10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2001

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

            For the transition period from                         to                          

Commission file Number: 0-9692

TELLABS, INC.
(Exact name of registrant as specified in its charter)

Delaware	36-3831568
(State of Incorporation)	(I.R.S. Employer Identification No.)

4951 Indiana Avenue, Lisle, Illinois	60532
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (630) 378-8800

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___

Common Shares, $.01 Par Value - 409,229,965 shares outstanding on March 30, 2001.

TELLABS, INC.
INDEX

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Comparative Statements of Earnings
	Condensed Consolidated Comparative Balance Sheets
	Condensed Consolidated Comparative Statements of Cash Flow
	Notes to Condensed Consolidated Comparative Financial Statements
Item 2.	Management's Discussion and Analysis
PART II.	OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K
SIGNATURE

TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF EARNINGS
(Unaudited)
	Three
	Months Ended
(In thousands, except per-share data)	3/30/01	3/31/00
Net Sales
Product	$667,387	$594,001
Services and other	104,721	37,284
	772,108	631,285
Cost of sales
Product	291,957	244,928
Services and other	74,245	54,166
	366,202	299,094
Gross Profit	405,906	332,191
Operating expenses
Marketing, general and administrative	111,060	86,966
Research and development	127,604	93,020
Merger costs	-	5,760
Goodwill amortization	4,505	3,015
	243,169	188,761
Operating Profit	162,737	143,430
Other income (expense)
Interest income	14,544	11,846
Interest expense	(169)	(57)
Other	1,730	25,982
	16,105	37,771
Earnings Before Income Taxes and Cumulative Effect of   Change in Accounting Principle	178,842	181,201
Income taxes	56,335	60,690
Earnings Before Cumulative Effect of Change in Accounting Principle	122,507	120,511
Cumulative effect of change in accounting principle (net of tax of $13,409)	-	(29,161)
Net Earnings	$122,507	$91,350
Earnings per Share Before Cumulative Effect of Change   in Accounting Principle
Basic	$0.30	$0.29
Diluted	$0.29	$0.29
Cumulative Effect of Change in Accounting Principle per Share
Basic	$-	$(0.07)
Diluted	$-	$(0.07)
Earnings per Share
Basic	$0.30	$0.22
Diluted	$0.29	$0.22
Average number of common shares outstanding	408,771	408,794
Average number of common shares outstanding, assuming dilution	416,282	418,909
The accompanying notes are an integral part of these statements.

TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS
(Unaudited)
	March 30,	December 29,
	2001	2000
(In thousands, except share amounts)
Assets
Current Assets
Cash and cash equivalents	$ 381,428	$ 329,289
Investments in marketable securities	637,636	693,058
Accounts receivable, net	594,936	802,546
Inventories
Raw materials	250,645	211,405
Work in process	62,102	55,863
Finished goods	221,194	160,987
	533,941	428,255
Miscellaneous receivables and other current assets	54,965	69,331
Total Current Assets	2,202,906	2,322,479
Property, plant and equipment	814,525	756,895
Less: accumulated depreciation	311,510	296,134
	503,015	460,761
Goodwill, net	167,303	73,924
Intangibles and other assets, net	213,176	215,903
Total Assets	$ 3,086,400	$ 3,073,067
Liabilities
Current Liabilities
Accounts payable	$ 136,503	$ 155,006
Accrued liabilities	119,953	164,045
Income taxes	46,769	93,294
Total Current Liabilities	303,225	412,345
Long-term debt	2,850	2,850
Other long-term liabilities	26,938	24,221
Deferred income taxes	925	6,067
Stockholders' Equity
Preferred stock: authorized 5,000,000 shares of
$.01 par value; no shares issued and outstanding	-	-
Common stock: 1,000,000,000 shares of $.01 par
value; 412,229,965 and 411,182,947 shares
issued and outstanding	4,122	4,112
Additional paid-in capital	472,809	441,909
Treasury stock, at cost: 3,000,000 shares	(126,476)	(126,476)
Accumulated other comprehensive income
Cumulative translation adjustment	(154,255)	(127,018)
Unrealized net losses on
available-for-sale securities	(4,861)	(3,559)
Total accumulated other comprehensive income	(159,116)	(130,577)
Retained earnings	2,561,123	2,438,616
Total Stockholders' Equity	2,752,462	2,627,584
Total Liabilities and Stockholders' Equity	$ 3,086,400	$ 3,073,067
The accompanying notes are an integral part of these statements.

TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW
(Unaudited)
	For the Three Months Ended
	March 30,	March 31,
(In thousands)	2001	2000
Operating Activities
Net earnings	$ 122,507	$ 91,350
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization	37,213	26,861
Tax benefit associated with stock option exercises	9,541	4,285
Provision for doubtful receivables	3,833	3,301
Deferred income taxes	3,709	(9,133)
Gain on investments	(657)	(25,870)
Merger costs	--	5,760
Net changes in assets and liabilities:
Accounts receivable	199,477	116,084
Inventories	(110,842)	(54,284)
Miscellaneous receivables and other current assets	1,852	808
Long-term assets	(11,142)	(27,719)
Accounts payable	(18,204)	31,316
Accrued liabilities	(41,467)	2,398
Income taxes	(46,738)	15,915
Long-term liabilities	2,799	742
Net Cash Provided by Operating Activities	151,881	181,814
Investing Activities
Acquisition of property, plant and equipment, net	(68,999)	(24,455)
Payments for purchases of investments	(205,798)	(93,619)
Proceeds from sales and maturities of
investments	258,845	71,684
Payments for acquisitions, net of
cash acquired	(89,010)	(535)
Net Cash Used in Investing Activities	(104,962)	(46,925)
Financing Activities
Proceeds from issuance of common stock	14,281	9,217
Payments of notes payable	--	(6,500)
Net Cash Provided by Financing Activities	14,281	2,717
Effect of Exchange Rate Changes on Cash	(9,061)	(7,657)
Net Increase in Cash and Cash Equivalents	52,139	129,949
Cash and Cash Equivalents at Beginning of Year	329,289	310,553
Cash and Cash Equivalents at End of Year	$ 381,428	$ 440,502
Other Information
Interest paid	$178	$44
Income taxes paid	$85,826	$36,029
The accompanying notes are an integral part of these statements.

