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Proc-Type: 2001,MIC-CLEAR
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UNITED STATES
FORM 10-K (Mark One) For the fiscal year ended December 31, 1999 For
the transition period from
to
Commission file Number: 0-9692 TELLABS, INC. Registrants telephone number, including area code: (630)
378-8800 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Indicate by check mark if disclosure of delinquent files pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ] 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 February 21, 2000, 404,686,655 common shares of Tellabs, Inc., were
outstanding, and the aggregate market value (based upon the closing sale price of the
National Market System) of such shares held by nonaffiliates was approximately
$23,143,220,426. Documents incorporated by reference: Portions of the Registrant's Annual
Report to Stockholders for the fiscal year ended December 31, 1999, are incorporated by
reference into Parts I and II, and portions of the registrant's Proxy Statement dated
March 8, 2000, are incorporated by reference into Part III. PART I ITEM I. BUSINESS Tellabs, Inc., an Illinois corporation, began operations in 1975 and became publicly
owned in 1980. During 1992, the Illinois corporation merged with and into Tellabs
Operations, Inc., a wholly-owned subsidiary. As a result of the merger, Tellabs
Operations, Inc., became a subsidiary of Tellabs, Inc., a Delaware corporation (with its
subsidiaries, unless the context indicates otherwise, Tellabs or the Company). The
Company designs, manufactures, markets and services data, voice and video transport,
switching/routing and network access systems that are used worldwide by public telephone
companies, long-distance carriers, alternate service providers, cellular and other wireless
service providers, cable operators, government agencies, utilities, and business end-users. In August 1998, the Company acquired Coherent Communication Systems, Inc.
(Coherent), a developer, manufacturer, and marketer of voice-quality enhancement products
for wireless, satellite-based, cable communication, and wireline telecommunications
systems, in a transaction originally accounted for as an immaterial pooling of interests.
Tellabs issued approximately 22,424,000 shares of its stock in exchange for all the
outstanding common shares of Coherent. In July 1999, the Company acquired Alcatel's DSC Communications businesses in Europe
(now known as Tellabs Denmark) for $106.4 million in cash, in a transaction accounted for
as a purchase. The acquisition covered DSC Communication's European headquarters in
Denmark, along with its business operations in Drogheda, Ireland; sales and support offices
in England, India and Poland; and an interest in FIBCOM India Ltd., a joint venture with
Indian Telephone Industries. Tellabs Denmark is a provider of managed, high-speed
transport solutions which operate in Synchronous Digital Hierarchy (SDH) and dense
wavelength-division multiplexing (DWDM) environments. In August 1999, the Company acquired NetCore Systems, Inc. (NetCore), a developer
of carrier-class IP routing and ATM switching solutions, in a transaction accounted for as
a pooling of interests. Tellabs issued approximately 8,868,000 shares of its common stock
in exchange for all the outstanding common and preferred shares of NetCore. Products provided by Tellabs include digital cross-connect systems, managed digital
networks and network access systems. Digital cross-connect systems include the Company's
TITAN® 5500/5500S and 5300 series of digital cross-connect systems. Managed digital
networks include the FOCUS international-standard optical products obtained in the Tellabs
Denmark acquisition and the Company's MartisDXX® integrated access and transport
system (the MartisDXX system). Network access products include voice quality enhancement
products such as echo cancellers; special service products (SSP) such as voice frequency
products; and local access products such as the CABLESPAN® system. Products recently
introduced or to be introduced include the AN2100® Gateway Exchange (GX) System
(AN2100GX System), TITAN 6100 Optical Transport System, TITAN 6500 Multiservice Transport
Switch, VERITY 3300 Voice Quality Enhancement System and the Everest 9500
Integrated Switch. The Company's products are sold in the domestic and international marketplaces (under
the Tellabs name and trademarks and under private labels) through the Company's field sales
force and selected distributors to a major customer base. This base includes Regional Bell
Operating Companies (RBOCs), independent telephone companies (ITCs), interexchange carriers
(IXCs), local telephone administrations (PTTs), local exchange carriers (LECs), competitive
local exchange carriers (CLECs), original equipment manufacturers (OEMs), cellular and
other wireless service companies, cable operators, alternate service providers, internet
service providers, system integrators, government agencies, and business end-users ranging
from small businesses to Fortune 500 companies. The availability of digital technology along with the use of microprocessors and other
custom and standard very large-scale integrated (VLSI) circuitry continues to make it
economically possible for the Company to expand its product lines to meet the changing
customer demands and industry trends inherent in today's dynamic telecommunications
environment. This expansion primarily involves the development of broad lines of
service-provider-oriented networking systems that meet the increasing demands for
efficient, multipurpose data, video, and voice communications services. This same availability of technology in capital equipment makes it possible for the
Company to efficiently and competitively continue to produce its own products in its world
class manufacturing facilities located throughout the world. Each of the Company's manufacturing operations is registered under the ISO 9000
standard. ISO 9000 is an international set of standards developed to provide quality
assurance for companies seeking to improve their quality standards and customer service. GLOBAL SYSTEMS AND TECHNOLOGIES Digital Cross-Connect Systems The TITAN product family consists of technologically-sophisticated digital cross-connect
systems and network management platforms. These complex transmission systems are designed to
meet or exceed domestic and international industry standards. The digital cross-connect systems operate under software control and are typically used
to build and control the narrowband, wideband and broadband transmission infrastructure of
telecommunication service providers. These products augment the ability of users to
provide current, emerging, and future service to business and residential customers.
Advanced survivable business services also utilize the TITAN products for interconnecting
fiber transmission. Telecommunication managers utilize the digital cross-connect systems to generate revenue
or to reduce cycle time while minimizing capital and operating expense. Key applications
include centralized and remote testing of transmission facilities, grooming of voice, data,
and video signals, automated provisioning of new services, and restoration of failed
facilities. All of the TITAN systems include a feature for monitoring facility
performance, which reduces troubleshooting time in a complex network. The user can
determine the early warnings of facility degradation rather than reacting to a network
outage. The digital cross-connect systems also convert international to domestic
transmission and signaling standards. The TITAN systems vary in switching rate and facility interface speed. Tellabs offers
the TITAN 5300 series of cross-connect systems that can interface facilities at STS-1, DS3,
DS1, E1, DS0, and subrate levels, and can switch them at DS0 levels and below. The systems
in this series allow modular non-service affecting growth with capacities ranging from 8 to
7,168 T1 equivalent ports. Tellabs also offers the Company's flagship TITAN 5500 system which interfaces facilities
at the DS1, DS3, STS-1 and fiber optic OC-N levels, and cross-connects them at levels of
DS1/VT1.5 and above. The TITAN 5500 system is the first digital cross-connect system in
the world to integrate optical (155 and 622 mb/s) equipment. A single TITAN 5500 system
can carry the equivalent of 1,400,000 simultaneous Internet calls. Digital cross-connect system products accounted for approximately 59%, 56% and 54% of
sales for 1999, 1998, and 1997, respectively. Managed Digital Networks Since Tellabs' entry into the data communications marketplace in 1983, the Company has
developed a comprehensive family of networking products to address the requirements and
flexibility demanded by the users of communications services. Products within this group
include the MartisDXX system and the FOCUS family of SDH transport and access
networks. The MartisDXX system is a complete managed access and transport network system designed
for global telecommunications operators. The two main applications are business services
and mobile network transport. In both cases, the powerful MartisDXX Manager Network
Management System (NMS) provides end-to-end network and service management, including
customer control of business services, to insure that multiple services, transmission
protocols and network media are managed for optimum performance, service quality and cost
efficiency. The MartisDXX system provides operators with a migration path from the current
time-division multiplexed (TDM) based service platforms to next-generation data
communications access platforms through an integrating network and services management
system. The MartisDXX system is currently deployed in more than 180 networks and 70
countries worldwide, providing intelligent transport for mobile services and multi-service
platforms for a broad range of business services, including LAN interconnect, digital
leased line, frame relay and PBX interconnection. Tellabs' FOCUS family of SDH and DWDM optical transport and access solutions helps carriers
build high-capacity backbone and access networks using fiber optics to offer new and
differentiated services. The FOCUS range includes synchronous digital cross-connect
systems, primary, terminal and add/drop multiplexers, together with element management
systems. Together, these form complete managed network solutions for voice and data
access, metropolitan area networks and regional transport networks. For the end customer, direct SDH access means highly flexible, high-capacity connections
for a range of services that can be managed end-to-end by the operator. For the operator,
the benefits are improved bandwith utilization with unified management of multiple services
over a single platform, using a range of transmission media. Managed digital networks accounted for approximately 19%, 24% and 23% of sales
in 1999, 1998, and 1997, respectively. Network Access Systems Network access products are primarily modular in design and can be used either
individually or in complex systems and assemblies. The three areas making up network
access products are voice quality enhancement products, SSP products, and local access
products. The products are designed to meet telephone industry standards, and, in many
applications, they directly interface with customer premises equipment. These products
enhance the ability of Tellabs' customers to provide current, emerging, and
future services to their business customers through innovative products and systems that
provide more cost-effective provisioning of existing basic services. In order to continue
to grow this product area, state-of-the-art technology will be deployed and value-added
content will be provided. In 1998, the Company created the Network Enhancing Technologies Solutions Group (NETS).
NETS was formed by the combination of Coherent, which was acquired in 1998, with the Network
Access Systems Division of the Company. This group is focused on developing leading-edge voice
quality enhancement and echo cancellation solutions. Voice quality enhancement products primarily address the needs of cellular companies,
LECs, and IXCs, both domestically and internationally. In the case of wireline customers,
the ability to control the clarity of speech quality is becoming more and more difficult,
due to the deregulation of networks and the move from circuit-based to cell and
packet-based networks. These networks introduce delays and other issues that are not
present in circuit-based calls, including the level of speech signals during calls. In the
case of wireless operators, to compete with wireline operators for call revenues, the
clarity of a mobile call must be as good as a wireline call. These changes have resulted in a
move away from pure echo cancellation, to providing echo cancellation as a platform for voice
quality enhancing software, such as level control and noise reduction. This development in
the market has opened up opportunities, not just to provide solutions to the wireline and
wireless operators worldwide, but also to the manufacturers of telecommunications products
worldwide, who integrate these voice quality enhancing solutions into their products.
Competition is driving many wireline and wireless customers to re-evaluate and upgrade
their existing infrastructure, based on the voice enhancing technology solutions now
available. SSP products provide transmission and signaling conversion between the central office
and the customers' terminal equipment. These products include: line amplifiers that
compensate for loss and distortion in voice and analog data transmission applications;
terminating devices that provide conversion between four wire transmission facilities and
two wire local lines; signaling equipment and systems that convert station
on-hook/off-hook, dialing and ringing information to signaling formats compatible with
transmission over metallic voice channels; and loop treatment equipment typically used to
extend the distance from a central office at which a telephone functions satisfactorily. The Company's CABLESPAN 2300 system is a local access product developed by the Company
and Advanced Fibre Communications, Inc. to address the emerging cable and
alternate service provider markets. The CABLESPAN 2300 Universal Telephony Distribution
System is a next-generation, multiple services delivery system that allows cable television
providers, alternate access carriers, and competitive access providers to build flexible
communication networks that support the integrated delivery of video, voice, data and
information services. The product provides maximum application flexibility through its
ability to support a wide variety of network topologies, interface with various forms of
transmission media and provide the modularity required to support both residential and
business customers. The CABLESPAN system can be managed either directly from an integral
interface that provides local and remote management or from a PC-based stand-alone element
management system that allows the management of multiple CABLESPAN systems and supports
multiple network operators while interfacing with other operational support systems. Network access products accounted for approximately 15% of sales in 1999 and
1998 and 17% of sales in 1997. Emerging Products In the digital cross-connect system product area, the Company announced the development
of the TITAN 6500 Multi-Service Transport Switch (MTS) and the TITAN 6100 Optical Transport
System (OTS). The TITAN 6500 MTS enables service providers to quickly provide broadband
circuits, reduce capital expenditures and minimize operations expense. This system has
bigger capacity and switches broadband signals at lower cost than predecessor equipment.
The TITAN 6500 MTS interfaces electrical facilities at DS3, STS-1 and optical facilities,
OC-3, 12, 48 and 192, and switches lower speed signals at broadband payloads (52 MS/S -
STS-1 through OC-48C (2.5 GB/S)). The first release of the TITAN 6500 MTS can carry the
equivalent of 4,128,768 simultaneous Internet calls. The TITAN 6100 OTS enables service providers to increase fiber capacity by 32 times
(and beyond) with lower costs. The system also allows service providers to deliver
high-speed broadband services to Internet service providers and Fortune 500 companies, thus
alleviating the bandwidth bottleneck of the Internet "on ramps". The TITAN 6100, in
conjunction with other Tellabs solutions, allows end-to-end fiber and lightpath management. In the managed digital network product area, the Company is developing next-generation
data access products and service management system products. One of the
products expected to be available in 2000 is the MartixDXX/FOCUS Connector, which will
provide an integrated management solution that will enable service providers to operate the
full set of MartisDXX managed access and FOCUS SDH and DWDM transport and access network
elements from a single network management workstation. In the area of voice quality enhancement products, the Company is focused on fulfilling
two objectives: providing higher density solutions, while simultaneously improving and
adding new innovative solutions in the existing narrowband market, and providing high
density and innovative solutions in the new emerging broadband markets. Products
addressing both these opportunities were released in late 1999, such as the Tellabs 2510
Echo Canceller Resource Module (ECRM), which uses Echo3, Tellabs industry-leading
cancellation technology, and Dynamic Signal Transfer, a Tellabs patented process
that allows natural background audio to be heard by the distant end. The Company also expects the AN2100 Gateway Exchange (GX) system and the Everest 9500
Integrated Switch to be available in 2000. The AN2100 Gateway Exchange (GX) system is a
global gateway that enables service providers to deliver multiple services over a single,
broadband network. It dynamically routes circuit-switched, time-division multiplexed (TDM)
traffic over ATM and IP networks under SS7 control. The Everest 9500 Integrated Switch
combines IP routing and ATM switching into a single, multiservice platform. This unique
switch/router reduces network cost and complexity and will help carriers provide Internet,
virtual private network and other business-class services on a single platform. GLOBAL SALES Sales are generated through the Company's direct sales organization and selected
distributors. The North American sales group consists of approximately 90 direct sales
personnel and an additional 60 sales support personnel located throughout the United States
and Canada. The international sales group consists of approximately 100 direct sales
personnel, and an additional 80 sales support personnel located in Latin America, South
America, Europe, the Middle East, Africa, Asia and Australia. The North American sales organization conducts its activities from the Company's
corporate headquarters and six regional offices. The international sales organization
conducts its activities from the Company's corporate headquarters, 37 regional sales
offices, and three regional headquarters. The regional sales offices are generally staffed
by a regional sales manager or country manager, system sales engineers, and additional
personnel as required. Direct orders through the Company's field organization accounted for approximately 90%
of 1999 sales. The North American sales organization is structured by markets with emphasis on large
customers. The international sales organization is structured to support activities on a
regional basis, with "solution centers" located strategically throughout the world. The Company has arrangements with a number of distributors of telecommunications
equipment, both in North America and internationally, some of whom maintain inventories of
the Company's products to facilitate prompt delivery. These distributors provide
information on the Company's products through their catalogs and through trade show
demonstrations. The Company's field sales force also assists the distributors with regular
calls to them and their customers. Distributors, as a group, accounted for approximately
10% of 1999 sales. GLOBAL SOLUTIONS AND SERVICES The Company maintains a worldwide service organization whose purpose is to provide
customers with high quality technical and administrative product support. Early in 1999, the
group was reorganized to provide greater focus on meeting the expanding needs of the global
customer base and to provide a consistent suite of high-quality service offerings
worldwide. The group currently offers these services through its service centers in Lisle,
Illinois; Ashburn, Virginia; Fort Lauderdale, Florida; Shannon, Ireland; Espoo, Finland; and
Singapore. The Company's service organization supports its customers with a wide range of services
that include application engineering and support, installation, service support, on-site
training, product repair (warranty administration), on-site maintenance, third party
maintenance, consultation, logistics management, and 24-hour technical support via
telephone and the Internet. The Company's application engineering, support and installation group emphasizes
meeting the customer's needs for installation and integration of the Company's products and
third party equipment into the customer's network. The group uses a combined workforce of
Company and subcontracted personnel to provide teams of trained professionals that manage
the job from the conceptual, engineering stage through to the successful system integration
and commissioning. The Company's technical support group consists of unique and highly-trained teams that
focus on customer support of the TITAN 5500/5500S and 5300 series systems, CROSSNET® 44X and
33X systems, CABLESPAN system, NETS and MartisDXX product lines and will provide support
for the Company's emerging product lines. All teams utilize a Customer Management System
(CMS) to capture, collect and report on a number of data points specific to product
performance and overall customer profiles as well as tracking the status of customer calls
through to resolution. The Company's customer training group offers an expansive choice of course offerings
designed to meet the existing customer needs, as well as, newly-designed course offerings
that address the rapidly changing industry needs. Courses are offered at the Company's
technologically-advanced training facilities and on-site at customer premises. The Company provides product warranties for periods ranging from one to five years for
the repair or replacement of modules and systems found to be faulty due to defective
material and additionally for other requirements as described in the customer contract.
The Company has an expedited replacement service that is used to provide the
customer with needed module replacements in response to a time-critical service outage. CUSTOMERS Sales to customers located within the United States accounted for approximately 70%, 67%
and 64% of overall sales, in 1999, 1998, and 1997, respectively. Sales to international
customers accounted for approximately 30%, 33% and 36% of consolidated sales, in 1999, 1998, and
1997, respectively. The largest single group of customers the Company has are Regional
Bell Operating Companies (RBOCs). Sales to this customer group accounted for approximately
31% of consolidated sales in 1999 and 30% in 1998 and 1997, respectively. The Company
believes that a loss of, or a significant reduction in purchases by RBOCs as a group,
although not anticipated, could have a material adverse effect on the Company's results. In 1999, sales to SBC Communications Inc. accounted for approximately 10.9% of
consolidated net sales. In 1998, sales to Bell Atlantic accounted for approximately 11.9%
of consolidated net sales. In 1997, sales to SBC Communications Inc. accounted for
approximately 10.9% of consolidated net sales. No other customer in 1999, 1998, or 1997
accounted for more than 10% of consolidated net sales. BACKLOG At December 31, 1999, and January 1, 1999, backlogs were approximately $256 million and
$164 million, respectively. All of the December 31, 1999, backlog is expected to be
shipped in 2000. The Company considers backlog to be an indicator, but not the sole
predictor, of future sales. COMPETITION The Company's products are sold in global markets and compete on the following key
factors: responsiveness to customer needs, product features, customer-oriented planning,
price, performance, reliability, breadth of product line, technical documentation, and
prompt delivery. The digital cross-connect systems compete principally with Lucent Technologies, Alcatel,
Nortel and Ciena. The major competitors of the managed access and transport systems are
Newbridge Networks Corporation, Nokia Telecommunications, and Network Equipment
Technologies. The network access products currently compete in two product areas: echo cancellers and
local access. The leading competitors in the echo canceller/voice quality enhancement market
are Lucent Technologies, Ericsson, Ditech, and Nortel, although the competitors primarily offer
only echo canceller solutions. The local access products competitors are Arris, ADC
Telecommunications, Inc., and Motorola. RESEARCH AND DEVELOPMENT Tellabs believes that the enhancement of existing products and the development of new
products are vital to the Company's long-term success. Research and development expenses
were $303.7 million in 1999, $220.0 million in 1998, and $171.2 million in 1997. The
Company conducts research at its laboratories in Lisle and Bolingbrook, Illinois;
Mishawaka, Indiana; Hawthorne, New York; Burlington, Cambridge and Wilmington,
Massachusetts; Plymouth, Minnesota; Ashburn, Virginia; Montreal and Ottawa, Canada;
Ballerup, Denmark; Espoo, Oulu and Tampere, Finland; and Shannon, Ireland. In addition to
the Company's internal efforts to develop new technologies, Tellabs also undertakes
research and development-oriented acquisitions and product-oriented alliances in order to
allow the Company access to technology that is important to the future of its products.
The Company plans to spend approximately $380 million to $420 million on research and
development in 2000. These expenditures reflect the Company's commitment to the
enhancement of existing products and development of new products designed to satisfy the
needs of communications service providers worldwide. MANUFACTURING AND EMPLOYEES The Company assembles its products from standard components and from fabricated parts,
which are manufactured by others to the Company's specifications. Such purchased items
represented approximately 68% of cost of sales in 1999. Most purchased items are standard commercial components available from a number of
suppliers with only a few items procured from a single-source vendor. Management believes
that alternate sources could be developed for those parts and components of proprietary
design and those available only from single or limited sources. However, future shortages
could result in production delays that could adversely affect the Company's business. As part of the manufacturing process, hazardous waste materials that are present are
handled and disposed of in compliance with all Federal, State and local provisions. These
waste materials and their disposal have no significant impact on either the Company's
production process or its earnings or capital expenditures. At December 31, 1999, the Company had 6,997 employees, of which 1,747 were employed in
the sales, sales support and marketing area, 2,282 in product development, 2,351 in
manufacturing, and 617 in administration. The Company considers its employee relations to
be good. It is not a party to any collective bargaining agreement. INTELLECTUAL PROPERTY The Company has various trade and service marks, both registered and unregistered, in
the U.S. and in numerous foreign countries (collectively, "Marks"). All of these Marks are
important in that they differentiate the Company's products and services within the
industry through brand name recognition. The Company is not aware of any factor which
would affect its ability to utilize any of its major Marks. The Company currently holds numerous United States and foreign patents. The Company has
also developed certain proprietary hardware designs, software programs, and other works in
which the Company owns various intellectual property rights, including rights under
copyright and trade secret laws. The Company believes that its patents and other
intellectual property rights are important to its business. Through various licensing arrangements the Company grants certain rights to its
intellectual property and receives certain rights to intellectual property of others. The
Company expects to maintain current licensing arrangements and in the future secure
licensing arrangements, as needed and to the extent available on reasonable terms and
conditions, to support continued development and marketing of the Company's products. Some
of such licensing arrangements require or may require the payment of royalties, and the
amount of such payments may depend upon various factors, including but not limited to: the
structure of royalty payments; offsetting considerations, if any; and the degree of use of
the licensed technology in any products of the Company or otherwise. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION The Company manages its business in one business segment. Information with respect to
the Company's net sales by product group, net sales by country, and net long-lived assets
by country for the fiscal years ended December 31, 1999, and January 1, 1999, is set forth
in Note 9 on page 34 of the registrant's Annual Report to Stockholders and is incorporated
herein by reference. ITEM 2. PROPERTIES The Company's corporate headquarters is located on 19.1 acres of Company-owned land
approximately 30 miles west of Chicago in Lisle, Illinois. Located on this property are
three buildings, totaling 220,000 square feet. These buildings house the Company's
headquarters, a portion of the Company's customer service, research and development and
administrative functions and the majority of the Digital Systems Division's
engineering operations. The Company also owns 50 acres of land in Bolingbrook, Illinois (near Lisle) where a
544,000-square foot manufacturing, engineering and office building is located. In addition,
the Company also owns approximately 75 acres of land in Round Rock, Texas, where a
127,000-square foot manufacturing facility is located. In late 1999, the company purchased
approximately 55 acres of land in Naperville, Illinois where it plans to begin construction,
in April 2000, of a new 860,000-square foot Corporate Headquarters building. Also, in
1999 the company purchased 5.2 acres of land in Ashburn, Virginia adjoining their existing
leased facility. Internationally, the Company owns a 222,000-square foot facility in Ballerup, Denmark,
which houses administrative and engineering functions. In Espoo, Finland, the Company owns
a 154,000-square foot production and engineering facility, located on approximately 12
acres of Company-owned land. Also on this land, is a 100,000-square foot building, which
is currently being leased to a third party. The Company also owns three office buildings
in Espoo, totaling 127,000 square feet, which contains production, research and development
and administrative functions. In Shannon, Ireland, the Company owns a 135,000-square foot
manufacturing facility, which is built on land obtained through a long-term lease entered
into during 1997. Significant facilities leased by the Company include: two locations in Bolingbrook,
Illinois (157,000 square feet, total) containing administrative and research and
development functions; a manufacturing facility in Drogheda, Ireland (140,000 square feet);
two buildings in Warrenville, Illinois (137,000 square feet, total), which also house
administrative and research and development activities; a manufacturing facility in
Bohemia, New York (130,000 square feet); two locations in Burlington, Massachusetts
(90,000 square feet, total), which contain sales, research, production and administrative
activities; two locations (86,000 square feet, total) in Lisle, Illinois used for research
and development; two locations in Wilmington, Massachusetts (75,000 square feet, total)
also used for research and development; a facility in Ashburn, Virginia (72,000 square
feet) for research and development; two facilities in County Clare, Ireland (61,000 square
feet, total) for production, sales, research and development, and administrative
activities; and two locations in Espoo, Finland (60,000 square feet, total) housing
administrative and engineering functions. In addition to these facilities, the Company also leases six sales offices and three
research and development facilities in the United States. Internationally, the Company
also leases five research and development facilities and various small sales offices in
twenty-five countries. The Company owns substantially all the equipment used in its business. The Company
believes that its facilities are adequate for the level of production anticipated in 2000,
and that suitable additional space and equipment will be available to accommodate expansion
as needed. ITEM 3. LEGAL PROCEEDINGS The Company is not involved in any material litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. FORWARD LOOKING STATEMENTS Except for historical information, the matters discussed or incorporated by reference in
Part I of this report may include forward-looking statements that involve risks and
uncertainties that may affect the Company's actual results and cause actual results to
differ materially from those in the forward-looking statements. The foregoing discussion
should be read in conjunction with the financial statements and related notes and
management's discussion and analysis included in the Company's Annual Report and
incorporated in this report by reference in Part II, Items 7 and 8 herein. EXECUTIVE OFFICERS OF THE REGISTRANT Name and Business Experience Year of Birth Current Position Michael J. Birck 1938 Chairman, President, Chief Executive Officer and Director. Peter A. Guglielmi 1942 Executive Vice President and Director. Brian J. Jackman 1941 President, Global Systems and Technology; Executive Vice President and
Director. John E. Vaughan 1947 President, Global Sales and Service; Executive Vice President. Richard T. Taylor 1948 Sr. Vice President and General Manager, Digital Systems Division. Charles C. Cooney 1941 Vice President. Ashraf M. Dahod 1951 Vice President, Internetworking Systems Division. Carol Coghlan Gavin 1956 Vice President, General Counsel and Secretary. J. Thomas Gruenwald 1948 Vice President and General Manager, Access Systems Group. Donald F. Jones 1949 Vice President, North American Sales. John C. Kohler 1952 Vice President, Global Manufacturing. Stephen M. McCarthy 1954 Vice President, Global Solutions and Service. David Powell 1951 Vice President and General Manager, Network Enhancing Technologies
Solutions Group. Joan E. Ryan 1956 Vice President, Chief Financial Officer and Treasurer. Harvey R. Scull 1949 Vice President, Global Strategy and Business Development. Marc L. Ugol 1958 Vice President, Human Resources. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The sections entitled "Common Stock Market Data" on pages 1 and 38 of the Company's
Annual Report to Stockholders for the year ended December 31, 1999 (the "Annual Report") are
incorporated herein by reference. They are also included in Exhibit 13, as filed with the
SEC. See discussion referred to in Item 7 below for dividend information. ITEM 6. SELECTED FINANCIAL DATA The section entitled "Five-Year Summary of Selected Financial Data" on page 1 of the
Annual Report is incorporated herein by reference. It is also included in Exhibit 13, as
filed with the SEC. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS The section entitled "Management's Discussion and Analysis" on Pages 16 to 19 of the
Annual Report is incorporated herein by reference. It is also included in Exhibit 13, as
filed with the SEC. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company conducts business on a global basis in several major international
currencies. Foreign currency risk is managed through the use of forward exchange contracts
to hedge nonfunctional-currency receivables and payables that are expected to settle in
less than one year. The Company does not enter into forward exchange contracts for trading
purposes and all foreign exchange contract activity is carried out under a program
authorized by the Company's Board of Directors. Under the program, the Company enters into
contracts to hedge between 50 and 90 percent of the aggregate currency exposure for any
single currency. The Company assesses its outstanding currency exposure on a monthly
basis. Foreign currency transaction gains and losses resulting from changes in the
exchange rates are recognized in "Other Income (Expense)". The foreign currency forward exchange contracts are used to manage exposure to changes
in currency exchange rates, principally Finnish markka and Irish punts. The table that
follows presents a summary of the notional value and the fair value of forward exchange
rate contracts for each currency in which the Company has hedged exposure at December 31,
1999, and January 1, 1999. The notional amounts shown are the US dollar value of the
agreed upon amounts in each foreign currency that will be delivered to a third party on the
agreed upon date. Notional Value Fair Value Forward Contracts to Sell Foreign Currencies for Finnish markka: United States dollar $29,700 5.7709 $29,700 Danish krone 5,232 0.7988 5,236 Norwegian krone 3,718 0.7712 3,740 British pound 3,694 9.4569 3,700 Swiss franc 1,196 3.7095 1,195 Australian dollar 326 3.8435 321 Swedish krone 77 0.6900 77 $43,943 $43,969 Forward Contracts to Sell Foreign
Currencies for Danish krone: United States dollar $8,600 7.1445 $8,600 Norwegian krone 1,628 0.9079 1,624 British pound 957 11.4858 963 Japanese yen (167) 0.0724 (165) $11,018 $11,022 Forward Contracts to Sell Foreign
Currencies for Irish punt: United States dollar $4,433 1.3048 $4,433 Norwegian krone 1,178 0.0960 1,198 $5,611 $5,631 Forward Contracts to Sell Foreign
Currencies for US dollars: Canadian dollars $4,745 1.454 $4,757 $4,745 $4,757 Total Contracts Outstanding at December 31, 1999: Notional Value Fair Value Forward Contracts to Sell Foreign
Currencies for Finnish markka: United States dollar $63,770 5.0660 $63,770 Irish punt 15,950 7.5448 17,285 European currency unit 15,442 5.9640 15,386 Spanish peseta 8,878 0.0357 9,442 Austrian schilling 3,829 0.4319 3,814 Swedish krone 3,563 0.6277 3,530 Deutsche marks 1,889 3.0403 1,889 Danish krone 1,774 0.7981 1,769 Norwegian krone 1,689 0.6626 1,676 British pound 1,576 8.4557 1,573 All others 858 - 864 $119,218 $120,998 Forward Contracts to Sell Foreign
Currencies for Irish punts: United States dollar $4,960 1.1254 $4,960 Netherlands guilder 1,988 2.7995 1,985 French franc 1,021 8.3297 1,019 All others 366 - 361 $8,335 $8,325 Total Contracts Outstanding at January 1, 1999: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Auditors and the Consolidated Financial Statements and Notes
thereto on pages 20 through 35 of the Annual Report are incorporated herein by reference.
