for cause" before May 1, 2001, Tellabs agrees: (i) to immediately vest the stock options granted to you on May 1, 1997; and (ii) to immediately vest the restricted shares granted to you under the terms of the Restricted Stock Award. In such a case, we agree to continue your then-current salary for one year beyond the date of termination. (For purposes of this agreement "for cause" shall mean any act of deliberate dishonesty with respect to Tellabs, conviction of a felony, significant activities harmful to the reputation of Tellabs, refusal to perform or substantial disregard of duties properly assigned you, or significant violation of any Tellabs policy or any statutory or common law duty of loyalty to Tellabs.) The term "Tellabs" means Tellabs, Inc. and/or any of its direct or indirect subsidiaries. 2. You agree as follows: a. To comply with Tellabs' Confidentiality and Patent Agreements. b. Not to compete with Tellabs by accepting employment with a direct competitor of Tellabs in the provisioning of networking and/or transport equipment to service providers or end users of such equipment. c. Not to solicit, induce or attempt to persuade any supplier, distributor, client, customer or employee of Tellabs or any of its affiliates to terminate or breach its, his or her relationship(s) with Tellabs or any of its affiliates. d. The terms of this paragraph 2 will continue in effect following any termination of employment with Tellabs for a period of two years. EX-10.16 4 Exhibit 10.16 TELLABS, INC. RESTRICTED STOCK AWARD for JOHN E. VAUGHAN 1.1 Certain Definitions "Award" shall mean this Award which is a right to receive Restricted Stock. "Board" shall mean the Board of Directors of Tellabs, Inc. ("Tellabs"). "Cause" shall mean any act of deliberate dishonesty with respect to Tellabs, conviction of a felony, significant activities harmful to the reputation of Tellabs, refusal to perform or substantial disregard of duties properly assigned, or significant violation of any Tellabs policy or any statutory or common law duty of loyalty to Tellabs. "Committee" shall mean the Compensation Committee of the Board of Tellabs or any successor Committee thereto. "Common Stock" means the common stock of Tellabs, Inc. "Disability" shall mean the inability of the Recipient to perform substantially such Recipient's duties and responsibilities for a continuous period of at least six months, as determined by the Committee in its sole discretion. "Fair Market Value" shall mean the average of the high and low transaction prices of a share of Common Stock as reported in the National Association of Securities Dealers Automated Quotation National Market System ("NASDAQNMS") on the date as of which such value is being determined, or, if the Common Stock is not listed on the NASDAQNMS, the average of the high and low transaction prices of a share of Common Stock on the principal national stock exchange on which the Common Stock is traded on the date as of which such value is being determined, or, if there shall be no reported transactions for such date, on the next preceding date for which transactions were reported; provided, however, that if Fair Market Value for any date cannot be so determined, Fair Market Value shall be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its discretion, shall at such time deem appropriate. "Recipient" means John E. Vaughan. "Restricted Stock" shall mean shares of Common Stock awarded pursuant to this Award. -1- 1.2 Administration This Award shall be administered by the Committee. The Committee shall, subject to the terms of this Award, interpret this Award and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Award. All such interpretations, rules and regulations shall be conclusive and binding on all parties. The Committee may delegate some or all of its power and authority hereunder to the President and Chief Executive Officer or other executive officer of Tellabs or a Subsidiary (other than the Recipient) as the Committee deems appropriate. 2. RESTRICTED STOCK AWARD 2.1 Restricted Stock Award Tellabs hereby grants 10,000 shares of Restricted Stock to Recipient subject to the terms hereof. 2.2 Terms of Restricted Stock Award This Award shall be subject to the following terms and conditions. a. Vesting and Forfeiture One-half of the number of shares of Common Stock subject to this Award shall vest and be payable on May 1, 1998 and the other half of such number shall vest and be payable on May 1, 1999, in each case, subject to Section 2.3, if the Recipient remains continuously in the employment of Tellabs or a Subsidiary until such dates. Recipient shall forfeit the unvested portion of any such shares if Recipient does not remain continuously in the employment of Tellabs or a Subsidiary as specified above, except as otherwise provided in Section 2.3 hereof. b. Shares Certificates Upon the vesting of a portion of the Award pursuant to Section 2.2(a) or 2.3(b), in each case subject to Tellabs or a Subsidiary rights to require payment of any taxes in accordance with Section 3.2, a certificate or certificates evidencing ownership of the number of shares of Common Stock so vested shall be delivered to and in the name of the Recipient. 