TELLABS, INC.
NOTES TO CONDENSED CONSOLIDATED COMPARATIVE FINANCIAL STATEMENTS

1. Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and the requirements of Form 10-Q and applicable rules of Regulation S-X and accordingly do not include all disclosures normally required by generally accepted accounting principles for complete financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) which are necessary for a fair presentation. Operating results for interim periods are not necessarily indicative of operating results for the full year. Accordingly, the financial statements and notes herein should be read in conjunction with the Form 10-K of Tellabs, Inc. ("Tellabs" or the "Company"), for the year ended December 29, 2000.

Prior year results of operations were restated to reflect the adoption of Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements" during the fourth quarter of 2000. In addition, certain reclassifications have been made in the 2000 financial statements to conform with the 2001 presentation.

2. Business Combinations

In February 2001, the Company acquired Future Networks, Inc. ("FNI"), a leader in standards-based voice and cable modem technology, for approximately $135,481,000. The aggregate purchase price consisted of cash paid to the former shareholders of FNI of approximately $94,896,000, cash held in escrow of approximately $35,480,000 payable contingent upon FNI achieving certain product development milestones, the value of FNI employee stock options exchanged for Tellabs stock options of approximately $4,930,000 and other acquisition costs. The acquisition was accounted for as a purchase, and accordingly, the results of operations of the acquired business were included in the consolidated operating results of Tellabs from the date of acquisition.

The preliminary allocation of purchase price was as follows:

(In thousands)
Fair value of assets acquired	$11,339
Cost in excess of fair value	99,034
Liabilities assumed	10,372
Purchase Price (excluding contingent milestone payments)	$100,001

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. 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.

3. New Accounting Policies

The Company adopted the Financial Accounting Standard Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," during the first quarter of 2001 (For more information see Note 6. "Derivative Financial Instruments").

4. Comprehensive Income
 
Comprehensive income for the first quarter of 2001 was $93,968,000 and $54,737,000 for the first quarter of 2000.

5. Earnings Per Share Reconciliation
 
The following table sets forth the computation of earnings per share:

	Three Months Ended
	March 30,	March 31,
(In thousands, except per-share amounts)	2001	2000
Numerator:
Net earnings before cumulative effect of   change in accounting principle	$122,507	$120,511
Cumulative effect of change in   accounting principle	-	(29,161)
Net earnings	$122,507	$91,350
Denominator:
Denominator for basic earnings per share-   weighted-average shares outstanding	408,771	408,794
Effect of dilutive securities:
Employee stock options and awards	7,511	10,115
Denominator for diluted earnings per share-   adjusted weighted-average shares outstanding   and assumed conversions	416,282	418,909
Earnings per share before cumulative effect of    change in accounting principle	$ 0.30	$ 0.29
Earnings per share before cumulative effect of    change in accounting principle,    assuming dilution	$ 0.29	$ 0.29
Cumulative effect of change in accounting    principle per share	$ -	$ (0.07)
Cumulative effect of change in accounting    principle per share assuming dilution	$ -	$ (0.07)
Earnings per Share	$ 0.30	$ 0.22
Earnings per Share, assuming dilution	$ 0.29	$ 0.22

6. Derivative Financial Instruments

Effective in the first quarter of 2001 Tellabs adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards that require companies to record all derivative instruments on the balance sheet at their fair value. Changes in the derivatives' fair value are to be reported in earnings or other comprehensive income, as appropriate.

Tellabs conducts business on a global basis in several major currencies and is subject to the risks associated with fluctuating foreign exchange rates. In response to this, Tellabs developed a foreign currency exposure management policy with the objective of mitigating the Company's financial exposure to changing foreign exchange rates, thus allowing management to focus its attention on its core business. This policy allows management to utilize derivative financial instruments, primarily foreign currency forward exchange contracts, to hedge up to 90% of existing nonfunctional currency receivables and payables that are expected to be settled in less than one year. It is the Company's policy to enter into forward exchange contacts only to the extent necessary to meet its overall goal of minimizing nonfunctional foreign currency exposures. Tellabs does not enter into forward exchange contracts for speculative purposes.

Nonfunctional foreign currency exposures are reviewed on a monthly basis and forward exchange contracts are entered into specifically to hedge these identified exposures. The principal currencies being hedged by the Company are the British pound, Danish krone, Euro and U.S. dollar.

In accordance with SFAS No. 133 all forward exchange contracts are recorded on the balance sheet at fair value. Forward exchange contracts receivable are included in other current assets, while forward exchange contracts payable are included as part of accrued liabilities in the consolidated condensed balance sheet. Changes in the fair value of these instruments are included in earnings, as part of other income and expense, in the current period. The Company's current hedging practices do not qualify for special hedge accounting treatment as prescribed in SFAS No. 133 since hedges of existing assets or liabilities that will be remeasured with changes in fair value reported currently in earnings are specifically excluded. Adoption of SFAS No. 133 had no significant impact on Tellabs' consolidated financial statements.

Derivative financial instruments involve elements of market and credit risk not recognized in the financial statements. The market risk that results from these instruments relates to changes in the foreign currency exchange rates, which is expected to be partially offset by movements in the underlying assets or liabilities being held. Credit risk relates to the risk of nonperformance by a counterparty to one of the Company's derivative transactions. Tellabs does not believe there is a significant credit risk because the counterparties are all large international financial institutions with high credit ratings. In addition, the Company also limits the amount of agreements entered into with any one financial institution in order to mitigate credit risk.

7. Subsequent Events

On April 18, 2001, Tellabs announced it was realigning its cost structure with its current expectations for lower revenue growth and also terminating the SALIX next-generation switching product effort. As a result, the Company will take a restructuring charge and other one-time charges in the second quarter for costs associated with reducing its workforce by about 550 people, consolidation of excess facilities, related fixed asset disposals, asset impairment and excess inventory. Total charges are expected to be in the range of $150 million to $225 million. The Company has also further reduced discretionary spending, generally eliminated salary increases this year, instituted a pay-cut for all corporate officers, aligned manufacturing capability with demand expectations, eliminated 450 temporary or contract positions and determined not to fill 1,100 open positions.