They are also included in Exhibit 13, as filed with the SEC. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required, except for information relating to the executive officers of
the registrant which appears at the end of Part I above, is incorporated herein by
reference to the section entitled "Election of Directors" in the registrant's Proxy
Statement (the "Proxy Statement") dated March 8, 2000. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" in the Proxy Statement is incorporated
herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Security Ownership of Management and Certain Other Beneficial
Owners" in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Election of Directors" in the Proxy Statement is incorporated
herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements: The following Consolidated Financial Statements of Tellabs, Inc., and Subsidiaries,
included in registrant's Annual Report to Stockholders for the year ended December 31,
1999, were previously incorporated by reference in Item 8: Report of Independent Auditors Consolidated Balance Sheets: December 31, 1999, and January 1, 1999 Consolidated Statements of Earnings: Years ended December 31, 1999, January 1, 1999, and
January 2, 1998 Consolidated Statements of Stockholders' Equity: Years ended December 31, 1999, January
1, 1999, and January 2, 1998 Consolidated Statements of Cash Flows: Years ended December 31, 1999, January 1, 1999,
and January 2, 1998 Notes to Consolidated Financial Statements 2. Financial Statement Schedules: The following Consolidated Financial Statement Schedules of Tellabs, Inc., and
Subsidiaries are included herein pursuant to Item 14(d): Report of Independent Auditors on Financial Statement Schedule Schedule II. Valuation and Qualifying Accounts and Reserves Schedules not included have been omitted because they are not applicable or the
required information is shown in the consolidated Financial Statements or Notes thereto. (b) Reports on Form 8-K: None (c) Exhibits: Exhibit Number Description 2.1 Agreement and Plan of Merger Among Tellabs,
Inc., Blackhawk Merger Co. and NetCore Systems, Inc. 12/ 2.2 Agreement and Plan of Merger Among Tellabs, Inc., Oriole Merger Corp. and
SALIX Technologies, Inc. 13/ 3.1 Restated Certificate of Incorporation 5/ 3.2 Amended and Restated By-Laws, as amended 3/ 3.3 Certificate of Amendment to Restated Certificate of Incorporation
8/ 4 Upon request of the Securities and Exchange Commission, registrant hereby
agrees to furnish to the Commission copies of instruments (not filed) defining the rights
of holders of long-term debt of the Company. (This undertaking is in lieu of a separate
exhibit.) 10.1 Tellabs, Inc. Deferred Compensation Plan, as amended and its related
trust, as amended 6/ 10.2 1981 Incentive Stock Option Plan, as amended and restated 1/ 10.3 1984 Incentive Stock Option Plan, as amended and restated 1/ 10.4 1986 Non-Qualified Stock Option Plan, as amended and restated 1/ 10.5 1987 Stock Option Plan for Non-Employee Corporate Directors, as amended and
restated 1/ 10.6 1989 Stock Option Plan, as amended and restated 1/ 10.7 Employee Quality Stock Award Program 2/ 10.8 Form of Employment Agreement 3/ 10.9 1991 Stock Option Plan, as amended and restated 1/ 10.10 Description of Split-Dollar Insurance Arrangement with the Michael J. Birck
Irrevocable Trust 3/ 10.11 1994 Stock Option Plan 4/ 10.12 Tellabs, Inc. Stock Bonus Plan for Former Employees of Steinbrecher
Corporation 7/ 10.13 Tellabs, Inc. Stock Bonus Plan for Former Employees of TRANSYS Networks
Inc. 9/ 10.14 Tellabs, Inc. Stock Bonus Plan for Former Employees of International
Business Machines Corporation 9/ 10.15 Severance Arrangement for John E. Vaughan 8/ 10.16 Restricted Stock Award for John E. Vaughan 8/ 10.17 1998 Stock Option Plan 10/ 10.18 Tellabs, Inc. Stock Bonus Plan for Former Employees of Switched Network
Technologies, Inc. 11/ 10.19 NetCore Systems, Inc. 1997 Stock Option Plan 14/ 10.20 Tellabs Advantage Plan 10.21 1999 Tellabs, Inc., Stock Bonus Plan 10.22 SALIX Technologies, Inc. 1998 Omnibus Stock Plan and Option Agreement Dated
as of December 1, 1997 15/ 13 Annual Report to Stockholders 21 Subsidiaries of Tellabs, Inc. 23 Consent of Ernst & Young LLP 27 Financial Data Schedule Exhibits 10.1 through 10.22 are management contracts or compensatory plans or
arrangements required to be filed as an Exhibit to this Form 10-K pursuant to Item 14(c)
hereof. (d) Schedules: See Item 14(a)2 above. 1/ Incorporated by reference from Tellabs, Inc. Post-effective Amendment No. 1 on
Form S-8 to Form S-4 filed on or about June 29, 1992 (File No. 33-45788). 2/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the
quarter ended April 1, 1988 (File No. 0-9692). 3/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year
ended January 1, 1993 (File No. 0-9692). 4/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year
ended December 31, 1993 (File No. 0-9692). 5/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the
quarter ended June 30, 1995 (File No. 0-9692). 6/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year
ended December 29, 1995 and Form 10-Q Quarterly Report for the quarter ended September 26,
1997. The Deferred Income Plan Amendment is incorporated by reference from Tellabs, Inc.
Form 10-K Annual Report for the year ended January 1, 1999 (File No. 0-9692). 7/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the
quarter ended June 28, 1996 (File No. 0-9692). 8/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the
quarter ended June 27, 1997 (File No. 0-9692). 9/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year
ended December 27, 1996 (File No. 0-9692). 10/ Incorporated by reference from Tellabs, Inc. Definitive Proxy Statement filed on or
about March 16, 1998 (File No. 0-9692). 11/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year
ended January 1, 1999 (File No. 0-9692). 12/ Incorporated by reference from Tellabs, Inc. Pre-Effective Amendment No. 1 to Form
S-4, filed on August 5, 1999 (File No. 33-83509). 13/ Incorporated by reference from Tellabs, Inc. Pre-Effective Amendment No. 1 to Form
S-4, filed on February 7, 2000 (File No. 33-95135). 14/ Incorporated by reference from Tellabs, Inc. Post-Effective Amendment No. 1 on Form
S-8 to Form S-4, filed on September 17, 1999 (File No. 33-83509). 15/ Incorporated by reference from Tellabs, Inc. Post-Effective Amendment No. 1 on Form
S-8 to Form S-4, filed on March 13, 2000 (File No. 33-95135). SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. March 29, 2000 By /s Michael J. Birck Date President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated. SIGNATURE DATE /s Michael J. Birck March 29, 2000 /s Joan E. Ryan March 29, 2000 /s Robert E. Swininoga March 29, 2000 /s Peter A. Guglielmi March 29, 2000 /s Brian J. Jackman March 29, 2000 /s John D. Foulkes March 29, 2000 /s Frederick A. Krehbiel March 29, 2000 /s Stephanie Pace Marshall March 29, 2000 /s William F. Souders March 29, 2000 /s Jan H. Suwinski March 29, 2000 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Tellabs, Inc. We have audited the consolidated financial statements of Tellabs, Inc. and Subsidiaries
as of December 31, 1999, and January 1, 1999, and for each of the three years in the period
ended December 31, 1999, and have issued our report thereon dated January 21, 2000. Our audit
also included the financial statement schedule listed in the Index at Item 14(a). This
schedule is the responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein. /s Ernst & Young LLP TELLABS, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Three Years Ended December 31, 1999, January 1, 1999, and January 2, 1998 Balance at beginning of year Additions charged to costs and expenses
1999 1998 1997 NOTE: TELLABS ADVANTAGE PROGRAM As Amended and Restated Effective as of January 1, 1999 ARTICLE 1 1.1 Purpose. It is the intention of the Employer to
continue to provide for the administration of the Tellabs Retirement Plan, a money purchase
pension plan, together with a retiree medical benefits account under the provisions of
Section 401(h) of the Code, and the Tellabs Profit Sharing and Savings Plan, a profit
sharing and Code Section 401(k) savings program as parts of this Tellabs Advantage
Program (the "Plan") and a Trust Fund in conjunction therewith for the benefit of
eligible employees of the Employer, in accordance with the provisions of Sections 401 and
501 of the Code and in accordance with other provisions of law relating to money purchase
pension and profit sharing plans. Except as otherwise provided in this Plan or Trust, upon
the transfer by an Employer of any funds to the Trust Fund in accordance with the
provisions of this Plan, all interest of an Employer therein shall cease and terminate, and
no part of the Trust Fund shall be used for, or diverted to, purposes other than the
exclusive benefit of Participants and their beneficiaries. 1.2 Source of Funds. The Trust Fund shall be created, funded
and maintained by contributions of an Employer, by contributions of Participants, and by
such net earnings as are obtained from the investment of the funds of the Trust Fund. 1.3 Scope of Plan Coverage. The provisions of the Plan as
herein restated shall be effective as of January 1, 1999 except for certain provisions the
effective dates of which are set forth therein. Except as may be required by ERISA or the
Code, the rights of any person whose status as an employee of the Employer and all
Affiliates has terminated shall be determined pursuant to the Plan as in effect on the date
such employment terminated, unless a subsequently adopted provision of the plan is made
specifically applicable to such person. 1.4 Definitions. Certain terms are capitalized and have the
respective meanings set forth in the Plan. "Account" means each of the individual accounts
established pursuant to Article 5 (Accounting Provisions and Allocations) representing a
Participant's allocable share of the Trust Fund. "Accounts" means the collective individual accounts
established pursuant to Article 5 (Accounting Provisions and Allocations). "Actual Deferral Percentage" and "Actual Deferral
Percentage Tests" are described in Section 3.5 (Limitations on Before-Tax
Contributions Under the Savings Program). "Administrative Committee" is the Committee so
appointed in accordance with Article 9 (Powers and Duties of Committees) as the
administrator and named fiduciary of the Plan. "Affiliate" means any corporation or enterprise, other
than the Company, which, as of a given date, is a member of the same controlled group of
corporations, the same group of trades or businesses under common control or the same
affiliated service group, determined in accordance with Code Sections 414(b), (c), (m) or
(o), as is the Company. For purposes of determining the amount of a Participant's Annual
Addition or Section 415 Compensation or applying the limits of Section 415 of the
Code set forth in Article 5 (Accounting Provisions and Allocations),
"Affiliate" shall include any corporation or enterprise, other than the Company,
which, as of a given date, is a member of the same controlled group of corporations or the
same group of trades or businesses under common control, determined in accordance with
Section 414(b) or (c) of the Code as modified by Section 415(h) thereof, as is
the Company. "After-Tax Contribution" means after-tax employee
contributions made by Participants under the Plan prior to January 1, 1994. "Aggregate Limit" is described in Section 3.8 (Multiple Use). "Annual Addition" means for any Limitation Year, the
sum of (a) all Before-Tax Contributions, Matching Contributions, Employer
Contributions (including forfeitures allocated as a part thereof) and, for Limitation Years
beginning prior to January 1, 1994, After-Tax Contributions, allocated to the Accounts of a
Participant under this Plan; (b) any employer contributions, forfeitures and employee
after-tax contributions allocated to such Participant under any other defined contribution
plan maintained by an Employer or Affiliate; and (c) amounts allocated to an
individual medical account as defined in Code Section 415(l)(2) and amounts
attributable to post-retirement medical benefits allocated to an account described in Code
Section 419A(d)(2) maintained by an Employer or Affiliate. "Annuity Starting Date" is the first day of the first
period for which a benefit is payable in the form of an annuity or any other form. "Basic Before-Tax Contribution" means, for any period
with respect to a Participant, the portion of the Before-Tax Contribution made on his
behalf by an Employer during such period equal to the lesser of 3% of the Participant's
Considered Compensation paid during such period or the Participant's Before-Tax
Contribution for such period. For any period, "Basic Before-Tax Contribution"
means, with respect to the Employer, the sum of such contributions. "Before-Tax Contribution" means, with respect to a
Participant, the contribution by an Employer on his behalf described in Section 3.4
(Before-Tax Contribution Under the Savings Program) and, with respect to the Employer,
means the sum of such contributions. "Board of Directors" means the Board of Directors of
the Company. "Code" means the Internal Revenue Code of 1986, as from
time to time amended. "Coherent Accounts" means the separate Coherent
Before-Tax Account, Coherent Employer Account and Coherent Rollover Account of Coherent
Participants described in Section 5.1 (Participant Accounts). "Coherent Acquisition Date" means the date of the
acquisition of Coherent Communications Systems Corporation by Tellabs, Inc. "Coherent Participant" means employees of Coherent
Communications Systems Corporation or any subsidiary thereof who were participants in the
Coherent Plan on December 31, 1998 and (a) became Participants in the Plan on
January 1, 1999, or (b) whose Coherent Accounts were subsequently transferred from the
Coherent Plan to the Trust Fund as a result of the merger of the Coherent Plan into the
Plan effective April 1, 1999. 2 "Coherent Plan" means the Coherent Communications
Systems Corporation Savings Incentive Plan as in effect on the Coherent Acquisition Date,
and as amended from time to time thereafter up to and including its merger into the Plan
effective April 1, 1999. "Committees" means the Administrative Committee and the
Investment Committee appointed pursuant to Article 9 (Powers and Duties of the
Committees). "Company" means Tellabs Operations, Inc., a Delaware
corporation. "Compensation" means a Participant's "Considered
Compensation," "Section 415 Compensation," or "Total
Compensation", as follows: (a) "Considered Compensation" means a Participant's
Total Compensation during any period paid while he was a Participant but excluding any
automobile allowance, reimbursement for moving, relocation or education expenses, income
from participation in any stock purchase plan, income from stock awards, income from the
exercise of stock options, stock appreciation rights, dividends on restricted stock, hiring
bonuses or similar remuneration or other extraordinary remuneration; provided, however,
that Considered Compensation for a Plan Year shall not include any amount in excess of
$160,000, (or, if greater, the compensation limit under Code Section 401(a)(17)(B), as
adjusted by the Secretary of the Treasury for increases in the cost of living). The
cost-of-living adjustment in effect for a calendar year applies to any period, not
exceeding 12 months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12 months, the
annual compensation limit will be multiplied by a fraction, the numerator of which is the
number of months in the determination period, and the denominator of which is 12. (b) "Section 415 Compensation" for a period is
the Participant's wages as defined in Code Section 3401(a) for purposes of income tax
withholding at the source, and all other payments of compensation to the Participant by the
Employer for which the Employer is required to furnish the Participant a written statement
under Code Sections 6041(d), 6051(a)(3) and 6052, but determined without regard to any
rules under Code Section 3401(a) that limit the remuneration included in wages based on the
nature or location of the employment or the services performed, plus for the 1998 and
subsequent Plan Years, amounts excluded from the Participant's income for the period under
Code Sections 125, 401(k) or 403(b). (c) "Total Compensation" for a period is the
Participant's wages as defined in Code Section 3401(a) for purposes of income tax
withholding at the source, and all other payments of compensation to the Participant by the
Employer for which the Employer is required to furnish the Participant a written statement
under Code Sections 6041(d), 6051(a)(3) and 6052, but determined without regard to any
rules under Code Section 3401(a) that limit the remuneration included in wages based on the
nature or location of the employment or the services performed, plus amounts excluded from
the Participant's income for the period under Code Sections 125, 401(k) or 403(b). 3 "Contribution Percentage" and "Contribution
Percentage Tests" are described in Section 3.7 (Limitations on Matching
Contributions Under the Savings Program). "Dependent" means an individual entitled to medical
benefits as a dependent of an Eligible Retiree, as described in Section 14.2
(Retiree Medical Benefits Definitions). "Defined Contribution Dollar Limitation" is an amount
equal to $30,000, as adjusted by the Secretary of the Treasury for increases in the cost of
living pursuant to Code Section 415(d), prorated for any Limitation Year of less than
12 months; provided that for purposes of Section 511(a)(ii), such amount shall be
reduced by the amounts allocated to any medical accounts described in subsection (c) of
"Annual Addition." "Election Period" means the period defined in
Section 7.2 (Qualified Joint and Survivor Annuity - Retirement Account) relating to
the period during which a Participant may elect to have the Participant's Retirement
Account distributed in a form other than a Qualified Joint and Survivor Annuity. "Eligible Employee" is any individual who is employed
by the Employer, other than (a) a Leased Employee, (b) a Limited Term Employee,
(c) a Member of a Collective Bargaining Unit, (d) an individual providing
services to the Employer in the capacity of, or who is or was designated by the Employer
as, an independent contractor, or (e) a non-resident alien with no earned income from
sources within the United States. Notwithstanding the foregoing, any individual employed
by Coherent Communications Systems Corporation or any subsidiary thereof as of the Coherent
Acquisition Date, or thereafter until December 31, 1998, shall not become an Eligible
Employee until January 1, 1999. "Eligible Individual" means an individual entitled to
Medical Benefits, as described in Section 14.2 (Retiree Medical Benefits
Definitions). "Eligible Participant" is a Participant as defined in
Section 5.4 (Eligibility to Share in Employer Contribution and Forfeiture). "Eligible Retiree" means an individual entitled to
receive retiree medical benefits under the Health Plan, as described in Section 14.2
(Retiree Medical Benefits Definitions). "Eligible Retirement Plan" with respect to a
Participant, the surviving spouse of a Participant or a former spouse of the Participant
who is an alternate payee under a qualified domestic relations order is (a) an
individual retirement account described in Code Section 408(a) or individual
retirement annuity described in Code Section 408(b), and, with respect to a
Participant, is also (b) an annuity plan described in Code Section 403(a) or a
qualified trust described in Code Section 401(a). "Eligible Rollover Distribution" is any distribution of
all or a portion of the Accounts distributable to a Participant, the surviving spouse of a
Participant or the former spouse of the Participant who is an alternate payee under a
qualified domestic relations order; provided, however, (a) the portion of any
distribution required to be made under Code Section 401(a)(9), and (b) the
portion of any distribution that is not includable in the gross income of the recipient
(determined without regard to the exclusion for net unrealized appreciation with respect to
Employer securities), shall not constitute an Eligible Rollover Distribution. 4 "Eligibility Period" is a rolling one-year period used
for the purpose of determining when an employee is eligible to participate in the Plan. An
employee's first Eligibility Period shall commence on the date on which he first completes
an Hour of Service. Subsequent Eligibility Periods shall commence on the first day of each
month following such date. Notwithstanding the foregoing, the initial Eligibility Period of
a former employee who is reemployed after incurring a Period of Severance of one year or
more and who is not eligible for immediate participation pursuant to Section 2.1(c)
(Eligibility Requirements) shall commence on the date on which he first performs duties for
an Employer or an Affiliate after such Period of Severance and subsequent Eligibility
Periods shall commence on the Entry Date following such date. "Employer" means the Company or any Affiliate which
becomes an Employer pursuant to the provisions of Article 13 (Adoption by Affiliate),
and, for purposes of Article 8 (Top Heavy Plan Requirements), is described in
Section 8.1 (Top Heavy Definitions). "Entry Date" means the first day of each Plan Year, the
first day of the fourth month of each Plan Year, the first day of the seventh month of each
Plan Year and the first day of the tenth month of the Plan Year shall be an
"Entry Date." Solely for purposes of Section 2.1(d) and the ability to
participate in the Savings Program on a limited basis commencing April 1, 1999, each
business day shall also be an "Entry Date." "ERISA" means the Employee Retirement Income Security
Act of 1974, as from time to time amended. "Employer Excess Contribution" is the contribution
defined in Section 3.1 (Employer Contributions). "Excess Forfeiture Suspense Account" means the Account
described in Section 5.11 (Limitations on Annual Additions). "Excess Tentative Employer Contribution" means the
excess contribution described in Section 5.11 (Limitations on Annual Additions). "Five-Percent Owner" means an employee described in
Code Section 416(i)(1). "Funds" means the separate investment funds as
described in Section 5.2. "Health Plan" means a retiree medical plan maintained
by an Employer, as described in Section 14.2 (Retiree Medical Benefits Definitions). "Highly Compensated Employee" means, for the
Determination Year, an employee of the Employer or an Affiliate who was an Eligible
Participant during the Plan Year and who: (a) during the immediately preceding Plan Year: (i) was a Five-Percent Owner; or (ii) received Total Compensation in excess of $80,000 (as adjusted
annually for increases in the cost of living by the Secretary of the Treasury) and was
among the top 20% of the employees (disregarding those employees excludable under Code
Section 414(q)(5)) when ranked on the basis of Total Compensation paid for that year;
or 5 (b) at any time during the Determination Year is a Five-Percent
Owner. For purposes of this definition, "Determination Year" means
the current Plan Year. To the extent required by Code Section 414(q)(6), a former employee
who was a Highly Compensated Employee when he separated from service with the Employer and
all Affiliates or at any time after attaining age 55 shall be treated as a Highly
Compensated Employee. "Hour of Service" is: (a) each hour for which an employee is paid or entitled to payment for
the performance of duties for an Employer or an Affiliate; (b) each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by an Employer or an Affiliate; and (c) each hour for which an employee is paid or entitled to payment for a
period during which no duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness, incapacity, layoff, jury
duty, military duty, or leave of absence. In crediting Hours of Service pursuant to this
subparagraph (c), all payments made or due shall be taken into account, whether such
payments are made directly by an Employer or an Affiliate or indirectly (e.g.,
through a trust fund or insurer to which an Employer or an Affiliate makes payments, or
otherwise), except that: (i) no more than 501 such Hours of Service shall be credited for any
continuous period during which the employee performs no duties; (ii) no such Hours of Service shall be credited if payments are made
or due under a plan maintained solely for the purpose of complying with any workers'
compensation, unemployment compensation or disability insurance laws; and (iii) no such Hours of Service shall be credited for payments which
are made solely to reimburse the employee for medical or medically related
expenses. The Hours of Service, if any, for which an employee is credited for a
period in which he performs no duties shall be computed and credited to computation periods
in accordance with 29 C.F.R. 2530.200b-2 and other applicable regulations promulgated by
the Secretary of Labor. For purposes of computing the Hours of Service to be credited to
an employee for whom a record of hours worked is not maintained, an employee shall be
credited with 45 Hours of Service for each week in which he completes at least one Hour of
Service. In addition, an employee shall be credited with Hours of Service for each week
the employee is on a leave of absence in accordance with Section 2.4 (Leaves of
Absence); provided however, that except as provided in Section 2.4, no more than 501
Hours of Service shall be credited with respect to any continuous period of a leave of
absence. 6 "Individual Beneficiary" means a natural person
designated by the Participant in accordance with Section 7.5 (Beneficiaries) to
receive all or any portion of the amounts remaining in the Participant's Accounts at the
time of the Participant's death. "Individual Beneficiary" also means a natural
person who is a beneficiary of a trust designated by the Participant in accordance with
Section 7.5 to receive all or a portion of such amount, provided the trust complies
with the requirements of Code Section 401(a)(9) and the regulations promulgated
thereunder, including that the trust is irrevocable, the beneficiaries with respect to the
trust's interest in the Participant's Accounts are identifiable from the trust agreement,
and a copy of the trust agreement is provided to the Administrative Committee prior to the
date distributions commence to such trust. "Investment Committee" is the Committee so appointed in
accordance with Article 9 (Powers and Duties of Committees). "Investment Manager" means a registered investment
adviser or other entity, as described in Section 9.8 (Investment Policy). "Key Employee" means an employee described in
Section 8.1 (Top-Heavy Definitions). "Leased Employee" means any individual who is not an
employee of an Employer or an Affiliate and who provides services for an Employer if: (a) such services are provided pursuant to an agreement between the
Employer or an Affiliate and any other person; (b) such individual has performed such services for the Employer (or a
related person within the meaning of Section 144(a)(3) of the Code) on a substantially
full-time basis for a period of at least one year; and (c) such services have been performed under the primary direction or
control of an Employer or an Affiliate. "Limited Term Employee" is an employee whose employment
is for a temporary basis and is classified as a limited term employee, a coop employee, or
an intern employee under the records of his Employer. "Limitation Year" means the Plan Year. "Matching Contribution" is the contribution referred to
in Section 3.6 (Matching Contribution Under the Savings Program). "Maximum Annual Addition" is the amount defined in
Section 5.11 (Limitations on Annual Additions). 7 "Medical Benefits" means the benefits described in
Section 14.2 (Retiree Medical Benefits Definitions). "Medical Benefits Account" means the account
established in accordance with Code Section 401(h) as part of the Retirement Program for
the purpose of providing retiree medical benefits, as described in Article 14 (Retiree
Medical Benefits). "Member of a Collective Bargaining Unit" is any
employee who is included in a collective bargaining unit and whose terms and conditions of
employment are or were covered by a collective bargaining agreement if there is evidence
that retirement benefits were the subject of good-faith bargaining between representatives
of such employee and the Employer, unless such collective bargaining agreement makes this
Plan applicable to such employee. "Multiple Use" is described in Section 3.8
(Multiple Use). "Non-Highly Compensated Employee" means, for any Plan
Year, any employee of an Employer or Affiliate who (a) at any time during the Plan
Year was an Eligible Participant, and (b) was not a Highly Compensated Employee for
such Plan Year. "Normal Retirement Date" means a Participant's 65th
birthday. "One-Percent Owner" means an employee described in Code
Section 416(i)(1). "Participant" means (a) a current employee of an
Employer or an Affiliate who has become eligible to participate in the Plan pursuant to
Section 2.1 (Eligibility Requirements) or (b) a former employee for whose
benefit an Account in the Trust Fund is maintained. "Permissive Aggregation Group" and "Required
Aggregation Group" are described in Section 8.1 (Top-Heavy Definitions). "Plan" means the Tellabs Advantage Program set forth
herein, including all Appendices hereto. "Plan Year" means a 12-month period beginning on
January 1 and ending on December 31. "Present Value" is described in Section 8.1
(Top-Heavy Definitions). "Profit Sharing Contribution" means the contribution
referred to in Section 3.3 (Profit Sharing Contribution Under the Savings
Program). "Provisional Annual Addition" means the amount
described in Section 5.10 (Provisional Annual Addition). "Qualified Joint and Survivor Annuity" for a married
Participant means an annuity for the life of a Participant with payments continued upon the
death of the Participant for the life of his spouse in an amount which is 1/2 of the amount
payable while the Participant was living, and for an unmarried Participant means an
annuity for the life of the Participant only. 8 "Required Beginning Date" means: (a) for a Participant other than a Five-Percent Owner, the April 1
following the later of the calendar year in which the Participant attains age 70-1/2 or the
calendar year in which the Participant terminates employment with all Employers and
Affiliates, or (b) for a Participant who at any time during or after the calendar year
in which he attained age 66-1/2 was or became a Five-Percent Owner, the April 1 following
the later of (1) the calendar year in which he attained age 70-1/2 or (2) the
earlier of the calendar year in which he became a Five-Percent Owner or his employment with
all Employers and Affiliates terminates. "Retirement Contribution" means the contribution
referred to in Section 3.2 (Retirement Contribution Under Retirement Program). "Retirement Program" means the provisions of this Plan
relating to the Tellabs Retirement Plan, the money purchase pension plan which forms a part
hereof. "Rollover Contribution" means (i) all or a portion
of a qualified total distribution received by an employee from another qualified plan which
is eligible for tax-free rollover to a qualified plan and which is transferred by the
employee to this Plan within 60 days following his receipt thereof; (ii) amounts
transferred to this Plan from a conduit individual retirement account which has no assets
other than assets (and the earnings thereon) which were (A) previously distributed to
the employee by another qualified plan as a qualified total distribution, (B) eligible
for tax-free rollover to a qualified plan and (C) deposited in such conduit individual
retirement account within 60 days of receipt thereof; (iii) amounts distributed to the
employee from a conduit individual retirement account meeting the requirements of clause
(ii) above, and transferred by the employee to this Plan within 60 days of his receipt
thereof from such conduit individual retirement account; and (iv) an eligible rollover
distribution within the meaning of Code Section 401(a)(31). "Savings Program" means the provisions of the Plan
relating to the Tellabs Profit Sharing and Savings Plan, a profit sharing and Code
Section 401 savings and matching contribution plan which forms a part hereof. "Service" means the period credited to an Eligible
Employee or Participant for purposes of determining the level of a Participant's
nonforfeitable benefits under the Tellabs Retirement Program. A Participant's or Eligible
Employee's Service shall be the period beginning on his Employment Commencement Date (or
Re-employment Commencement Date, if applicable) and ending on his Termination Date,
computed in accordance with the following rules: (a) Special Definitions. (i) "Employment Commencement Date" means the date an
employee first performs an Hour of Service. (ii) "Termination Date" means the earlier of: (A) The date on which an employee quits, retires, is discharged or dies;
or (B) The first anniversary of the first day of a period in which an
employee remains absent from service (with or without pay) with any Affiliate for any
reason other than a quit, retirement, discharge or death, such as vacation, holiday,
sickness, disability, leave of absence or layoff, except that this clause (B) shall not
apply to an employee on leave of absence for service in the United States armed forces or
the Family and Medical Leave Act of 1993. 9 (iii) "Re-employment Commencement Date" means the date
on which an employee first performs an Hour of Service following a Period of Severance. (iv) "Period of Severance" means the period beginning
on an employee's Termination Date and ending on his Re-employment Commencement Date. (v) "Year of Service" means each full year (on the
basis that 365 days equal a full year) in the employee's period of Service. (b) Aggregation Rule. All of an employee's periods of Service
with any Affiliate shall be aggregated on the basis that 365 days equal a full year, except
that if an employee has a Period of Severance of five years or more: (i) The prior period of Service shall be disregarded unless
(A) his Retirement Account was nonforfeitable at the time the Period of Severance
began or (B) the Period of Severance is less than the prior period of Service, and (ii) Any period of Service after such Period of Severance shall be
disregarded in determining the vested percentage of his Retirement Account which accrued
before the Period of Severance. (c) Service Spanning Rule. If an employee's Re-employment
Commencement Date occurs within 12 months after his Termination Date, his Service shall
include the intervening Period of Severance. (d) Service with Predecessor and Related Employers. An
employee's period of service, (i) with another employer before the acquisition of that employer's
business by the Employer shall, to the extent provided in the agreement pertaining to such
acquisition as approved by the Board of Directors, be included in his Service to the same
extent as if such service was performed for the Employer; and (ii) with any employer while such employer is an Affiliate shall be
included in his Service to the same extent as if such service was performed for the
Employer. 10 (e) Recognition of Services under Steinbrecher Plan and Coherent
Plan. Solely with respect to former Steinbrecher Participants and Coherent
Participants, each such Participant's period of service shall include such period or
periods of employment previously credited to that Participant under the Steinbrecher Plan
or Coherent Plan, as applicable; provided, however, that in no event shall any service
prior to January 6, 1975 be deemed service hereunder. "Social Security Disability Plan" with respect to any
Participant means the disability benefits program maintained under the Social Security
Act. "Supplemental Before-Tax Contribution" means for any
period, with respect to a Participant, the portion of the Before-Tax Contribution made on
his behalf by an Employer during such period which exceeds such Participant's Basic
Before-Tax Contribution for such period. For any period, "Supplemental Before-Tax
Contribution" means, with respect to the Employer, the sum of such contributions. "Survivor Annuity" means the surviving spouse survivor
annuity defined in Section 7.3 (Surviving Spouse Survivor Annuity - Retirement
Account). "Tellabs Stock Fund" is the Fund described in
Section 5.2 (Common Fund). "Top-Heavy", "Top-Heavy Determination
Date" and "Top-Heavy Ratio" are described in Section 8.1
(Top-Heavy Definitions). "Tentative Employer Contribution" means the
contribution described in Section 3.1 (Employer Contributions). "Trust" or "Trust Fund" is the Trust
established in accordance with Article 10 (Trustee and Trust Fund). "Trustee" means the Trustee or Trustees under the Trust
referred to in Article 10 (Trustee and Trust Fund). "Unit" means the unit of measure (determined as
provided in Article 5) of the proportionate measure, if any, of the Accounts of a
Participant in the Investment Funds established pursuant to Section 5.2 (Common
Fund). "Valuation Date" means the daily date as of which the
Administrative Committee shall determine the value of each Account. 11 ARTICLE 2 2.1 Eligibility Requirements. (a) Every Participant on January 1, 1999 shall continue as a
Participant, subject to the provisions of the Plan. (b) Every other Eligible Employee shall first be eligible to
participate, if he is then employed by an Employer, on the Entry Date coinciding with or
next following his first nine (9) months of continuous employment, if he has completed
1,000 Hours of Service during such nine (9) month period and attained his 21st birthday
(18th birthday, commencing with the April 1, 1999 Entry Date) on or before such Entry
Date. An Eligible Employee who does not become a Participant pursuant to the preceding
sentence shall first be eligible to participate, if he is then employed by an Employer, on
the Entry Date coinciding with or next following the later of (i) the end of the first
Eligibility Period in which he completes 1,000 Hours of Service or (ii) his 21st
birthday (18th birthday, commencing with the April 1, 1999 Entry Date). (c) Any former employee of an Employer or an Affiliate who was a
Participant or could have become a Participant under subsection (b) above had he been
employed on a prior Entry Date, and is reemployed by an Employer as an Eligible Employee
shall be eligible to participate on the first Entry Date after reemployment. (d) Notwithstanding any provisions of this Section 2.1 to the
contrary, an Eligible Employee who does not meet the requirements of paragraph (a), (b) or
(c) above and who reasonably expects to meet the requirements of paragraph (b) shall first
be eligible to participate in the Plan on a limited basis on the Entry Date coinciding with
or next following the later of his Employment Commencement Date or 21st birthday (18th
birthday, commencing with the April 1, 1999 Entry Date), solely for purposes of making a
Before-Tax Contribution pursuant to Section 3.4 (Before-Tax Contribution under the Savings
Program) (but not for purposes of receiving a Matching Contribution with respect thereto)
and/or a Participant Rollover Contribution pursuant to Section 4.1 (Rollover
Contribution), and exercising rights with respect to the Account(s) established thereby. (e) Notwithstanding any provisions of this Plan to the contrary, any
individual who was providing services to the Employer in the capacity of, or who was
designated by the Employer as, an independent contractor, a Leased Employee or a Limited
Term Employee, and who is subsequently re-classified as an Eligible Employee for the
purposes of this Plan (regardless of whether such re-classification is retrospective or
prospective), shall be eligible to participate in the Plan on a prospective basis only from
the date of the re-classification and shall not have any retroactive claim for benefits. (f) Notwithstanding the foregoing provisions of Section 2.1 a Coherent
Participant who is an Eligible Employee on January 1, 1999 shall become a Participant as of
that date. Any other individual who was an employee of Coherent Communications Systems
Corporation or any subsidiary thereof and first became an Eligible Employee on January 1,
1999, shall become a Participant on the first Entry Date on which such Eligible Employee's
satisfies the requirements of paragraph (b), (c), or (d) above, as the case may be. 12 2.2 Continued Participation; Reemployment. (a) Except as provided in Section 2.3 (Transfers and Changes in
Status), once an Eligible Employee has become a Participant eligible to elect to make
Before-Tax Contributions pursuant to Section 2.1 (Eligibility Requirements), he shall
continue to be eligible to make such Contributions, subject to the conditions and
limitations in the Plan, until he incurs his Termination Date. (b) Except as provided in Section 2.3 (Transfers and Changes in
Status), once an Eligible Employee becomes a Participant for purposes of determining the
amount of the Profit Sharing Contribution and the Retirement Contribution and eligibility
to share in the Profit Sharing Contribution and the Retirement Contribution, he shall
continue to be eligible to share in the Profit Sharing Contribution and the Retirement
Contribution, subject to the conditions and limitations in the Plan, for each Plan Year as
provided in Section 5.4 (Eligibility to Share in the Employer Contribution and
Forfeiture). (c) In the event an Eligible Employee who has become a Participant
incurs his Termination Date and he is subsequently reemployed, he shall be eligible to
elect to make Before-Tax Contributions as of any Entry Date following such Re-Employment
Commencement Date and to share in the Profit Sharing Contribution and the Retirement
Contribution for the Plan Year in which his Re-Employment Commencement Date occurs,
provided the Participant is an Eligible Employee and, with respect to the Profit Sharing
Contribution and the Retirement Contribution, satisfies the requirements of
Section 5.4 (Eligibility to Share in the Employer Contribution and Forfeiture). 2.3 Transfers and Changes in Status. (a) As provided in Section 1.4 (Definitions), an Eligible
Employee's Service with (i) an Employer while a Member of a Collective Bargaining Unit before
his transfer to an employment status outside of the collective bargaining unit, or (ii) another employer before the acquisition of that employer's business
by an Employer (but only to the extent approved by the Board of Directors and exclusive of
any period prior to January 6, 1975), or (iii) another employer while such employer is an Affiliate prior to the
date the Employee is transferred to an Employer, shall be taken into account (applying the principles of Sections 2.1
(Eligibility Requirements) and 2.2 (Continued Participation; Reemployment)) for purposes of
determining the Eligible Employee's eligibility to participate in the Plan. In the event
that based upon such service, the Eligible Employee would have become a Participant as of
an Entry Date had he been an Eligible Employee of the Employer, then such Eligible Employee
shall become a Participant for purposes of Section 2.1 as of the date of such
acquisition or transfer provided he is an Eligible Employee as of such date. 13 (b) If a Participant is transferred to a position with an Employer such
that he no longer is an Eligible Employee, or is transferred to employment with an
Affiliate which is not an Employer, he shall be treated for all purposes under this Plan as
if he were on a leave of absence without Compensation while in that position. 2.4 Leaves of Absence. An employee shall be credited with 45
Hours of Service for each full week the employee is on a leave of absence, including, but
not limited to a leave of absence required to be recognized under the provisions of the
Retirement Equity Act of 1984 or the Family and Medical Leave Act of 1993, if he is not
otherwise credited with such Hours of Service, provided that not more than 501 Hours of
Service shall be credited with respect to any continuous period of leave of absence. Any
leave of absence under this Section 2.4 must be granted in writing and pursuant to the
Employer's established leave policy, which shall be administered in a uniform and
nondiscriminatory manner to similarly situated employees. 2.5 Qualified Military Service. Notwithstanding any provision of
this Plan to the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414(u) of the
Code. 14 ARTICLE 3 3.1 Employer Contributions. Subject to the right reserved to
the Board of Directors to alter, amend or discontinue this Plan and the Trust, each
Employer shall for each Plan Year contribute to the Trust Fund for its Eligible
Participants an amount equal to the sum of: (a) the Retirement Contribution; (b) the Profit Sharing Contribution; (c) the Before-Tax Contribution; and (d) the Matching Contribution. Such sum, which is known as the Tentative Employer Contribution, shall
be reduced by an amount equal to the Excess Tentative Contribution (as described in
Section 5.11 (Limitation on Annual Additions)). In addition, each Employer shall contribute to the Medical Benefits
Account maintained as part of the Trust Fund such amounts as may be determined in
accordance with Article 14 (Retiree Medical Benefits) hereof. 3.2 Retirement Contribution Under the Retirement Program.