2.3 Termination of Employment a. Termination Resulting in Forfeiture If (i) employment with Tellabs or a Subsidiary of the Recipient of the Award is terminated by Tellabs or a -2- Subsidiary for Cause, (ii) such employment terminates by reason of the Recipient's Disability or death, or (iii) the Recipient voluntarily terminates his employment with Tellabs or a Subsidiary for any reason, the portion of such Award which is not vested pursuant to Section 2.2(a) shall be forfeited by such Recipient and such portion shall be canceled by Tellabs. b. Other Termination If Tellabs or a Subsidiary terminates the employment of the Recipient of the Award for any reason other than as provided in Section 2.3(a), the portion of such Award which is not otherwise vested shall vest pursuant to Section 2.2(a) without regard to such termination and be payable within thirty (30) days of such termination, in accordance with Section 2.2(b). 3. GENERAL 3.1 Amendments The Board or the Committee may amend this Award as it shall deem advisable, provided, however, that no amendment may adversely impact the rights of the Recipient in the outstanding Award without the consent of the Recipient. 3.2 Tax Withholding Tellabs shall have the right to require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash pursuant to the Award made hereunder, payment by the Recipient of such Award of any federal, provincial, local or other taxes which may be required to be withheld or paid in connection with such Award. The Committee may allow shares of Common Stock to be delivered or withheld having an aggregate Fair Market Value not in excess of the minimum amount required to be withheld and in such event, any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Recipient. 3.3 Adjustment In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a regular cash dividend, the number and class of securities subject to the outstanding Award shall be adjusted or modified accordingly, as determined by the Committee, which adjustment may include providing for payment of an asset not constituting a security upon the vesting of an outstanding Award. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. If any such adjustment would result in a fractional security being subject to the Award, Tellabs shall pay the -3- Recipient of such Award, in connection with the first vesting of such Award, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (a) the fraction of such security (rounded to the nearest hundredth) by (b) the excess, if any, of the Fair Market Value on the vesting date. 3.4 No Assignment It is a condition of this Award, and the rights of the Recipient shall be subject thereto, that no right or interest of the Recipient shall be assignable or transferable in whole or in part, either directly or by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge or bankruptcy, and no right or interest of any the Recipient under this Award shall be liable for, or subject to, any obligation of the Recipient, including claims for alimony or the support of any spouse. 3.5 No Right of Employment The Award made hereunder shall not confer upon any person any right to continued employment by Tellabs, Tellabs International, Inc. or any Subsidiary or affiliate thereof or affect in any manner the right of Tellabs, Tellabs International, Inc. or any Subsidiary or affiliate thereof to terminate the employment of any person at any time without liability hereunder. 3.6 Right as Stockholder No person shall have any right as a stockholder of Tellabs with respect to any shares of Common Stock or other equity security of Tellabs which is subject to an Award hereunder unless and until such person becomes a stockholder of record with respect to such shares of Common Stock or equity security. Tellabs' obligation to deliver shares of Common Stock pursuant to this Award shall be unfunded, and Tellabs shall not be obligated to set aside any of its assets for the purpose of satisfying its obligations hereunder. The claims of the Recipient of an Award shall be solely those of an unsecured creditor of Tellabs. 3.7 Governing Law The corporate law of the State of Delaware shall govern all issues concerning the relative rights of Tellabs and the Recipient with respect to this Award. The law of the State of Illinois, except its law with respect to choice of law, shall be controlling in all other matters relating to the Award. 3.8 Effective Date This Award shall become effective on May 1, 1997. -4- EX-27 5
5 This schedule contains summary financial information extracted from the June 27, 1997, Income Statement and Balance Sheet and is qualified in its entirety by reference to such 10-Q. 6-MOS JAN-02-1998 JUN-27-1997 86157000 341138000 176221000 5095000 85665000 686332000 294840000 114278000 974041000 168037000 4083000 0 0 1810000 781501000 974041000 539824000 539824000 206865000 206865000 175215000 1545000 (5117000) 184619000 62771000 121848000 0 0 0 121848000 .66 .66
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