Management's Discussion and Analysis

Quarter Ended March 30, 2001 vs Quarter Ended March 31, 2000

Highlights, Accounting Restatements and Non-Comparable Items
Tellabs achieved record first quarter 2001 sales of $772.1 million, 22.3% higher than last year's restated first quarter results. This marks the 39^th consecutive quarter in which sales for the current quarter surpassed prior-year levels. During 2000, the Company adopted SAB No. 101, "Revenue Recognition in Financial Statements," which required the Company to modify its revenue recognition policies to be in compliance with the then newly issued guidelines and related interpretive guidance. The adoption of SAB No. 101 was accounted for as a change in accounting principle with the cumulative effect of the change to prior periods reported during the first period of 2000. Earnings per share, assuming dilution for the first quarter of 2001 were $0.29 compared to $0.22 in the comparable period last year.

Besides the accounting restatement, there were also a number of non-comparable items that occurred during the first quarter of 2000 that bear mentioning. Included in earnings were a pre-tax gain of $19.2 million ($12.7 million after-tax, or $0.03 per diluted share) on the sale of a certain stock held as an investment, a pre-tax gain of $4.6 million ($3.1 million after-tax, or $0.01 per diluted share) related to a distribution from one of the Company's technology investments and a pre-tax charge of $5.8 million ($3.8 million after-tax, or $0.01 per diluted share) related to the merger with SALIX in February 2000. In order to provide a more meaningful comparison of the Company's results of operations, all subsequent discussions will exclude the effects of these items.

Results of Operations
Sales for the first quarter of 2001 totaled $772.1 million compared to sales of $631.3 million for the first quarter of 2000. Sales of the Company's products for the first quarter of 2001 totaled $667.4 million compared to $594.0 million for the comparable period last year. The 12.4% growth in product sales resulted from higher optical networking product sales, which continued to be driven by sales of the Company's TITAN® 5500/5500S and TITAN 532L systems. Sales of optical networking products totaled $481.6 million compared to $393.4 million in the first quarter of 2000. Sales of the Company's broadband access products totaled $152.9 million for the first quarter of 2001 compared to $149.2 million for the comparable period last year. The modest growth in broadband access product sales resulted from unfavorable CABLESPAN® 2300 universal telephony distribution systems sales which partially negated relatively strong sales growth for the Company's FOCUS™ international-standard optical products. The decline in CABLESPAN systems sales resulted from the changing market conditions and industry-wide capital spending reductions seen during the first quarter of 2001. Sales of the Company's voice-quality enhancement products totaled $32.9 million compared to $51.3 million in the comparable quarter last year. The decline in voice-quality enhancement equipment sales was due mainly to lower sales of the Company's digital echo cancellation products.

Revenues from the Company's professional services and solutions area totaled $104.7 million compared to $37.3 million in the first quarter of 2000. The strong growth in service revenue was attributable to installation and testing of the Company's various products that were sold during the first quarter of 2001 and latter part of 2000.

Sales within the United States, for the first quarter of 2001, accounted for approximately 79.1% of total sales, an increase of 31.4% compared to the same period last year. Sales outside the United States accounted for approximately 20.9% of total sales, and remained relatively consistent compared to the first quarter of 2000.

Gross margin as a percentage of sales for the first quarter of 2001 was 52.6%, which remained stable compared to the first quarter of 2000. Gross product margin as a percentage of product sales was 56.3% compared to 58.8% attained in the first quarter of 2000. Although setting a record for first quarter sales, the sales level achieved in 2001 was still below the Company's original expectations. As a result, product margins were negatively impacted due to the inability to absorb the manufacturing costs and expenditures that were already in place to meet the higher revenue target. Gross service margin as a percentage of service revenue improved to 29.1%, as a result of the Company's continued efforts to provide its services utilizing the most cost-effective means.

Operating expenses for the first quarter of 2001 were $243.2 million compared to $183.0 million for the first quarter of 2000. As a percentage of sales, operating expenses were 31.5%, for the first quarter of 2001, compared to 29.0% for the same period last year. Research and development expenditures totaled $127.6 million, an increase of 37.2% over the first quarter of 2000. As a percentage of sales, research and development expenditures were 16.5% compared to 14.7% in the comparable period last year. The growth in research and development spending was the result of the Company's continued efforts to develop and modify both new and existing product solutions to meet the growing needs of service providers worldwide. Selling, general and administrative expenditures for the first quarter of 2001 totaled $111.1 million compared to $87.0 million in the first quarter of 2000. The 27.7% increase in selling, general and administrative spending was the result of increased staffing related and business infrastructure expenditures determined to be necessary to meet the current and anticipated future growth of the Company. As a percentage of sales, selling, general and administrative expenditures increased to 14.4% due primarily to the fact that the Company's business was geared toward supporting a higher sales target than actually occurred.

Other income was $16.1 million for the first quarter of 2001 compared to $14.0 million for the first quarter of 2000. The 14.9% increase resulted primarily from growth in interest income earned on the Company's cash and short-term investments. As a percentage of sales, other income remained relatively stable at 2.1% of sales.

The Company's effective tax rate for the first quarter of 2001 was 31.5% compared to 33.5% for the first quarter of 2000. Tellabs effective tax rate reflects the benefits of research and development tax credits and lower foreign tax rates, as compared to the United States federal statutory rate.

Liquidity and Capital Resources

Cash and cash equivalents at March 30, 2001 totaled $381.4 million compared to $329.3 million at December 29, 2000. During the first quarter of 2001, Tellabs generated $151.9 million in cash from operations, principally from inflows from accounts receivable collections and earnings adjusted for non-cash activity. Major operating cash outflows for the quarter were funding of the Company's inventory balance, to support 2001 projected sales levels and new product introductions, payments of taxes and the payout of 2000 global incentives.

The balance of accounts receivable, less allowances at March 30, 2001, totaled $594.9 million compared to $802.5 million at December 29, 2000. The overall decrease in accounts receivable was the result of collections of record fourth quarter 2000 sales. Days sales in billed receivables outstanding ("DSO") was 70 days compared to 72 days at December 29, 2000. Decreasing DSO and improving the related processes remain important objectives of the Company.

Tellabs inventory balance at March 30, 2001 was $533.9 million compared to $428.3 million at year-end. The overall growth in inventories was the result of a number of factors including: shipments of the Company's TITAN 6500 Multiservice Transport Switch ("MTS") which were not recognized as revenue; a buildup of optical networking inventory for orders that were deferred late in the quarter; and a buildup of CABLESPAN inventory due to slower sales growth than forecasted. The balance of goodwill, intangibles and other assets increased $90.7 million during the first quarter of 2001, mainly due to the goodwill related to the FNI acquisition.