Subject to the provisions of Section 3.1 (Employer Contributions), each Employer shall
pay to the Trustee for each quarter of each Plan Year an amount which, together with the
forfeitures allocable for such quarter, shall be equal to 4.5% (four and five-tenths
percent) of the Considered Compensation of each Eligible Participant for such quarter.
Such contribution is known as the "Retirement Contribution." 3.3 Profit Sharing Contribution Under the Savings Program.
Subject to the provisions of Section 3.1 (Employer Contributions): (a) Each Employer shall pay to the Trustee for each quarter of each Plan
Year an amount which, together with the forfeitures allocable for such quarter, shall be
equal to .5% (five-tenths of one percent) of the Considered Compensation of each Eligible
Participant for such quarter; and (b) Each Employer shall also pay to the Trustee for each Plan Year such
additional amounts, if any, as the Board of Directors shall determine. Such contributions are, collectively, known as the "Profit Sharing
Contribution." 3.4 Before-Tax Contribution Under the Savings Program. (a) Subject to the provisions of Section 3.1 (Employer
Contributions) and 3.5 (Limitations on Before-Tax Contributions Under the Savings Program),
each Participant may for each payroll period elect to have his Employer make a Before-Tax
Contribution to the Trust Fund on his behalf in an amount equal to 1%, 2%, 3%, 4%, 5%, 6%,
7%, 8%, 9%, 10%, 11%, 12%, 13%, 14% or 15% of his Considered Compensation (rounded to the
nearest cent). Such elections (other than a complete suspension of Before-Tax
Contributions under this Section) shall be subject to change effective on any Entry Date in
accordance with procedures established by the Administrative Committee from time to time.
A Participant may elect to have his Employer suspend all Before-Tax Contributions to be
made on his behalf under this Section 3.4 as of the beginning of any payroll period
provided he notifies such Employer within such time and in accordance with such procedures
as may from time to time be established by the Administrative Committee. 15 (b) The Administrative Committee may establish procedures whereby
each Eligible Participant on whose behalf the total contribution made under
Section 3.4(a) is less than 15% of his Considered Compensation for the Plan Year may,
subject to the provisions of Section 3.1 (Employer Contributions) and 3.5 (Limitations
on Before-Tax Contributions Under the Savings Program), elect to have his Employer make an
additional contribution on his behalf in an amount not exceeding his annual incentive cash
bonus for such Plan Year so long as the sum of such additional contribution and the
contributions made on his behalf under Section 3.4(a) does not exceed 15% of his
Considered Compensation for the Plan Year. (c) The amount of the Before-Tax Contributions to be made pursuant to a
Participant's election shall reduce the compensation otherwise payable to him by the
Employer. 3.5 Limitations on Before-Tax Contributions Under the Savings
Program. (a) In no event shall a Participant's Before-Tax Contributions during
any calendar year exceed the dollar limitation contained in Code Section 402(g) in
effect at the beginning of such calendar year. If a Participant's Before-Tax
Contributions, together with any additional employer contributions to a qualified cash or
deferred arrangement, any elective deferrals under a tax-sheltered annuity program or a
simplified employee pension plan, exceeds such dollar limit for any calendar year, such
excess, and any earnings allocable thereto, shall be distributed to the Participant by
April 15 of such following year; provided that, if such excess contributions were made
to a plan or arrangement not maintained by the Employer or an Affiliate, the Participant
must first notify the Administrative Committee of the amount of such excess allocable to
this Plan by March 1 of the following year. (b) Notwithstanding any other provision of this Plan to the contrary,
the Before-Tax Contribution elected by Highly Compensated Employees pursuant to
Section 3.4(a) and (b) (Before-Tax Contribution under the Savings Program) for the
Plan Year shall be reduced in accordance with the following provisions: (i) The Before-Tax Contribution for the Highly Compensated Employees
shall be reduced and refunded if neither of the Actual Deferral Percentage tests set forth
in (A) or (B) below is satisfied: 16 (A) The 1.25 Test. The Actual Deferral Percentage for the Highly
Compensated Employees is not more than the Actual Deferral Percentage of all Non-Highly
Compensated Employees multiplied by 1.25. (B) The 2.0 Test. The Actual Deferral Percentage of the Highly
Compensated Employees is not more than 2 percentage points greater than the Actual Deferral
Percentage of all Non-Highly Compensated Employees, and the Actual Deferral Percentage of
the Highly Compensated Employees is not more than the Actual Deferral Percentage of all
Non-Highly Compensated Employees multiplied by 2.0. (ii) (A) As used in this subsection, "Actual Deferral
Percentage" means: (1) With respect to Non-Highly Compensated Employees, the average of the
ratios of each Non-Highly Compensated Employee's Before-Tax Contributions with respect to
the prior Plan Year, to each such Participant's Total Compensation for such Plan
Year; and (2) With respect to Highly Compensated Employees, the average of the
ratios of each Highly Compensated Employee's Before-Tax Contributions with respect to
the current year Plan Year, to each such Participant's Total Compensation for such
Plan Year. (B) Before-Tax Contributions made under this Plan and all before-tax
contributions made under any other plan that is aggregated with this Plan for purposes of
Code Sections 401(a)(4) and 410(b) shall be treated as made under a single plan. If any
plan is permissively aggregated with this Plan for purposes of Code Section 401(k),
the aggregated plans must also satisfy Code Sections 401(a)(4) and 410(b) as though they
were a single plan. The Actual Deferral Percentage ratios of any Highly Compensated
Employee will be determined by treating all plans subject to Code Section 401(k) under
which the Highly Compensated Employee is eligible as a single plan. (iii) If neither Actual Deferral Percentage Test is satisfied as of the
end of the Plan Year, the Administrative Committee shall cause the Before-Tax Contributions
for the Highly Compensated Employees to be reduced until either Actual Deferred Percentage
Test is satisfied. The sequence of such reductions and refunds shall begin with Highly
Compensated Employees who elected to defer the greatest dollar amount, and will assume that
Supplemental Before-Tax Contributions represent the last contributions made to the
Participant's account, then proceed to the Highly Compensated Employees who elected to
defer the second greatest dollar amount, continuing until either Actual Deferred Percentage
Test is satisfied. However, anything in the foregoing to the contrary, if a lesser
reduction, when added to the total dollar amount previously reduced would equal the total
excess contributions, such lesser reduction shall be utilized. Once such reductions have
been determined, the Administrative Committee shall direct the Trustee with respect to the
disposition of the amount of the reduction of the Before-Tax Contributions of each such
Highly Compensated Employee, together with the net earnings or losses allocable thereto.
The Administrative Committee shall designate such disposition as excess contributions,
determine the amount of the allocable net earnings or losses in accordance with subsection
(c) below, and cause such disposition to occur prior to the end of the Plan Year following
the Plan Year in which the excess Before-Tax Contributions were made. 17 (iv) Notwithstanding anything in this subsection (b) to the contrary,
the provisions of this subsection shall apply separately with respect to each group of
employees who are Members of a Collective Bargaining Unit (if any) and the group of
employees who are not Members of a Collective Bargaining Unit. (c) Net earnings or losses with respect to the excess Before-Tax
Contributions shall be equal to the net earnings or losses on such contributions for the
Plan Year in which the contributions were made. The net earnings or losses allocable to
the excess Before-Tax Contributions for the Plan Year shall be determined by multiplying
the net earnings or losses allocable to the Participant's Before-Tax Account for the Plan
Year by a fraction, the numerator of which is the amount of the Participant's Before-Tax
Contributions to be refunded and the denominator of which is the balance of the
Participant's Before-Tax Account as of the last day of the Plan Year, reduced by the net
earnings (or increased by the net loss) allocable to the Participant's Before-Tax Account
for the Plan Year; provided that to the extent the assets of the Trust have been invested
in one or more separate investment trusts, mutual funds, investment contracts or similar
investment media, the net earnings or losses attributable to such investments shall be
allocated to such excess Before-Tax Contributions for the Plan Year in accordance with the
procedures of the respective investment media in which such assets are invested. (d) The Administrative Committee may adopt such rules as it deems
necessary or desirable to: (i) impose limitations during a Plan Year on the percentage of
Before-Tax Contributions elected by Participants pursuant to Section 3.4 (Before-Tax
Contributions) for the purpose of avoiding the necessity of adjustments pursuant to this
Section or Section 5.11 (Limitations on Annual Additions); or (ii) increase during a Plan Year the percentage of Considered
Compensation with respect to which a Participant may elect a Before-Tax Contribution for
the purpose of providing Participants with the opportunity to increase their Before-Tax
Contributions within the limitations of this Section 3.5. (e) The amount of each Participant's Basic Before-Tax Contribution and
Supplemental Before-Tax Contribution as determined under this Section 3.5 is subject
to the provisions of Section 5.11 (Limitations on Annual Additions). 3.6 Matching Contribution Under the Savings Program. Subject to
the provisions of Section 3.1 (Employer Contributions), each Employer shall for each
payroll period of the Plan Year contribute to the Trust Fund an amount equal to 1 cent for
each cent of Basic Before-Tax Contribution made on behalf of each Eligible Participant for
such payroll period. Each Employer shall also contribute as of the last day of the Plan
Year on behalf of each Eligible Participant employed by the Employer on the last day of
such Plan Year an amount equal to each such Participant's Basic Before-Tax Contribution for
the Plan Year less the amount of the payroll period contributions made during such Plan
Year pursuant to the first sentence of this Section 3.6 on behalf of each such
Participant. The sum of such contributions is known as the "Matching
Contribution." 18 3.7 Limitation on Matching Contributions under the Savings
Program. Notwithstanding any other provision to the contrary, the Matching
Contributions of the Highly Compensated Employees shall be reduced in accordance with the
following provisions: (a) The Matching Contributions of the Highly Compensated Employees shall
be reduced if neither of the Contribution Percentage Tests set forth in (i) or (ii) below
is satisfied: (i) The 1.25 Test. The Contribution Percentage of the Highly
Compensated Employees is not more than the Contribution Percentage of all Non-Highly
Compensated Employees multiplied by 1.25. (ii) The 2.0 Test. The Contribution Percentage of the Highly
Compensated Employees is not more than 2 percentage points greater than the Contribution
Percentage of all Non-Highly Compensated Employees, and the Contribution Percentage of the
Highly Compensated Employees is not more than the Contribution Percentage of all Non-Highly
Compensated Employees multiplied by 2.0. The provisions of this subsection (a) shall not apply to any group of
employees who are Members of a Collective Bargaining Unit. (b) As used in this Section 3.7, "Contribution
Percentage" means: (i) With respect to: (A) Non-Highly Compensated Employees, the average of the ratios for
the prior Plan Year of each Non-Highly Compensated Employee's Matching Contributions
to each such Participant's Total Compensation for such Plan Year; and (B) Highly Compensated Employees, the average of the ratios for the
current Plan Year of each Highly Compensated Employee's Matching Contributions to
each such Participant's Total Compensation for such Plan Year. (ii) All Matching Contributions made under this Plan and all employee
contributions and matching contributions made under any other plan that is aggregated with
this Plan for purposes of Code Sections 401(a)(4) and 410(b) shall be treated as made under
a single plan. If any plan is permissively aggregated with this Plan for purposes of Code
Section 401(m), the aggregated plans must also satisfy Code Sections 401(a)(4) and
410(b) as though they were a single plan. The Contribution Percentage ratio of any Highly
Compensated Employee will be determined by treating all plans subject to Code
Section 401(m) under which the Highly Compensated Employee is eligible as a single
plan. 19 (c) If neither Contribution Percentage Test is satisfied as of the end
of the Plan Year, the Administrative Committee shall cause the Contributions of the Highly
Compensated Employees to be reduced (or forfeited if nonvested) until either Contribution
Percentage Test is satisfied. The sequence of such reductions (or forfeitures) shall begin
with the Highly Compensated Employees who elected the greatest dollar amount, then the
second greatest dollar amount. This process shall continue through the remaining After-Tax
Contributions until either Contribution Percentage Test is satisfied. However,
notwithstanding anything in the foregoing to the contrary, if a lesser reduction, when
added to the amount previously reduced, would equal the total excess contribution, such
lesser amount shall be utilized. Once such reductions have been determined, the Committee
shall direct the Trustee with respect to the disposition of the amount of the reduction of
the Matching Contribution of each such Highly Compensated Employee, together with the net
earnings or losses allocable thereto (or treat such amount as a forfeiture). The
Administrative Committee shall designate such disposition as excess contributions,
determine the amount of the allocable net earnings or losses in accordance with subsection
(d) below, and cause such disposition and forfeitures to occur prior to the end of the Plan
Year following the Plan Year in which such excess Matching Contributions were made. (d) Net earnings or losses with respect to the excess Matching
Contributions shall be equal to the net earnings or losses on such contributions for the
Plan Year in which the contributions were made. Net earnings or losses shall be determined
and allocated in the same manner as in Section 3.5(c) (Limitations on Before-Tax
Contributions under the Savings Program), based on the balance of the Highly Compensated
Employee's Matching Account. 3.8 Multiple Use. (a) This Section 3.8 will be applicable if The 2.0 Test is used to
satisfy both the Actual Deferral Percentage Test in Section 3.5 and the Contribution
Percentage Test in Section 3.7 (Limitation on Matching Contributions under the Savings
Program). If this Section 3.8 is applicable, the Committee shall determine whether a
"Multiple Use" has occurred, and if such a Multiple Use has occurred, the
After-Tax Contributions of the Highly Compensated Employees shall be reduced and refunded
in accordance with the provisions of subsection (c) below. (b) A Multiple Use occurs when for the Highly Compensated Employees, the
sum of the Actual Deferral Percentage used to satisfy The 2.0 Test plus the Contribution
Percentage used to satisfy The 2.0 Test exceeds the "Aggregate Limit." The
Aggregate Limit is the greater of (i) or (ii) below, determined as follows: (i) (A) First, multiply 1.25 by the greater of (1) the Actual
Deferral Percentage, or (2) the Contribution Percentage of the Non-Highly Compensated
Employees; (B) Second, add 2.0 to the lesser of (1) or (2) above provided
that such sum shall not exceed 2 times the lesser of (1) or (2) above; 20 (C) Finally, add the results from (A) and (B) to determine the Aggregate
Limit; (ii) (A) First, multiply 1.25 by the lesser of (1) the
Actual Deferral Percentage, or (2) the Contribution Percentage of the Non-Highly
Compensated Employees; (B) Second, add 2.0 to the greater of (1) or (2) above provided
that such sum shall not exceed 2 times the greater of (1) or (2) above; (C) Finally, add the results from (A) and (B) to determine the Aggregate
Limit. (c) If a Multiple Use has occurred, such Multiple Use shall be corrected
by reducing the Contribution Percentage of Highly Compensated Employees and refunding
Matching Contributions to those Participants in the same manner as in Section 3.7(c)
(Limitation on Matching Contributions under the Savings Program). (d) Net earnings or losses with respect to the Matching Contributions
shall be equal to the net earnings or losses on such Contributions for the Plan Year in
which the Contributions were made. Net earnings or losses shall be determined and
allocated in the same manner as in Section 3.7(d) (Limitation on Matching
Contributions under the Savings Program). 21 ARTICLE 4 4.1 Rollover Contribution. (a) A Rollover Contribution may be transferred in cash to the Trust Fund
for the benefit of an Eligible Employee with the permission of the Administrative
Committee. Prior to accepting any transfer which is intended to be a Rollover
Contribution, the Administrative Committee may require the employee to establish that the
amount to be transferred meets the definition of a Rollover Contribution and any other
limitations of the Code applicable to such transfers. (b) An Eligible Employee who is not eligible to participate in the Plan
solely by reason of failing to meet the eligibility requirements of Article 2 (Eligibility
and Participation) and who reasonably expects to become a Participant when such
requirements are met, may be a Participant in the Plan solely for the limited purposes of
making a Rollover Contribution, and taking actions with respect to his Rollover
Contribution Account for the purposes of loans in accordance with Article 7
(Distributions), and investment options in accordance with Section 5.2 (Common Fund),
and the withdrawal of Rollover Contributions in accordance with (e) below, subject to the
same conditions as any other Participant. (c) If the Administrative Committee determines after a Rollover
Contribution has been made that such Rollover Contribution did not in fact constitute a
Rollover Contribution as defined in Section 1.4 (Definitions), the amount of such
Rollover Contribution and any earnings thereon shall be returned to the employee. (d) Each employee's Rollover Contribution shall be credited to his
Rollover Account and invested in accordance with Section 5.2 (Common Fund). A
Participant's Rollover Account shall be fully vested and nonforfeitable. (e) Subject to the provisions of Article 7 (Distributions), a
Participant's Rollover Account shall be distributed to the Participant (or his beneficiary
in the event of his death) at the time and in the manner directed by the Participant. 22 ARTICLE 5 5.1 Participant Accounts. (a) For each Participant there shall be maintained as appropriate a
separate Retirement Account, a separate Profit Sharing Account (which shall, if applicable,
consist of separate pre-1993 and post-1992 sub-accounts as prescribed by the Administrative
Committee), a separate Matching Account, a separate After-Tax Account (which shall, if
applicable, consist of a separate pre-1987 After-Tax sub-account and a separate post-1986
After-Tax sub-account as prescribed by the Administrative Committee), a separate Before-Tax
Account (which shall, if applicable, consist of separate basic and supplemental
sub-accounts as prescribed by the Administrative Committee) and a separate Rollover
Account. Effective April 1, 1999, for each Coherent Participant, there shall also be
maintained as appropriate a separate Coherent Before-Tax Account (which shall consist of a
balance of the Coherent Participant's pre-tax contribution account under the Coherent
Plan), a separate Coherent Employer Account (which shall consist of the balance of the
Coherent Participant's matching and profit sharing accounts under the Coherent Plan) and a
separate Coherent Rollover Account (such separate Accounts of the Coherent Participant
sometimes referred to collectively as "Coherent Accounts"). Each Account
(including any sub-accounts) shall be credited with the amount of contributions, interest
and earnings of the Trust Fund allocated to such Account and shall be charged with all
distributions, withdrawals and losses of the Trust Fund allocated to such Account. (b) The post-1986 After-Tax sub-account shall be a "separate
contract" for the purposes of Section 72(e) of the Code. 5.2 Common Fund. (a) The Trust Fund shall be a common fund divided into separate
investment funds ("Funds") as provided in this Section 5.2. Each Fund as
may from time to time be established shall be a common fund in which each Participant shall
have an undivided interest in the respective assets of the Fund, provided that all accounts
segregated and all loans made to Participants pursuant to the provisions of
Section 7.11 (Loans) shall together with any income or expense of such Accounts or
loans be accounted for separately and will not be included in any of the adjustments
resulting from the application of this Section 5.2. Except as otherwise provided, the
value of each Participant's Accounts in such Funds shall be measured by the value of the
shares or Units of such Fund credited to his Accounts as of the date that such valuation is
being determined. For purposes of allocation of income and valuation, each Fund shall be
considered separately. No Fund shall share in the gains and losses of any other, and no
Fund shall be valued by taking into account any assets or distributions from any other. (b) Each Fund shall be established and invested by the Trustee in
accordance with investment policies determined, or as the Trustee may be directed, from
time to time by the Investment Committee. The Investment Committee may from time to time
also direct the Funds with similar investment objectives be consolidated. Subject to the
Investment Committee's authority to consolidate, Funds shall be maintained for the various
types of Accounts as follows: 23 (i) At least one Fund shall be established, maintained and invested with
the objective of minimizing the effect of market fluctuations while producing a rate of
return consistent with such objective. (ii) A second Fund shall be established, maintained and invested in
common stock of Tellabs, Inc., the Company's parent holding company ("Tellabs Stock
Fund"). (iii) An additional Fund or Funds shall be established, maintained and
invested as the Investment Committee may from time to time direct. (c) Subject to paragraph (e) below, the Administrative Committee
shall direct the Trustee to invest each Participant's Accounts from time to time among the
Funds as the Participant may elect. A Participant may elect to have a uniform percentage
of his Retirement Account, Profit Sharing Account, After-Tax Account, Matching Account,
Before-Tax Account, Rollover Account and, effective as of April 1, 1999, each of his
Coherent Accounts (excluding the value of any loan credited to any such Account) credited
in increments of 1% to one or more of the Funds. All contributions to his Retirement
Account, Profit Sharing Account, After-Tax Account, Before-Tax Account, Trustee Transfer
Account and Rollover Account shall be credited to such Funds in accord with such
election. (d) Subject to paragraphs (e) and (h) below and to any restriction
on transfer which result from the investment medium chosen for a Fund, a Participant may
elect to transfer in multiples of 1% a uniform percentage of his Retirement Account, Profit
Sharing Account, Matching Account, After-Tax Account, Before-Tax Account, Rollover Account
and, effective as of April 1, 1999, each of his Coherent Accounts (excluding the value
of any loan credited to any such Account) held in any Fund to one or more different Funds.
Any such election shall not affect any prior election under paragraph (c) above. Loans
made pursuant to Section 7.11 (Loans) shall be treated as segregated investments from
the Participant's applicable Accounts, transferred to and from various Funds in accord with
uniform rules established by the Administrative Committee. (e) Investment of amounts allocated to a Participant's Retirement
Account and Profit Sharing Account shall be subject to the restrictions set forth in this
paragraph (e). No amount attributable to the Retirement Account of any Participant shall
be transferred to the Tellabs Stock Fund pursuant to paragraph (d) above. Amounts
contributed to a Participant's Profit Sharing Account after 1992 shall be invested in the
Tellabs Stock Fund and no amount attributable thereto shall be transferred by a Participant
from the Tellabs Stock Fund to any other Fund pursuant to paragraph (d) above prior to the
date such Participant attains age 55. No amount attributable to the Profit Sharing Account
which is transferred from the Tellabs Stock Fund pursuant to the preceding sentence shall
thereafter be transferred to the Tellabs Stock Fund. (f) Elections under this Section shall be made at such times in
accordance with procedures established by the Administrative Committee. Such elections
shall be effective as of the Entry Date following timely receipt by the Administrative
Committee. 24 (g) To the extent provided in the Trust, or as may be prescribed by the
Investment Committee, a Participant may direct the Trustee with respect to the voting or
exercise of any other rights with respect to the Funds. Any such directions shall be made
in the manner set forth in the Trust Agreement or as prescribed by the Administrative
Committee. (h) Transfer elections to or from the Tellabs Stock Fund (including, for
this purpose, liquidation of amounts held in the Tellabs Stock Fund to fund loans or
in-service withdrawals pursuant to Sections 7.10 (Distribution of Participants' After-Tax
Account and Rollover Account), 7.11 (Loans), 7.12 (Withdrawals Prior to Termination of
Employment and After Age 59-1/2) or 7.13 (Hardship Withdrawals) below (other than
distributions or transactions made in connection with death, disability, retirement or
termination of employment)) made by a Participant who is subject to the liability
provisions of Section 16 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), shall not be effective unless such transfer election is made at
least six months following the date of the most recent transfer election made by such
Participant under this Plan, or under any other plan maintained by the Employer, that
effected a "discretionary transaction" within the meaning of Rule 16b-3
promulgated under Section 16 of the 1934 Act that was an "opposite way"
transaction. For this purpose, a transfer into the Tellabs Stock Fund (or similar fund
under another plan) is an "opposite way" transaction from a transfer or
distribution out of the Tellabs Stock Fund (or similar fund under another plan), and vice
versa. (i) Notwithstanding anything in this Article 5 (Accounting Provisions
and Allocations) to the contrary, amounts contributed by the Employers pursuant to Article
14 (Retiree Medical Benefits) shall be allocated, invested and distributed in accordance
with the provisions of Article 14. 5.3 Unit Values. (a) The value of a Unit in each Fund on any Valuation Date shall be the
quotient obtained by dividing the sum of (i) the cash and (ii) the fair market
value (as determined by the Trustee) of all securities and other property held in such
Fund, less any charges and expenses accrued and properly chargeable to such Fund as of said
Valuation Date by the aggregate number of Units credited to the Accounts of all
Participants with respect to such Fund. The Trustee will furnish to the Committees a
report with respect to the fair market value of all securities and other property held in
any Fund as of any Valuation Date. To the extent that any assets of a Fund have been
invested in one or more separate investment trusts, mutual funds, investment contracts or
similar investment media, the net earnings or losses attributable to such investments shall
be determined in accordance with the procedures of such investment media. (b) The value of each Unit in a Segregated Loan Fund shall be equal to
one dollar. The value of any note as of each Valuation Date shall be the amount of any
outstanding principal. 5.4 Eligibility to Share in the Employer Contribution and
Forfeitures. (a) Under the Retirement Program. A Participant shall be
eligible to share in the Retirement Contribution (together with the forfeitures taken into
account in determining the Retirement Contribution) under Section 3.2 (Retirement
Contribution Under the Retirement Program) for a given quarter of the Plan Year as of the
last day of the quarter for which such contribution or forfeitures are being allocated if
he is then employed by the Employer as an Eligible Employee. A Participant who, during
such quarter, retires on or after his Normal Retirement Date, dies or is initially deemed
to be totally and permanently disabled in accordance with the Disability Plan shall also be
eligible to share in the Retirement Contribution and forfeitures for such quarter. 25 (b) Under the Savings Program. A Participant who has received
Considered Compensation during a Plan Year as of a day on which all or a portion of the
Before-Tax Contribution and/or Matching Contribution is being allocated shall be eligible
to share in the Before-Tax Contribution and Matching Contribution. A Participant shall be
eligible to share in the Profit Sharing Contribution (together with the forfeitures taken
into account in determining the Profit Sharing Contribution) under Section 3.3(a)
(Profit Sharing Contribution Under the Savings Program) for a given quarter of the Plan
Year as of the last day of the quarter for which such contribution or forfeitures are being
allocated if he is then employed by an Employer as an Eligible Employee. A Participant
who, during a quarter, retires on or after his Normal Retirement Date, dies or is initially
determined to be totally and permanently disabled in accordance with the Disability Plan,
shall also be eligible to share in the Profit Sharing Contribution under Section 3.3(a) for
said quarter of the Plan Year. The Participants eligible to share in the Profit Sharing
Contribution for a given Plan Year under Section 3.3(b) (Profit Sharing Contribution Under
the Savings Program) shall be as the Board of Directors shall determine in connection with
its determination of the amount of the Profit Sharing Contribution to be made under Section
3.3(b). (c) A Participant eligible to share in the Retirement Contribution
and/or Profit Sharing Contribution pursuant to the above paragraphs (a) and/or (b) shall
for purposes of such paragraphs be referred to as an "Eligible Participant". 5.5 Allocation of Before-Tax Contributions. The Before-Tax
Contributions made on behalf of a Participant shall be allocated to such Participant's
Before-Tax Account as soon as practicable after the Trustee receives such contribution. 5.6 Allocation of Matching Contributions. The portion of
Matching Contribution made on behalf of a Participant on a payroll period basis shall be
allocated to the Matching Account of such Participant as soon as practicable after the
Trustee receives such contribution. 5.7 Allocation of Retirement Contribution. As of the last day of
each quarter of a Plan Year, the Retirement Contribution (together with the forfeitures
taken into account in determining the Retirement Contribution) under Section 3.2
(Retirement Contribution Under the Retirement Program), shall be allocated among the
Retirement Accounts of all Eligible Participants under Section 5.4(a) (Eligibility to
Share in Employer Contribution and Forfeiture) in the ratio that the Considered
Compensation of each such Participant for such quarter bears to the Considered Compensation
of all such Participants for such quarter of the Plan Year. 26 5.8 Allocation of Profit Sharing Contribution. As of the last
day of each quarter of a Plan Year, the Profit Sharing Contribution (together with the
forfeitures taken into account in determining the Profit Sharing Contribution) under
Section 3.3(a) (Profit Sharing Contributions Under the Savings Program), shall be
allocated among the Profit Sharing Accounts of all Eligible Participants under
Section 5.4(b) (Eligibility to Share in Employer Contribution and Forfeitures) in the
ratio that the Considered Compensation of each such Participant for such quarter bears to
the Considered Compensation of all such Participants for such quarter of the Plan Year. As
of the last day of each Plan Year, the portion of the Profit Sharing Contribution under
Section 3.3(b)(Profit Sharing Contributions Under the Savings Program), if any, to be
allocated for the Plan Year shall be allocated among the Profit Sharing Accounts of all
Eligible Participants under Section 5.4(b) in the manner prescribed by the Board of
Directors with respect to such Profit Sharing Contribution. 5.9 Crediting Accounts. (a) All contributions or Rollover Contributions to the Trust made by or
on behalf of a Participant shall be deposited in the form of cash or other assets
acceptable to the Trustee and consistent with the Investment Funds then maintained,
including, but not limited to, securities of Tellabs, Inc. and shall be credited to the
appropriate Accounts of such Participant as of the date received by the Trust Fund;
provided, however, any contributions made with respect to a Plan Year shall be credited to
the appropriate Accounts of such Participant as of the last day of such Plan Year. (b) For each amount allocable to the Accounts of any Participant with
respect to any Fund, his Accounts with respect thereto shall be credited with a number of
Units equal to the quotient obtained by dividing such amount by the value of a Unit,
determined as of the applicable Valuation Date. (c) The Committee shall also establish and maintain a Segregated Loan
Fund with respect to each loan made to a Participant pursuant to Sections 7.11 (Loans).