During the first quarter of 2001 the Company used $105.0 million in cash for investing activities. The principal investing use of cash during the period was the acquisition of FNI (For more information see Note 2. "Business Combinations") for $89.0 million, net of cash acquired. Tellabs had first quarter capital expenditures of $69.0 million, which were primarily to increase office space for research and development activities and staff personnel and for investments in equipment to support the production of the Company's optical networking products. During the quarter, the Company paid an additional $22.7 million towards the completion of its new corporate headquarters in Naperville, Illinois. This facility is slated for occupancy in the third quarter of 2001.

The Company's short-term marketable securities portfolio balance was $637.6 million at March 30, 2001, compared to $693.1 million at December 29, 2000. The reduction in the portfolio balance was primarily the result of the Company managing its liquidity position to meet the forecasted cash outflow requirements for the FNI acquisition, which were significantly higher than the actual cash outlay required during the first quarter.

Tellabs generated $14.3 million in cash from financing activities, principally from employee stock option exercises.

Working capital at March 30, 2001 totaled $1,899.7 million compared to $1,910.1 million at December 29, 2000. The current ratio at March 30, 2001 was 7.3 to 1 compared to 5.6 to 1 at December 29, 2000. Management believes the current level of working capital will be sufficient 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.

Outlook

On April 18, 2001, Tellabs provided revised guidance for the remainder of 2001 and also announced the termination of its SALIX next-generation switching product effort (For more information see Note 7. "Subsequent Events"). The Company expects sales for 2001 to be lower than originally anticipated in the range of $3.6 billion to $3.7 billion, with 2001 earnings per share expected to range between $1.55 and $1.65, excluding the goodwill from the acquisition of FNI.

Forward-Looking Statements

This Management's Discussion and Analysis and other sections of this Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements that are based on management's current expectations, estimates, forecasts and projections about the industries in which Tellabs operates and management's beliefs and assumptions. Words such as "expects", "anticipates", "believes", "feels", "intends", "plans", "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties. Such risks and uncertainties include, but are not limited to: economic changes impacting the telecommunications industry; new product acceptance; product demand and industry capacity; competitive products and pricing; manufacturing efficiencies; research and new product development; protection and access to intellectual property, patents and technology; ability to attract and retain highly qualified personnel; availability of components and critical manufacturing equipment; facility construction and start-ups; the regulatory and trade environment; availability and terms of future acquisitions; uncertainties relating to 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 SEC. The Company's actual future results could differ materially from those predicted in such forward-looking statements. The Company undertakes no obligation to revise or update these forward-looking statements.

PART II. OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

(A) Exhibits

Exhibit No.	Description
Exhibit 10.1	Amendment to the Coherent Communications Systems Corporation   1993 Equity Compensation Plan
Exhibit 10.2	Tellabs, Inc. 2001 Stock Option Plan

(B) Reports on Form 8-K:

     The Registrant filed a press release on April 20, 2001, announcing earnings for the quarter ended March 30, 2001. The Registrant also announced its plan to realign expenses with its current expectations for lower revenue and earnings growth, as well as the termination of the SALIX next-generation-switching product effort.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

                       TELLABS, INC.
                     (Registrant)

                             /s James A. Dite
                        James A. Dite
                                              Vice President and Controller
                                              (Principal Accounting Officer)

May 8, 2001
(Date)

EXHIBIT INDEX

Exhibit No.	Description
Exhibit 10.1	Amendment to the Coherent Communications Systems Corporation   1993 Equity Compensation Plan
Exhibit 10.2	Tellabs, Inc. 2001 Stock Option Plan

EX-10.1

AMENDMENT TO THE

COHERENT COMMUNICATIONS SYSTEMS CORPORATION

AMENDED AND RESTATED 1993 EQUITY COMPENSATION PLAN

WHEREAS, Coherent Communications Systems Corporation Coherent has heretofore established the Coherent Communications Systems Corporation Amended and Restated 1993 Equity Compensation Plan (the "Plan") for the benefit of employees, non-employee directors, and eligible independent contractors of Coherent Communications Systems Corporation and its subsidiaries;

WHEREAS, Coherent was acquired by Tellabs, Inc. ("Tellabs") in a merger on August 3, 1998, and Coherent subsequently merged into Tellabs Operations, Inc. (the "Corporation");

WHEREAS, the Board of Directors of Tellabs deems it desirable to make certain amendments to the Plan relating to the vesting of options and stock appreciation rights ("SARs") and/or the post-employment exercise period in the event of the death, disability, or retirement of an option or SAR holder, or a change in control of Tellabs;

WHEREAS, the Board of Directors has considered the recommendations; and

WHEREAS, the Board of Directors of the Corporation has approved this Amendment to the Plan.

NOW, THEREFORE, BE IT RESOLVED, that the Plan is hereby amended, effective June 30, 2000, as follows:

1. Under Section 1 of the Plan, the following definition of "Change in Control" shall be added:




(f) "Change in Control" means the first to occur of:

(i) Any "person" (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding for this purpose, Tellabs, Inc. ("Tellabs") or any subsidiary of Tellabs, or any employee benefit plan of Tellabs or any subsidiary of Tellabs, or any person or entity organized, appointed or established by Tellabs for or pursuant to the terms of any such plan which acquires beneficial ownership of voting securities of Tellabs, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of Tellabs representing 20% or more of the combined voting power of Tellabs's then outstanding securities; provided, however, that no Change in Control will be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by Tellabs; and provided further that no Change in Control will be deemed to have occurred if a person inadvertently acquires an ownership interest of 20% or more but then promptly reduces that ownership interest below 20%;




(ii) During any two consecutive years (not including any period beginning prior to June 30, 2000), individuals who at the beginning of such two-year period constitute the Board of Directors of Tellabs and any new director (except for a director designated by a person who has entered into an agreement with Tellabs to effect a transaction described elsewhere in this definition of Change in Control) whose election by the Board or nomination for election by Tellabs' stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (such individuals and any such new director, the "Incumbent Board") cease for any reason to constitute at least a majority of the Board;

(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of Tellabs (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of outstanding voting securities of Tellabs immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the company resulting from such Business Combination (including, without limitation, a company which as a result of such transaction owns Tellabs or all or substantially all of Tellabs' assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding voting securities of Tellabs; (B) no person (excluding any company resulting from such Business Combination or any employee benefit plan (or related trust) of Tellabs or such company resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then combined voting power of the then outstanding voting securities of such company except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors of the company resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(4) Approval by the stockholders of Tellabs of a complete liquidation or dissolution of Tellabs.



2. Under Section 1 of the Plan, the following definition of "Disability" shall be added:




(i) "Disability" shall have the meaning ascribed to such term in Section 22(e)(3) of the Code.



3. Section 5(h) shall be amended in its entirety to read as follows:




(h) Termination of Employment. Except as set forth in Section 5(k) with respect to the effect of a Change in Control or except as the Committee may otherwise expressly provide in the Agreement evidencing an Option or Stock Appreciation Right the following rules shall apply upon termination of the Participant's employment with the Company and all Subsidiaries:

(i) Except as set forth in subsections (ii), (iii), (iv), and (v) below, unless otherwise determined by the Committee at or after grant, in the event of a Participant's termination of employment (voluntary or involuntary) for any reason other than as provided below, any Stock Option or Stock Appreciation Right held by such Participant may thereafter be exercised by the Participant, to the extent it was exercisable at the time of such termination or on such accelerated basis as the Committee may determine at or after grant, for a period of three months (or shorter period as the Committee may specify at grant) from the date of such termination of employment or until the expiration of the stated term of such Grant, whichever period is shorter.

(ii) Unless otherwise determined by the Committee at or after grant, if any Participant ceases to be employed by the Company on account of a Termination for Cause by the Company, any Stock Option held by such Participant shall terminate as of the date the Participant ceases to be employed by the Company, and the Participant shall automatically forfeit all Stock underlying any exercised portion of an Option for which the Company has not yet delivered the share certificates, upon refund by the Company of the Exercise Price paid by the Participant for such Stock.

(iii) In the event of termination of employment due to the death the Participant, each Option and Stock Appreciation Right held by the Participant shall become exercisable in full and may be exercised at any time prior to the expiration date of the Grant or within one year after the date of the Participant's death, whichever period is shorter, and in the event of death within three months after the date on which the Participant ceases to be employed by the Company on account of termination of employment specified in Section 5(h)(i) above, the Grant may be exercised prior to the expiration date or within one year after the date of termination, whichever is shorter.

(iv) In the event of termination of employment due to the Disability of the Participant, each Option or Stock Appreciation Right held by the Participant may, to the extent exercisable at the time of termination of employment, be exercised at any time prior to the expiration date of the Grant or within three years after the date of the Participant's termination of employment, whichever period is shorter.

(v) In the event of termination of employment due to the retirement of the Participant on or after attaining age 55, all or a portion of each Option and Stock Appreciation Right held by the Participant, to the extent not then exercisable, shall become exercisable in accordance with the schedule set forth below based upon one point for the Participant's attained age and one point for each year of continuous service with the Company or its Subsidiaries as of the date of retirement (including for this purpose, continuous service with an entity prior to the date such entity was acquired by the Company or a Subsidiary of the Company, but excluding any service prior to January 1, 1975),




At least 70 but less than 80 points          50% of each unvested Grant shall vest
At least 80 but less than 90 points          75% of each unvested Grant shall vest
At least 90 points                                  100% of each unvested Grant shall vest




and all Options and Stock Appreciation Rights held by the Participant to the extent then exercisable may be exercised at any time prior to the expiration date of the Grant or within three years after the date of the Participant's retirement, whichever period is shorter.

(vi) Notwithstanding anything in this Plan to the contrary, any Incentive Stock Option which is exercised after the expiration of three months following the cessation of employment for any reason other than Disability or death or one year after the date of termination of employment due to Disability or death, shall be treated as a Non-Qualified Stock Option.



4. The Plan shall hereby be amended by adding a new Section 5(k) to read:

(k) Change in Control.

(i) Upon the occurrence of a Change in Control, any and all Options and Stock Appreciation Rights granted hereunder shall become immediately exercisable and remain exercisable until such Options and Stock Appreciation Rights expire or terminate under the provisions of this Plan.

(ii) Upon the occurrence of a Change in Control not approved by the Incumbent Board, any and all Options and Stock Appreciation Rights granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term without regard to termination of employment subsequent to such Change in Control.

IN WITNESS WHEREOF, the foregoing amendments to the Coherent Communications Systems Corporation Amended and Restated 1993 Stock Option Plan are hereby adopted as of the 30th day of June, 2000, by the undersigned officer duly authorized by resolutions adopted by the written consent of the Board of Directors dated June 30, 2000.

TELLABS OPERATIONS, INC.

By: /s Brian J. Jackman

Name: Brian J. Jackman

Its: President

EX-10.2

TELLABS, INC.

2001 STOCK OPTION PLAN

Article 1.

Establishment, Objectives, and Duration

1.1 Establishment of the Plan. Tellabs, Inc., a Delaware corporation (hereinafter referred to as the "Company"), hereby establishes the incentive compensation plan to be known as the Tellabs, Inc. 2001 Stock Option Plan (hereinafter referred to as the "Plan").

Subject to approval by the Company's stockholders, the Plan shall become effective as of January 24, 2001 (the "Effective Date") and shall remain in effect as provided in Section 1.3 hereof.

1.2 Purpose of the Plan. The purpose of this Plan is to benefit the Company and its subsidiaries and affiliated companies by enabling the Company to offer to certain employees stock based incentives and other equity interests in the Company, thereby giving them a stake in the growth and prosperity of the Company and encouraging the continuance of their services with the Company or subsidiaries or affiliated companies.

1.3 Duration of the Plan. The Plan shall commence on the Effective Date and shall remain in effect, subject to the right of the Board of Directors to amend or terminate the Plan at any time pursuant to Article 11 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan's provisions.

Article 2.

Definitions

Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:

"Award" means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options or Stock Appreciation Rights.

"Award Date" means the date an Award is granted to the Participant.

"Award Agreement" means a writing provided by the Company to each Participant setting forth the terms and provisions applicable to Awards granted under this Plan. The Participant's acceptance of the terms of the Award Agreement shall be evidenced by his or her continued employment without written objection before any exercise or payment of the Award. If the Participant objects in writing, the grant of the Award shall be revoked.

"Board" or "Board of Directors" means the Board of Directors of the Company.