The Participant's Segregated Loan Fund shall be credited with a number of Units determined
in accordance with Section 5.3 (Unit Values) and equal to the value of any notes held
by the Account. A number of Units equal to the value of any principal payments by the
Participant to the Segregated Loan Fund shall be promptly charged to the Segregated Loan
Fund and transferred along with any interest payments to the separate investment Funds in
accordance with the Participant's investment election then in effect under Section 5.2
(Common Fund). 5.10 Provisional Annual Addition. The sum of the amounts
allocated to the Accounts of the Participants pursuant to Sections 5.5 (Allocation of
Before-Tax Contributions), 5.6 (Allocation of Matching Contributions), 5.7 (Allocation of
Retirement Contributions), and 5.8 (Allocation of Profit Sharing Contribution) for a Plan
Year shall be known as the "Provisional Annual Addition" and shall be subject to
the limitation on Annual Additions in Section 5.11 (Limitation on Annual
Additions). 5.11 Limitation on Annual Additions. (a) For the purpose of complying with the restrictions on Annual
Additions to defined contribution plans imposed by Code Section 415, for each Eligible
Participant and each other Participant who has made Before-Tax Contributions during the
Plan Year, there shall be computed a Maximum Annual Addition, which shall be the lesser
of 27 (i) 25% of his Section 415 Compensation for the Plan Year; or (ii) the Defined Contribution Dollar Limitation for the Plan Year. (b) If the Maximum Annual Addition for a Participant equals or exceeds
the Provisional Annual Addition for that Participant, an amount equal to the Provisional
Annual Addition shall be allocated to the Participant's respective Accounts. (c) If the Provisional Annual Addition exceeds the Maximum Annual
Addition for that Participant, the Provisional Annual Addition shall be reduced as set
forth below until the Provisional Annual Addition as so reduced equals the Maximum Annual
Addition for such Participant: (i) first, the Tentative Employer Contribution allocable to such
Participant's respective Accounts shall be reduced by reducing (A) the Supplemental
Before-Tax Contributions, and (B) the Basic Before-Tax Contributions and Matching
Contributions, proportionately, in that order; (ii) second, the Tentative Employer Contribution allocable to such
Participant's respective Accounts shall be reduced by reducing the Profit Sharing
Contribution; and (iii) third, the Tentative Employer Contribution allocable to such
Participant's respective Accounts shall be reduced by reducing the Retirement
Contribution. The Provisional Annual Addition remaining after such reductions shall be
allocated to the Participant's respective Accounts. (d) Any forfeiture which cannot be allocated under the Plan because of
the application of the above limit shall be carried in the Excess Forfeiture Suspense
Account for such Plan Year. In the next succeeding Plan Year the amounts included in such
Account shall be treated as a forfeiture for such Plan Year and shall be used to reduce
Employer Contributions for such Plan year. Upon termination of the Plan, amounts then held
in the Excess Forfeiture Suspense Account which cannot be allocated pursuant to this
Section shall revert to the Employer. (e) The Excess Tentative Employer Contribution is the amount equal to
the sum of the reductions in the Tentative Employer Contribution allocable to the Accounts
of Participants pursuant to subsection (b) above. 28 ARTICLE 6 6.1 General Rule. Upon the retirement, disability,
resignation or dismissal of a Participant, he, or in the event of his death, his
beneficiary, shall be entitled to receive from his respective Accounts in the Trust
Fund: (a) an amount equal to the value of the Units credited to the
Participant's Profit Sharing Account attributable to pre-1993 contributions, Before-Tax
Account, Matching Account, After-Tax Account, Rollover Account, Coherent Before-Tax Account
and Coherent Rollover Account plus any of the Participant's Before-Tax Contributions made
to the Trust Fund but not included in the Participant's Units as of such Valuation Date;
and (b) an amount equal to the value of the Units credited to the
nonforfeitable portion of the Participant's Retirement Account, Post-1992 Profit Sharing
Account, and Coherent Employer Account, determined as hereafter set forth. The time and manner of distribution of a Participant's Accounts shall be
determined in accordance with Article 7 (Distributions). 6.2 Normal Retirement. Any Participant may retire on or after
his Normal Retirement Date, at which date his Retirement Account, Post-1992 Profit Sharing
Account and Coherent Employer Account shall become nonforfeitable. If the retirement of a
Participant is deferred beyond his Normal Retirement Date, he shall continue in full
participation in the Plan and Trust Fund. 6.3 Death. As of the date any Participant shall die while in the
employ of the Employer or an Affiliate, his Retirement Account, Post-1992 Profit Sharing
Account and Coherent Employer Account shall become nonforfeitable. 6.4 Disability. As of the date any Participant shall be
determined by the Administrative Committee to have become totally and permanently disabled
because of physical or mental infirmity in accordance with the Social Security Disability
Plan while in the employ of the Employer or an Affiliate and his employment shall have
terminated, his Retirement Account, Post-1992 Profit Sharing Account and Coherent Employer
Account shall become nonforfeitable. 6.5 Vesting. A Participant's interest in his Accounts, other
than his Retirement Account and Post-1992 Profit Sharing, shall be nonforfeitable at all
times. A Participant who has completed five (5) or more Years of Service shall have a
nonforfeitable interest in his Retirement Account, and his Post-1992 Profit Sharing
Account. 6.6 Resignation or Dismissal. If any Participant shall incur a
Termination Date, prior to the date his Retirement Account and Post-1992 Profit Sharing
Account shall become nonforfeitable in accordance with Section 6.5 (Vesting), other
than in circumstances described in Section 6.2 (Normal Retirement), 6.3 (Death) or 6.4
(Distribution), then the Retirement Account and Post-1992 Profit Sharing Account of such
Participant shall be treated as a forfeiture pursuant to Section 6.7 (Treatment of
Forfeitures). The Coherent Employer Account of any Coherent Participant who shall have
incurred a Termination Date prior to April 1, 1999 and who incurred a forfeiture because
such Account was not 100% nonforfeitable as of such Termination Date shall be treated as a
forfeiture pursuant to Section 6.7 (Treatment of Forfeitures) as if the Coherent
Participant's termination of employment occurred on April 1, 1999. 29 6.7 Treatment of Forfeitures. (a) Upon termination of a Participant's employment with the Employer and
all Affiliates, if his Retirement Account and Post-1992 Profit Sharing Account become a
forfeiture pursuant to Section 6.6 (Resignation or Dismissal), each Account shall
become allocable pursuant to Sections 5.7 (Allocation of Retirement Contribution) and 5.8
(Allocation of Profit Sharing Contribution), as applicable, at the end of the quarter of
the Plan Year in which the termination of employment occurred if the Participant is not
then reemployed by the Employer or an Affiliate. Any Coherent Employer Account treated as
a forfeiture on April 1, 1999 pursuant to Section 6.6 (Resignation or Dismissal)
shall be allocable pursuant to Section 5.8 (Allocation of Profit Sharing Contribution)
as of June 30, 1999. (b) If the Participant is reemployed by the Employer or an Affiliate
without incurring a Period of Severance of five consecutive years, the amount of the
forfeitures shall be restored to his Retirement Account, Profit Sharing Account and
Coherent Employer Account as of the last day of the quarter of the Plan Year in which he is
reemployed and shall be deducted from the forfeitures which otherwise would be allocable
for as of such date or, to the extent such forfeitures are insufficient, shall require a
supplemental contribution from the Employer. 30 ARTICLE 7 7.1 Commencement and Form of Distributions. (a) Subject to Section 7.1(f) below, distribution of a
Participant's Accounts in the Trust Fund following termination of employment with the
Employer and all Affiliates shall commence on or as soon as practicable after the first to
occur of: (i) the date set forth in the Participant's request for distribution;
provided that (1) the Administrative Committee has notified the Participant of the
availability of such distribution, including an explanation of the optional forms of
distribution available under the Plan, in a manner that would satisfy the notice
requirements of Section 1.411(a)-11(c) of the income tax regulations, and
(2) such notification is given no less than 30 days and no more than 90 days prior to
the distribution date requested by the Participant; provided, further, that such
distribution may commence less than 30 days after the date the notice required under
Section 1.411(a)-11(c) of said regulations is given, provided that: (A) the Administrative Committee clearly informs the Participant that
the Participant has a right to a period of at least 30 days after receiving the notice to
consider the decision of whether or not to elect a distribution (and a particular
distribution option), and (B) the Participant, after receiving the notice, affirmatively elects a
distribution; or (ii) the 60th day after the close of the later of the Plan Year in which
the Participant attains his Normal Retirement Date or terminates employment with the
Employer and all Affiliates, unless the Participant has requested to defer the distribution
to a later date; provided that any such deferral shall not be to a date which is after the
Required Beginning Date. (b) Subject to Section 7.1(f) below, if a Participant is employed
with the Employer or an Affiliate on the last day of the Plan Year in which the Participant
attains age 70-1/2, distribution of a Participant's Accounts in the Trust Fund shall
commence on the April 1 of the Plan Year following the Plan Year during which the
Participant attains age 70-1/2, unless the Participant has deferred the right to such
distribution by filing a written deferral (on a form supplied by the Administrative
Committee for such purpose) with the Administrative Committee on or before such date
(December 31, 1997 with respect to distributions otherwise required by April 1, 1997). A
Participant who has filed a deferral pursuant to this paragraph (b) may request
distribution of his Accounts to commence on any subsequent December 31, or such other
dates as the Administrative Committee may provide. The Participant's right to request
distribution pursuant to this paragraph shall be in addition to any rights to request
distributions set forth in Sections 7.10 (Distribution of Participant's After-Tax Account
and Rollover Account) and 7.12 (Withdrawals Prior to Termination of Employment and After
Age 59-1/2). A Participant's request to begin distribution pursuant to the previous
sentence shall be made to the Administrative Committee on a form supplied for such purpose
by the Administrative Committee. Notwithstanding the foregoing, no required distributions
shall be made, deferral election required or subsequent distribution request permitted
under this Section 7.1(b) with respect to any Participant who attains age 70-1/2 in or
after calendar year 1999. 31 (c) In all events, distribution shall commence no later than the
Required Beginning Date, and subsequent distributions required to be made each year for
compliance with Code Section 401(a)(9) and the regulations promulgated thereunder
shall be made no later than December 31 of such year. (d) Subject to Section 7.1(e) below, the Accounts in the Trust Fund
distributable to any Participant, other than the Retirement Account, shall be distributed
in one of the following ways as the Participant or beneficiary may elect and in accordance
with applicable laws and regulations: (i) by payment in one lump sum to the Participant or beneficiary or, if
permitted, by direct rollover in accordance with Section 7.14 (Eligible Rollover
Distributions); or (ii) in substantially equal monthly, quarterly, semi-annual or annual
installments to the Participant or beneficiary which, except for the final payment, shall
not be less than $100. (e) The Retirement Account and Coherent Accounts distributable to a
Participant shall be distributed pursuant to Section 7.2 (Qualified Joint and Survivor
Annuity) and 7.3 (Surviving Spouse Survivor Annuity - Retirement Account) of this Article,
unless the Qualified Joint and Survivor Annuity or Survivor Annuity form of distribution
are waived and such Account is distributed pursuant to the Participant's or Surviving
Spouse's election under Section 7.1(d) above. (f) Any method or form of distribution to the Participant under this
Section 7.1 shall be designed to pay to the Participant the value of his Accounts over
a period not to exceed his life expectancy or the joint life expectancy of the Participant
and his Individual Beneficiary. The life expectancy of a Participant and the joint life
expectancy of a Participant and his Individual Beneficiary shall be determined in
accordance with applicable law and regulations; provided that the life expectancy of a
Participant or his spouse shall be redetermined annually. In no event shall the amount
distributable in any year be less than the amount determined in accordance with the minimum
distribution incidental benefit requirements of Treasury Regulation
Section 1.401(a)(9)-2. (g) Notwithstanding anything in this Section 7.1 to the contrary,
if the amount of any distribution required to commence on a certain date cannot be
ascertained by such date, a payment retroactive to such date may be made no later than 60
days after the earliest date on which such amount can be ascertained. (h) Notwithstanding anything in this Section 7.1 to the contrary,
if following termination of employment with the Employer and all Affiliates the present
value of the nonforfeitable portion (i) of the Participant's Retirement Account does not
exceed $5,000, or (ii) of the remainder of his Accounts does not exceed $5,000, the
Administrative Committee shall direct the Trustee to distribute such amount of the
Retirement Account and/or of such other Accounts, respectively, in a lump sum payment to
the individual so entitled and the payment thereof shall be in full satisfaction of any
liability of the Trust to such individual with respect to such Accounts, unless such
distribution constitutes an Eligible Rollover Distribution, in which case such individual
may elect to have such distribution made as a direct rollover pursuant to
Section 7.14 (Eligible Rollover Distribution) in lieu of distribution to such
individual. If the present value of the Retirement Account, or of the remainder of the
Accounts, respectively, at the time of distribution under this Section 7.1 to the
individual so entitled exceeds $5,000, then the present value of the Retirement Account, or
of the remainder of the Accounts, respectively at any subsequent time shall be deemed to
exceed $5,000 and therefore shall not be subject to immediate distribution under this
Section 7.1(h). Any Participant whose nonforfeitable portion of his Retirement Account,
Post-1992 Profit Sharing Account or Coherent Employer Account is 0% shall be deemed to have
received a lump sum payment upon termination of employment. 32 (i) In the event a Participant entitled to a distribution is reemployed
before the Participant's lump sum or final installment is paid, distributions will be
suspended until the Participant again qualifies for a distribution. 7.2 Qualified Joint and Survivor Annuity - Retirement Account and
Coherent Accounts. (a) Distributions from a Participant's Retirement Account and Coherent
Accounts shall be made in the form of a Qualified Joint and Survivor Annuity unless the
Participant has elected not to receive a Qualified Joint and Survivor Annuity pursuant to
subsection (c) below. (b) Benefits payable in the form of a Qualified Joint and Survivor
Annuity shall be paid by distributing to the Participant an annuity contract purchased by
the Trustee at the direction of the Administrative Committee with the nonforfeitable
balance of the Participant's Retirement Account and Coherent Accounts determined on the
Valuation Date preceding the date of purchase. Any such annuity contract shall be
non-assignable and non-commutable and, shall be subject to the election, consent, written
explanation and Survivor Annuity requirements of this Article 7 (Distributions). Delivery
of such contract shall be in full satisfaction of the rights of the Participant hereunder
with respect to such Account and upon delivery of any such contract, the Participant shall
not have any interest in the Trust Fund but shall look solely to the insurer issuing such
contract for the payment of benefits. (c) A Participant may, within 90 days before his Annuity Starting Date
(the "Election Period"), elect not to receive a Qualified Joint and Survivor
Annuity and, in lieu thereof, elect to receive distribution of such Account in the same
time and manner as distribution of his other Accounts. Such election may be revoked at any
time during the Election Period and if so revoked the Participant's benefit shall
automatically be paid in the form of a Qualified Joint and Survivor Annuity unless he again
elects within the Election Period not to receive his benefit in such form. Elections and
revocations may continue to be made under this Section within the Election Period. 33 (d) The Administrative Committee shall furnish each Participant a
general written explanation of the terms and conditions of the Qualified Joint and Survivor
Annuity, the Participant's right to make and the effect of an election to waive it, the
rights of the Participant's spouse, the Participant's right to revoke an election to waive
the Qualified Joint and Survivor Annuity and the effect of such a revocation. This
general explanation shall be furnished to a Participant within a reasonable period before
the Participant's Annuity Starting Date. (e) Any election under subsections 7.1 (Commencement and For of
Distributions), 7.2(c), 7.3(d) (Surviving Spouse Survivor Annuity - Retirement Account and
Coherent Accounts), and 7.5(a) (Beneficiaries), with respect to the Participant's
Retirement Account and Coherent Accounts, must have the consent of the Participant's spouse
to be effective unless, at the time of filing such election, the Participant established to
the satisfaction of the Administrative Committee that the consent of the spouse could not
be obtained because there is no spouse, such spouse could not be located or by reason of
such other circumstances as may be prescribed by regulations. Any consent (or
establishment that the consent could not be obtained) shall be effective only with respect
to such spouse. Such consent shall be in writing, witnessed by a Plan representative or
notary public, acknowledging the effect of the election and the designation of the specific
non-spouse beneficiary, including any class of beneficiary or any contingent beneficiary,
to receive the Participant's Accounts in the Trust Fund in the event of the Participant's
death, and shall be irrevocable with respect to such form and beneficiary designation. (f) If the Participant dies before his Annuity Starting Date, no annuity
shall be payable to his spouse pursuant to this Section and the benefit payable to such
spouse, if any, shall be determined under Section 7.3 (Surviving Spouse Survivor
Annuity - Retirement Account) or 7.4 (Distributions to Beneficiaries). 7.3 Surviving Spouse Survivor Annuity - Retirement Account and
Coherent Accounts. (a) The Retirement Account and Coherent Accounts in the Trust Fund
distributable to a Participant who dies prior to his Annuity Starting Date and who is
married on the date of his death shall be distributed in the form of an annuity for the
life of his surviving spouse ("Survivor Annuity") unless such Participant has
elected not to have benefits paid in the form of a Survivor Annuity pursuant to subsection
(d) below or the surviving spouse elects otherwise pursuant to subsection (c) below. (b) Benefits payable in the form of a Survivor Annuity shall be paid by
distributing to the surviving spouse of the Participant an annuity contract purchased by
the Administrative Committee with the nonforfeitable balance of the Participant's
Retirement Account on the Valuation Date preceding the date of purchase. Such annuity
contract shall provide for level monthly payments for the life of the surviving spouse of
the Participant commencing as soon as practicable thereafter. Any such annuity contract
shall be non-assignable and non-commutable. Delivery of any such contract shall be in full
satisfaction of the rights of the Participant's spouse. 34 (c) Notwithstanding subsection (b) above, the surviving spouse of a
Participant may elect to receive a distribution of the balance of the deceased
Participant's Retirement Account and Coherent Accounts in one lump sum by filing an
election with the Administrative Committee at such time and in such manner as the
Administrative Committee shall provide. (d) A Participant may elect not to have a Survivor Annuity paid to his
surviving spouse. Such election may be made at any time during the Election Period
described in subsection (e) below. To be effective any such election shall require the
consent of the Participant's spouse as provided in Section 7.2(e) (Qualified Joint and
Survivor Annuity - Retirement Account). Any such election may be revoked by the
Participant within the Election Period. (e) The Election Period shall commence on the first day of the Plan Year
in which the Participant attains age 35 and end on the earlier of: (i) the date of
the Participant's death or (ii) his Annuity Starting Date; provided that, in the case
of a Participant who separates from service prior to attaining age 35 and who has a
nonforfeitable right to any portion of his Retirement Account and Coherent Accounts, the
Election Period shall commence on the date of his separation from service with respect to
his Accounts as of such date. (f) The Administrative Committee shall furnish each Participant a
general written explanation of the terms and conditions of the Survivor Annuity, the
Participant's right to make and the effect of an election to waive it, the rights of the
Participant's spouse, the Participants' right to revoke an election to waive the Survivor
Annuity and the effect of such a revocation. Such information shall be provided within the
period beginning on the first day of the Plan Year in which the Participant attains age 32
and ending with the last day of the Plan Year preceding the Plan Year in which the
Participant attains age 35, provided however, that: (i) If an individual becomes a Participant after attaining age 32, the
information described above shall be provided no later than the close of the second Plan
Year following the date he became a Participant; and (ii) If a Participant separates from service prior to attaining age 35
and has a nonforfeitable right to his Retirement Account and Coherent Accounts, the
combination described above shall be provided to him no later than one year after his
Termination Date. 7.4 Distributions to Beneficiaries. (a) Except as otherwise provided in this Section 7.4, the amount of
a deceased Participant's Accounts other than the Retirement Account and Coherent Accounts
which are distributable to a beneficiary shall be distributed in one of the forms described
in Section 7.1(d)(i) or (ii) (Commencement and Form of Distributions), in accordance
with an effective designation filed by the Participant with the Administrative Committee
or, if no such designation has been filed, in one of such forms as the beneficiary shall
elect. (b) In the event that the distribution of the Participant's Accounts has
begun in accordance with Section 7.1 (Commencement and Form of Distributions), any
form of distribution to a beneficiary under this Section 7.4 shall be designed to
distribute the balance of the deceased Participant's Accounts at least as rapidly as under
the method of distribution in effect at the time of the Participant's death. 35 (c) If the distribution of a Participant's Accounts has not commenced at
the time of his death, any form of distribution to a beneficiary shall be designed to
distribute the balance of the deceased Participant's Accounts as follows: (i) Any portion of the Accounts payable to or for the benefit of an
Individual Beneficiary may be distributed over a period not to exceed the life expectancy
of such Individual Beneficiary if such payments commence on or before December 31 of
the calendar year immediately following the calendar year of the Participant's death,
unless such Individual Beneficiary is the surviving spouse of the Participant, in which
case such payments must commence on or before the later of (A) December 31 of the
calendar year immediately following the calendar year of the death of the Participant or
(B) December 31 of the calendar year in which the Participant would have attained
age 70-1/2. (ii) If the Participant's surviving spouse is an Individual Beneficiary
and dies prior to the commencement of benefit payments to such spouse,
Section 7.4(c)(i) shall be applied as if the Participant's death had occurred on the
date of such spouse's death. (iii) If neither (i) nor (ii) above applies, the balance shall be
distributed no later than December 31 of the calendar year which contains the fifth
anniversary of the death of the Participant. (d) If a beneficiary to whom payments have commenced dies prior to
receipt of all such payments, the remaining balance of the Participant's Accounts shall be
distributed to any contingent or successor beneficiary at least as rapidly as under the
method of distribution in effect at the time of the beneficiary's death, or if there is no
such contingent or successor beneficiary, in a lump sum to the deceased beneficiary's
estate. (e) The life expectancy of an Individual Beneficiary shall be determined
in accordance with applicable laws and regulations. The life expectancy of a surviving
spouse shall be redetermined annually. 7.5 Beneficiaries. (a) Except as otherwise provided in this Section 7.5, the
distributable balance of a deceased Participant's Accounts shall be paid to his surviving
spouse. 36 (b) The Accounts in the Trust Fund which are distributable by reason of
a Participant's death, and are not distributable as a Survivor Annuity to the Participant's
surviving spouse pursuant to Section 7.3 (Surviving Spouse Survivor Annuity -
Retirement Account and Coherent Accounts) shall be distributed to the persons effectively
designated by the Participant as his beneficiaries. To be effective, the designation shall
be filed with the Administrative Committee in such written form as the Administrative
Committee requires and may include contingent or successive beneficiaries; provided that
any designation by a Participant who is married at the time his benefit payments commence
which fails to name his surviving spouse as the sole primary beneficiary shall not be
effective unless such surviving spouse has consented to the designation in writing,
witnessed by a Plan representative or notary public, acknowledging the effect of the
designation and the specific non-spouse beneficiary, including any class of beneficiaries
or any contingent beneficiary. Such consent shall not be required if, at the time of
filing such election, the Participant established to the satisfaction of the Administrative
Committee that the consent of the Participant's spouse could not be obtained because there
is no spouse, the spouse could not be located or by reason of such other circumstances as
may be prescribed by regulations. Any consent (or establishment that the consent could not
be obtained) shall be effective only with respect to such spouse. Any Participant may
change his beneficiary designation at any time by filing with the Administrative Committee
a new beneficiary designation (with such spousal consent as may be required).
Notwithstanding the foregoing, designation of a beneficiary by a Participant who did not
have an Hour of Service after August 22, 1984, shall not require the consent of his
surviving spouse to be effective. (c) If a Participant dies, and to the knowledge of the Administrative
Committee after reasonable inquiry leaves no surviving spouse, has not filed an effective
beneficiary designation or has revoked all such designations, or has filed an effective
designation but the beneficiary or beneficiaries predeceased him, the distributable portion
of the Participant's Accounts shall be paid to the executor or administrator of the
Participant's estate. (i) If the beneficiary, having survived the Participant, shall die prior
to the final and complete distribution of the Participant's Accounts, then the
distributable portion of said Accounts shall be paid: (A) to the contingent or successive beneficiary named in the most recent
effective beneficiary designation filed by the Participant in accordance with such
designation; or (B) if no such beneficiary has been named, to the executor or
administrator of the beneficiary's estate. 7.6 Installment or Deferred Distributions. If distribution is
made to a Participant or to the beneficiary of a deceased Participant in installments or is
deferred, the undistributed balance shall share in the net earnings or losses (including
the net adjustments in the value of the Trust Fund) as provided in Section 5.3 (Unit
Values) and such Participant or beneficiary shall be entitled to make elections with
respect to the transfer of such balance among the investment Funds in accordance with
Section 5.2 (Common Fund). 7.7 Form of Elections and Applications for Benefits. Any
election, revocation of an election or application for benefits pursuant to the Plan shall
not be effective unless it is (a) made on such form, if any, as the Administrative
Committee may prescribe for such purpose; (b) signed by the Participant and, if
required by Sections 7.2(c) (Qualified Joint and Survivor Annuity - Retirement Account and
Coherent Accounts) or 7.5 (Beneficiaries) by the Participant's spouse; and (c) filed
with the Administrative Committee. 37 7.8 Unclaimed Distributions. In the event any distribution
cannot be made because the person entitled thereto cannot be located and the distribution
remains unclaimed for 2 years after the distribution date established by the Administrative
Committee, then such amount shall be treated as a forfeiture as of the last day of the Plan
Year in which such 2-year period ended, shall reduce the Retirement Contribution and Profit
Sharing Contribution of such person's Employer for said Plan Year, and shall be allocated
as part of such Contributions to the Trust Fund in accordance with Sections 5.8 (Allocation
of Retirement Contribution) and Section 5.9 (Allocation of Profit Sharing
Contribution). In the event such person subsequently files a valid claim for such amount,
such amount treated as a forfeiture (without any earnings thereon) shall be restored to
the Participant's Accounts by an additional Employer Contribution allocable to such
Accounts. 7.9 Distributions in Kind. The Administrative Committee shall,
upon request of a Participant or beneficiary, distribute amounts from the Fund invested in
common stock of the Company in shares of such stock, provided that cash in lieu of any
fractional shares shall be distributed. In the event any distributions to a Participant or
beneficiary are made in kind, the assets so distributed shall be valued at their fair
market value as of the date of distribution. 7.10 Distribution of Participants' After-Tax Account, Rollover
Account and Coherent Rollover Accounts. A Participant, with the written consent of his
spouse if applicable, may direct the Administrative Committee to make the following
payments: (a) An amount equal to the balance in the Participant's After-Tax
Account as determined on the Valuation Date coinciding with or immediately preceding such
direction (less any distribution made to the Participant from the Valuation Date to the
date of payment). (b) An amount not to exceed his After-Tax Account on the Valuation Date
coinciding with or immediately preceding such action provided the Participant limits such
payments to one withdrawal for each Plan Year. (c) An amount not to exceed the balance in the Participant's Rollover
Contribution Account and the Participant's Coherent Rollover Account. (d) Notwithstanding the foregoing: (i) No distribution pursuant to this Section 7.10 shall be made
which reduces the aggregate balance of the Participant's Accounts below the amount of the
unpaid balance of any loan pursuant to Section 7.11 (Loans); and (ii) Only one distribution from a Participant's Rollover Account
pursuant to this Section 7.10 shall be permitted for each Plan Year; and (iii) No more than an aggregate of two distributions from a Coherent
Participant's Coherent Rollover Account under this Section 7.10 and from any Coherent
Account under Sections 7.12 (Withdrawals Prior to Termination of Employment and After
Age 59-1/2) and 7.13 (pre-59-1/2 Coherent Account Withdrawals; Hardship Withdrawals)
shall be permitted for each Plan Year. 38 (e) Distributions pursuant to this Section 7.10 shall be made from
the respective Account invested in the separate Funds. The amounts distributed from such
separate Funds shall be determined pursuant to procedures established by the Administrative
Committee and subject to the limitations or restrictions thereon imposed by the sponsor(s)
of the respective Fund or by Section 5.2(h) (Common Fund). (f) Any distribution of a Participant's After-Tax Account shall be
deemed to be made in the following order: (i) contributions allocated to the pre-1987 After-Tax sub-account and
earnings on the pre-1987 After-Tax sub-account; (ii) contributions allocated to the post-1986 After-Tax sub-account and
earnings on the post-1986 After-Tax sub-account. (g) Withdrawals made pursuant to this Section 7.10 from a Coherent
Participant's Coherent Rollover Account shall be subject to the provisions of Section 7.2
(Qualified Joint and Survivor Annuity - Retirement Account and Coherent Accounts.) (h) Any distribution from a Participant's Rollover Account and Coherent
Rollover Account shall be deemed to be made first from the Rollover Account and then from
the Coherent Rollover Account. 7.11 Loans (a) Upon the submission by the Participant of a written loan
application form as prescribed by the Administrative Committee, the Administrative
Committee shall grant a loan to such Participant from his Accounts other than the
Retirement Account; provided, however, that if the Administrative Committee reasonably
believes that the Participant either does not intend to repay the loan or lacks proper
financial ability to repay the loan, it shall not grant such a loan. A Participant shall
have no more than three loans outstanding at any time. (b) The amount of any loan shall not be less than $1,000 and shall not
exceed 50% of the amount which the Participant would be entitled to receive from his
Accounts other than his Retirement Account and his Profit Sharing Account attributable to
post-1992 Profit Sharing Contributions, if he had resigned from the service of the Employer
and all Affiliates on the date of such authorization; provided, however, that the
Administrative Committee may, in its sole discretion, approve a loan in an amount less than
$1,000 in the event that a Participant demonstrates financial hardship; provided further,
that the amount of such loan shall not exceed $50,000 reduced by the greater of
(i) the highest outstanding balance of loans to the Participant from the Trust Fund
during the one-year period ending on the day before the date on which such loan is made or
modified, or (ii) the outstanding balance of loans to the Participant from the Trust
Fund on the date on which such loan is made or modified. (c) Such loans shall be made available on a reasonably equivalent basis
to all Participants and beneficiaries who have vested Account balances in the Plan and who
either (i) are active employees or (ii) are determined by the Administrative
Committee to be "parties in interest" as that term is defined in
Section 3(14) of ERISA, so long as the making of such loans does not discriminate in
favor of Highly Compensated Employees. 39 (d) Loans shall be made on such terms as the Administrative Committee
may prescribe, provided that any such loan shall be evidenced by a note, shall bear a rate
of interest on the unpaid principal thereof commensurate with the interest rates charged by
persons in the business of lending money for loans which would be made under similar
circumstances, shall bear the loan processing fee as the Administrative Committee shall
from time to time approve and shall be secured by the Participant's segregated loan account
and such other security as the Administrative Committee in its discretion deems
appropriate. (e) Loans shall be repaid by the Participant by payroll deduction (in
after-tax dollars) or any other method approved by the Administrative Committee which
requires level amortization of principal and the loan fee (which amounts shall be applied
to defray the administrative expenses of the Plan) and repayments not less frequently than
quarterly. Such loans shall be repaid over a period not to exceed 5 years. This provision
does not apply to loans used to acquire a dwelling unit which within a reasonable time is
to be used as the principal residence of the Participant as determined under the applicable
Code provisions. Such loans must be repaid over a period not exceeding fifteen years in
accordance with procedures established by the Administrative Committee from time to time. (f) Loans shall be an asset of the Participant's Accounts, shall be made
from the respective Accounts invested in the separate Funds and shall be treated in the
manner of a segregated loan account. The Accounts from which the loan is deemed made and
the amounts withdrawn from the separate Funds to fund the loan shall be determined pursuant
to procedures prescribed by the Administrative Committee and subject to the limitations or
restrictions thereon imposed by the sponsor(s) of the respective Funds or by
Section 5.2(h) (Common Fund). Upon the failure of a Participant to make loan payments
or some other event of default set forth in the promissory note, upon the Participant's
termination of employment, or upon termination of the Plan pursuant to Section 11.2
(Termination), such loan shall become due and payable, and the unpaid balance of such loan,
including any unpaid interest and loan fee, may in the Administrative Committee's
discretion be charged against the Participant's segregated loan account; provided, that any
unpaid balance of such loan, including any unpaid interest and loan fee, shall be charged
against the Participant's segregated loan account and, if necessary, other assets of his