"Change in Control" means the first to occur of:

(a) Any "person" (as defined in Section 13(d) and 14(d) of the Exchange Act), excluding for this purpose, the Company or any Subsidiary of the Company, or any employee benefit plan of the Company or any Subsidiary of the Company, or any person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan which acquires beneficial ownership of voting securities of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided, however, that no Change in Control will be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by the Company; and provided further that no Change in Control will be deemed to have occurred if a person inadvertently acquires an ownership interest of twenty percent (20%) or more but then promptly reduces that ownership interest below twenty percent (20%);

(b) During any two (2) consecutive years (not including any period beginning prior to the Effective Date), individuals who at the beginning of such two (2) year period constitute the Board of Directors of the Company and any new director (except for a director designated by a person who has entered into an agreement with the Company to effect a transaction described elsewhere in this definition of Change in Control) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (such individuals and any such new director, the "Incumbent Board") cease for any reason to constitute at least a majority of the Board;

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of outstanding voting securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the company resulting from such Business Combination (including, without limitation, a company which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding voting securities of the Company; (ii) no person (excluding any company resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such company resulting from such Business Combination) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then combined voting power of the then outstanding voting securities of such company except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of the company resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination;

(d) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or

(e) A tender offer (for which a filing has been made with the Securities and Exchange Commission ("SEC")) which purports to comply with the requirements of Section 14(d) of the Securities Exchange Act of 1934 and the corresponding SEC rules) is made for the outstanding voting securities of the Company, then the first to occur of:

(1) Any time during the offer when the person making the offer owns or has accepted for payment securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities, or

(2) Three business days before the offer is to terminate unless the offer is withdrawn first if the person making the offer could own, by the terms of the offer plus any securities owned by such person, securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities when the offer terminates.

"Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation thereto.

"Committee" means the Committee as specified in Article 3 herein appointed by the Board to administer the Plan with respect to grants of Awards.

"Common Stock" means the common stock, $.01 par value per share, of the Company.

"Company" means Tellabs, Inc., a Delaware corporation, as well as any successor to such entity as provided in Article 13 herein.

"Director" means any individual who is a member of the Board of Directors of the Company.

"Disability" shall have the meaning ascribed to such term in the long-term disability plan which governs any such benefits to which Participant may be or may become entitled. If no long term disability plan is in place with respect to a Participant, then with respect to that Participant, Disability shall mean: for the first twenty-four (24) months of disability, that the Participant is unable to perform his or her job; thereafter, that the Participant is unable to perform any and every duty of any gainful occupation for which the Participant is reasonably suited by training, education or experience.

"Effective Date" shall have the meaning ascribed to such term in Section 1.1 hereof.

"Employee" means any employee of the Company or any Subsidiary and any individual who has accepted employment with the Company or any Subsidiary; but shall not include any individual while such individual is providing services to the Company or any Subsidiary in the capacity of, or is or was designated by the Company or a Subsidiary as, an independent contractor.

"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.

"Fair Market Value" shall mean an amount equal to the closing price on the applicable date for sales of shares of Common Stock made and reported through the National Market System of the National Association of Securities Dealers, Inc. or such national stock exchange on which the Common Stock may then be listed and which constitutes the principal market for the Common Stock, or, if no sales of Common Stock shall have been reported with respect to that date, on the next preceding date with respect to which sales were reported.

"Freestanding SAR" means a stock appreciation right that is granted independently of any Options, as described in Article 7 herein.

"Incentive Stock Option" or "ISO" means an option to purchase Shares granted under Article 6 herein and which is designated as an Incentive Stock Option and which is intended to meet the requirements of Code Section 422.

"Nonqualified Stock Option" or "NQSO" means an option to purchase Shares granted under Article 6 herein and which is not intended to meet the requirements of Code Section 422.

"Option" means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6 herein.

"Option Price" means the price at which a Share may be purchased by a Participant pursuant to an Option.

"Participant" means any individual who has outstanding an Award granted under the Plan.

"Shares" means shares of Common Stock of the Company.

"Stock Appreciation Right" or "SAR" means an Award, granted alone or in connection with a related Option, designated as an SAR, pursuant to the terms of Article 7 herein.

"Subsidiary" means any Company, partnership, joint venture, affiliate, or other entity in which the Company is the direct or indirect beneficial owner of not less than twenty percent (20%) of all issued and outstanding equity interests.

"Tandem SAR" means an SAR that is granted in connection with a related Option pursuant to Article 7 herein, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be forfeited).

Article 3.

Administration

3.1 The Committee. The Plan shall be administered by the Compensation Committee of the Board, or by any other Committee appointed by the Board. If, and to the extent that, no Committee exists that has the authority to administer the Plan, the functions of the Committee shall be exercised by the full Board.

3.2 Authority of the Committee. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Committee shall have full power to select Employees and others who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend, or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article 11 herein) amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law, the Committee may delegate the authority granted to it herein.

3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its stockholders, Employees, Participants, and their estates and beneficiaries.

Article 4.

Shares Subject to the Plan and Maximum Awards

4.1 Shares Available for Awards. The aggregate number of Shares which may be delivered for purposes of this Plan with respect to Awards shall not exceed 38,000,000 Shares (subject to adjustment as provided in Section 4.3), which may be either authorized and unissued Shares or Shares held in or acquired for the treasury of the Company. Of the aggregate number of Shares, up to all of such Shares may be issued with respect to Incentive Stock Option Awards or Nonqualified Stock Option awards. In addition, up to an aggregate of 1,000,000 Freestanding SARs may be granted under the Plan. Upon:

(a) a cancellation, termination, expiration, forfeiture, or lapse for any reason (with the exception of the termination of a Tandem SAR upon exercise of the related Options, or the termination of a related Option upon exercise of the corresponding Tandem SAR) of any Award, then the number of Shares or SARs covered by the Award shall not be deemed to have been delivered or used for purposes of determining the maximum number of Shares which may be delivered or Freestanding SARs which may be granted under the Plan; or

(b) payment of an Option Price with previously-acquired shares and/or payment of any taxes arising upon exercise of an Option with previously acquired Shares or by withholding Shares which otherwise would be acquired on exercise, then only the number of Shares issued net of the number of Shares tendered or withheld shall be deemed delivered for purposes of determining the maximum number of Shares which may be delivered under the Plan.

4.2 Individual Participant Limitations. The following rules shall apply to grants of Awards under the Plan:

(a) Subject to adjustment as provided in Section 4.3 herein and subsection (b) below, the maximum aggregate number of Shares which may be issuable under Option Awards and used for reference purposes for Awards of Freestanding SARs that may be granted in any one (1) fiscal year to a Participant shall be 250,000.

(b) Notwithstanding the foregoing and subject to adjustment as provided in Section 4.3 herein, the maximum aggregate number of Shares which may be issuable under Option Awards and used for reference purposes for Awards of Freestanding SARs that may be granted to a Participant in the first (1st) fiscal year of the Participant's employment with the Company shall be 500,000.

4.3 Adjustments in Authorized Shares. In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, such adjustment shall be made in the number and class of Shares available for Awards, the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan and the number of Shares set forth in Sections 4.1 and 4.2, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of Shares subject to any Award shall always be a whole number.

Article 5.

Eligibility and Participation

5.1 Eligibility. Persons eligible to participate in this Plan include all officers and other Employees of the Company and its Subsidiaries, as determined by the Committee, including Employees who are members of the Board and Employees who reside in countries other than the United States of America. The Committee may, at its discretion, permit the participation in the Plan by those individuals who have accepted employment with the Company or a Subsidiary, but as of the date of their initial Awards have not yet commenced employment; provided, however, that in no event shall an ISO be granted to any Employee prior to the date such Employee commences employment with the Company or a Subsidiary.

5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Employees as described in Section 5.1 hereinabove those to whom Awards shall be granted and shall determine the nature and amount of each Award.

Article 6.

Stock Options

6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to one or more Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee. The Committee may grant Nonqualified Stock Options or Incentive Stock Options; provided, however, that (a) no ISO may be granted more than ten (10) years after the Effective Date of the Plan, (b) the Option Price with respect to any ISO granted to a Participant who is a ten percent (10%) stockholder within the meaning of Section 422 of the Code shall be not less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant and such ISO shall not be exercisable after the expiration of five (5) years from the date of grant, and (c) the aggregate Fair Market Value (determined on the date the ISO is granted) of the Shares subject each installment becoming exercisable for the first time in any calendar year under ISOs granted under all plans of the Company and any Subsidiary, including this Plan, to a Participant shall not exceed $100,000 (provided, that to the extent that the aggregate Fair Market Value (determined on the date of grant of the ISO) of the Shares subject to ISOs becoming exercisable for the first time in a calendar year exceeds $100,000 due to the acceleration of the exercisability of such installments, that portion of the ISOs (determined by taking ISOs into account in the order in which they were granted) in excess of such $100,000 amount shall be treated as Nonqualified Stock Options. The Committee shall have complete discretion in determining the number of Options granted to each Participant (subject to Article 4 herein).

6.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Award Agreement with respect to the Option also shall specify whether the Option is intended to be an ISO within the meaning of Code Section 422, or an NQSO whose grant is intended not to fall under the provisions of Code Section 422; provided, that the absence of any specification shall mean the Option is an NQSO.

6.3 Option Price. The Committee shall designate the Option Price for each grant of an Option under this Plan which Option Price shall be at least equal to one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted, and which Option Price may not be subsequently changed by the Committee except pursuant to Section 4.3 hereof or to the extent provided in the Award Agreement.

6.4 Duration of Options. Each Option granted to an Employee shall expire at such time as the Committee shall determine at the time of grant; provided, however, that unless otherwise designated by the Committee at the time of grant, no Option shall be exercisable later than the tenth (10th) anniversary date of its grant.

6.5 Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. Unless the Award Agreement expressly provides otherwise, the Options shall be exercisable in accordance with the following schedule:

Years After	Exercisable Percentage
Award Date	of Shares
Less than 1	0%
1 but less than 2	25%
2 but less than 3	50%
3 but less than 4	75%
4 but less than 10	100%

6.6 Notice of Exercise and Payment. Options granted under this Article 6 shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company in full either:

(a) in cash or its equivalent (included for this purpose, the proceeds from a cashless exercise as permitted under Federal Reserve Board's Regulation T),

(b) by tendering (either actually or by attestation of ownership) previously acquired Shares (Shares acquired on the open market or which have been held for at least six (6) months) having an aggregate Fair Market Value at the time of exercise equal to the total Option Price,

(c) by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law, or

(d) by any combination of (a), (b), and (c).

As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).

6.7 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable Federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.

6.8 Termination of Employment. Except as set forth in Article 10 with respect to the effect of a Change in Control or except as the Committee may otherwise expressly provide in the Award Agreement evidencing an Option, the following rules shall apply upon termination of the Participant's employment with the Company and all Subsidiaries:

(a) Except as set forth in subsections (b), (c), and (d) below, in the event a Participant ceases to be an Employee for any reason, any Option or unexercised portion thereof granted under this Plan may be exercised, to the extent such Option would have been exercisable by the Participant hereunder on the date on which the Participant ceased to be an Employee, within three (3) months of such date (seven (7) months in the event such termination occurs after the occurrence of a Change in Control), but in no event later than the date of the expiration of the term of the Option.

(b) In the event of termination of employment due to the death of the Participant, each Option held by the Participant shall become exercisable in full and may be exercised at any time prior to the expiration date of the Option or within one (1) year after the date of the Participant's death, whichever period is shorter.

(c) In the event of termination of employment due to the Disability of the Participant, each Option held by the Participant may, to the extent exercisable at the time of such termination, be exercised at any time prior to the expiration date of the Option or within three (3) years after the date of the Participant's termination of employment, whichever period is shorter.

(d) In the event of termination of employment due to the retirement of the Participant on or after attaining age 55, all or a portion of each Option held by the Participant, to the extent not then exercisable, shall become exercisable in accordance with the schedule set forth below based upon one point for the Participant's attained age and one point for each year of continuous service with the Company or its Subsidiaries as of the date of retirement (including for this purpose, continuous service with an entity prior to the date such entity was acquired by the Company or an affiliate of the Company, but excluding any service prior to January 1, 1975),

At least 70 but less than 80 points	50% of each unvested option shall vest
At least 80 but less than 90 points	75% of each unvested option shall vest
At least 90 points	100% of each unvested option shall vest

and all Options held by the Participant to the extent then exercisable may be exercised at any time prior to the expiration date of the Option or within three (3) years after the date of the Participant's retirement, whichever period is shorter.

(e) Notwithstanding anything in this Plan to the contrary, any ISO which is exercised after the expiration of three (3) months following the cessation of employment for any reason other than Disability or death or one (1) year after the date of termination of employment due to Disability or death, shall be treated as a NQSO.