Accounts, before any distribution to the Participant. 7.12 Withdrawals Prior to Termination of Employment and After Age
59-1/2. (a) A Participant who has attained age 59-1/2 may elect to withdraw
amounts from his Before-Tax Account, After-Tax Account, Rollover Account, Matching Account,
Coherent Before-Tax Account and Coherent Rollover Account as of the Valuation Date
coinciding with or immediately preceding the date of such withdrawal; provided, however,
that during a Plan Year not more than one withdrawal shall be made pursuant to this
Section 7.12; provided, further, that during a Plan Year, not more than an aggregate
of two withdrawals shall be made by a Coherent Participant from his Coherent Accounts under
this Section 7.12, Section 7.10 (Distribution of Participants' After-Tax Account, Rollover
Accounts and Coherent Rollover Account) and Section 7.13 (Pre-59-1/2 Coherent Account
Withdrawals; Hardship Withdrawals). 40 (b) Withdrawals made pursuant to this Section 7.12 shall be charged
against the Participant's Accounts in the following order: (i) Pre-1987 After-Tax Account; (ii) Post-1986 After-Tax Account; (iii) Rollover Account; (iv) Matching Account; (v) Before-Tax Account; (vi) Coherent Before-Tax Account; (vii) Coherent Rollover Account. and made from the separate Funds in which such Accounts are invested
pursuant to procedures established by the Administrative Committee, subject to the
limitations or restrictions thereon imposed by the sponsor(s) of the respective Funds or by
Section 5.2(h) (Common Fund). 7.13 Pre-59-1/2 Coherent Account Withdrawals; Hardship
Withdrawals. (a) A Coherent Participant who has completed at least five (5) Years of
Services may elect to withdrawal all or a portion of his Coherent Employer Account and
Coherent Rollover Account. Withdrawals made pursuant to this Section 7.13(a) shall be
charged against the Coherent Participants Coherent Accounts in the following order;
provided, however, that during a Plan Year not more than two withdrawals from a Coherent
Participant's Coherent Accounts shall be made pursuant to this Section 7.13, Section 7.10
(Distribution of Participant's After-Tax Account, Rollover Account and Coherent Rollover
Account) and Section 7.12 (Withdrawals Prior to Termination and of Employment and After Age
59-1/2). (b) A Participant who has not attained age 59-1/2 may elect to withdraw
his Before-Tax Contributions and Employer Matching Contributions (together with any income
allocated to his Before-Tax Account and Matching Account as of December 31, 1988),
After-Tax Account, Rollover Account, Coherent Before-Tax Account and Coherent Rollover
Account (but only to the extent of the pre-tax contributions made and pre-1989 earnings
allocated thereto) upon the determination by the Administrative Committee that he has
incurred a financial hardship. In any case where the Participant claims financial hardship,
he shall submit a written request for such distribution in accordance with procedures
prescribed by the Administrative Committee. The Administrative Committee shall make a
determination of "financial hardship" if (i) the distribution is to be made
on account of an immediate and heavy financial need of the Participant and (ii) the
conditions of paragraph (d) are met. (c) The determination of whether a Participant has an immediate and
heavy financial need is to be made by the Administrative Committee on the basis of all
relevant facts and circumstances. A distribution is on account of an immediate and heavy
financial need if it is made on account of: 41 (i) medical expenses described in Section 213(d) of the Code
previously incurred by the Participant, the Participant's spouse or any dependents of the
Participant (as defined in Section 152 of the Code) or necessary for these persons to
receive medical care described in said Section 213(d); (ii) costs directly related to the purchase (excluding mortgage
payments) of a principal residence for the Participant; (iii) payment of tuition and related educational fees for the next 12
months of post-secondary education for the Participant or the Participant's spouse,
children or dependents (as defined in Section 152 of the Code); (iv) payments necessary to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage on the Participant's principal
residence; or (v) payments necessary to prevent utility shut-off or similar immediate
housing needs of the Participant, or the Participant's spouse, children or dependents (as
defined in Section 152 of the Code), payments for child custody or dependent
sponsorship fees and expenses, payments for emergency travel expenses, and other similar
events or expenses determined to be an immediate and heavy financial need by the
Administrative Committee. (d) A distribution will be deemed by the Administrative Committee to be
necessary to satisfy an immediate and heavy financial need of a Participant only if the
Participant reasonably demonstrates that all of the following requirements are
satisfied: (i) the distribution is not in excess of the amount of the immediate and
heavy financial need of the Participant; and taking into account any amounts necessary to
pay any federal, state or local income taxes or penalties reasonably expected to result
from the distribution; and (ii) the Participant has obtained all distributions (other than hardship
distributions) and all nontaxable loans currently available under all of the plans
maintained by the Employer; and (iii) the Participant will not make any Before-Tax Contributions for
twelve months after receiving the hardship distribution; and (iv) notwithstanding the limitations set forth in Section 3.5
(Limitations on Before-Tax Contributions Under the Savings Program), the Participant will
restrict in all plans maintained by the Company his Before-Tax Contributions in his next
taxable year following the taxable year of the hardship distribution to an amount not in
excess of the applicable limit under 402(g) of the Code, minus the amount of his Before-Tax
Contributions for the taxable year of the hardship distribution. (e) Any withdrawals under this Section 7.13 shall not reduce the
non-forfeitable portion of the Participant's Accounts below an amount equal to the amount
of any unpaid loan made pursuant to Section 7.11 (Loans). (f) Withdrawals made pursuant to this Section shall be charged against
the respective Accounts invested in the separate Funds. The amounts withdrawn from such
separate Funds shall be determined pursuant to procedures established by the Administrative
Committee and subject to the limitations or restrictions thereon imposed by the sponsor(s)
of the respective Funds or by Section 5.2(h) (Common Fund). 42 (g) Withdrawals made pursuant to this Section 7.13 shall be charged
against the Participant's Accounts in the order provided in Section 7.12(b)
(Withdrawals Prior to Termination of Employment and After Age 59-1/2). (h) Withdrawals made pursuant to this Section 7.13 from a Coherent
Participant's Coherent Accounts shall be subject to the provisions of Section 7.2
(Qualifying Joint and Survivor Annuity-Retirement Account and Coherent Accounts). 7.14 Eligible Rollover Distributions. (a) Notwithstanding any provisions of the Plan to the contrary that
would otherwise limit a distributee's election under this Section, a distributee (as
defined in Section 7.14(b) below) may elect at the time and in the manner prescribed
by the Administrative Committee to have any portion of an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan specified by the distributee in a direct
rollover (as defined in Section 7.14(c) below). (b) For purposes of Section 7.14(a) above, a distributee includes
an Employee or former Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section 414(p),
are distributees with regard to the interest of the spouse or former spouse. (c) For purposes of Section 7.14(a) above, a direct rollover is a
payment by the Plan to the Eligible Retirement Plan specified by the distributee. 7.15 Facility of Payment. When, in the Administrative
Committee's opinion, a Participant or beneficiary is under a legal disability or is
incapacitated in any way so as to be unable to manage his affairs, the Administrative
Committee may direct the Trustee to make payments: (a) directly to the Participant or beneficiary; (b) to a duly appointed guardian or conservator of the Participant or
beneficiary; (c) to a custodian for the Participant or beneficiary under the Uniform
Gifts to Minors Act; (d) to an adult relative of the Participant or beneficiary; or (e) directly for the benefit of the Participant or beneficiary. Any such payment shall constitute a complete discharge therefor with
respect to the Trustee and the Administrative Committee. 43 7.16 Claims Procedure. (a) Any person who believes that he is then entitled to receive a
benefit under the Plan, including one greater than that initially determined by the
Administrative Committee, may file a claim in writing with the Administrative Committee. (b) The Administrative Committee shall within 90 days of the receipt of
a claim either allow or deny the claim in writing. A denial of a claim shall be written
in a manner calculated to be understood by the claimant and shall include: (i) the specific reason or reasons for the denial; (ii) specific references to pertinent Plan provisions on which the
denial is based; (iii) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such material or
information is necessary; and (iv) an explanation of the Plan's claim review procedure. (c) A claimant whose claim is denied (or his duly authorized
representative) may, within 60 days after receipt of denial of his claim: (i) submit a written request for review to the Administrative
Committee; (ii) review pertinent documents; and (iii) submit issues and comments in writing. (d) The Administrative Committee shall notify the claimant of its
decision on review within 60 days of receipt of a request for review. The decision on
review shall be written in a manner calculated to be understood by the claimant and shall
include specific reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based. (e) The 90-day and 60-day periods described in subsections (b) and (d),
respectively, may be extended at the discretion of the Administrative Committee for a
second 90- or 60-day period, as the case may be, provided that written notice of the
extension is furnished to the claimant prior to the termination of the initial period,
indicating the special circumstances requiring such extension of time and the date by which
a final decision is expected. (f) Participants and beneficiaries shall not be entitled to challenge
the Administrative Committee's determinations in judicial or administrative proceedings
without first complying with the procedures in this Article. The Administrative
Committee's decisions made pursuant to this Section shall be final and binding on
Participants, beneficiaries and others. 44 ARTICLE 8 8.1 Top-Heavy Definitions. For purposes of this Article 8: (a) A "Key Employee" is any current or former employee (and
the beneficiaries of such employee) who at any time during the Determination Period was an
officer of the Employer or an Affiliate if such individual's annual compensation exceeds
50% of the defined benefit dollar limitation in Code Section 415(b)(1)(A), an owner (or
considered an owner under Code Section 318) of one of the 10 largest interests in the
Employer if such individual's compensation exceeds 100% of the Defined Contribution Dollar
Limitation, a Five-Percent Owner, or a One-Percent Owner of the Employer who has an annual
compensation of more than $150,000. Annual compensation means Section 415
Compensation plus amounts contributed by the Employer pursuant to a salary reduction
agreement which are excludable from the employee's gross income under Code
Section 125, 402(a)(8), 402(h) or 403(b). The "Determination Period" is the
Plan Year containing the Top-Heavy Determination Date and the 4 preceding Plan Years. The determination of who is a Key Employee will be made in accordance
with Code Section 416(i)(1) and the regulations thereunder. (b) For any Plan Year beginning after December 31, 1983, this Plan
is "Top-Heavy" if any of the following conditions exists: (i) The Top-Heavy Ratio for this Plan exceeds 60% and this Plan is not
part of any Required Aggregation Group or Permissive Aggregation Group of plans; (ii) This Plan is a part of a Required Aggregation Group of plans but
not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans
exceeds 60%; (iii) This Plan is a part of a Required Aggregation Group and part of a
Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive
Aggregation Group exceeds 60%. (c) The "Top-Heavy Ratio" shall be determined as follows: 45 (i) If the Employer maintains one or more defined contribution plans and
the Employer has not maintained any defined benefit plan which during the 5-year period
ending on the Top-Heavy Determination Date(s) has or has had accrued benefits, the
Top-Heavy Ratio for this Plan alone or for the Required or Permissive Aggregation Group as
appropriate is a fraction, the numerator of which is the sum of the account balances of all
Key Employees as of the Top-Heavy Determination Date(s) (including any part of any account
balance distributed in the 5-year period ending on the Top-Heavy Determination Date(s)),
and the denominator of which is the sum of all account balances (including any part of any
account balance distributed in the 5-year period ending on the Top-Heavy Determination
Date(s)), both computed in accordance with Code Section 416 and the regulations
thereunder. Both the numerator and denominator of the Top-Heavy Ratio are increased to
reflect any contribution not actually made as of the Top-Heavy Determination Date, but
which is required to be taken into account on that date under Code Section 416 and the
regulations thereunder. (ii) If the Employer maintains one or more defined contribution plans
and the Employer maintains or has maintained one or more defined benefit plans which during
the 5-year period ending on the Top-Heavy Determination Date(s) has or has had any accrued
benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as
appropriate is a fraction, the numerator of which is the sum of account balances under the
aggregated defined contribution plan or plans for all Key Employees, determined in
accordance with (i) above, and the Present Value of accrued benefits under the aggregated
defined benefit plan or plans for all Key Employees as of the Top-Heavy Determination
Date(s), and the denominator of which is the sum of the account balances under the
aggregated defined contribution plan or plans for all Participants, determined in
accordance with (i) above, and the Present Value of accrued benefits under the aggregated
defined benefit plan or plans for all Participants as of the Top-Heavy Determination
Date(s), all determined in accordance with Code Section 416 and the regulations
thereunder. The accrued benefits under a defined benefit plan in both the numerator and
denominator of the Top-Heavy Ratio are increased for any distribution of an accrued benefit
made in the 5-year period ending on the Top-Heavy Determination Date. (iii) For purposes of (i) and (ii) above the value of account balances
and the Present Value of accrued benefits will be determined as of the most recent
valuation date that falls within or ends with the 12-month period ending on the Top-Heavy
Determination Date, except as provided in Code Section 416 and the regulations
thereunder for the first and second plan years of a defined benefit plan. The account
balances and accrued benefits of a Participant (A) who is not a Key Employee but who
was a Key Employee in a prior year, or (B) who has not been credited with at least one
hour of service with any employer maintaining the Plan at any time during the 5-year period
ending on the Top-Heavy Determination Date will be disregarded. The calculation of the
Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken
into account, will be made in accordance with Code Section 416 and the regulations
thereunder. Deductible employee contributions will not be taken into account for purposes
of computing the Top-Heavy Ratio. When aggregating plans the value of account balances and
accrued benefits will be calculated with reference to the Top-Heavy Determination Date(s)
that fall within the same calendar year. The accrued benefit of a Participant other than a
Key Employee shall be determined under (1) the method, if any, that uniformly applies
for accrual purposes under all defined benefit plans maintained by the Employer, or
(2) if there is no such method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional rule of Code
Section 411(b)(1)(C). (d) "Permissive Aggregation Group" means the Required
Aggregation Group of plans plus any other plan or plans of the Employer which, when
considered as a group with the Required Aggregation Group, would continue to satisfy the
requirements of Code Sections 401(a)(4) and 410. 46 (e) "Required Aggregation Group" means (i) each qualified
plan of the Employer in which at least one Key Employee participates or participated at any
time during the Determination Period (regardless of whether the plan has terminated), and
(ii) any other qualified plan of the Employer which enables a plan described in (i) to
meet the requirements of Code Section 401(a)(4) or 410. (f) "Top-Heavy Determination Date" means, for any Plan Year
subsequent to the first Plan Year, the last day of the preceding Plan Year or, for the
first Plan Year of the Plan, the last day of that year. (g) "Present Value" shall be based on an interest assumption
of 5% and a post-retirement mortality assumption based on the UP-1984 Mortality Table. (h) "Employer" means the Employer and all Affiliates except
for purposes of determining ownership under Code Section 416(i)(1). 8.2 Top-Heavy Plan Requirements. (a) Except as otherwise provided in (ii) and (iii) below, the Employer
Contributions and forfeitures allocated on behalf of any Participant who is not a Key
Employee shall not be less than the lesser of three percent of such Participant's
Section 415 Compensation or in the case where the Employer has no defined benefit plan
which designates this Plan to satisfy Code Sections 401(a)(4) or 410, the largest
percentage of Employer contributions and forfeitures, as a percentage of the Key Employee's
Section 415 Compensation, allocated on behalf of any Key Employee for that year. The
minimum allocation is determined without regard to any Social Security contribution. This
minimum allocation shall be made even though, under other Plan provisions, the Participant
would not otherwise be entitled to receive an allocation, or would have received a lesser
allocation for the year because of (A) the Participant's failure to complete 1,000
Hours of Service (or any equivalent provided in the Plan), (B) the Participant's
failure to make mandatory employee contributions to the Plan, or (C) Section 415
Compensation less than a stated amount. (i) The provision in (i) above shall not apply to any Participant who
was not employed by the Employer or an Affiliate on the last day of the Plan Year. (ii) The provision in (i) above shall not apply to any Participant to
the extent the Participant is covered under any other plan or plans of the Employer and the
Employer's contribution and forfeitures allocated under such plan or plans are equal to or
exceed the amount required to be allocated under (i) above. (b) The minimum allocation required (to the extent required to be
nonforfeitable under Code Section 416(b)) may not be forfeited under Code
Section 411(a)(3)(B) or 411(a)(3)(D). (c) For any Plan Year in which this Plan is Top-Heavy, the following
schedule shall be substituted for the schedule set forth in Section 6.5 (Vesting),
provided that Section 6.5 (Vesting) shall apply to the extent that the nonforfeitable
percentage thereunder is greater than the following schedule: 47 Years of Service Nonforfeitable Percentage Less than 2 0 2 but less than 3 20 3 but less than 4 40 4 but less than 5 60 5 or more 100
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ]
ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ]
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Exact name of registrant as specified in its charter)
Delaware
36-3831568
(State or other
jurisdiction
of incorporation or organization)
(I.R.S.
Employer
Identification No.)
4951 Indiana Avenue, Lisle, Illinois
60532-1698
(Address of Principal
Executive Offices)
(Zip
Code)
Common shares, with $0.01 par value
(Title of Class)
Chairman, President, Chief Executive Officer and Director.
Executive Vice President and Director; Chief Financial Officer, 1990 to 1999; Treasurer,
1988 to 1999.
President, Global Systems and Technology; Executive Vice President and Director; President,
Tellabs Operations, Inc. 1993 to 1998.
President, Global Sales and Service; Executive Vice President; President, Tellabs,
International, Inc. 1997 to 1998; Vice President of Business Unit Development and Strategy,
Ameritech 1995 to 1997.
Sr. Vice President and General Manager, Digital Systems Division; Vice President, Digital
Systems Division, Tellabs Operations, Inc. 1993 to 1997.
Vice President; Vice President, North America Sales, Tellabs Operations, Inc. 1998 to 1999;
Vice President, Sales and Service, Tellabs Operations, Inc. 1992 to 1998.
Vice President, Internetworking Systems Division; Vice President and General Manager,
Internetworking Systems Division 1999 to 2000, Tellabs Operations, Inc.; President,
Chief Executive Officer and Chairman of the Board of Directors, NetCore Systems, Inc.
1996 to 1999; Vice President and General Manager, SMC Enterprise Networks, Standard
Microsystems Corporation 1993 to 1996.
Vice President, General Counsel and Secretary; Counsel, Tellabs Operations, Inc. 1998 to
1999; Vice President and General Counsel, Tellabs Operations, Inc. 1992 to 1998;
Secretary, Tellabs, Inc., 1993 to 1998
Vice President and General Manager, Access Systems Group; Vice President and General
Manager, Broadband Media Group and Network Solutions Group, Tellabs Operations, Inc. 1998
to 2000; Vice President, Strategic Resources, Tellabs Operations, Inc. 1995 to 1998;
Director, Engineering, Tellabs Operations, Inc. 1992 to 1995.
Vice President, North American Sales; Vice President, Cooling and Heating and Retail
Installation Services, Sears, Roebuck and Company 1998 to 1999; Vice President, Client
Management, American Express Company 1993 to 1998.
Vice President, Global Manufacturing; Vice President, Manufacturing, Tellabs Operations,
Inc. 1993 to 1998.
Vice President, Global Solutions and Service; Senior Vice President, Major Accounts Central
Division, ADP 1997 to 1999; Vice President, Sales, Ameritech 1994 to 1997.
Vice President and General Manager, Network Enhancing Technologies Solutions Group; Vice
President and General Manager, Coherent OEM Division, Tellabs Operations, Inc. 1998 to
1999; President and Chief Operating Officer, Coherent Communications Systems Corporation
1994 to 1998
Vice President, Chief Financial Officer and Treasurer; Senior Vice President, Chief
Financial Officer, Alliant Foodservice, Inc. 1998 to 2000; Vice President, Finance and
Chief Financial Officer, Ameritech Small Business Services 1995 to 1998.
Vice President, Global Strategy and Business Development; Vice President, Advanced Business
Development, Tellabs Operations, Inc. 1993 to 1998.
Vice President, Human Resources; Senior Vice President, Human Resources, Platinum
Technology International 1996 to 1999; Corporate Director, Human Resources, System Software
Associates, Inc. 1994 to 1996.
Currency
Maturing in
2000
Average Contract Rate
at 12/31/99
(In Thousands)
(In Thousands)
$65,317
$65,379
Currency
Maturing in
1999
Average Contract Rate
at 1/1/99
(In Thousands)
(In Thousands)
$127,553
$129,323
Michael J. Birck
Michael J. Birck
Chairman, President, Chief Executive Officer and Director
(Principal Executive Officer)
Joan E. Ryan
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Robert E. Swininoga
Vice President
(Principal Accounting Officer)
Peter A. Guglielmi
Executive Vice President and Director
Brian J. Jackman
Director
John D. Foulkes
Director
Frederick A. Krehbiel
Director
Stephanie Pace Marshall
Director
William F. Souders
Director
Jan H. Suwinski
Director
Ernst & Young LLP
Chicago, Illinois
January 21, 2000
(In Thousands)
Deductions (A)
Balance at end of year
Allowance for doubtful
receivables
$10,709
$3,810
$2,963
$11,556
Allowance for doubtful
receivables
$3,987
$7,025
$303
$10,709
Allowance for doubtful
receivables
$4,366
$1,494
$1,873
$3,987
(A) - Uncollectible accounts charged off, net of recoveries.
Exhibit Index
Exhibit No.
Description
10.20
Tellabs Advantage Program
10.21
1999 Tellabs Inc., Stock Bonus Plan
13
1999 Annual Report to Stockholders
21
Subsidiaries of Tellabs, Inc.
23
Consent of Ernst & Young LLP
27
Financial Data Schedule
TABLE OF CONTENTS
PAGE
ARTICLE 1 General
1
1.1 Purpose
1
1.2 Source of Funds
1
1.3 Scope of Plan Coverage
1
1.4 Definitions
1
Account
1
Accounts
1
Actual Deferral Percentage
1
Actual Deferral Percentage Tests
1
Administrative Committee
1
Affiliate
1
After-Tax Contribution
2
Aggregate Limit
2
Annual Addition
2
Annuity Starting Date
2
Basic Before-Tax Contribution
2
Before-Tax Contribution
2
Board of Directors
2
Code
2
Coherent Accounts
2
Coherent Acquistion Date
2
Coherent Participant
2
Coherent Plan
3
Committees
3
Company
3
Compensation
3
Considered Compensation
3
Section 415 Compensation
3
Total Compensation
3
Contribution Percentage
4
Contribution Percentage Tests
4
Dependent
4
Defined Contribution Dollar Limitation
4
Election Period
4
Eligible Employee
4
Eligible Individual
4
Eligible Participant
4
Eligible Retiree
4
Eligible Retirement Plan
4
Eligible Rollover Distribution
4
Eligibility Period
5
Employer
5
Entry Date
5
ERISA
5
Employer Excess Contribution
5
Excess Forfeiture Suspense Account
5
Excess Tentative Employer Contribution
5
Five-Percent Owner
5
Funds
5
Health Plan
5
Highly Compensated Employee
5
Hour of Service
6
Individual Beneficiary
7
Investment Committee
7
Investment Manager
7
Key Employee
7
Limited Term Employee
7
Limitation Year
7
Matching Contribution
7
Maximum Annual Addition
7
Medical Benefits
8
Medical Benefits Account
8
Member of a Collective Bargaining Unit
8
Multiple Use
8
Non-Highly Compensated Employee
8
Normal Retirement Date
8
One-Percent Owner
8
Participant
8
Permissive Aggregation Group
8
Required Aggregation Group
8
Plan
8
Plan Year
8
Present Value
8
Profit Sharing Contribution
8
Provisional Annual Addition
8
Qualified Joint and Survivor Annuity
8
Required Beginning Date
9
Retirement Contribution
9
Retirement Program
9
Rollover Contribution
9
Savings Program
9
Service
9
Special Definitions
9
Employment Compensation Date
9
Termination Date
9
Re-employment Commencement Date
10
Period of Severance
10
Year of Service
10
Aggregation Rule
10
Service Spanning Rule
10
Service with Predecessor and
Related Employers
10
Recognition of Services under
Steinbrecher Plan and Coherent Plan
11
Social Security Disability Plan
11
Supplemental Before-Tax Contribution
11
Survivor Annuity
11
Tellabs Stock Fund
11
Top-Heavy
11
Top-Heavy Determination Date
11
Top-Heavy Ratio
11
Tentative Employer Contribution
11
Trust
11
Trust Fund
11
Trustee
11
Unit
11
Valuation Date
11
ARTICLE 2 ELIGIBILITY AND PARTICIPATION
12
2.1 Eligibility Requirements
12
2.2 Continued Participation; Reemployment
13
2.3 Transfers and Changes in Status
13
2.4 Leaves of Absence
14
2.5 Qualified Military Service
14
ARTICLE 3 CONTRIBUTIONS BY EMPLOYER
15
3.1 Employer Contributions
15
3.2 Retirement Contribution Under the Retirement Program
15
3.3 Profit Sharing Contribution Under the Savings Program
15
3.4 Before-Tax Contribution Under the Savings Program
15
3.5 Limitations on Before-Tax Contribution Under the Savings Program
16
3.6 Matching Contribution Under the Savings Program
18
3.7 Limitation on Matching Contributions Under the Savings Program
19
3.8 Multiple Use
20
ARTICLE 4 CONTRIBUTIONS BY EMPLOYER
22
4.1 Rollover Contribution
22
ARTICLE 5 ACCOUNTING PROVISIONS AND ALLOCATIONS
23
5.1 Participant Accounts
23
5.2 Common Fund
23
5.3 Unit Values
25
5.4 Eligibility to Share in Employer Contribution and Forfeitures
25
5.5 Allocation of Before-Tax Contributions
26
5.6 Allocation of Matching Contributions
26
5.7 Allocation of Retirement Contribution
26
5.8 Allocation of Profit Sharing Contribution
27
5.9 Crediting Accounts
27
5.10 Provisional Annual Additions
27
5.11 Limitation on Annual Additions
27
ARTICLE 6 AMOUNT OF PAYMENTS TO PARTICIPANTS
29
6.1 General Rule
29
6.2 Normal Retirement
29
6.3 Death
29
6.4 Disability
29
6.5 Vesting
29
6.6 Resignation of Dismissal
29
6.7 Treatment of Forfeitures
30
ARTICLE 7 DISTRIBUTIONS
31
7.1 Commencement and Form of Distributions
31
7.2 Qualified Joint and Survivor Annuity - Retirement Account and
Coherent Accounts
33
7.3 Surviving Spouse Survivor Annuity - Retirement Account and
Coherent Accounts
34
7.4 Distributions to Beneficiaries
35
7.5 Beneficiaries
36
7.6 Installment or Deferred Distributions
37
7.7 Form of Elections and Applications for Benefits
37
7.8 Unclaimed Distributions
38
7.9 Distributions in Kind
38
7.10 Distribution of Participants' After-Tax Account, Rollover Account and
Coherent Rollover Accounts
38
7.11 Loans
39
7.12 Withdrawals Prior to Termination of Employment and After Age 59-1/2
40
7.13 Pre-59-1/2 Coherent Account Withdrawals; Hardship Withdrawals
41
7.14 Eligible Rollover Distributions
43
7.15 Facility of Payment
43
7.16 Claims Procedure
44
ARTICLE 8 TOP-HEAVY PLAN REQUIREMENTS
45
8.1 Top-Heavy Definitions
45
8.2 Top-Heavy Plan Requirements
47
ARTICLE 9 POWERS AND DUTIES OF COMMITTEES
49
9.1 Appointment of Committees
49
9.2 Powers and Duties of Administrative Committee
49
9.3 Powers and Duties of the Investment Committee
50
9.4 Committee Procedures
51
9.5 Consultation with Advisors
51
9.6 Committee Members as Participants
52
9.7 Records and Reports
52
9.8 Investment Policy
52
9.9 Designation of Other Fiduciaries
53
9.10 Obligations of Each Committee
53
9.11 Indemnification of Each Committee
53
ARTICLE 10 TRUSTEE AND TRUST FUND
55
10.1 Trust Fund
55
10.2 Payments to Trust Fund and Expenses
55
10.3 Trustee's Responsibilities
55
10.4 Reversion to the Employer
55
ARTICLE 11 AMENDMENT OR TERMINATION
56
11.1 Amendment
56
11.2 Termination
56
11.3 Form of Amendment, Discontinuance of Employer Contributions, and
Termination
56
11.4 Limitations on Amendments
56
11.5 Level of Benefits upon Merger
56
11.6 Vesting upon Termination or Discontinuance of Employer Contributions;
Liquidation of Trust
57
ARTICLE 12 MISCELLANEOUS
58
12.1 No Guarantee of Employment, Etc
58
12.2 Rights of Participants and Others
58
12.3 Qualified Domestic Relations Order
58
12.4 Controlling Law
58
12.5 Severability
58
12.6 Notification of Addresses
58
12.7 Gender and Number
59
ARTICLE 13 ADOPTION BY AFFILIATES
60
13.1 Adoption of Plan
60
13.2 The Company as Agent for Employer
60
13.3 Adoption of Amendments
60
13.4 Termination
60
13.5 Data to Be Furnished by Employers
60
13.6 Joint Employers
60
13.7 Expenses
61
13.8 Withdrawal
61
13.9 Prior Plans
61
ARTICLE 14 RETIREE MEDICAL BENEFITS
62
14.1 Medical Benefits Account
62
14.2 Retiree Medical Benefits Definitions
62
14.3 Separate Account
62
14.4 Impossibility of Diversion Prior to Satisfaction of All Liabilities
63
14.5 Reversion upon Satisfaction of All Liabilities
63
14.6 Medical Benefits
63
14.7 Coordination with Health Plan
63
14.8 Employer Contributions
63
14.9 Reservation of the Right to Terminate Medical Benefits
63
Appendix A
A-1
General
Eligibility and Participation
Contributions by Employer
Contributions by Employer
Accounting Provisions and Allocations
Amount of Payments to Participants
Distributions
Top-Heavy Plan Requirements
The minimum vesting schedule applies to all benefits within the meaning of Code Section 411(a)(7) except those attributable to after-tax contributions, including benefits accrued before the effective date of Code Section 416 and benefits accrued before the Plan became Top-Heavy. Further, no reduction in vested benefits may occur in the event the Plan's Top-Heavy status changes for any Plan Year. However, this Section does not apply to the account balances of any employee who does not have an Hour of Service after the Plan has initially become Top-Heavy and such employee's account balance attributable to Employer contributions and forfeitures will be determined without regard to this Section.
48
ARTICLE 9
Powers and Duties of Committees
9.1 Appointment of Committees.
(a) The Board of Directors shall name an Administrative Committee (the "Administrative Committee") to consist of not less than 3 persons to serve as administrator and named fiduciary of the Plan. The Board of Directors shall also name an Investment Committee hereunder to review investment performance of the Trust Fund, to establish the investment policy for the Trustee, to direct investment of the assets of the Trust Fund and to take such other action provided in this Plan. Any person, including directors, shareholders, officers and employees of the Employer, shall be eligible to serve on the Committees. Every person appointed a member of the Committees shall signify his acceptance in writing to the Board of Directors.
(b) Members of the Committees shall serve at the pleasure of the Board of Directors and may be removed by the Board of Directors at any time with or without cause. Any member of the Committees may resign by giving ten days advanced written notice to the Company and other Committee members. Such resignation shall become effective at delivery or at any later date specified therein. While there is a vacancy in the membership on a Committee, the remaining Committee members shall have the same powers as the full Committee until the vacancy is filled.
(c) Usual and reasonable expenses of the Committees shall be paid by the Trustee out of the principal or income of the Trust Fund except to the extent the Employer agrees to pay such expenses in whole or in part. The members of the Committees shall not receive any compensation for their services as such.
9.2 Powers and Duties of Administrative Committee. Except as otherwise provided in this Article 9, the Administrative Committee shall have final and binding discretionary authority to control and manage the operation and administration of the Plan, including all rights and powers necessary or convenient to the carrying out of its functions hereunder, whether or not such rights and powers are specifically enumerated herein. In exercising its responsibilities hereunder, the Administrative Committee may manage and administer the Plan through the use of agents who may include employees of the Employer.
Without limiting the generality of the foregoing, and in addition to the other powers set forth in this Article 9, the Administrative Committee shall have the following discretionary authorities:
(a) To construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder.
(b) To prescribe procedures and regulations to be followed by Participants or beneficiaries with respect to the filing of elections, requests, applications for benefits, consents and waivers, which procedures and regulations may include the utilization of telephone voice response, internet or intranet systems or other electronic media as an equivalent means for filing written paper documents.
49
(c) To prepare and distribute, in such manner as the Administrative Committee determines to be appropriate, information explaining the Plan and a Participant's or beneficiary's rights hereunder, which manner may include utilization of a telephone voice response, internet or intranet system, or other electronic media as an equivalent means for filing written paper documents.
(d) To request and receive from each Employer, Participants and others such information as shall be necessary for the proper administration of the Plan.
(e) To furnish the Company upon request such annual and other reports with respect to the administration of the Plan as are reasonable and appropriate.
(f) To receive, review and maintain on file reports of the financial condition and of the receipts and disbursements of the Trust Fund from the Trustee.
(g) To fix and determine the respective amounts payable by the Employers pursuant to Article 3 (Contributions by Employer).
(h) To take such action not included within responsibilities allocated to the Board of Directors, the Investment Committee, or the Trustee under the provisions of the Plan as may be needed to carry out the orderly administration of the Plan.
(i) To determine all questions relating to the eligibility, benefits and other rights of employees, Participants and Beneficiaries under the Plan.
(j) To allocate fiduciary responsibilities (other than trustee responsibilities) among its members and to designate other persons to carry out nonfiduciary and fiduciary responsibilities (other than trustee responsibilities).
(k) To take such action as it deems appropriate to correct any errors or omissions with respect to the administration of the Plan, including but not limited to causing to be allocated from future Contributions to the Trust Fund or causing distributions from the Trust Fund to be withheld, accelerated or adjusted in order to accord to a Participant or beneficiary the allocations to his Accounts or distributions therefrom to which he is entitled under the Plan.
9.3 Powers and Duties of the Investment Committee.
(a) Except for responsibilities retained by the Board of Directors of the Company, the Investment Committee shall have the responsibility to (i) review investment performance of the Trust Fund; (ii) establish Investment Funds pursuant to Section 5.2 (Common Fund); (iii) direct the Trustee with regard to the investment of assets; and (iv) such other responsibilities as may be delegated to it by the Board or pursuant to the Plan or Trust Agreement.
(b) In connection with these responsibilities, the Investment Committee shall have the following powers and duties:
50
(i) to establish investment guidelines and objectives for the investment of the Trust Fund and each Investment Fund as a part thereof, including, but not by way of limitation, the establishment of additional investment funds or the consolidation of one or more of the existing funds;
(ii) to review the performance of and appoint and dismiss the Trustee;
(iii) to receive, review and retain (as it deems convenient or proper) reports of the investments and the receipts and disbursements of the Trust Fund from the Trustee and/or any Investment Managers; and
(iv) to manage the investment of any assets for which the Investment Committee serves as investment advisor.
(c) The Investment Committee may, subject to periodic review, (i) allocate or delegate among its members certain powers, (ii) authorize one or more of its members or an agent to execute or deliver any instruments or make payment on the Investment Committee's behalf, and (iii) utilize the services of agents and employ persons to perform ministerial, clerical, record keeping, consulting or legal services to assist the Investment Committee in the performance of its duties.
(d) The Investment Committee shall maintain records and accounts showing the fiscal transactions and performance evaluations of the Trust Fund. At least annually, the Investment Committee shall submit to the Board a report regarding the operation of the Trust during the past year and shall also submit such other reports as the Board shall request.
9.4 Committee Procedures.
(a) Each Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs.
(b) A majority of the members of each Committee at the time in office shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committees at any meeting shall be by the vote of the majority of the members of the Committees present at the meeting. Each Committee may act without a meeting by written consent of a majority of its members.
(c) Each Committee may elect one of its members as chairman and shall appoint a secretary, who may or may not be a Committee member, and shall advise the Trustee and the Company of such actions in writing. The secretary shall keep a record of all actions of the Committees and shall forward all necessary communications to the Company or the Trustee.
(d) Filing or delivery of any document with or to the secretary of a Committee in person or by registered or certified mail, addressed in care of the Company, shall be deemed a filing with or delivery to the Committee.
9.5 Consultation with Advisors. Each Committee (or any fiduciary designated by a Committee) may employ or consult with counsel, actuaries, accountants, physicians or other advisors (who may be counsel, actuaries, accountants, physicians or other advisors for the Employer).
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9.6 Committee Members as Participants. Each Committee member may also be a Participant, but no Committee member shall have power to take part in any discretionary decision or action affecting his own interest as a Participant under this Plan unless such decision or action is upon a matter which affects all other Participants similarly situated and confers no special right, benefit or privilege not simultaneously conferred upon all other such Participants.
9.7 Records and Reports. Each Committee shall take all such action as it deems necessary or appropriate to comply with governmental laws and regulations relating to the maintenance of records, notifications to Participants, registrations with the Internal Revenue Service, reports to the U.S. Department of Labor and all other requirements applicable to the Plan. At the end of each Plan Year and such other periods as the Administrative Committee may determine, the Administrative Committee will provide each Participant with a statement of the balances in his Accounts.
9.8 Investment Policy.
(a) As provided in Section 9.3 (Powers and Duties of the Investment Committee), the Investment Committee from time to time shall determine the Plan's short-term and long-term financial needs, with which the investment policy of the Trust shall be appropriately coordinated, and such needs shall be communicated from time to time to the Trustee, Investment Managers or others having any responsibility for management and control of the Trust assets.
(b) Subject to Section 5.2 (Common Fund) relating to the establishment and investment of assets among the Investment Funds, Section 9.3 (Powers and Duties of the Investment Committee and (c) below relating to management of assets for which the Investment Committee serves as investment advisor and (c) below relating to the authority of Investment Managers, the Trustee shall have exclusive authority and discretion to manage and control the assets of the Trust pursuant to an investment policy coordinated with the needs of the Plan as determined by the Investment Committee.
(c) The Investment Committee may in its discretion manage or may appoint one or more Investment Managers to manage (including the power to acquire and dispose of) any assets of the Plan pursuant to an investment policy coordinated with the needs of the Plan as determined by the Investment Committee, in which event the Trustee shall not be liable for the acts or omissions of the Investment Committee or any such Investment Manager or be under an obligation to invest or otherwise manage any asset of the Plan which is subject to the management of the Investment Committee or any such Investment Manager except as directed. Any such Investment Manager shall acknowledge in writing that he is a fiduciary with respect to the Plan.
(d) The term "Investment Manager" shall mean: (i) a registered investment adviser under the Investment Advisers Act of 1940; (ii) a bank as defined in the Investment Advisers Act of 1940; or (iii) an insurance company qualified under the laws of more than one state to manage, acquire and dispose of plan assets.
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9.9 Designation of Other Fiduciaries. Each Committee may designate in writing other persons to carry out a specified part or parts of its responsibilities hereunder (including the power to designate other persons to carry out a part of such designated responsibility), but not including the power to appoint Investment Managers. Any such designation shall be accepted by the designated person, who shall acknowledge in writing that he is a fiduciary with respect to the Plan.
9.10 Obligations of Each Committee.
(a) Each Committee or its properly authorized delegate shall make such determinations as are necessary to accomplish the purposes of the Plan with respect to individual Participants or classes of such Participants. The Company shall notify each Committee of facts relevant to such determinations, including, without limitation, length of service, compensation for services, dates of death, permanent disability, granting or terminating of leaves of absence, ages, retirement and termination of service for any reason (but indicating such reason), and termination of participation. The Company shall also be responsible for notifying each Committee of any other facts which may be necessary for the Committee to discharge its responsibilities hereunder.
(b) Each Committee is hereby authorized to act solely upon the basis of such notifications from the Company and to rely upon any document or signature believed by the Committee to be genuine and shall be fully protected in so doing. For the purpose of this Section, a letter or other written instrument signed in the name of the Company by any officer thereof shall constitute a notification therefrom; except that any action by the Company or its Board of Directors with respect to the appointment or removal of a member of a Committee or the amendment of the Plan and Trust or the designation of a group of employees to which the Plan is applicable shall be evidenced by an instrument in writing, signed by a duly authorized officer or officers, certifying that said action has been authorized and directed by a resolution of the Board of Directors of the Company.
(c) Each Committee shall notify the Trustee of its actions and determinations affecting the responsibilities of the Trustee and shall give the Trustee directions as to payments or other distributions from the Trust Fund to the extent they may be necessary for the Trustee to fulfill the terms of the Trust Agreement.
(d) Each Committee shall be under no obligation to enforce payment of contributions hereunder or to determine whether contributions delivered to the Trustee comply with the provisions hereof relating to contributions, and is obligated only to administer this Plan pursuant to the terms hereof.
9.11 Indemnification of Each Committee. Each Employer shall indemnify members of each Committee and its authorized delegates who are employees of an Employer for any liability or expenses, including attorneys' fees, incurred in the defense of any threatened or pending action, suit or proceeding by reason of their status as members of the Committee or its authorized delegates, to the full extent permitted by the law of the Employer's state of incorporation.
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ARTICLE 10
Trustee and Trust Fund
10.1 Trust Fund. A Trust Fund to be known as the Tellabs, Inc. Profit Sharing and Savings Trust (herein referred to as the "Trust" or the "Trust Fund") has been established by the execution of a trust agreement with one or more Trustees and is maintained for the purposes of this Plan. The assets of the Trust will be held, invested and disposed of by the Trustee, in accordance with the terms of the Trust, for the benefit of the Participants and their beneficiaries.
10.2 Payments to Trust Fund and Expenses. All contributions hereunder will be paid into and credited to the Trust Fund and all benefits hereunder and expenses chargeable thereto will be paid from the Trust Fund and charged thereto.
10.3 Trustee's Responsibilities. The powers, duties and responsibilities of the Trustee shall be as set forth in the Trust Agreement and nothing contained in this Plan, either expressly or by implication, shall impose any additional powers, duties or responsibilities upon the Trustee.
10.4 Reversion to the Employer. An Employer has no beneficial interest in the Trust Fund and no part of the Trust Fund shall ever revert or be repaid to an Employer, directly or indirectly, except that an Employer shall upon written request have a right to recover:
(a) within one year of the date of payment of a contribution by an Employer, any amount (less any losses attributable thereto) contributed through a mistake of fact; and
(b) within one year of the date on which any deduction for a contribution by an Employer under Section 404 of the Code is disallowed, an amount equal to the amount disallowed (less any losses attributable thereto); and
(c) at the termination of the Plan, any amounts with respect to its employees remaining in the Excess Forfeiture Suspense Account; and
(d) upon satisfaction of all liabilities for Medical Benefits arising out of the operation of Article 14 (Retiree Medical Benefits), any amounts remaining in the Medical Benefits Account.
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ARTICLE 11
Amendment or Termination
11.1 Amendment. The Company reserves the right to amend this Plan at any time to take effect retroactively or otherwise, in any manner which it deems desirable including, but not by way of limitation, the right to increase or diminish contributions to be made by an Employer hereunder, to change or modify the method of allocation of its contributions, to change any provision relating to the distribution or payment, or both, of any assets of the Trust.
11.2 Termination. The Company further reserves the right to terminate this Plan at any time.
11.3 Form of Amendment, Discontinuance of Employer Contributions, and Termination. Any such amendment, discontinuance of Employer contributions or termination shall be made only by resolution of the Board of Directors or by an officer of the Company or by any person so duly authorized by resolution of the Board of Directors.
11.4 Limitations on Amendments. The provisions of this Article are subject to the following restrictions:
(a) Except as provided in Section 10.4 (Reversion to Employer), no amendment shall operate either directly or indirectly to give an Employer any interest whatsoever in any funds or property held by the Trustee under the terms hereof, or to permit corpus or income of the Trust to be used for or diverted to purposes other than the exclusive benefit of the Participants and their beneficiaries.
(b) Except to the extent necessary to conform to the laws and regulations or to the extent permitted by any applicable law or regulation, no amendment shall operate either directly or indirectly to deprive any Participant of his nonforfeitable beneficial interest in his Accounts as they are constituted at the time of the amendment.
(c) No amendment shall change any vesting schedule unless each Participant who has completed 3 or more Years of Service is permitted to elect, within such reasonable period after the adoption of such an amendment as the Company may designate, to have the nonforfeitable percentage of his Employer Account and Matching Account computed under the Plan without regard to such amendment. The period for making such election shall expire no earlier than 60 days after the latest of the following dates: (i) the date the Plan amendment is adopted, (ii) the date the Plan amendment becomes effective, or (iii) the date the Participant is issued written notice of the Plan amendment by the Administrative Committee. Notwithstanding the foregoing, no election need be offered to a Participant whose nonforfeitable percentage of his Employer Account and Matching Account cannot at any time be lower than such percentage determined without regard to such amendment.
(d) Except as permitted by applicable law, no amendment shall eliminate an optional form of benefit.
11.5 Level of Benefits upon Merger. This Plan shall not merge or consolidate with, or transfer assets or liabilities to, any other plan, unless each Participant shall be entitled to receive a benefit immediately after said merger, consolidation or transfer (if such other plan were then terminated) which shall be not less than the benefit he would have been entitled to receive immediately before said merger, consolidation or transfer (if this Plan were then terminated).
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11.6 Vesting upon Termination or Discontinuance of Employer Contributions; Liquidation of Trust.
(a) This Plan shall be deemed terminated if and only if the Plan terminates by operation of law or pursuant to Section 11.2 (Termination). In the event of any termination or partial termination within the meaning of the Code, or in the event an Employer permanently discontinues the making of contributions to the Plan, the Retirement Account and Post-1992 Profit Sharing Account of each affected Participant who is employed by such Employer on the date of the occurrence of such event shall be nonforfeitable; provided, however, that in no event shall any Participant or beneficiary have recourse to other than the Trust Fund for the satisfaction of benefits hereunder.
(b) In the event an Employer permanently discontinues the making of contributions to the Plan, the Trustee shall make or commence distribution to each Participant or his beneficiaries of the value of such Participant's Accounts as provided herein within the time prescribed in Article 7 (Distributions). However, if, after such discontinuance the Company shall determine it to be impracticable to continue the Trust any longer, the Company may, in its discretion, declare a date to be the Determination Date for all Participants whose Determination Date has not yet occurred, and the Trustee shall thereupon, as promptly as shall then be reasonable under the circumstances, liquidate the Trust assets and distribute to each such Participant his Accounts in the Trust Fund. Such date shall also constitute the final distribution date for each Participant or beneficiary whose Accounts are being distributed in installments. Upon completion of such liquidation and distribution, the Trust shall finally and completely terminate.
(c) The liquidation of the Trust, if any, in connection with any Plan termination shall be accomplished by the Administrative Committee acting on behalf of the Company. After directing that sufficient funds be set aside to provide for the payment of all expenses incurred in the administration of the Plan and the Trust, to the extent not paid or provided for by the Employer, the Committee shall, as promptly as shall then be reasonable under the circumstances, liquidate the Trust assets and distribute to each Participant or beneficiary his Accounts in the Trust Fund. Notwithstanding the foregoing, if the Employer or an Affiliate maintains another defined contribution plan other than an employee stock ownership plan (as defined in Code Section 4975(e) or 409) or a simplified employee pension plan (as defined in Code Section 408(k)), the Accounts of such Participant shall be transferred to such other plan unless the distributable balance of such Accounts does not exceed $5,000 or the Participant consents to distribution of such Accounts. If the vested balance of a Participant's Accounts at the time of any distribution to the Participant exceeds $5,000, then the vested balance of a Participant's Accounts at any subsequent time shall be deemed to exceed $5,000. Upon completion of such liquidation and distribution, the Trust shall finally and completely terminate. In the event the Committee is no longer in existence, the actions to be taken by the Committee pursuant to this Section shall be taken by the Trustee.
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ARTICLE 12
Miscellaneous
12.1 No Guarantee of Employment, Etc. Neither the creation of the Plan nor anything contained in the Plan or Trust Agreement shall be construed as a contract of employment between the Employer and the Participant or as giving any Participant hereunder or other employee of an Employer any right to remain in the employ of the Employer, any equity or other interest in the assets, business or affairs of the Employer, or any right to complain about any action taken or any policy adopted or pursued by the Employer.
12.2 Rights of Participants and Others.
(a) Except as may be provided in the Plan with respect to loans to Participants, no Participant shall have any right to sell, assign, pledge, hypothecate, anticipate or in any way create a lien upon any part of the Trust Fund. Except to the extent required by law or provided in the Plan, no interest in the Trust Fund, or any part thereof, shall be assignable in or by operation of law, or be subject to liability in any way for the debts or defaults of Participants, their beneficiaries, spouses or heirs-at-law, whether to the Employer or to others.
(b) Prior to the time that distributions are to be made hereunder, the Participants, their spouses, beneficiaries, heirs-at-law or legal representatives shall have no right to receive cash or other things of value from an Employer or the Trustee from or as a result of the Plan and Trust.
12.3 Qualified Domestic Relations Order. Notwithstanding anything in this Plan to the contrary, the Administrative Committee shall distribute a Participant's Accounts, or any portion thereof, in accordance with the terms of any domestic relations order entered on or after January 1, 1985, which the Administrative Committee determines to be a qualified domestic relations order described in Section 414(p) of the Code. Effective September 1, 1997, distribution of a Participant's Accounts, or any portion thereof, to an alternate payee under a qualified domestic relations order, shall, unless such order otherwise provides, be made in a lump sum as soon as administratively practicable after the Administrative Committee has determined that the order is qualified under Code Section 414(p).
12.4 Controlling Law. To the extent not preempted by the laws of the United States of America, the laws of the State of Illinois shall be controlling state law in all matters relating to the Plan.
12.5 Severability. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts of this Plan, but this Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein.
12.6 Notification of Addresses. Each Participant and each beneficiary of a deceased Participant shall file with the Administrative Committee from time to time in writing his post-office address and each change of post-office address. Any communication, statement or notice addressed to the last post-office address filed with the Administrative Committee, or if no such address was filed with the Administrative Committee, then to the last post-office address of the Participant or beneficiary as shown on an Employer's records, will be binding on the Participant and his beneficiary for all purposes of this Plan and neither the Administrative Committee nor the Employer shall be obliged to search for or ascertain the whereabouts of any Participant or beneficiary, nor shall any Employer, Committee, director, officer, employee or agent of any of them be liable for any loss, cost or expense associated with any Participant's or beneficiary's failure to so file such Participant's or beneficiary's address with the Administrative Committee.
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12.7 Gender and Number. Whenever the context requires or permits, the gender and number of words shall be interchangeable.
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ARTICLE 13
Adoption by Affiliates
13.1 Adoption of Plan. Subject to any resolution or terms of any agreement approved by the Board of Directors or a committee thereof to the contrary, any Affiliate may adopt this Plan for the benefit of its eligible employees if authorized to do so by the Board of Directors of the Company. Such adoption shall be by resolution of such Affiliate's board of directors, a certified copy of which shall be filed with the Company, the Administrative Committee and the Trustee. Upon such adoption, such Affiliate shall become an "Employer."
13.2 The Company as Agent for Employer. Each Employer which has adopted this Plan pursuant to Section 13.1 (Adoption of Plan) hereby irrevocably gives and grants to the Company full and exclusive power conferred upon it by the terms of the Plan and Trust to take or refrain from taking any and all action which such Employer might otherwise take or refrain from taking with respect to the Plan, including sole and exclusive power to exercise, enforce or waive any rights whatsoever which such Employer might otherwise have with respect to the Trust, and each such Employer, by adopting this Plan, irrevocably appoints the Company its agent for such purposes. Neither the Trustee nor either of the Committees nor any other person shall have any obligation to account to any such Employer or to follow the instructions of or otherwise deal with any such Employer, the intention being that all persons shall deal solely with the Company as if it were the sole company which had adopted this Plan. Each such Employer shall contribute such amounts as determined under Article 3 (Contributions by Employer).
13.3 Adoption of Amendments.
(a) Any Employer which adopts this Plan pursuant to Section 13.1 (Adoption of Plan) may amend this Plan with respect to its own employees by resolution of its board of directors, if authorized to do so by the Board of Directors of the Company or any person so duly authorized by the Board of Directors of the Company.
(b) Any Employer shall be deemed conclusively to have assented to any amendment of this Plan by the Company without the necessity of any affirmative action on the part of such Employer.
13.4 Termination. Any Employer which adopts this Plan pursuant to Section 13.1 (Adoption of Plan) may terminate this Plan with respect to its own employees by resolution of its board of directors, if authorized to do so by the Board of Directors of the Company, or any person so duly authorized by the Board of Directors of the Company.
13.5 Data to Be Furnished by Employers. Each Employer which adopts this Plan pursuant to Section 13.1 (Adoption of Plan) shall furnish information and maintain such records with respect to its Participants as called for hereunder, and its determinations and notifications with respect thereto shall have the same force and effect as comparable determinations by the Company with respect to its Participants.
13.6 Joint Employers. If a Participant receives Considered Compensation during a Plan Year from more than one Employer, the total amount of such Considered Compensation shall be considered for the purposes of the Plan, and the respective Employers shall share in contributions to the Plan on account of said Participant based on the Considered Compensation paid to such Participant by the Employer.
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13.7 Expenses. Except to the extent paid by the Employers, all expenses of the Plan shall be paid from the Trust Fund as the Administrative Committee from time to time may direct in accordance with the Trust Agreement.
13.8 Withdrawal. An Employer may withdraw from the Plan by giving 60 days' written notice of its intention to the Company and the Trustee, unless a shorter notice shall be agreed to by the Company.
13.9 Prior Plans. If an Employer adopting the Plan already maintains a defined contribution plan covering employees who will be covered by this Plan, it may, with the consent of the Company, provide in its resolution adopting this Plan for the termination of its own plan or for the merger, restatement and continuation, of its own plan by this Plan. In either case, such Employer may, subject to the approval of the Company, provide in its resolution of adoption of this Plan for the transfer of the assets of such plan to the Trust for this Plan for the payment of benefits accrued under such other plan.
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ARTICLE 14
Retiree Medical Benefits
14.1 Medical Benefits Account. Effective April 1, 1999, there is created, established and maintained a separate Medical Benefits Account as part of the Retirement Program for the purposes of providing certain medical benefits to Eligible Individuals in accordance with this Article 14 and Code Section 401(h).
14.2 Retiree Medical Benefits Definitions. For purposes of this Section 14, the following definitions shall apply:
(a) Dependent. The term "Dependent" shall mean any individual who is entitled to benefits under the Health Plan as a dependent of an eligible retiree; any of the following; provided that (ii) such individual is a "dependent" within the meaning of Code Section 152.
(b) Eligible Individual. The term "Eligible Individual" shall mean an Eligible Retiree or a Dependent.
(c) Eligible Retiree. The term "Eligible Retiree" shall mean an individual who:
(i) is a Participant in the Retirement Program and who retires under circumstances which entitle the Participant to receive retiree medical benefits under the Health Plan; and
(ii) is not a Key Employee (as defined in Code Section 416(i)(1)) at any time during the current Plan Year and has not been a Key Employee at any time during any previous Plan Year for which contributions were made to the Medical Benefits Account.
(d) Health Plan. The term "Health Plan" shall mean Tellabs Retiree Medical Plan, or such other medical plan maintained by an Employer, but only as such plan relates to retired individuals and dependents, as such Retiree Medical Plan or plans may be amended from time to time, and the provisions of such Plan or plans are incorporated herein by reference.
(e) Medical Benefits. The term "Medical Benefits" shall mean the benefits specified and payable under Section 14.6 (Medical Benefits) from the Medical Benefits Account.
(f) Medical Benefits Account. The term "Medical Benefits Account" shall mean the separate account established pursuant to Section 14.3 (Separate Account) for contributions to fund Medical Benefits payable under this Section 14.
14.3 Separate Account. A Medical Benefits Account shall be maintained with respect to contributions to fund the benefits payable under this Article 14, which shall be kept separate (for record-keeping purposes only) from the amounts contributed to the Retirement Program to fund all other benefits. The funds in the Medical Benefits Account shall be invested as the Investment Committee shall determine, and may, but need not be, invested in one or more of the Funds; provided, however, that in no event shall amounts allocable to the Medical Benefits Account be invested in the Tellabs Stock Fund.
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14.4 Impossibility of Diversion Prior to Satisfaction of All Liabilities. Prior to the satisfaction of all liabilities under this Article 14 to provide for the payment of Medical Benefits, no part of the corpus or income of the Medical Benefits Account may be used for, or diverted to, any purpose other than the providing of Medical Benefits or the payment of any necessary or appropriate expenses attributable to the administration thereof.
14.5 Reversion upon Satisfaction of All Liabilities. Any amounts which are contributed to fund Medical Benefits and that remain in the Medical Benefits Account upon the satisfaction of all liabilities arising out of the operation of this Article 14 are to be returned to the Employer in accordance with Section 10.4 (Reversion to the Employer).
14.6 Medical Benefits. The Medical Benefits payable from the Medical Benefits Account shall be limited to the payment of medical benefits for Eligible Individuals under the Health Plan. Notwithstanding any other provision of this Article 14, the Medical Benefits paid out of the Medical Benefits Account at any time shall be limited to the amount in such Account. The Medical Benefits provided under the Health Plan and the contributions by the Employers to fund said Medical Benefits shall not discriminate in favor of Highly Compensated Employees.
14.7 Coordination with Health Plan. Medical Benefits under the Medical Benefits Account shall be provided by reimbursing, no less frequently than annually, the Employers or other paying agent under the Health Plan for amounts not to exceed the aggregate Medical Benefits, as defined in Section 14.6 (Medical Benefits), for Eligible Individuals.
14.8 Employer Contributions. All contributions to fund Medical Benefits provided under the Medical Benefits Account shall be made by the Employers. The Employers may, in their discretion, contribute to the Medical Benefits Account amounts which in the aggregate shall not exceed the amount reasonably estimated to cover the total cost of the Medical Benefits to be provided hereunder. Such total cost shall be determined in accordance with any generally accepted actuarial method which is reasonable in view of the provisions and coverage of the Health Plan, the investment of the Medical Benefits Account and other applicable considerations. Notwithstanding the foregoing, Employer contributions to the Medical Benefits Account shall be limited so that the aggregate actual contributions made to the Medical Benefits Account shall not exceed twenty-five percent (25%) of the total aggregate actual contributions made after April 1, 1999 under the Retirement Program to the Retirement Accounts of Participants and the Medical Benefit Account. At the time an Employer makes a contribution to the Retirement Program, it shall designate the portion allocable to the Medical Benefits Account.
14.9 Reservation of the Right to Terminate Medical Benefits. In addition to the rights set forth in Article 11 (Amendment or Termination), the Employers reserve the right to amend, suspend, curtail or terminate the Medical Benefits provided hereunder or under the Health Plan at any time.
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APPENDIX A TO THE TELLABS ADVANTAGE PROGRAM
APPLICABLE TO FORMER PARTICIPANTS IN THE
STEINBRECHER CORPORATION SALARY DEFERRAL PLAN
This Appendix A sets forth provisions applicable to Participants in the Plan who were employees of Steinbrecher Corporation (now known as "Tellabs Wireless, Inc.") on April 17, 1996, who became Participants in the Plan on April 17, 1996 or July 1, 1996, and/or whose assets and liabilities were subsequently transferred from the Steinbrecher Corporation Salary Deferral Plan (the "Steinbrecher Plan") to the Trust as a result of the merger of the Steinbrecher Plan into the Plan ("Former Steinbrecher Participants"). Except to the extent expressly modified by this Appendix A, the provisions of the Plan, including the Appendices thereto, shall apply to the participation of such Former Steinbrecher Participants. The provisions of this Appendix A shall, unless provided otherwise, be effective as of April 17, 1996.
A.1 A new definition of Steinbrecher Plan shall be added reading as follows:
"Steinbrecher Plan" means the Steinbrecher Corporation Salary Deferral Plan as in effect on June 30, 1996, and as amended from time to time thereafter up to and including its merger into the Plan."
A.2 Section 2.1A shall be added reading as follows:
"2.1A Special Provision Applicable to Former Steinbrecher Participants. Notwithstanding the foregoing provisions of Section 2.1 (Eligibility Requirements), a Former Steinbrecher Participant who is an Eligible Employee on April 17, 1996 shall become a Participant as of that date with respect to the ability to receive an allocation of Retirement Contributions and Profit Sharing Contributions under Section 5.4 (Eligibility to Share in the Employer Contribution and Forfeitures) of the Plan. A Former Steinbrecher Participant who is an Eligible Employee on July 1, 1996 shall become a Participant as of that date with respect to the ability to make Before-Tax Contributions and to receive Matching Contributions under Section 3.2 (Before-Tax Contribution) of the Plan. Any other Eligible Employee of Tellabs Wireless, Inc. shall become a Participant on the Entry Date coinciding with or next following the later of (i) the end of the first Eligibility Period in which he completes 1,000 Hours of Service or (ii) his 21st birthday; provided, however, that any person who has attained age 21 and has completed 1,000 Hours of Service in his first nine months of continuous employment shall be eligible to participate on the Entry Date coinciding with or next following the end of such 9-month period."
A-1
A.3 Section 3.4A shall be added reading as follows:
"3.4A Profit Sharing Contribution Under the Savings Program Applicable to Former Steinbrecher Participants for the Quarter Ended June 30, 1996. Subject to the provisions of Section 3.1 (Employer Contributions), the Employer shall pay to the Trustee for the calendar quarter ending June 30, 1996 an amount which, together with the forfeitures allocable for such calendar quarter, shall be equal to .4% (four-tenths of one percent) of the Considered Compensation of each Former Steinbrecher Participant for the period beginning April 17, 1996 and ending June 30, 1996. The Employer shall also pay to the Trustee for such calendar quarter such additional amounts, if any, as the Board of Directors shall determine. Such contributions are, collectively, known as the `Profit Sharing Contribution'".
A.4 Section 3.6A shall be added reading as follows:
"3.6 Retirement Contribution Under the Retirement Program Applicable to Former Steinbrecher Participants for the Quarter Ended June 30, 1996. Subject to the provisions of Section 3.1 (Employer Contributions), the Employer shall pay to the Trustee for the calendar quarter ending June 30, 1996 an amount which, together with the forfeitures allocable for such calendar quarter, shall be equal to 3.6% (three and six-tenths percent) of the Considered Compensation of each Former Steinbrecher Participant for the period beginning April 17, 1996 and ending June 30, 1996. Such contribution is known as the `Retirement Contribution'".
A.5 Section 6.6A shall be added reading as follows:
"6.6A Recognition of Service under the Steinbrecher Plan. Solely with respect to Former Steinbrecher Participants, such period or periods of employment shall include any period or periods previously credited to that employee under the Steinbrecher Plan."
A.6 Section 11.5A shall be added reading as follows:
"11.5A Merger. Effective as of the close of June 30, 1996 or such later date as the Committee may, in its sole discretion, determine, the Steinbrecher Plan shall be merged into the Savings Plan portion of the Plan with all accrued benefits under the Steinbrecher Plan becoming accrued benefits under this Plan and such amounts shall be allocated among the Profit Sharing, Matching and Before-Tax Accounts of such Participants as the Committee shall determine. To the extent required by law or otherwise appropriate, the provisions of this Appendix A and the applicable provisions of the Plan shall be deemed to apply retroactively to the Steinbrecher Plan."
A-2
1999 TELLABS, INC.
STOCK BONUS PLAN
1. INTRODUCTION
1.2 Certain Definitions
"Board" shall mean the Board of Directors of Tellabs.
"Bonus Stock" shall mean shares of Common Stock awarded under the Plan.
"Bonus Stock Award" shall mean an award to an eligible employee of a right to receive Bonus Stock under the Plan.
"Cause" shall mean any act of dishonesty, commission of an indictable criminal offense, activities harmful to the reputation of Tellabs or a Subsidiary, the refusal to perform or the substantial disregard of duties properly assigned or a significant violation of any legal duty of loyalty to Tellabs or a Subsidiary, as determined by the Committee in its sole discretion.
"Committee" shall mean the Compensation Committee of the Board of Tellabs or any successor Committee thereto.
"Common Stock" means the common stock of Tellabs.
"Disability" shall mean disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended from time to time or any successor thereto or 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.
1.3 Administration
This Plan shall be administered by the Committee. The Committee shall, subject to the
terms of this Plan, interpret this Plan and the application thereof, establish rules and
regulations it deems necessary or desirable for the administration of this Plan. 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 as the Committee deems appropriate.
1.4 Eligibility
Participants eligible to participate in this Plan shall consist of employees of,
individuals accepting employment with and other individuals providing services to (as
determined by the Board or the Committee) Tellabs or one of its Subsidiaries, provided
however, that in no event shall any person who is an executive officer (other than in
connection with the hiring of such officer) or member of the Tellabs Board be eligible to
participate in this Plan. No other persons shall be eligible to participate in this
Plan.
2. BONUS STOCK AWARDS
2.2 Terms of Bonus Stock Awards
Except as otherwise determined by the Board or the Committee and provided in the Bonus
Stock Award documents, Bonus Stock Awards shall be subject to the following terms and
conditions:
a. Number of Shares and Other Terms
The number of shares of Common Stock subject to a Bonus Stock Award granted pursuant to
this Plan shall be the number of such shares determined by the Board or the Committee.
b. Vesting and Forfeiture
One-half of the number of shares of Common Stock subject to a Bonus Stock Award shall vest
and be payable on the first anniversary of the date of the Bonus Stock Award and the other
half of such number shall vest and be payable on the second anniversary of the Bonus Stock
Award, in each case, subject to Section 2.3(b), if the holder of such award remains
continuously in the employment or service of Tellabs or a Subsidiary until such anniversary
date. Such holder shall forfeit the unvested portion of any such shares if such holder
does not remain continuously in the employment or service of Tellabs or a Subsidiary as
specified above, except as otherwise provided in Section 2.3(b) hereof.
c. Share Certificates
Upon the vesting of a portion of a Bonus Stock Award pursuant to Section 2.2(b) or 2.3(b),
in each case subject to Tellabs' or a Subsidiary's 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
holder of such award. Notwithstanding the foregoing, in lieu of the delivery of shares
representing all or a portion of the vested portion of a Bonus Stock Award, the Committee
may, in its sole discretion, deliver to the holder cash in an amount equal to the Fair
Market Value on the date such shares become vested equal to all or a portion of the vested
portion of such award, less any applicable withholding, as required by Section 3.2, as the
case may be.
2.3 Termination of Employment/Service
b. Other Termination
Except as otherwise determined by the Board or the Committee and provided in the Bonus Stock Award documents, if Tellabs or a Subsidiary terminates the employment/service of the holder of a Bonus Stock 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(b) without regard to such termination and be payable within thirty (30) days of such termination, in accordance with Section 2.2(c).3. GENERAL
3.1 Amendments
The Board or the Committee may amend this Plan as it shall deem advisable. No amendment
may impair the rights of a holder of an outstanding award without the consent of such
holder.
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 an award made hereunder, payment by
the holder 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 holder.
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 available under this Plan,
and the number and class of securities subject to each outstanding Bonus Stock 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 Bonus Stock 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 (i) available under this Plan, such fractional security shall
be disregarded, or (ii) subject to an award under this Plan, Tellabs shall pay the holder
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 Plan, and the rights of all holders of Bonus Stock Awards shall
be subject thereto, that no right or interest of any such holder 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 such holder under this Plan shall be liable
for, or subject to, any obligation of any such holder, including claims for alimony or the
support of any spouse.
3.5 No Right of Employment/Service
Neither this Plan nor any award made hereunder shall confer upon any person any right to
continued employment/service by Tellabs or any Subsidiary or affiliate thereof or affect in
any manner the right of Tellabs or any Subsidiary or affiliate thereof to terminate the
employment/service 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 Plan 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
holders of Bonus Stock Awards shall be solely those of an unsecured creditor of Tellabs.
3.7 Beneficiary Designation
Each holder of a Bonus Stock Award 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 holder, shall be in a form prescribed by Tellabs or its Subsidiary, and will be
effective only when filed by the holder in writing with the person or persons designated by
Tellabs or its Subsidiary to receive such designations during the holder's lifetime. In
the absence of any such designation, benefits remaining unpaid at the holder's death shall
be paid to the holder's estate.
3.8 Requirements of Law
The granting of Bonus Stock Awards and the issuance of Common Stock under the Plan shall be
subject to all applicable laws, rules, regulations, and to such approval by any
governmental agencies or national securities exchanges or NASDAQNMS as may be required
3.8 Governing Law
The corporate law of the State of Delaware shall govern all issues concerning the relative
rights of Tellabs and the holders of Bonus Stock Awards with respect to this Plan. 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 Plan.
3.8 Effective Date
This Plan shall become effective on the date adopted by the Board.
Five-Year Summary of Selected Financial Data
(in thousands, except per-share data) |
1999 |
1998 |
1997 |
1996 |
1995 |
Net sales | $2,319,498 | $1,704,210 | $1,277,241 | $923,406 | $679,058 |
Gross profit | $1,381,468 | $999,244 | $759,358 | $532,409 | $375,491 |
Earnings before income taxes | $816,233 | $584,757 | $416,827 | $190,264 | $175,475 |
Net earnings | $559,120 | $396,120 | $275,302 | $127,547 | $123,196 |
Earnings per share | $1.39 | $1.00 | $0.71 | $0.33 | $0.33 |
Earnings per share, assuming dilution | $1.36 | $0.98 | $0.69 | $0.33 | $0.32 |
Stockholders' equity | $2,048,398 | $1,397,613 | $991,867 | $628,487 | $453,681 |
Total assets | $2,352,664 | $1,645,125 | $1,248,942 | $786,271 | $580,667 |
Net working capital | $1,511,927 | $1,048,984 | $684,801 | $374,604 | $283,799 |
Long-term debt | $2,850 | $3,349 | $3,087 | $2,850 | $3,850 |
No cash dividends per common share were paid. Per-share amounts are restated to reflect stock splits in 1999, 1996 and 1995.
Common Stock Market Data
1999 | 1998 | ||||
(restated for stock split in 1999) |
High |
Low |
High |
Low |
|
First Quarter | 50 9/16 | 32 3/8 | 34 3/4 | 22 1/4 | |
Second Quarter | 70 5/8 | 45 13/16 | 37 5/16 | 30 5/16 | |
Third Quarter | 74 | 54 | 46 9/16 | 18 | |
Fourth Quarter | 77 1/4 | 53 | 36 11/32 | 15 11/16 |
Common Stock Market Data Tellabs' common stock is listed on the Nasdaq Stock market under the symbol TLAB and appears in most daily newspaper stock tables as Tellabs. As of February 21, 2000, there were approximately 5,504 stockholders of record and 404,686,655 outstanding shares. Tellabs is a component of the Nasdaq-100 Index and the Standard & Poor's 500 Index.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
1999 Highlights
1999 was another record-setting year for Tellabs. Besides achieving its 1995 objective
of $2 billion in annual revenue by the end of the year 2000 one year early, the Company set
records in sales revenue ($2,319.5 million), net earnings ($559.1 million) and net earnings
per share ($1.36).
During 1999, Tellabs acquired NetCore Systems, Inc. ("NetCore"), in a transaction accounted for as a pooling of interests, and Alcatel's DSC Communications businesses in Europe (now known as "Tellabs Denmark") in a transaction accounted for as a purchase. (For more information on these transactions, see Note 3.) The Company also purchased certain assets from DSP Software Engineering, Inc. ("DSPSE").
1999 vs. 1998
Sales for 1999 totaled $2,319.5 million, an increase of 36.1 percent from 1998's
then-record sales of $1,704.2 million. Digital cross-connect systems sales amounted to
$1,362.7 million and drove the overall sales growth, increasing 43.6 percent from 1998
levels mainly due to strong TITAN® 5500/5500S and TITAN 532L sales. Managed digital
network sales posted a modest gain, increasing 8.6 percent to $438.9 million. (Included in
managed digital network sales for 1999 are sales of the Company's FOCUS
international-standard optical products obtained in the acquisition of Tellabs Denmark.)
Excluding the Tellabs Denmark sales, managed digital network systems sales posted a slight
decrease compared with 1998 levels due to weaker sales of the MartisDXX® managed access
and transport system. Network access system sales were $350.9 million, an increase of 41.7
percent compared with 1998 sales. Sales of the CABLESPAN® 2300 universal telephony
distribution system increased three-fold over the prior year's results and accounted for
the majority of the increase in network access systems sales. Also included in network
access systems are sales of digital echo cancellers, which increased 12.4 percent from 1998
sales. Tellabs also saw revenue from the installation and testing of its systems grow 79.9
percent from 1998 levels. The Company expects that revenue generated from the installation
and testing of its systems will continue an increasing source of overall revenue.
In 1999, sales within the United States increased 42.9 percent, primarily on the strength of digital cross-connect systems sales, and accounted for 70.2 percent of total sales. Sales outside the United States increased 22.4 percent, mainly due to the inclusion of Tellabs Denmark sales and digital echo canceller sales, and accounted for 29.8 percent of total sales.
Gross margin as a percentage of sales in 1999 was 59.6 percent compared with 58.6 percent in 1998. The increase in the gross margin percentage is due to increased efficiencies achieved by the Company's manufacturing and customer service operations. This was partially offset by higher activity in the typically lower-margin customer service area. The lower margins in customer service are partly a result of the use of outside contractors to assist in the installation of the Company's systems.
Operating expenses totaled $633.7 million, an increase of 34.9 percent compared with 1998 levels. As a percentage of sales, operating expenses for 1999 amounted to 27.3 percent compared with 27.6 percent in 1998. Marketing and general and administrative expenses totaled $322.9 million, a 32.4 percent increase from the prior year. The growth in marketing and general and administrative expenses is primarily attributable to the increased staffing and facility expansion necessary to allow the Company to maintain its current level of business activity, as well as take advantage of future market opportunities, coupled with the added expenditures of Tellabs Denmark. As a percentage of sales, marketing and general and administrative expenses for 1999 were 13.9 percent compared with 14.3 percent in 1998.
Research and development expenses totaled $303.7 million, an increase of $83.6 million from 1998 levels. The growth in research and development expenses during 1999 is due to the Company's continued efforts to bring new products to market, coupled with the inclusion of Tellabs Denmark and DSPSE expenditures in 1999. As a percentage of sales, research and development costs increased slightly to 13.1 percent in 1999.
Other income for 1999 totaled $33.5 million compared with $19.7 million in 1998. The 70.2 percent increase in other income is due primarily to higher interest income resulting from higher average cash balances available for investment, coupled with lower foreign exchange losses in 1999.
The effective tax rate was 31.5 percent for 1999 and 32.3 percent for 1998. The decrease in the 1999 effective tax rate is primarily due to additional foreign tax rate benefits, increased research and development tax credits, and one-time, non-recurring tax saving strategies. The Company's 1999 and 1998 effective tax rates reflect the benefits of lower foreign tax rates as compared with the U.S. federal statutory rate.
The preceding 1999 to 1998 comparisons do not include the effects of the following transactions. During 1999, the Company incurred pre-tax charges of $1.9 million ($1.3 million after tax) related to its acquisition of NetCore. Tellabs also recognized a pre-tax gain of $36.9 million ($25.3 million, or 6 cents per diluted share after tax) on the sale of stock held as an investment. In 1998, the Company recorded a pre-tax impairment charge of $24.8 million ($16.7 million, or 4 cents per diluted share after tax) on the write-down of impaired assets at its Wireless System Division. Also, during 1998, the Company recognized pre-tax charges of $13.0 million ($8.8 million, or 2 cents per diluted share after tax) in connection with its acquisition of Coherent Communications System Corporation ("Coherent") and its terminated merger with CIENA Corporation as well as a pre-tax gain of $73.4 million ($49.5 million, or 12 cents per diluted share after tax) on the sale of stock held as an investment and the settlement of related hedge contracts.
Tellabs voluntarily restated all prior financial information to reflect its 1998 acquisition of Coherent as a pooling of interests. The results of operations, financial position and cash flows of Coherent are now included in Tellabs' consolidated financial information as if Coherent were always a part of Tellabs. (The Coherent acquisition was previously accounted for as an immaterial pooling of interests, and accordingly, the results of operations and cash flows of Coherent had been included in the consolidated financial results of Tellabs subsequent to the date of acquisition.)
1998 vs. 1997
Sales during 1998 increased 33.4 percent to $1,704.2 million from sales of $1,277.2 million
in 1997. Significant sales growth during 1998 was realized worldwide. Sales within the
United States grew 38.3 percent, primarily as the result of the continued strong sales of
the TITAN 5500/5500S system. Sales outside the United States grew 24.5 percent, driven by
sales of the MartisDXX system and digital echo cancellers.
Digital cross-connect sales for 1998 totaled $949.1 million, up from sales of $692.5 million in 1997. Sales of the TITAN 5500/5500S system continued to lead this product group, growing 38.2 percent from 1997 sales levels. The balance of this product group, consisting of the narrowband members of the TITAN family, experienced sales of approximately $96.0 million, up 27.8 percent from 1997 sales, making them a more significant contributor to the digital cross-connect product group. The increased sales of the other members of the TITAN family were attributable to the demand from a growing base of emerging telecommunications service providers requiring such systems.
Sales of managed digital networks products during 1998 were $404.2 million, an increase of 35.6 percent from sales in 1997. MartisDXX system sales comprised all of the sales of this group in 1998. One significant driver in the growth of MartisDXX system sales was a focus on sales to countries with emerging telecommunications infrastructures.
Sales of network access products in 1998 increased $40.5 million to $231.3 million. The increase was mostly attributable to sales of echo cancellers. Also contributing to this increase were CABLESPAN system sales of $23.9 million, a 53.3 percent increase over 1997 sales levels.
During 1998, customer service revenues became a more significant source of the Company's sales than in previous years. Customer service revenues resulted primarily from activities involving the installation and testing of large systems, generally the TITAN family of products. Revenues during 1998 were $75.4 million, an increase of 121.8 percent compared with 1997 revenues of $34.0 million.
Net earnings for 1998 were $396.1 million, up 43.9 percent from 1997 earnings of $275.3 million. (As mentioned above, 1998 earnings included a $73.4 million pre-tax gain on the sale of stock held as an investment and the settlement of related hedge contracts, a $24.8 million pre-tax charge for impaired assets at the Company's Wireless Systems Division, and a $13.0 million pre-tax charge for costs related to the Coherent acquisition and the terminated merger attempt with CIENA Corporation. Net earnings for 1997 included a $20.8 million pre-tax gain on the sale of stock held as an investment. Excluding the effects of these items, net earnings for the year increased $110.7 million, primarily as the result of the then-record sales.) Diluted earnings per share were 98 cents in 1998 (92 cents excluding the effect of the stock sale, the asset impairment charge and the merger costs), compared with 69 cents in 1997 (66 cents excluding the effect of the stock sale).
Gross profit margin in 1998 was 58.6 percent versus 59.5 percent in 1997. The decrease resulted primarily from increased costs related to customer service activities.
As a percentage of sales, operating expenses (excluding the aforementioned asset impairment charge and merger costs) were 27.6 percent, a 2.1 percent decrease when compared with 1997. Overall, operating expenses in 1998 (excluding the asset impairment charge and merger costs) increased 23.6 percent when compared with 1997. Contributing to the overall increase were the continued worldwide research and development of products and expansion of service and support capabilities.
Other income was $93.1 million in 1998 compared with $37.4 million in 1997. (Included in the results for both 1998 and 1997 were gains on the sale of stock held as an investment. The gain in 1998, including the settlement of related hedge contracts, was $73.4 million. The gain in 1997 was $20.8 million.) Excluding the gains on the sale of stock, other income increased $3.1 million. Interest income in 1998 contributed $24.5 million to income, a 76.7 percent increase compared with $13.9 million in 1997, primarily due to higher average cash balances throughout the year. The increase in interest income was offset by foreign exchange losses of $4.1 million, compared with foreign exchange gains of $1.9 million during 1997.
The effective tax rate was 32.3 percent for 1998 and 34.0 percent for 1997. The decrease in the 1998 effective tax rate is primarily due to the tax benefits associated with contributions to the Tellabs Foundation, as well as the asset impairment charge at the Company's Wireless Systems Division. The Company's 1998 and 1997 effective tax rates reflect the benefits of lower foreign tax rates as compared with the U.S. federal statutory rate.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 1999, were $308.4 million compared with $239.3
million at January 1, 1999. The $69.1 million increase in cash and cash equivalents is a
result of the $463.8 million in cash generated from operations, coupled with $43.6 million
in cash from the issuance of common stock primarily related to the exercise of employee
stock options. These cash inflows are partially offset by $417.5 million of cash used in
investing activities.
The balance of accounts receivable, less allowances, grew $147.3 million during 1999. The main drivers behind the growth in accounts receivable are the record 1999 fourth-quarter sales, along with the addition of receivables acquired in the Tellabs Denmark acquisition. (Excluding the Tellabs Denmark receivables, overall accounts receivable grew $121.4 million during 1999.) Days sales in receivables outstanding (DSO) was 80.0 days at December 31, 1999, compared with 83.9 days at January 1, 1999. Decreasing DSO and improving related processes remain major corporate objectives for Tellabs.
The Company's inventory balance increased $63.4 million during 1999. (Excluding the Tellabs Denmark inventory, the overall inventory balance increased $44.4 million.) The balance of goodwill, intangible and other assets grew $111.1 million during 1999. Included in this increase is $43.5 million in goodwill derived from the Tellabs Denmark and DSPSE purchase, along with $25.0 million in intangible assets identified in the Tellabs Denmark acquisition consisting principally of developed technology. The remainder of the increase in goodwill, intangible and other assets relates primarily to internally developed prototypes and investments in licensed technologies.
The Company used $417.5 million in cash for investing activities. The majority of cash was used to fund the Company's short-term investment portfolio, which grew $238.1 million during 1999 to its December 31, 1999, level of $657.4 million. The Company used $106.4 million in its acquisition of Tellabs Denmark and $35.1 million to purchase certain assets of DSPSE. Tellabs also spent $98.9 million on additions to property, plant and equipment as part of its ongoing efforts to expand manufacturing capacity and office space for support functions.
Working capital at December 31, 1999, totaled $1,511.9 million, compared with $1,049.0 million at January 1, 1999. The Company's current ratio was 6.5 to 1 at December 31, 1999, compared with 5.8 to 1 at January 1, 1999. Management believes the current level of working capital is adequate to meet the Company's normal operating needs, both now and in the foreseeable future. Sufficient resources exist to support the Company's growth either through currently available cash, through cash generated from future operations, or through short-term or long-term financing.
The Company has never paid a cash dividend, and the current policy is to retain earnings to provide funds for the operation and expansion of the business. The Company does not anticipate paying cash dividends in the foreseeable future.
Outlook
Tellabs expects continued strong sales growth in 2000. Sales within the United States will
continue to be driven by digital cross-connect systems sales, while sales outside the
United States will continue to be driven by digital echo canceller sales and managed
digital network systems sales. At December 31, 1999, backlog totaled $256 million, compared
with $164 million, at January 1, 1999. All of the backlog at December 31, 1999, is expected
to be shipped in 2000. The Company considers backlog to be an indicator, but not the sole
predictor, of future sales.
The Company will continue to focus on maintaining consistent sales growth in the most cost-effective method possible. Gross margin as a percentage of sales for 2000 is expected to remain consistent with the levels achieved in 1999. Total operating expenses are anticipated to average between 26 percent and 27 percent of planned revenues. Marketing and general and administrative expenses and research and development expenditures are each expected to be between 12 percent and 13 percent of sales. Management believes these levels can be attained while still supporting the sales and product growth slated for 2000 and beyond.
The Company anticipates that its effective tax rate for 2000 will be approximately 33.5 percent, compared with 31.5 percent in 1999. The expectation of a higher effective tax rate is due primarily to higher anticipated earnings in the United States combined with an absence of one-time tax saving strategies employed in 1999. The Company will continue to focus on global tax minimization efforts.
Capital expenditures for 2000 are expected to total $200 million. It is anticipated that 2000 working capital requirements and capital expenditures will be met with funds currently available and funds generated by future earnings.
The Company believes that the formation of business relationships with compatible organizations is important to future growth in that it allows the Company the opportunity to share in the development of new markets, products and technologies. Equally as important, strategic business relationships can shorten the time it takes to bring new products and solutions to market. It is for these reasons that the Company will continue to pursue the establishment of such relationships.
In December 1999, Tellabs announced that it is acquiring SALIX Technologies, Inc. Tellabs expects the acquisition to close in the first quarter of 2000 (see Note 14). The acquisition is expected to be accounted for as a pooling of interests.
Year 2000 Readiness
The Company did not experience any material adverse issues or business interruptions
arising from the date change to January 1, 2000. Based on its efforts to date, the Company
has not incurred any material costs and does not expect to incur any future material costs
in addressing the Year 2000 issue related to either its products or its critical and
non-critical information technology (IT) systems.
The Company has devoted and will continue to devote the resources necessary to ensure that all Year 2000 issues, if any should arise, are properly addressed. However, there can be no assurance that all Year 2000 issues have been detected. The Company has surveyed significant customers, suppliers and other third parties to determine their Year 2000 compliance status. To date, based on responses received, the Company believes that no material Year 2000 issues exist with a third party.
Actual outcomes and results could be affected by other factors, including, but not limited to, the continued availability of skilled personnel, cost control, the ability to locate and remedy software code problems, critical suppliers and subcontractors meeting their commitments to be Year 2000 ready, and timely actions by customers.
Forward-Looking Statements
Except for historical information, the matters discussed or incorporated by reference in
this report are forward-looking statements that involve risks and uncertainties. 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 and access to intellectual property, patents and
technology; ability to attract and retain highly qualified personnel; availability of
components and critical manufacturing equipment; Year 2000 readiness; facility construction
and start-ups; the regulatory and trade environment; availability and terms of future
acquisitions; uncertainties relating to the synergies, charges, and expenses associated
with business combinations and other transactions; and other risks that may be detailed
from time to time in the Company's filings with the Securities and Exchange Commission. The
Company's actual future results could differ materially from those discussed here. The
Company undertakes no obligation to revise or update these forward-looking
statements.
MANAGEMENT STATEMENT OF FINANCIAL RESPONSIBILITY
The financial statements of Tellabs, Inc., and Subsidiaries have been prepared under the direction of management in conformity with generally accepted accounting principles. In the opinion of management, the financial statements set forth a fair presentation of the consolidated financial condition of Tellabs, Inc., and Subsidiaries at December 31, 1999, and January 1, 1999, and the consolidated results of its operations for the years ended December 31, 1999, January 1, 1999, and January 2, 1998.
The Company maintains accounting systems and related internal controls which, in the opinion of management, provide reasonable assurances that transactions are executed in accordance with management's authorization, that financial statements are prepared in accordance with generally accepted accounting principles, and that assets are properly accounted for and safeguarded.
Ethical decision-making is fundamental to the Company's management philosophy. Management recognizes its responsibility for fostering a strong ethical climate so that the Company's affairs are conducted to the highest standards of personal and corporate conduct. Employee awareness of these objectives is achieved through key written policy statements and training.
The Board of Directors has appointed two of its non-employee members as an Audit Committee. This committee meets periodically with management and the independent auditors, who have free access to this committee without management present, to discuss the results of their audit work and their evaluation of the internal control structure and the quality of financial reporting.
/s Michael J. Birck Michael J. Birck President and Chief Executive Officer, Tellabs, Inc. January 21, 2000 |
/s Peter A. Guglielmi Peter A. Guglielmi Executive Vice President, Chief Financial Officer and Treasurer, Tellabs, Inc. January 21, 2000 |
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of Tellabs, Inc., and Subsidiaries as of December 31, 1999, and January 1, 1999, and the related consolidated statements of earnings, stockholders' equity and cash flows for the three years ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tellabs, Inc., and Subsidiaries at December 31, 1999, and January 1, 1999, and the consolidated results of its operations and its cash flows for each of the three years ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
/s Ernst & Young LLP
Ernst & Young LLP
Chicago, Illinois
January 21, 2000
CONSOLIDATED STATEMENTS OF EARNINGS | ||||||
Year Ended | Year Ended | Year Ended | ||||
(in thousands, except per-share data)
|
12/31/99
|
1/1/99
|
1/2/98
|
|||
Net Sales | $2,319,498 | $1,704,210 | $1,277,241 | |||
Cost of sales | 938,030 |
704,966 |
517,883 |
|||
Gross Profit | 1,381,468 | 999,244 | 759,358 | |||
Operating Expenses | ||||||
Marketing | 194,166 | 153,761 | 123,517 | |||
Research and development | 303,668 | 220,026 | 171,189 | |||
General and administrative | 128,722 | 90,112 | 79,048 | |||
Asset impairment | - | 24,793 | - | |||
Merger costs | 1,929 | 12,991 | - | |||
Goodwill amortization | 7,106 |
5,855 |
6,218 |
|||
635,591 | 507,538 | 379,972 | ||||
Operating Profit | 745,877 | 491,706 | 379,386 | |||
Other income (expense) | ||||||
Interest income | 35,624 | 24,511 | 13,871 | |||
Interest expense | (579) | (361) | (432) | |||
Other | 35,311 |
68,901 |
24,002 |
|||
70,356 | 93,051 | 37,441 | ||||
Earnings Before Income Taxes | 816,233 | 584,757 | 416,827 | |||
Income taxes | 257,113 |
188,637 |
141,525 |
|||
Net Earnings | $ 559,120 |
$ 396,120 |
$ 275,302 |
|||
Earnings per Share | $ 1.39 |
$ 1.00 |
$ 0.71 |
|||
Earnings per Share, Assuming Dilution | $ 1.36 |
$ 0.98 |
$ 0.69 |
|||
Average number of common shares outstanding | 401,202 |
394,546 |
388,155 |
|||
Average number of common shares outstanding, | ||||||
assuming dilution | 412,507 |
404,760 |
399,234 |
|||
The accompanying notes are an integral part of these statements. |
CONSOLIDATED BALANCE SHEETS | |||
(in thousands, except share amounts)
|
12/31/99 |
1/1/99 |
|
ASSETS | |||
Current Assets | |||
Cash and cash equivalents | $308,433 | $239,292 | |
Investments in marketable securities | 657,449 | 419,394 | |
Accounts receivable, net of allowance of $11,556 and $10,709 | 627,926 | 480,620 | |
Inventories | |||
Raw materials | 74,361 | 48,774 | |
Work in process | 38,108 | 23,276 | |
Finished goods | 73,327 |
50,374 |
|
185,796 | 122,424 | ||
Other current assets | 6,097 |
7,143 |
|
Total Current Assets | 1,785,701 |
1,268,873 |
|
Property, Plant and Equipment | |||
Buildings and improvements | 168,130 | 129,822 | |
Equipment | 374,953
|
276,884
|
|
543,083 | 406,706 | ||
Accumulated depreciation | (240,279)
|
(159,684)
|
|
302,804 | 247,022 | ||
Land | 32,891
|
9,065
|
|
335,695 | 256,087 | ||
Goodwill, Net | 87,275 | 55,559 | |
Other Assets | 143,993
|
64,606
|
|
Total Assets | $2,352,664
|
$1,645,125
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
Current Liabilities | |||
Accounts payable | $110,261 | $63,953 | |
Accrued liabilities | |||
Compensation | 52,284 | 49,541 | |
Payroll and other taxes | 16,591 | 15,943 | |
Other | 40,159
|
17,335
|
|
Total accrued liabilities | 109,034 | 82,819 | |
Deferred income taxes | 7,274 | - | |
Income taxes | 47,205
|
73,117
|
|
Total Current Liabilities | 273,774
|
219,889
|
|
Long-Term Debt | 2,850 | 3,349 | |
Other Long-Term Liabilities | 20,511 | 18,164 | |
Deferred Income Taxes | 7,131 | 6,110 | |
Stockholders' Equity | |||
Preferred stock: authorized 5,000,000 shares of $.01 par value; | |||
no shares issued and outstanding | - | - | |
Common stock: authorized 500,000,000 shares of $.01 par value; | |||
404,265,187 and 397,406,554 shares issued and outstanding | 4,043 | 1,987 | |
Additional paid-in capital | 366,906 | 223,079 | |
Accumulated other comprehensive income | |||
Cumulative translation adjustment | (82,915) | (9,207) | |
Unrealized net gains on available-for-sale securities | 41,872
|
20,423
|
|
Total accumulated other comprehensive income | (41,043) | 11,216 | |
Retained earnings | 1,718,492
|
1,161,331
|
|
Total Stockholders' Equity | 2,048,398
|
1,397,613
|
|
Total Liabilities and Stockholders' Equity | $2,352,664
|
$1,645,125
|
|
The accompanying notes are an integral part of these statements. |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | |||||||||
Accumulated | |||||||||
Additional | Other | ||||||||
Common | Paid-In | Comprehensive | Retained | ||||||
(in thousands)
|
Stock
|
Capital
|
Income
|
Earnings
|
Total
|
||||
Balance at December 27, 1996 | $1,926 | $111,164 | $25,488 | $489,909 | $628,487 | ||||
Comprehensive income: | |||||||||
Net earnings | - | - | - | 275,302 | 275,302 | ||||
Other comprehensive income, net of tax: | |||||||||
Unrealized holding gains on marketable securities arising during period (net of deferred income taxes of $58,492) |
- | - | 87,787 | - | 87,787 | ||||
Reclassification adjustment for gains included in net earnings (net of deferred income taxes of $8,916) |
- |
- |
(13,348) |
- |
(13,348) |
||||
Net unrealized holding gains on marketable securities | - | - | 74,439 | - | 74,439 | ||||
Foreign currency translation adjustment | - |
- |
(31,838) |
- |
(31,838) |
||||
Comprehensive income | 317,903 | ||||||||
Stock options exercised | 21 | 36,373 | - | - | 36,394 | ||||
Stock retention programs | - | 427 | - | - | 427 | ||||
Employee stock awards | - | 358 | - | - | 358 | ||||
Issuance of common stock | 14 |
8,284 |
- |
- |
8,298 |
||||
Balance at January 2, 1998 | 1,961 |
156,606 |
68,089 |
765,211 |
991,867 |
||||
Comprehensive income: | |||||||||
Net earnings | - | - | - | 396,120 | 396,120 | ||||
Other comprehensive income, net of tax: | |||||||||
Unrealized holding losses on marketable securities arising during period (net of deferred income taxes of $22,508) |
- | - | (33,566) | - | (33,566) | ||||
Reclassification adjustment for gains
included in net earnings (net of deferred income taxes of $27,968) |
- |
- |
(42,001) |
- |
(42,001) |
||||
Net unrealized holding gains on marketable securities | - | - | (75,567) | - | (75,567) | ||||
Foreign currency translation adjustment | - |
- |
18,694 |
- |
18,694 |
||||
Comprehensive income | 339,247 | ||||||||
Stock options exercised | 17 | 49,148 | - | - | 49,165 | ||||
Stock retention programs | - | 348 | - | - | 348 | ||||
Employee stock awards | - | 414 | - | - | 414 | ||||
Issuance of common stock | 9 |
16,563 |
- |
- |
16,572 |
||||
Balance at January 1, 1999 | 1,987 |
223,079 |
11,216 |
1,161,331 |
1,397,613 |
||||
Comprehensive income: | |||||||||
Net earnings | - | - | - | 559,120 | 559,120 | ||||
Other comprehensive income, net of tax: | |||||||||
Unrealized holding gains on marketable securities arising during period (net of deferred income taxes of $20,970) |
- | - | 31,471 | - | 31,471 | ||||
Reclassification adjustment for gains
included in net earnings (net of deferred income taxes of $6,549) |
- |
- |
(10,022) |
- |
(10,022) |
||||
Net unrealized holding gains on marketable securities | - | - | 21,449 | - | 21,449 | ||||
Foreign currency translation adjustment | - |
- |
(73,708) |
- |
(73,708) |
||||
Comprehensive income | 506,861 | ||||||||
Stock options exercised | 50 | 139,628 | - | - | 139,678 | ||||
Stock retention programs | - | 538 | - | - | 538 | ||||
Stock split | 1,959 | - | - | (1,959) | - | ||||
Employee stock awards | - | 558 | - | - | 558 | ||||
Issuance of common stock | 47 |
3,103 |
- |
- |
3,150 |
||||
Balance at December 31, 1999 | $4,043 |
$366,906 |
$(41,043) |
$1,718,492 |
$2,048,398 |
||||
The accompanying notes are an integral part of these statements. |
CONSOLIDATED STATEMENTS OF CASH FLOW | |||||
Year Ended | Year Ended | Year Ended | |||
(in thousands)
|
12/31/99
|
1/1/99
|
1/2/98
|
||
Operating Activities | |||||
Net earnings | $559,120 | $396,120 | 275,302 | ||
Adjustments to reconcile net earnings to | |||||
net cash provided by operating activities: | |||||
Depreciation and amortization | 84,608 | 59,370 | 49,082 | ||
Provision for doubtful accounts | 2,025 | 7,572 | 1,494 | ||
Deferred income taxes | (804) | (2,282) | (4,812) | ||
Gain on the sale of investments | (42,572) | (74,398) | (21,098) | ||
Asset impairment | - | 24,793 | - | ||
Merger costs | 1,929 | 12,991 | - | ||
Net changes in assets and liabilities, | |||||
net of effects from acquisitions: | |||||
Accounts receivable | (137,620) | (182,699) | (132,596) | ||
Inventories | (42,977) | (31,352) | (13,674) | ||
Other current assets | (1,287) | (216) | (429) | ||
Long-term assets | (76,098) | (38,975) | (24,557) | ||
Accounts payable | 41,994 | 11,884 | 15,004 | ||
Accrued liabilities | (923) | 12,119 | 9,553 | ||
Income taxes | 74,166 | 43,416 | 62,780 | ||
Long-term liabilities | 2,246
|
3,018
|
2,836
|
||
Net Cash Provided by Operating Activities | 463,807
|
241,361
|
218,885
|
||
Investing Activities | |||||
Acquisition of property, plant and equipment, net | (98,866) | (80,625) | (90,219) | ||
Payments for purchases of marketable securities | (666,556) | (710,100) | (322,227) | ||
Proceeds from sales and maturities of marketable securities | 491,306 | 632,569 | 217,530 | ||
Payments for acquisitions, net of cash acquired | (143,420) | (16,941) | (7,821) | ||
Net change in loan receivable | -
|
1,000
|
-
|
||
Net Cash Used for Investing Activities | (417,536)
|
(174,097)
|
(202,737)
|
||
Financing Activities | |||||
Proceeds from issuance of common stock | 43,572 | 32,770 | 20,418 | ||
Proceeds from notes payable | - | 768 | 407 | ||
Payments of notes payable | (499)
|
(250)
|
(34)
|
||
Net Cash Provided by Financing Activities | 43,073
|
33,288
|
20,791
|
||
Effect of Exchange Rate Changes on Cash | (20,203) | 2,050 | (5,220) | ||
Net Increase in Cash and Cash Equivalents | 69,141 | 102,602 | 31,719 | ||
Cash and Cash Equivalents at Beginning of Year | 239,292
|
136,690
|
104,971
|
||
Cash and Cash Equivalents at End of Year | $308,433
|
$239,292
|
$136,690
|
||
Other Information | |||||
Interest paid | $307 | $253 | $345 | ||
Income taxes paid | $182,277 | $148,188 | $84,982 | ||
The accompanying notes are an integral part of these statements. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business
Operating in one business segment, the Company and its Subsidiaries design, assemble,
market and service a diverse line of electronic communications equipment used in public and
private networks worldwide.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its
Subsidiaries. All significant intercompany balances and transactions have been eliminated.
As more fully described in Note 3, the Company acquired NetCore Systems, Inc., and Coherent
Communications Systems Corporation in August 1999 and August 1998, respectively. These
acquisitions have been accounted for as poolings of interests. The consolidated financial
statements give retroactive effect to the acquisitions for all periods presented. In
addition, certain reclassifications have been made in 1997 and 1998 consolidated financial
statements to conform to the 1999 presentation.
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with original maturities
of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents, marketable
securities, cost-basis investments, and long-term debt. The carrying value of the cash and
cash equivalents and long-term debt approximates their estimated fair values based upon
quoted market prices. The fair value of investments in marketable securities is estimated
based on quotes from brokers or current rates offered for instruments with similar
characteristics.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the first-in,
first-out method.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation is computed using both the
declining-balance and straight-line methods. Buildings are depreciated over 25 to 40 years,
improvements over 7 years and equipment over 3 to 10 years.
Stock Options
Under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," the Company continues to apply Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and its
related interpretations in accounting for its stock-based compensation plans. Accordingly,
no compensation cost has been recognized for its fixed stock option plan grants.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases at enacted tax rates when such amounts
are expected to be realized or settled.
Goodwill
On an ongoing basis, management reviews the valuation and amortization of goodwill. As
part of this review, the Company estimates the value and future benefits of the net earnings
generated by the related assets to determine that no impairment has occurred. Goodwill is
amortized over terms ranging from 7 to 20 years using the straight-line method. The
accumulated amortization of goodwill was approximately $24,915,000 and $19,677,000 at
December 31, 1999, and January 1, 1999, respectively.
Revenue Recognition
The Company generally recognizes product revenue at the date of shipment and service revenue
as services are completed.
Earnings Per Share
In accordance with SFAS No. 128, "Earnings Per Share," earnings per share are based on both
the weighted-average number of shares outstanding and the weighted-average shares outstanding
adjusted for assumed conversions of stock options. (See Note 12.) On April 21, 1999, the
Company declared 2-for-1 stock split, payable in the form of a 100 percent stock dividend.
All references to the number of common shares and per-share amounts have been retroactively
restated to give effect to the stock dividend.
Foreign Currency Translation
The financial statements of the Company's subsidiaries are generally measured using the
local currency as the functional currency. Accordingly, the effect of translating a
subsidiary's stockholders' equity into U.S. dollars is recorded as a cumulative translation
adjustment in the Consolidated Balance Sheets.
Foreign Exchange
Foreign currency transaction gains and losses resulting from changes in exchange rates are
recognized in "Other income (expense)." Net gains (losses) of ($1,073,000), ($4,057,000) and
$1,933,000 were recorded in 1999, 1998 and 1997, respectively.
Fiscal Year
The Company operates on a 52-53 week fiscal year. The year ended January 2, 1998, contained
53 weeks, while all other years presented contained 52 weeks. The financial statement effect is
not significant.
2. New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on the accounting treatment of costs related to software obtained or developed for internal use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company adopted SOP 98-1 during 1999 and determined that it had no material impact on its reported consolidated results of operations, financial position, or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to be recorded on the balance sheet at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133". This statement defers the effective date of SFAS No. 133. As a result, SFAS No. 133 will not be effective for the Company until the year 2001. The Company is in the process of evaluating the impact of the reporting requirements of SFAS No. 133.
In December 1999, the staff of the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 summarizes the SEC staff's views in applying generally accepted accounting principles to the recognition of revenues. The Company has evaluated the impact of the reporting requirements of SAB No. 101 and has determined that there will be no material impact of its consolidated results of operations, financial position, or cash flows.
3. Business Combinations
In August 1999, the Company acquired NetCore Systems, Inc. ("NetCore"), a developer of carrier-class IP routing and ATM switching solutions, in a transaction accounted for as a pooling of interests. The Company issued approximately 8,868,000 shares of its common stock in exchange for all the outstanding common and preferred shares of NetCore. In 1999, the Company recognized a pre-tax charge of $1,929,000 for costs related to the NetCore acquisition.
In July 1999, the Company acquired Alcatel's DSC Communications businesses in Europe, now known as Tellabs Denmark. The acquisition covered DSC Communications' European headquarters in Denmark, along with its business operations in Drogheda, Ireland; sales and support offices in England, India and Poland; an interest in FIBCOM India Ltd. in India. Tellabs Denmark is a provider of managed, high-speed transport solutions that operate in synchronous-digital-hierarchy and dense wavelength-division-multiplexing environments. The acquisition was accounted for as a purchase, and accordingly, the results of operations of the acquired businesses were included in the consolidated operating results of Tellabs from the date of acquisition. The allocation of purchase price was as follows:
(in thousands) |
|
Fair value of assets acquired | $137,366 |
Cost in excess of fair value | 8,824 |
Liabilities assumed |
(39,799) |
Cash paid for acquisition |
$106,391 |
The total amount allocated to cost in excess of fair value is being amortized using the straight-line method over a period of seven years. Included in the assets acquired are $25,000,000 of identified intangible assets, which also are being amortized using the straight-line basis over a period of seven years. Pro forma combined operating results prepared assuming the acquisition had occurred at the beginning of the year are not being presented since they would not differ materially from reported results.
In August 1998, the Company acquired Coherent Communications Systems Corporation ("Coherent"), a developer, manufacturer and marketer of voice-quality enhancement products for wireless, satellite-based, cable communication, and wireline telecommunications systems throughout the world, in a transaction accounted for as a pooling of interests. The Company issued approximately 22,424,000 shares of its common stock to Coherent shareholders in exchange for all outstanding Coherent shares. In 1998, the Company recognized a pre-tax charge of $12,991,000 for costs related to the Coherent acquisition and its terminated merger with CIENA Corporation.
The Company has restated all prior consolidated financial statements presented to include the combined operating results, financial positions and cash flows of NetCore and Coherent as if they had been a part of the Company.
No material adjustments were recorded to conform the accounting policies of Tellabs, Coherent and NetCore. Certain reclassifications and adjustments were made to conform the Tellabs, Coherent and NetCore presentations, including the reclassification of costs related to the generation of customer service revenue from "Operating Expenses" to "Cost of Sales" and the the conversion of NetCore redeemable convertible preferred shares to common shares outstanding, for all periods presented, at the applicable exchange rates.
The table on the following page shows the historical results of operations of Tellabs and the restated combination of Coherent and NetCore for the periods prior to the acquisition dates of the companies.
(in thousands) |
Year Ended 12/31/99 |
Year Ended 1/1/99 |
Year Ended 1/2/98 |
Revenue: | |||
Tellabs | $2,319,498 | $1,660,102 | $1,203,546 |
Coherent | - | 44,108** | 73,695 |
NetCore | - |
- |
- |
Consolidated total, as restated | $2,319,498 |
$1,704,210 |
$1,277,241 |
Net Earnings (Loss): | |||
Tellabs | $568,212 | $398,328 | $263,689 |
Coherent | - | 4,698** | 13,979 |
NetCore | (12,022)* | (11,029) | (3,882) |
Reversal of NetCore deferred tax valuation allowance |
2,930 |
4,123 |
1,516 |
Consolidated total, as restated | $559,120 |
$396,120 |
$275,302 |
*Represents 1999 earnings for NetCore prior to the acquisition; NetCore's 1999 earnings after the acquisition are included in Tellabs' consolidated operating results.
**Represents 1998 revenues and earnings for Coherent prior to the acquisition,
Coherent's 1998 revenues and earnings after the acquisition were included in
Tellabs' consolidated operating results.
During the three years ended December 31, 1999, the Company made a number of purchase acquisitions. Pro forma results of operations have not been presented because the effects of these acquisitions were not material on either an individual or aggregated basis.
4. Investments
Available-for-sale marketable securities are accounted for at market prices with the unrealized gain or loss, net of deferred income taxes, shown as a separate component of stockholders' equity. At December 31, 1999, and January 1, 1999, they consisted of the following:
(In thousands) |
Amortized Cost |
Unrealized Gain/(Loss) |
Market Value |
1999 | |||
State and municipal securities | $239,032 | ($752) | $238,280 |
Preferred and common stocks | 102,013 | 73,791 | 175,804 |
U.S. government and agency debt obligations |
126,373 |
(2,728) |
123,645 |
Corporate debt obligations | 66,213 | (586) | 65,627 |
Foreign government debt obligations | 54,045 |
48 |
54,093 |
$587,676 |
$69,773 |
$657,449 |
|
1998 | |||
State and municipal securities | $72,174 | $1,084 | $73,258 |
Preferred and common stocks | 49,312 | 31,324 | 80,636 |
U.S. government and agency debt obligations |
76,802 |
(21) |
76,781 |
Corporate debt obligations | 44,423 | (247) | 44,176 |
Foreign government debt obligations | 143,882 |
661 |
144,543 |
$386,593 |
$32,801 |
$419,394 |
In 1999, the Company entered into various market price collars that lock in a price range for the sale of a certain stock held as an investment, thus guaranteeing a minimum selling price. These collars cover approximately 40 percent of the Company's investment and expire in December 2000. The Company will not sell the covered portion of the investment until the collars expire, provided that the market value of the investment exceeds the maximum selling price of the collars.
In 1999, the Company sold stock of a certain investment for a pre-tax gain of $36,875,000. In 1998, the Company sold stock of a certain investment and related hedge contracts for a pre-tax gain of $73,374,000.
During 1998, the Company contributed $13,100,000 in the form of stock from a certain investment to the Tellabs Foundation.
5. Financial Instruments
The Company conducts business on a global basis in several major currencies. Foreign currency risk is managed through the use of forward exchange contracts to hedge nonfunctional currency receivables and payables that are expected to be settled in less than one year. The Company does not enter into forward exchange contracts for trading purposes.
The foreign currency forward exchange contracts are primarily used to manage exposure to changes in the Finnish markka, Danish krone, Irish punt and U.S. dollar exchange rates. Gains and losses on the contracts are accounted for under the accrual method, with market value gains and losses on the contracts being recognized and combined with offsetting foreign exchange gains or losses on the net foreign accounts receivable and payable. Net losses on forward exchange contracts were $5,889,000, $339,000 and $3,794,000 for 1999, 1998 and 1997, respectively.
The table on the following page presents a summary of the notional and fair values of forward contracts by currency at December 31, 1999. The notional amounts are U.S. dollar values of the agreed-upon amounts in each foreign currency that will be delivered to a third-party on the agreed-upon date.
(in thousands) |
Notional Amount |
Fair Value |
Forward contracts at December 31, 1999: | ||
Related forward contracts to sell foreign currencies for Finnish markka |
$43,943 |
$43,969 |
Related forward contracts to sell foreign currencies for Danish kroner |
11,018 |
11,022 |
Related forward contracts to sell foreign currencies for Irish punts |
5,611 |
5,631 |
Related forward contracts to sell foreign currencies for U.S. dollars |
4,745 |
4,757 |
Total | $65,317 |
$65,379 |
6. Employee Benefit and Retirement Plans
The Company maintains a defined contribution 401(k) savings plan ("401(k) plan") for the benefit of eligible employees. Under the 401(k) plan, a participant may elect to defer a portion of annual compensation. Matching contributions equal to the first 3 percent of annual compensation were made by the Company for all eligible participants. The Company's Board of Directors may authorize discretionary contributions to the 401(k) plan, for which no amounts were authorized in 1999, 1998 or 1997. Contributions to the 401(k) plan are immediately vested in plan participants' accounts. The Company maintains similar plans for the benefit of eligible employees at its Finland, Ireland and Denmark subsidiaries.
The Company maintains defined contribution retirement and profit-sharing plans for the benefit of eligible employees. Under both plans, the Company's contributions totaled 5 percent of eligible annual compensation for each eligible participant in 1999, 1998 and 1997. No part of the contributions is vested until after a service period of five years, at which time the participant is fully vested. The Company's contributions to the profit sharing plan, which were 0.5 percent of eligible annual compensation in 1999, 1998 and 1997, are maintained as part of the 401(k) plan.
Company contributions to the 401(k) savings and profit-sharing plans were $12,665,000, $10,646,000 and $9,423,000 for 1999, 1998 and 1997, respectively. Company contributions to the retirement plan were $9,135,000, $6,166,000 and $5,559,000 for 1999, 1998 and 1997, respectively.
The Company maintains a defined-benefit retiree medical plan. Under the plan, which was implemented during 1999, the Company provides qualified retirees with a subsidy to supplement their medical costs and allows the retirees to participate in the Company-sponsored healthcare plan. The Company records, as part of operating expenses, the estimated current costs of the plan. In 1999, those costs were $1,293,000.
The Company provides a deferred compensation plan that permits certain officers and management employees to defer portions of their compensation. The deferred amounts earn an annual interest rate of 12 percent during the term of the plan. The liabilities for the deferred salaries plus interest are included in "Other Long-Term Liabilities."
The Company maintains an employee stock purchase plan. Under the plan, employees elect to withhold a portion of their compensation to purchase the Company's common stock at fair market value. The Company matches 15 percent of each employee's withholdings. Compensation expense is recognized for the amount that the Company contributes to the plan through its matching of participant withholdings.
The Company has a program to award shares of the Company's common stock to employees in recognition of their past service. Each full-time employee who has worked for a continuous 5-, 15- or 20-year period is awarded 10, 25 or 50 shares, respectively. When an employee stock award is granted, compensation expense is charged for the fair market value of the shares issued.
The Company has a number of employee retention programs under which certain employees, primarily as a result of the Company's acquisitions, are entitled to a specific number of shares of the Company's stock over a two-year vesting period.
7. Stock Options
At December 31, 1999, the Company had 10 stock-based compensation plans, which are described below. The Company applies APB Opinion No. 25 and its related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plan grants. Had compensation cost for the Company's stock-based compensation plans been determined using the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated in the following chart:
(in thousands, except per-share data) |
1999 |
1998 |
1997 |
Net earnings | |||
As reported | $559,120 | $396,120 | $275,302 |
Pro forma | $522,510 | $373,513 | $261,496 |
Earnings per common share | |||
As reported | $1.39 | $1.00 | $0.71 |
Pro forma | $1.30 | $0.95 | $0.67 |
Earnings per common share, assuming dilution |
|||
As reported | $1.36 | $0.98 | $0.69 |
Pro forma |
$1.27 |
$0.92 |
$0.65 |
These pro forma amounts may not be representative of future disclosures because the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years.
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for grants in 1999, 1998 and 1997:
|
1999 |
1998 |
1997 |
Expected volatility | 67.6% | 64.6% | 52.1% |
Risk-free interest rate | 5.4% | 4.9% | 6.2% |
Expected life | 4.1 yrs. | 4.3 yrs. | 4.3 yrs. |
Expected dividend yield | 0.0% | 0.0% | 0.0% |
The Company's 1984 Incentive Stock Option Plan is a tax-qualified plan that provides for 9,600,000 shares of common stock to be reserved for options that may be issued under the plan. The plan also provides that the option price shall be the market value of the Company's shares as of the date of grant, except for options granted to holders of 10 percent or more of the outstanding shares, in which case the option price shall be 110 percent of the market value of the Company's shares as of the date of grant. All options under the plan have been granted.
The Company's 1986 Non-Qualified Stock Option Plan provides for 24,000,000 shares of common stock to be reserved for options that may be issued under the plan. The plan provides that the option price shall be the market value of the Company's shares as of the date of grant. All options under the plan have been granted.
The Company's 1987 Stock Option Plan for Non-Employee Corporate Directors provides for the non-discretionary grant of options to non-employee directors of the Company to purchase a combined maximum of 2,400,000 shares of common stock, at a per-share price not less than the market value of the Company's shares on the date of grant. The 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 common stock and, provided such person is still serving as a non-employee director, will automatically be granted options to purchase 6,000 additional shares of common stock each year thereafter on the anniversary of the last day of the month in which the initial options were granted. Options granted under the 1987 plan expire five years from the grant date.
The Company's 1989 Stock Option Plan provides for 24,000,000 shares of common stock to be reserved for options that may be issued under the plan. The plan allows grants to employees of incentive or non-qualified options for up to 24,000,000 shares and up to 24,000,000 stock appreciation rights ("SARs"). The SARs may be granted in conjunction with, or independently of, the options under the plan. The plan provides that the option price and the SAR price shall be the market value of the Company's shares as of the date of grant. At December 31, 1999, 3,048,000 SARs with grant prices ranging from $0.38 to $0.54 and 5-year terms and 1,609,040 SARs with grant prices of $0.76 to $35.75 and 10-year terms had been granted. As of that date, a total of 4,586,112 SARs had been exercised and 33,400 had been canceled, leaving 37,528 outstanding.
The Company's 1991 Stock Option Plan provides for 12,000,000 shares of common stock to be reserved for options that may be issued under the plan. The plan allows grants to employees of incentive or non-qualified options. The plan provides that the option price shall be the market value of the Company's shares as of the date of grant.
The Company's 1994 Stock Option Plan provides for 16,000,000 shares of common stock to be reserved for options that may be issued under the plan. The plan allows grants to employees of incentive or non-qualified options. The plan provides that the option price shall be the market value of the Company's shares as of the date of grant.
The Company's 1998 Stock Option Plan provides for 16,000,000 shares of common stock to be reserved for options that may be issued under the plan, allowing grants to employees of incentive or non-qualified options for up to 16,000,000 shares and up to 2,000,000 SARs. The SARs may be granted in conjunction with, or independently of, the options under the plan. The plan provides that the option price shall be the market value of the Company's shares as of the date of grant. At December 31, 1999, 4600 SARs with exercise prices ranging from $56.44 to $70.06 and 10-year terms had been granted. As of that date, no SARs from the 1998 Plan had been exercised or canceled, leaving 4,600 outstanding.
The Company's 1982 and 1993 Stock Option Plans provide for 1,266,346 shares of common stock to be reserved for options that may be issued under the plans. The plans were acquired in 1998 through the acquisition of Coherent. No further awards may be made under the plans.
The Company's 1997 Stock Option Plan provides for 504,789 shares of common stock to be reserved for options that may be issued under the plan. The plan was acquired in 1999 through the merger with NetCore. No further awards may be made under the plan.
In July 1996, the Company began a Global Option Program ("the Program"), under which all full-time employees below director level as of July 8, 1996, were granted non-qualified options or SARs to purchase 800 shares plus 40 shares for each year of service. The grants were dated July 22, 1996, with a price of $14.31. The options were granted from the 1994 Plan and the SARs from the 1989 Plan. In 1997, the Company continued the Program by granting 400 nonqualified options or SARs to all full-time employees below director level hired from July 9, 1996, through October 24, 1997. All such grants were dated October 24, 1997, with a price of $25.25. Any employee below director level hired between October 24, 1997 and July 2, 1999, will receive a grant of 200 non-qualified options or SARs dated the first day of the fiscal quarter in which the employee is hired. In October 1998, the Company continued the Program by granting non-qualified options or SARs to purchase 400 shares to all full-time employees below the management level. The grants were dated October 8, 1998, with a price of $17.13. The options were granted from various plans and the SARs from the 1989 Plan.
Unless the option agreements provide otherwise, options or SARs granted under the 1982, 1984, 1986, 1989, 1991, 1993, 1994, 1997 and 1998 plans become exercisable on a cumulative basis at a rate of 25 percent on each of the first through fourth anniversaries of the grant date. Unless the option agreements provide otherwise, options under the 1986 plan terminate at the end of five years after the grant; options under the 1982 and 1993 plans terminate at the end of seven years after the grant; and options or SARs granted under the 1984, 1989, 1991, 1994, 1997 and 1998 plans terminate at the end of 10 years after the grant.
A summary of the status of the Company's options plans as of December 31, 1999, January 1, 1999, and January 2, 1998, and of changes during the years ending on these dates is presented in the following chart:
|
1999 |
|
1998 |
|
1997 |
|
Shares |
Weighted Average Exercise Price |
Shares |
Weighted Average Exercise Price |
Shares |
Weighted Average Exercise Price |
|
Outstanding- beginning of year |
24,666,367 |
$12.12 |
23,180,908 |
$10.35 |
23,654,374 |
$6.11 |
Granted | 4,149,704 | 56.05 | 5,671,550 | 15.30 | 4,330,670 | 26.52 |
Exercised | (6,461,405) | 6.27 | (3,482,878) | 4.39 | (4,193,256) | 2.85 |
Forfeited | (813,460) |
22.70 | (703,213) |
17.44 | (610,880) |
12.13 |
Outstanding-end of year | 21,541,206 |
$21.93 | 24,666,367 |
$12.12 | 23,180,908 |
$10.35 |
Exercisable at end of year |
10,549,811 |
12,693,171 |
12,916,806 |
|||
Available for grant | 12,984,718 | 16,194,352 | 5,824,996 | |||
Weighted-average fair |
$35.20 |
$10.24 |
$13.29 |
Options Outstanding and Exercisable as of December 31, 1999, by Price Range:
|
Outstanding |
|
Exercisable |
|
||
Range of Exercise Prices |
Shares |
Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price |
Shares |
Weighted Average Exercise Price |
|
$0.11 - $3.30 | 4,817,881 | 3.93 | $2.10 | 4,629,100 | $2.16 | |
$3.72 - $14.31 | 4,609,038 | 6.04 | $13.13 | 3,341,712 | $12.70 | |
$14.32 - $17.13 | 4,395,186 | 8.58 | $17.11 | 969,677 | $17.11 | |
$17.19 - $56.44 | 4,617,916 | 7.53 | $29.28 | 1,609,322 | $25.91 | |
$58.19 - $70.06 | 3,101,185 |
9.76 | $61.68 | 0 |
$0.00 | |
$0.11 - $70.06 | 21,541,206 |
6.94 | $21.93 | 10,549,811 |
$10.49 |
8. Income Taxes
Year Ended | Year Ended | Year Ended | ||||
(in thousands) |
|
12/31/99 |
|
1/1/99 |
|
1/2/98 |
Components of the Company's earnings | ||||||
before income taxes are as follows: | ||||||
Domestic source | $575,918 | $371,680 | $247,386 | |||
Foreign source | 240,315 |
213,077 |
169,441 |
|||
Total | $816,233 |
$584,757 |
$416,827 |
|||
The provision for income tax expense | ||||||
(benefit) consists of the following: | ||||||
Current: | ||||||
Federal | $181,663 | $115,611 | $86,304 | |||
State | 26,854 | 17,927 | 15,916 | |||
Foreign | 49,400 |
57,381 |
44,117 |
|||
257,917 |
190,919 |
146,337 |
||||
Deferred: | ||||||
Federal | (4,676) | (2,644) | (5,172) | |||
State and foreign | 3,872 |
362 |
360 |
|||
(804) |
(2,282) |
(4,812) |
||||
Total | $257,113 |
$188,637 |
$141,525 |
Ending Balance | Ending Balance | ||
(in thousands) |
12/31/99 |
1/1/99 |
|
Deferred tax assets (liabilities) for 1999 and | |||
1998 comprise the following: | |||
Deferred Tax Assets | |||
Inventory reserves | $9,637 | $7,399 | |
Deferred employee benefit expenses | 2,496 | 4,049 | |
Deferred compensation plan | 5,828 | 4,500 | |
Accrued liabilities | 2,946 | 5,595 | |
NOL and research and development | |||
credit carryforwards | 46,844 | 6,497 | |
Other | 4,087 |
2,568 |
|
Gross deferred tax assets | 71,838 |
30,608 |
|
Deferred Tax Liabilities | |||
Unrealized gain on marketable securities | (26,665) | (13,299) | |
Depreciation | (7,533) | (16,352) | |
Amortizable intangibles | (6,923) | - | |
Other | (2,839) |
(2,382) |
|
Gross deferred tax liabilities | (43,960) |
(32,033) |
|
Valuation allowance | (42,283) | (905) | |
Net Deferred Tax Liability | ($14,405) |
($2,330) |
Year Ended | Year Ended | Year Ended | ||||
(In percentages) |
|
12/31/99 |
|
1/1/99 |
|
1/2/98 |
Federal income taxes at the statutory rate are | ||||||
reconciled with the Company's income tax | ||||||
provision as follows: | ||||||
Statutory U.S. income tax rate | 35.0% | 35.0% | 35.0% | |||
Foreign income taxes | (2.6) | (2.0) | (2.3) | |||
Research and development credit | (1.5) | (0.8) | (0.9) | |||
Tax benefits associated with merger of Finland subsidiaries | (0.3) | (0.5) | (0.7) | |||
Benefit attributable to foreign sales corporation | (0.3) | (0.3) | (0.3) | |||
State income tax, net of federal benefits | 2.0 | 1.9 | 2.5 | |||
Charitable contribution | - | (0.8) | - | |||
Other - net | (0.8) |
(0.2) |
0.7 |
|||
Effective Income Tax Rate | 31.5% |
32.3% |
34.0% |
The net deferred income tax liability increased to $14,405,000 at December 31, 1999, from $2,330,000 at January 1, 1999. The increase in the deferred tax balance is primarily attributable to deferred taxes required for the market-to-market adjustment in investments in accordance with SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities."
The Company recorded an additional net deferred tax asset for the 1999 research and development credits and net operating loss carryforwards associated with the 1999 acquisition of NetCore in the amount of approximately $3,159,000. A valuation allowance is provided when it is more likely that not that some portion of the deferred tax asset will not be realized. At the end of 1998, the Company had a valuation allowance of $905,000 associated with the state net operating losses. In 1999, an additional $743,000 of valuation allowance was provided for state net operating losses.
As part of the 1999 acquisition of Tellabs Denmark, the Company acquired a deferred tax asset of approximately $40,635,000. This represents net operating loss carryforwards and depreciation offset by a deferred tax liability relating to intangibles. The Company has established a valuation allowance equal to the entire balance of $40,365,000 because it is more likely that not that this deferred tax asset will not be realized.
Deferred U.S. income taxes are not provided on the undistributed cumulative earnings of foreign subsidiaries because such earnings are considered to be permanently invested in those operations. The cumulative earnings of foreign subsidiaries were approximately $533,908,000 at December 31, 1999. The amount of unrecognized deferred tax liability for undistributed cumulative earnings of foreign subsidiaries at December 31, 1999, was approximately $72,445,000.
9. Segment and Geographical Information
The Company manages its business in one operating segment.
Consolidated net sales by product group are as follows:
(in thousands) |
1999 |
1998 |
Digital Cross-Connect Systems | $1,362,732 | $949,057 |
Managed Digital Networks | 438,933 | 404,182 |
Network Access Systems | 350,895 | 247,565 |
Other |
166,938 |
103,406 |
Total |
$2,319,498 |
$1,704,210 |
Consolidated net sales by country, based on the location of the customers, are as follows:
(in thousands) |
1999 |
1998 |
United States | $1,628,353 | $1,139,568 |
Other Geographic Areas |
691,145 |
564,642 |
Total |
$2,319,498 |
$1,704,210 |
Long-lived assets by country are as follows:
(In thousands) |
1999 |
1998 |
United States | $353,332 | $239,252 |
Finland | 84,374 | 103,342 |
Denmark | 71,236 | - |
Other Geographic Areas |
58,021 |
33,658 |
Total |
$566,963 |
$376,252 |
A single customer accounted for approximately 10.9 percent, 11.9 percent and 10.9 percent of consolidated net sales in 1999, 1998 and 1997, respectively.
10. Commitments
The Company and its Subsidiaries have a number of operating lease agreements primarily involving office space, buildings and office equipment. These leases are non-cancellable and expire on various dates through 2012.
As of December 31, 1999, future minimum lease commitments under non-cancellable operating leases are as follows:
(In thousands) |
|
2000 | $23,743 |
2001 | 20,221 |
2002 | 13,357 |
2003 | 8,847 |
2004 | 7,321 |
2005 and thereafter |
47,171 |
Total Minimum Lease Payments |
$120,660 |
Rental expense for the years ended December 31, 1999, January 1, 1999, and January 2, 1998, was approximately $19,466,000, $16,728,000 and $9,609,000, respectively.
11. Long-Term Debt
Long-term debt at December 31, 1999, comprises industrial revenue bonds of $2,850,000. The industrial revenue bonds were issued on December 20, 1991, with the principal payable in October 2014. Interest is payable quarterly based on a variable interest rate set weekly based on market conditions for similar instruments. The effective rates for 1999, 1998 and 1997 were 3.32 percent, 3.47 percent and 3.71 percent, respectively. The debt is unsecured. The provisions of the loan agreement contain restrictive covenants, including a minimum net worth and debt-to-equity ratio, with which the Company was in compliance at December 31, 1999.
12. Earnings Per Share
Year Ended | Year Ended | Year Ended | |
(in thousands, except per-share data) |
12/31/99 |
1/1/99 |
1/2/98 |
The following chart sets forth the computation of earnings per share: |
|||
Numerator: | |||
Net earnings | $559,120 | $396,120 | $275,302 |
Denominator: | |||
Denominator for basic earning per share - weighted-average shares outstanding |
401,202 |
394,546 |
388,155 |
Effect of dilutive securities: | |||
Employee stock options and awards | 11,305 |
10,214 |
11,079 |
Denominator for diluted earnings per share- adjusted weighted-average shares outstanding and assumed conversions |
412,507 |
404,760 |
399,234 |
Earnings per share | $1.39 | $1.00 | $0.71 |
Earnings per share, assuming dilution | $1.36 | $0.98 | $0.69 |
13. Quarterly Financial Data (unaudited)
Selected quarterly financial data for 1999 and 1998 are as follows:
(in thousands, except per-share data) |
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
Total |
1999 | |||||
Net sales | $469,651 | $540,400 | $594,505 | $714,942 | $2,319,498 |
Gross profit | $275,517 | $329,345 | $350,848 | $425,758 | $1,381,468 |
Net earnings | $102,196 | $124,230 | $144,0401 | $188,6542 | $559,120 |
Earnings per share | $0.26 | $0.31 | $0.36 | $0.47 | $1.39* |
Earnings per share, assuming dilution | $0.25 | $0.30 | $0.351 | $0.462 | $1.36 |
1998 | |||||
Net sales | $346,769 | $407,721 | $428,387 | $521,333 | $1,704,210 |
Gross profit | $201,088 | $238,564 | $247,995 | $311,597 | $999,244 |
Net earnings | $70,895 | $121,1273 | $83,0814 | $121,017 | $396,120 |
Earnings per share | $0.18 | $0.31 | $0.21 | $0.31 | $1.00* |
Earnings per share, assuming dilution | $0.18 | $0.303 | $0.214 | $0.30 | $0.98* |
* The earnings-per-share computation for the year is a separate,
annual calculation. Accordingly, the sum of the quarterly earnings-per share amounts do
not
necessarily equal the earnings per share for the year.
1 Net earnings and earnings per share include a $1,929 pre-tax charge for costs
related to the acquisition of NetCore Systems, Inc. and a $6,934 pre-tax gain on the
sale of stock held as an investment. Pro forma net earnings and
earnings per share, assuming dilution, excluding these items, net of tax, would have been
$140,611
and $0.34, respectively.
2 Net earnings and earnings per share include a $29,941 pre-tax gain on the
sale of stock held as an investment. Pro forma net earnings and earnings per share,
assuming dilution, excluding this item, net of tax would have been
$168,144 and $0.41, respectively.
3 Net earnings and earnings per share include a $24,793 pre-tax asset impairment
charge at the Company's Wireless Systems Division and a $73,374 pre-tax gain
on the sale of stock held as an investment and the settlement of
related hedge contracts. Pro forma net earnings and earnings per share, assuming dilution,
excluding these items, net of tax, would have been $88,345 and
$0.22, respectively.
4 Net earnings and earnings per share include a $12,991 pre-tax charge for
merger costs related to the acquisition of Coherent Communications System Corporation
and the terminated merger with CIENA Corporation. Pro forma net
earnings and earnings per share, assuming dilution, excluding these items, net
of tax, would have been $91,850 and $0.23, respectively.
14. Subsequent Event
In December 1999, the Company announced that it is acquiring SALIX Technologies, Inc. ("SALIX"), a leading developer of class-independent switching solutions that enable service providers to offer next-generation, converged services, such as voice-over-ATM (VoATM), voice-over-IP (VoIP) and Internet services, over any network infrastructure. Tellabs will issue approximately 4,700,000 shares of its common stock for all the oustanding shares of the privately-held SALIX. The acquisition, valued at approximately $300,000,000, is scheduled to close in the first quarter of 2000 and is expected to be accounted for as a pooling of interests.
EXHIBIT No. 21
Tellabs Inc. and Subsidiaries
Subsidiaries of the Registrant
Name |
State or Other Jurisdiction of Incorporation |
Tellabs Operations, Inc. |
Delaware |
E. Coherent Communications Systems Ltd. |
United Kingdom |
Telecommunications Laboratories, Inc. |
Illinois |
Telecon Acquisition Corp. |
Delaware |
Tellabs Export, Inc. |
Delaware |
Tellabs Japan, Inc. |
Delaware |
Tellabs Manufacturing, Inc. |
Delaware |
Tellabs International, Inc. |
Illinois |
Tellabs Communications Canada Ltd. |
Canada |
Tellabs Netherlands B.V. |
Netherlands |
Tellabs do Brazil, Ltda. |
Brazil |
Tellabs N.Z. Ltd. |
New Zealand |
Tellabs H.K. Ltd. |
Hong Kong |
Tellabs Pty. Ltd. |
Australia |
Tellabs International de Mexico |
Mexico |
Tellabs Singapore Private Limited |
Singapore |
Tellabs Italia S.r.l. |
Italy |
Tellabs (Thailand) Co., Ltd. |
Thailand |
Tellabs Korea, Inc. |
Korea |
Tellabs (V.I.), Inc. |
U.S. Virgin Islands |
Tellabs India Private Limited |
India |
Tellabs Holdings B.V. |
Netherlands |
Tellabs Enterprises B.V. |
Netherlands |
Tellabs Oy |
Finland |
Kiinteisto Oy Mestarinkaare |
Finland |
Kiinteisto Oy Sinimaentie 6 |
Finland |
Tellabs AB |
Sweden |
Tellabs (S.A.) (Proprietary) Limited |
South Africa |
Tellabs SAS |
France |
Tellabs Holdings, Ltd. |
Ireland |
Tellabs (Ireland) Ltd. |
Ireland |
Tellabs Ltd. |
Ireland |
Tellabs Southern Europe S.A. |
Spain |
Tellabs Gmbh |
Germany |
Tellabs Research Ltd. |
Ireland |
Tellabs U.K. Ltd. |
United Kingdom |
Tellabs Communications UK Limited |
United Kingdom |
Tellabs Communications Ireland Limited |
Ireland |
Tellabs Communications Technologies |
Ireland |
Tellabs Denmark A/S |
Denmark |
DSC Communications Polska Sp. z.o.o. |
Poland |
DSC Communications (India) Private Limited |
India |
DSC Communications TMN A/S |
Denmark |
FIBCOM India Ltd. |
(40% Joint Venture) |
White Oak Merger Corp. |
Delaware |
Tellabs TG, Inc. |
Delaware |
Tellabs Transport Group, Inc. |
Quebec |
NetCore Systems, Inc. |
Delaware |
Tellabs Mexico, Inc. |
Delaware |
Tellabs de Mexico, S.A. de C.V. |
Mexico |
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-45788, 33-48972, 33-55487, 333-83509, 333-95135 and 333-87637) of Tellabs, Inc. of our report dated January 21, 2000, with respect to the consolidated financial statements and schedule of Tellabs, Inc. included and incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1999.
/s Ernst & Young LLP
Ernst & Young LLP
Chicago, Illinois
March 24, 2000