6.9 Limited Transferability of Options. Except as provided below, no Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. Further, all Options granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. Notwithstanding the foregoing, the Committee may, in its discretion, authorize all or a portion of the Options (other than Incentive Stock Options) granted to a Participant to be on terms which permit transfer by such Participant to:

(a) the spouse, children or grandchildren of the Participant ("Immediate Family Members");

(b) a trust or trusts for the exclusive benefit of such Immediate Family Members; or

(c) a partnership in which such Immediate Family Members are the only partners, provided that:

(1) there may be no consideration for any such transfer;

(2) the Award Agreement pursuant to which such Options are granted expressly provides for transferability in a manner consistent with this Section 6.9; and

(3) subsequent transfers of transferred Options shall be prohibited except those in accordance with Article 8.

Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Article 8 hereof the term "Participant" shall be deemed to refer to the transferee. The provisions of Section 6 relating to the period of exercisability and expiration of the Option shall continue to be applied with respect to the original Participant, and the Options shall be exercisable by the transferee only to the extent, and for the periods, set forth in said Section 6.

Article 7.

Stock Appreciation Rights

7.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SARs. The Committee shall have complete discretion in determining the number of SARs granted to each Participant (subject to Article 4 herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs. The Committee shall designate, at the time of grant, the grant price of a Freestanding SAR which grant price shall at least equal the Fair Market Value of a Share on the date of grant of the SAR. The grant price of Tandem SARs shall equal the Option Price of the related Option. Grant prices of SARs shall not subsequently be changed by the Committee except pursuant to Section 4.3 hereof.

7.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR will expire no later than the expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Option Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Option Price of the ISO.

7.3 Exercise of Freestanding SARs. Freestanding SARs granted under this Article 7 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. Unless the Award Agreement executed by the Participant expressly provides otherwise, the Freestanding SARs shall be exercisable in accordance with the following schedule:

Years After	Exercisable Percentage
Award Date	of SARs
Less than 1	0%
1 but less than 2	25%
2 but less than 3	50%
3 but less than 4	75%
4 but less than 10	100%

7.4 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR, and such other provisions as the Committee shall determine.

7.5 Term of SARs. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole discretion; provided, however, that unless otherwise designated by the Committee, such term shall not exceed ten (10) years.

7.6 Notice of Exercise and Payment of SAR Amount. An SAR granted under this Article 7 shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the SAR is to be exercised. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:

(a) The excess of the Fair Market Value of a Share on the date of exercise over the grant price; by

(b) The number of Shares with respect to which the SAR is exercised.

At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof.

7.7 Termination of Employment. Except as set forth in Article 10 with respect to the effect of a Change in Control or except as the Committee may otherwise expressly provide in the Award Agreement evidencing the SAR, the following rules shall apply upon termination of the Participant's employment with the Company and all Subsidiaries:

(a) Except as set forth in subsections (b), (c), and (d) below, in the event a Participant ceases to be an Employee for any reason, any SAR or unexercised portion thereof granted under this Plan may be exercised, to the extent such SAR would have been exercisable by the Participant hereunder on the date on which the Participant ceased to be an Employee, within three (3) months of such date (seven (7) months in the event such termination occurs after the occurrence of a Change in Control), but in no event later than the date of the expiration of the term of the SAR.

(b) In the event of termination of employment due to the death of the Participant, each SAR held by the Participant shall become exercisable in full and may be exercised at any time prior to the expiration date of the SAR or within one (1) year after the date of the Participant's death, whichever period is shorter.

(c) In the event of termination of employment due to the Disability of the Participant, each SAR held by the Participant may, to the extent exercisable at the time of such termination, be exercised at any time prior to the expiration date of the SAR or within three (3) years after the date of the Participant's termination of employment, whichever period is shorter.

(d) In the event of termination of employment due to the retirement of the Participant on or after attaining age 55, all or a portion of each SAR held by the Participant, to the extent not then exercisable, shall become exercisable in accordance with the schedule set forth below based upon one point for the Participant's attained age and one point for each year of continuous service with the Company or its Subsidiaries as of the date of retirement (including for this purpose, continuous service with an entity prior to the date such entity was acquired by the Company or an affiliate of the Company, but excluding any service prior to January 1, 1975),

At least 70 but less than 80 points	50% of each unvested SAR shall vest
At least 80 but less than 90 points	75% of each unvested SAR shall vest
At least 90 points	100% of each unvested SAR shall vest

and all SARs held by the Participant to the extent then exercisable may be exercised at any time prior to the expiration date of the SAR or within three (3) years after the date of the Participant's retirement, whichever period is shorter.

7.8 Nontransferability of SARs. Except as otherwise provided in a Participant's Award Agreement, no SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution without the express written consent of the Committee. Further, except as otherwise provided in a Participant's Award Agreement, all SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.

Article 8.

Beneficiary Designation

Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Secretary of the Company, or such other person or entity designated by the Company, during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate.

Article 9.

Rights of Employees

9.1 Employment.

(a) Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary.

(b) For purposes of this Plan, absence from employment because of illness, vacation, approved leaves of absence, and transfers of employment among the Company and its Subsidiaries, shall not be considered to terminate employment or to interrupt continuous employment.

9.2 Participation. No Employee shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.

Article 10.

Change in Control

10.1 Effect of Change in Control. Upon the occurrence of a Change in Control, any and all Options and SARs granted hereunder shall become immediately exercisable and remain exercisable until such Options and SARs expire or terminate under the provisions of this Plan

10.2 Change in Control Not Approved by Incumbent Board. Upon the occurrence of a Change in Control not approved by the Incumbent Board, any and all Options and SARs granted hereunder shall become immediately exercisable and shall remain exercisable throughout their entire term without regard to termination of employment subsequent to such Change in Control.

Article 11.

Amendment, Modification, and Termination

11.1 Amendment, Modification, and Termination. The Board may at any time, and from time to time, alter, amend, suspend or terminate the Plan in whole or in part, subject to any requirement of stockholder approval imposed by applicable law, rule or regulation.

11.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.

Article 12.

Withholding

12.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan.

12.2 Share Withholding. With respect to withholding required upon the exercise of Options or SARs, or upon any other taxable event arising as a result of Awards granted hereunder, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which would be imposed on the transaction. All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.

Article 13.

Successors

All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect merger, consolidation, purchase of all or substantially all of the business and/or assets of the Company or otherwise.

Article 14.

Legal Construction

14.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.

14.2 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

14.3 Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

14.4 Securities Law Compliance. Transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

14.5 Governing Law. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware.