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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 28, 2001 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 25, 2002, 410,673,829 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 $4,689,895,127. Documents incorporated by reference: Portions of the Registrant's Annual Report to Stockholders for
the fiscal year ended December 28, 2001, are incorporated by reference into Parts I and II, and portions of the
registrant's Proxy Statement dated March 19, 2002, are incorporated by reference into Part III. PART I ITEM I. BUSINESS Tellabs, Inc. designs, manufactures, markets and services optical networking, broadband access and voice-quality enhancement solutions. The Company also provides professional services that support its solutions. Tellabs products and services are used worldwide by the providers of communications services. Industry and technical terms used in this Form 10-K are described in the Glossary, which appears at the end of this Item I. In February 2001, the Company completed its acquisition of Future Networks, Inc. (FNI), a leader in standards-based voice and data cable modem technology, for $141.8 million in cash and options. The transaction was accounted for as a purchase. In April 2001, August 2001 and November 2001, the Companys management and Board of Directors approved plans to restructure its business operations. The Companys restructuring efforts included termination of the SALIX and NetCore next-generation switching efforts, discontinuation of the development of the TITAN 6700 Optical Transport Switch, a strategic realignment of worldwide manufacturing capacity and related workforce reductions, reduction of excess inventories and related purchase commitments, and a consolidation of the Companys facilities. These steps were undertaken to both realign the Companys cost structure with the lower anticipated business and industry outlook and to focus the Companys resources on the metropolitan optical networking and business services markets. As a result, the Company recorded restructuring and other charges of $448.7 million ($321.6 million, after-tax, or $0.79 per diluted share). For more information on the Companys 2001 restructuri
ng activities, please refer to Note 3, Restructuring and Other Charges from the Tellabs 2001 Annual Report, incorporated herein by reference in Item 8, Financial Statements and Supplementary Data. In January 2002, the Company completed its acquisition of Ocular Networks, Inc. (Ocular), a leader in next-generation optical solutions for the metropolitan market, for approximately $355 million in cash and options. The transaction was accounted for a purchase. Also in early 2002, the Company unified its product names under the Tellabs brand to make its product portfolio easier to communicate and understand. All product references in this Form 10-K, will refer to both the existing and new product names. Products provided by Tellabs include optical networking systems, broadband access systems and voice-quality enhancement systems. Optical networking systems include the Tellabs® 5000 (formerly TITAN®) series of digital cross-connects, the new Tellabs 6400 (formerly Ocular OSXTM) product line, the Tellabs 6500 (formerly TITAN 6500) product line and the Tellabs 7000 (formerly TITAN 6100) series of optical transport systems. Broadband access systems include the Tellabs 2000 (formerly CABLESPAN®) telephony distribution system; the Tellabs 6300 (formerly FOCUSTM) transport switching products and the Tellabs 8000 (formerly MartisDXX®) series of managed access systems. Voice-quality enhancement products include the Tellabs 3000 (formerly VERITYTM) series of echo control and cancellation products and Tellabs Integrated Voice Products (OEM) such as its echo canceller mezzanine cards. Please refer t
o the glossary for an explanation of technical terminology. Products recently introduced or to be introduced include the Tellabs 6400 Transport Switch (formerly Ocular OSX 6000TM), the Tellabs 6410 Transport Edge Node (formerly Ocular OSX 1000TM), the Tellabs 6500 Transport Switch (formerly the TITAN 6500 Multiservice Transport Switch), the Tellabs 7100 Optical Transport System (formerly the TITAN 6100 Optical Transport System) and the Tellabs 3000 (formerly VERITY 3000) voice-quality enhancement series. The Companys products are sold in the domestic and international marketplaces (under the Tellabs name and trademarks and under private labels) through the Companys field sales force and selected distributors to a major customer base. This base includes Incumbent Local Exchange Carriers (ILECs), independent telephone companies (ITCs), interexchange carriers (IXCs), local telephone administrations (PTTs), other local exchange carriers (LECs), original equipment manufacturers (OEMs), cellular and other wireless service companies, cable operators, alternate service providers, competitive local exchange carriers (CLECs), internet service providers, system integrators, government agencies, and business end-users ranging from small businesses to Fortune 500 companies. OPTICAL NETWORKING SYSTEMS Optical networking increases the capacity of the fiber in a network, enabling service providers to carry more of their customers voice, data and video signals over the same infrastructure, which ultimately lowers costs. Optical networking relies on wavelengths and fibers to move massive amounts of voice and data. A wavelength can carry voice, video or data traffic, from an optical carrier (OC)-3 or synchronous transfer mode (STM)-1 (up to two million simultaneous phone conversations or Internet connections) up to OC-768 or STM-256. A fiber can carry anywhere from one to 160 wavelengths, depending on the type of equipment used to terminate the fiber. Tellabs optical networking systems are designed to help service providers lower costs, generate more revenues and efficiently manage bandwidth as the end-user demand for communication services grows. The Companys optical networking systems consist of technologically sophisticated digital cross-connect, transport switching and optical transport systems. These transmission systems are designed to meet or exceed domestic and international industry standards. Product offerings include the Tellabs 5000 (formerly TITAN) series of digital-cross connect systems, the new Tellabs 6400 (formerly Ocular OSX) product line, the Tellabs 6500 Transport Switch (formerly TITAN 6500 Multiservice Transport Switch) and the Tellabs 7100 (formerly TITAN 6100) series of optical transport systems. A digital cross-connect system is a high-speed data channel switch, which connects transmission paths based on network needs, rather than call-by-call. Digital cross-connect systems manage and route network traffic and combine, consolidate and segregate signals to maximize efficiency. The Tellabs 5000 (formerly TITAN) series of digital cross-connect systems operate under software control and are typically used to build and control the narrowband and wideband 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. 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 Companys systems include a feature for monitoring facility performance, which reduces troubleshooting time in a complex network. The user can detect the early warnings of facility degradation rather than reacting to a network outage. These systems also convert international to domestic transmission and signaling standards.
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.)
One Tellabs Center, 1415 West Diehl Road, Naperville, Illinois
60563
(Address of Principal Executive Offices)
(Zip Code)
Common shares, with $0.01 par value
(Title of Class)
The Tellabs 6500 Transport Switch aggregates traffic of different types; such as, synchronous optical network (SONET)/synchronous digital hierarchy (SDH), asynchronous transfer mode (ATM), and Internet protocol/multiprotocol label switching (IP/MPLS), and routes it into a single large optical pipe. The Tellabs 6500 interfaces electrical facilities at DS3 and STS-1 levels and optical facilities at OC-3, -12, -48 and -192, and switches lower speed signals at broadband payloads (52 MS/S - STS-1 through OC-48C (2.5 gigbits per second). The first release of the Tellabs 6500 system can carry the equivalent of 4,128,768 simultaneous Internet calls.
The Tellabs 7100 Optical Transport System is designed for use in the metropolitan (metro) optical networking market, to allow service providers to deliver high-speed broadband services to Internet service providers and Fortune 500 companies, thus helping to alleviate the bandwidth bottlenecks of the Internet on ramps. The system accomplishes this by utilizing dense-wavelength-division multiplexing (DWDM) technology to increase the capacity of a network. DWDM is the process of increasing the amount of traffic a single fiber can carry by packing multiple signals onto it. The Tellabs 7100 system utilizes DWDM to increase an individual fibers capacity up to 32 times and when used in conjunction with other Tellabs solutions, allows end-to-end fiber and lightpath management.
The new Tellabs 6400 product line, obtained in the acquisition of Ocular Networks, Inc. in January 2002, is also designed for use in the metro optical networking market. The Tellabs 6400 Transport Switch increases network utilization efficiency in Tier 2 and Tier 3 offices by integrating cross-connect technology, add-drop multiplexing and highly efficient data switching for Internet protocol (IP) and Ethernet traffic. The Tellabs 6410 Transport Edge Node is a compact, low-cost full SONET add/drop multiplexer system for time division multiplex (TDM) access and data services. By combining TDM and Ethernet interfaces with high-speed optical or electrical transport, carriers can achieve a cost-effective solution to link the new edge of the metro network with the dense metro core.Optical networking system products accounted for approximately 55%, 64% and 59% of sales for 2001, 2000 and 1999, respectively.
BROADBAND ACCESS
The Companys broadband access systems consist primarily of the Tellabs 8100 (formerly MartisDXX) and Tellabs 6300 (formerly FOCUS) series of managed access and transport systems, the Tellabs 7200 (formerly FOCUS 6200) Optical Transport System and the Tellabs 2000 (formerly CABLESPAN) family of telephony distribution systems. The Companys broadband access solutions provide seamless integration of: circuit-switched voice and data; IP-data and voice-over-Internet protocol (VolP) services; and access capacity expansion through digital subscriber line (DSL) technology.
The Tellabs 8000 (formerly MartisDXX) series of managed access systems is designed for the connectivity services segment of the overall business services market, which includes business-class Internet connectivity and managed data networks. The Tellabs 8100 Managed Access System is currently deployed in more than 200 networks and 80 countries worldwide, providing intelligent transport for mobile services and multi-service platforms for a broad range of business services. It is a leading mobile transmission system. Tellabs has partnered with Ericsson in this area, which puts the Company in a unique position to participate in 3G business. The long-term view is to migrate towards managed IP based platforms both in the business service networks and mobile 3G networks. In 2001, the Tellabs 8100 Managed Access System was upgraded with new integrated IP routing and ATM transport capabilities, which enable operators to reduce the cost of LAN-IC connectivity service with integrated access devices and to utili ze the ATM backbone networks for business service network transport and switching services. In addition, the Company also introduced full V5.2 implementation for multi-service access networks, to allow operators to utilize their business service coverage and enhance their service offerings with POTS and ISDN voice services.
The Tellabs 7200 Optical Transport System (formerly FOCUS 6200) is an international-oriented wavelength-division multiplexing platform, which enables operators to reduce the operational costs and simplify network planning. It provides multi-wavelength optical add/drop, integrated SDH interfaces, and open transponder interfaces that support multiple bit rates and IP applications for distances in excess of 600 kilometers. 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 bandwidth utilization with unified management of multiple services over a single platform, using a range of transmission media.
The Tellabs 6300 series includes the Tellabs 6340 Transport Switch (formerly FOCUS LX), a flexible and scalable platform for add-drop multiplexing, and the Tellabs 6350 Transport Switch (formerly FOCUS LX-XC), a multipurpose platform offering faster services, including 4/4/1 cross-connection with interfaces to support both data and SDH.
The Tellabs 2300 Telephony Distribution System (formerly CABLESPAN 2300 Universal Telephony Distribution System) is a 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 Tellabs 2000 series telephony distribution systems 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 Tellabs 2000 systems and supports multiple network operators while interfacing with other operational support systems. Tellabs ha s partnered with TollBridge Technologies, Inc. in this area, with a strategy of global expansion. The Company has also enhanced the Tellabs 2300 Telephony Distribution System to reduce telephony upgrade costs by as much as 30% in cable networks and improve service reliability.
In 2001, Tellabs, Inc. acquired Future Networks, a leader in standards-based voice and data cable modem technology. This enabled Tellabs to provide cable operators with a multi-services solution based on internet protocol. Future Networks brought a complete line of cable data modems based on Data Over Cable Service Interface Specification (DOCSIS), EuroDOCSIS and PacketCable specifications to Tellabs end-to-end solution.
Broadband Access products accounted for approximately 24% of sales in 2001 and 22% of sales in 2000 and 1999.
VOICE-QUALITY ENHANCEMENTS
The Companys voice-quality enhancement systems consist primarily of the Tellabs 3000 (formerly VERITY) family of broadband and narrowband echo cancellers and Tellabs Voice-Quality Enhancement (VQE) solutions that enable wireless and wireline providers to improve voice quality in long distance, wireless and private networks.The Tellabs 3000 series of echo cancellers operate in a variety of network environments to ensure that a subscribers phone call is echo free. The VQE solutions are application-specific software that operate seamlessly with the Tellabs 3000 family of echo cancellers to optimize voice clarity for improved customer satisfaction. Tellabs VQE products primarily address the needs of cellular companies, ILECs 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. Competi tion is driving many wireline and wireless customers to re-evaluate and upgrade their existing infrastructure, based on the voice enhancing technology solutions now available. Tellabs VQE solutions include Tellabs Noise Reduction (TNR), which reduces background noise in mobile calls; Tellabs Level Control (TLC), which addresses voice level variations by automatically compensating for high or low audio levels on a cell-by-cell basis; and Tellabs Acoustic Control (TAC), which eliminates acoustic echo originating from digital mobile handsets and hands-free kits.
In 2001, the Company introduced the Tellabs 3100S VQE system, which combines an echo canceller and a fully functional digital cross-connect, along with optional voice-quality enhancements to offer digital wireless and long distance service providers improved voice quality and enhanced network performance. The Tellabs 3100S system will be available during the first quarter of 2002.
Voice quality enhancement products accounted for approximately 6% of sales in 2001, 6% of sales in 2000, and 12% of sales in 1999.
COMPETITION
The Companys 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 optical networking product systems compete principally with Alcatel, Ciena, Cisco, ECI, Fujitsu, Lucent Technologies, Nortel Networks, ONI, Siemens and Sycamore.
The major competitors of the broadband access products are ADC, Alcatel, Arris, Cisco, Lucent, Marconi, Motorola, Nortel Networks, Samsung, Thompson/RCA and Toshiba.
Leading competitors for voice-quality enhancements are Ditech, Ericsson and NMS Communications.
SERVICES AND OTHER
The Company generates services and other revenues primarily from its services and solutions area. The purpose of the Companys worldwide service organization is to provide customers with high quality technical and administrative product support focusing on meeting the expanding needs of the global customer base. The Company supports its customers with a wide range of services, including: network deployment, traffic management, support services and professional services.
The Companys application engineering, support and installation group emphasizes meeting the customers needs for installation and integration of the Companys products and third party equipment into the customers 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 Companys technical support group consists of unique and highly-trained teams that focus on customer support of all of the Companys existing and emerging products. 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 Companys 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 Companys 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.
The Companys solutions services group offers a variety of professional and consultative services, including program management, network planning and enhanced product support. These innovative service offerings are designed to augment the Companys basic services and provide value-added benefits to our customers.
Services and other revenues accounted for approximately 15%, 8% and 6% of sales in 2001, 2000 and 1999, respectively.
GLOBAL SALES
Sales are generated through the Companys 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 110 direct sales personnel, and an additional 100 sales support personnel located in Latin America, South America, Europe, the Middle East, Africa and Asia.
The North American sales organization conducts its activities from the Companys corporate headquarters and five regional offices. The international sales organization conducts its activities from the Companys corporate headquarters, 26 regional sales offices, and three regional headquarters. The regional sales offices are generally staffed by a regional sales manager or country manager, direct sales resources, system sales engineers and additional personnel as required.
Direct orders through the Companys field organization accounted for approximately 89% of 2001 U.S. sales. The North American sales organization is structured by market 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 Companys products to facilitate prompt delivery. These distributors provide information on the Companys products through their catalogs and through trade show demonstrations. The Companys field sales force also assists the distributors with regular calls to them and their customers. Distributors, as a group, accounted for approximately 15% of overall 2001 sales.
CUSTOMERS
Sales to customers within the United States accounted for approximately 76%, 78% and 70% of overall sales, in 2001, 2000, and 1999, respectively. Sales to international customers accounted for approximately 24%, 22% and 30% of consolidated sales in 2001, 2000 and 1999, respectively. The largest single group of customers the Company has is Incumbent Local Exchange Carriers (ILECs), which accounted for approximately 47%, 38% and 34% of consolidated net sales in 2001, 2000 and 1999, respectively. The Company believes that a loss of, or a significant reduction in purchases by ILECs as a group, although not anticipated, could have a material adverse effect on the Companys results. In 2001, sales to Verizon Communications, Inc. (Verizon) and Sprint Corporation (Sprint) accounted for approximately 18.4% and 10.1% of consolidated net sales, respectively. In 2000, sales to Verizon accounted for approximately 19.1% of consolidated net sales. In 1999, sales to SBC Communications, Inc. (SBC) and sales to Veri zon accounted for approximately 11.5% and 11.0% of consolidated net sales, respectively. No other customer in 2001, 2000, or 1999 accounted for more than 10% of consolidated net sales.
BACKLOG
At December 28, 2001, and December 29, 2000, backlogs were approximately $172 million and $436 million, respectively. All of the December 28, 2001, backlog is expected to be shipped in 2002. The Company considers backlog to be an indicator, but not the sole predictor, of future sales.
RESEARCH AND DEVELOPMENT
Tellabs believes that the enhancement of existing products and the development of new products are vital to the Companys long-term success. Research and development expenses were $425.5 million in 2001, $415.2 million in 2000, and $312.3 million in 1999. As of December 28, 2001, there were approximately 2,675 engineers employed at Tellabs, representing approximately 36% of the Companys total workforce. The Company conducts research at its laboratories in Lisle, Bolingbrook and Naperville, Illinois; Mishawaka, Indiana; Hawthorne, New York; Burlington, Bedford, and Cambridge, Massachusetts; Ashburn and Reston, Virginia; Alpharetta, Georgia; Ontario and Quebec, Canada; Ballerup, Denmark; Espoo, Oulu, Varkaus and Tampere, Finland; Haryana, India; and Shannon, Ireland. In addition to the Companys 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 $400 million on research and development in 2002. These expenditures reflect the Companys commitment to the enhancement of existing products and development of new products designed to satisfy the needs of communications service providers worldwide.
MANUFACTURING
The Company generally manufactures and assembles the products it sells. These products are primarily assembled from standard components and from fabricated parts that are manufactured by others to the Companys specifications.
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 Companys business.
The Companys manufacturing facilities are located in Bolingbrook, Illinois; Espoo, Finland; Shannon, Ireland; and Ronkonkoma, New York. Each of the Companys manufacturing operations is registered under the ISO 9000 standard.
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 Companys production process or its earnings or capital expenditures.
EMPLOYEES
At December 28, 2001, the Company had 7,334 employees, of which 2,251 were employed in the sales, sales support and marketing area, 2,675 in product development, 1,794 in manufacturing, and 614 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 Companys 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 Companys 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 Companys net sales by product group, net sales by country and net long-lived assets by country for the fiscal years ended December 28, 2001, December 29, 2000, and December 31, 1999, is set forth in Note 11 on page 47 of the registrants 2001 Annual Report to Stockholders and is incorporated herein by reference.
GLOSSARY OF COMMUNICATIONS TERMS
Access The process by which users or devices interact with a communications network.
Add/drop In a multichannel transmission system, a process that diverts (drops) a portion of the multiplexed aggregate signal at an intermediate point, and introduces (adds) a different signal for subsequent transmission in the same position.
Asynchronous transfer mode (ATM) A high-speed multiplexing and switching method utilizing fixed-length cells of 53 octects to support multiple types of traffic.
Bandwidth The width or carrying capacity of a communications channel.
Branch A direct path joining two nodes of a network or graph.
Broadband A network element, fiber-optic in nature, providing capacity at DS3 or greater (e.g., Tellabs 6500).
Carrier In a telecommunications context, a telecommunications company that holds itself out to the public for hire to provide communications transmission services.
Channel A connection between initiating and terminating nodes of a circuit.
Circuit The complete path between two terminals over which one-way or two-way communications may be provided.
Connection A provision for a signal to propagate from one point to another, such as from one circuit, line, subassembly, or component to another.
Dense wavelength division multiplexing (DWDM) Technology that splits single white-light optical signals on fiberoptic cables into several independent wavelengths, or colors, thus expanding the carrying capacity of fiber optic networks.
Digital An alternative to traditional analog communications, digital systems transport information in binary 1s and 0s format, like computer code, to improve clarity and quality.
Digital cross-connect A specialized high-speed data channel switch, which connects transmission paths based on network needs (rather than call by call). Digital cross-connects manage and route network traffic, and combine, consolidate and segregate signals to maximize efficiency.
Digital signal A signal in which discrete steps are used to represent information.
Digital signal 3 (DS3) A digital signal of 44.736 Mb/s, corresponding to the North American T3 designator.
Ethernet A data network that connects computers, printers, workstations, terminals and servers within the same building, campus or metropolitan area.
Exchange In the telephone industry, a geographic area (such as a city and its environs) established by a regulated telephone company for the provision of local telephone services.
Fiber optic High-capacity cable that uses a laser beam of light traveling along a glass fiber to transmit communication signals.
Frequency For a periodic function, the number of cycles or events per unit time.
Interexchange carrier (IXC) A communications common carrier that provides telecommunications services between local exchange and transport areas (LATAs) or between exchanges within the same LATA.
Internet The worlds largest decentralized network of computers and network servers.
Internet protocol (IP) Common name given to a set of protocols developed to allow cooperating computers to share resources across a network.
Multiplexing The combining of two or more information channels onto a common transmission medium.
Multiservice The capability of simultaneously transporting a variety of signal types.
Narrowband A network element providing capacity from DS0 to DS1.
Network A system of equipment and connections for the transmission of signals that carry voice, data and video. Networks can be local, such as those maintained by providers of local telephone services, or long-distance, such as those maintained by providers of connections and transport between local networks.
Node In a switched network, one of the switches forming the high-traffic-density connectivity portion of any communications network.
OC Optical Carrier.
Optical A technology that transmits signals as light over fiber optic cable.
Packet In data communications, a sequence of binary units, including data and control signals, that is transmitted and switched on a composite whole.
Signal Detectable transmitted energy that can be used to carry information.
Switch A device that establishes and routes communications paths.
Switching The controlling or routing of signals in circuits to execute logical or arithmetic operations or to transit data between specific points in a network.
Switched network A communications network in which any user may be connected to any other user through the use of message, circuit or packet switching and control devices.
Synchronous digital hierarchy (SDH) Transport format for transmitting digital information over fiberoptic facilities outside of North America, comparable to SONET.
Synchronous optical network (SONET) Transport format for sending high-speed signals over fiberoptics in North America.
Traffic The information moved over a communications channel.
Transponder An automatic device that receives, amplifies, and retransmits a signal on a different frequency.
Transmission The dispatching, for reception elsewhere, of a signal, message, or other form of information.
Terminal A device capable of sending, receiving or sending and receiving information over a communications channel.
Transport Refers to networks that use cables rather than radio.
Voice-quality enhancement A technique that isolates and filters our unwanted signals such as echo and background noise.
Wideband A network element providing capacity at DS1 or greater.
ITEM 2. PROPERTIES
In late 2001, the Company began relocating its corporate headquarters to a new 850,000 square foot facility built on 55 acres of land the Company owns in Naperville, Illinois, approximately 35 miles west of Chicago.
The Company continues to own 19.1 acres of land with three buildings totaling 222,000 square feet in Lisle, Illinois. 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 owns another 182,000 square foot building in Bolingbrook used by manufacturing. In Round Rock, Texas, the Company owns approximately 76 acres of land where a 124,000 square foot manufacturing facility is located. This facility was closed as part of the Companys 2001 restructuring efforts. 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 on 28 acres of land in Ballerup, Denmark, which houses administrative and research and development 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 90,000-square foot building, which is used for manufacturing. The Company also owns three office buildings in Espoo, totaling 132,000 square feet, which contain 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: a manufacturing facility in Ronkonkoma, New York (130,000 square feet); one location in Burlington, Massachusetts (60,000 square feet), which contains sales, research, manufacturing and administrative activities; a facility in Ashburn, Virginia (72,000 square feet) for research and development; a location in Alpharetta, Georgia (25,500 square feet) for research and development; two locations in Espoo, Finland (60,000 square feet, total) housing administrative and engineering functions; and two locations in Oulu and Tampere, Finland (59,000 square feet, total) for research and development.
In addition to these facilities, the Company also leases six sales offices and three research and development facilities in the United States. In Canada, the Company leases one sales office and two research and development facilities. Internationally, the Company also leases five research and development facilities and various small sales offices in twenty-seven countries.
During 2001, the Company consolidated its facilities as part of its restructuring efforts. As a result, the Company currently has certain locations available for sublease. These locations include: Bolingbrook, Illinois (54,000 square feet); Lisle (93,000 square feet); Warrenville, Illinois (137,000 square feet); Schaumburg, Illinois (12,700 square feet); Germantown, Maryland (94,000 square feet); Chelmsford, Massachusetts (260,000 square feet); Drogheda, Ireland (122,000 square feet); and Wilmington, Massachusetts (77,000 square feet).
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 2002, 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 made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect managements expectations, estimates and assumptions, based on the information available at the time the document was prepared. These forward-looking statements include, but are not limited to, statements regarding future events, plans, goals, objectives and expectations. The words anticipate, believe, estimate, expect, plan, intend, likely, will, should and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors which m ay cause our actual performance or achievements to be materially different from any future results, performance or achievements expressed or implied by those statements. Important factors that could cause our actual results to differ materially from those in forward-looking statements 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 business partnering arrangements and future acquisitions; uncertainties relating to synergies, charges, and expenses associated with business combinations and other transactions; and oth er risks and future factors that may be detailed from time to time in the Companys filings with the SEC. For a further description of such risks and future factors, see Exhibit 99.1 to Form 10-Q for the quarterly period ended June 29, 2001, filed with SEC on August 9, 2001. The Companys actual future results could differ materially from those predicted in such forward-looking statements. In light of the foregoing risks, uncertainties and other factors, investors should not place undue reliance on the forward looking statements in determining whether to buy, sell or hold any of the Companys securities. The Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to future results over time. The foregoing discussion should be read in conjunction with the financial statements and related notes and managements discussion and analysis included in the Compan ys 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 and Director. |
Thomas F. Cooke |
1959 |
Senior Vice President, Human Resources. |
James A. Dite |
1946 |
Vice President and Controller. |
Anders Gustafsson |
1960 |
President, Global Sales and Executive Vice President. |
John C. Kohler |
1952 |
Senior Vice President, Global Business Operations. |
Catherine E. Kozik |
1960 |
Chief Information Officer and Senior Vice President, Global Information Services. |
Susan Lichtenstein |
1956 |
Senior Vice President, General Counsel and Secretary. |
Stephen M. McCarthy |
1954 |
Senior Vice President, Global Marketing. |
Richard C. Notebaert | 1947 | Chief Executive Officer, President and Director. |
Joan E. Ryan |
1956 |
Executive Vice President and Chief Financial Officer. |
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Tellabs common stock is listed on the Nasdaq Stock market under the symbol TLAB and appears daily in most newspaper stock tables as Tellabs. As of February 25, 2002, there were approximately 5,845 stockholders of record and 410,673,829 outstanding shares. Tellabs is a component of the Nasdaq-100 Index and the Standard & Poors 500 Index.
The section entitled "Common Stock Market Data" on the inside back cover of the Companys Annual Report to Stockholders for the year ended December 28, 2001 (the Annual Report) is incorporated herein by reference. It is 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
Five-Year Summary of Selected Financial Data
(In millions, except per-share amounts) |
2001* |
2000 |
1999 |
1998 |
1997 |
Net Sales |
$2,199.7 |
$3,387.4 |
$2,322.4 |
$1,706.1 |
$1,280.9 |
Gross Profit |
$763.2 |
$1,835.4 |
$1,382.3 |
$1,000.0 |
$761.3 |
Operating Profit (Loss) |
|
|
|
|
|
Earnings (Loss) Before Income Taxes and Cumulative Effect of Change in Accounting Principle |
|
|
|
|
|
Earnings (Loss) Before Cumulative Effect of Change in Accounting Principle |
|
|
|
|
|
Net Earnings (Loss) |
$(182.0) |
$730.8 |
$549.7 |
$391.5 |
$275.5 |
Earnings (Loss) per Share Before Cumulative Effect of Change in Accounting Principle |
|
|
|
|
|
Effect of Change in Accounting Principle, Assuming Dilution |
|
|
|
|
|
Earnings (Loss) per Share |
$(0.44) |
$1.79 |
$1.36 |
$0.98 |
$0.71 |
Earnings (Loss) per Share, Assuming Dilution |
$(0.44) |
$1.75 |
$1.32 |
$0.96 |
$0.69 |
Total assets |
$2,865.8 |
$3,073.1 |
$2,354.6 |
$1,651.9 |
$1,250.1 |
Total Liabilities |
$400.2 |
$445.5 |
$307.1 |
$247.4 |
$257.9 |
Stockholders Equity |
$2,465.6 |
$2,627.6 |
$2,047.5 |
$1,404.5 |
$992.2 |
Long-Term debt |
$3.4 |
$2.9 |
$9.4 |
$3.3 |
$3.1 |
Net Working Capital |
$1,625.1 |
$1,910.1 |
$1,511.4 |
$1,054.9 |
$685.0 |
No cash dividends per common share
were paid. Per-share amounts restated for stock split in 1999.
*Includes restructuring and other charges of $448.7 million ($321.6 million, after-tax, or $0.79 per diluted share).
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Managements Discussion and Analysis of Financial Condition and Results of Operations on pages 22 through 30 of the Annual Report are incorporated herein by reference. This information is also included in Exhibit 13, as filed with the SEC.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investments in marketable securities
During the normal course of business, the Company invests a portion of its cash and cash equivalents in marketable securities. The Company accounts for these investments using the guidance in Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities and its related interpretive guidance. All securities in the Companys short-term marketable securities portfolio are considered available-for-sale securities and are marked-to-market on a monthly basis with the resulting unrealized gains and losses, net of deferred taxes, reported as a separate component of stockholders equity.
In accordance with SFAS No. 115, when the Company determines that a decline in the fair value of a security is other than temporary, the Company will record an impairment loss to adjust the security to its new, lower market value. In assessing whether a decline in market value for a security is considered other than temporary, the Company examines a variety of factors, including: current and anticipated macro-economic conditions, the outlook for the particular industry, the long-term business outlook for the investee, the amount of time the investments fair value has been below cost and the Companys liquidation strategy with respect to the particular investment.
At December 28, 2001, and December 29, 2000, they consisted of the following:(In millions) | Amortized Cost |
Unrealized Gain/(Loss) |
Market Value | |||
2001 | ||||||
State and municipal securities | $ | 135.9 | $ | 1.8 | $ | 137.7 |
Preferred and common stocks | 93.7 | 2.6 | 96.3 | |||
U.S. government and agency debt obligations | 65.9 | 2.1 | 68.0 | |||
Corporate debt obligations | 55.8 | 0.7 | 56.5 | |||
Foreign bank obligations | 41.3 | (0.1) | 41.2 | |||
$ | 392.6 | $ | 7.1 | $ | 399.7 | |
2000 | ||||||
State and municipal securities | $ | 278.6 | $ | (1.6) | $ | 277.0 |
Preferred and common stocks | 147.3 | (4.7) | 142.6 | |||
U.S. government and agency debt obligations | 118.1 | (0.5) | 117.6 | |||
Corporate debt obligations | 103.7 | 0.3 | 104.0 | |||
Foreign bank obligations | 51.4 | 0.5 | 51.9 | |||
$ | 699.1 | $ | (6.0) | $ | 693.1 | |
The Companys preferred and common stock portfolio consists of investments in preferred securities of various public companies and governmental agencies, investments in mutual funds that invested in preferred stock holdings and investments in common shares of publicly traded technology companies. During 2001, the Company determined that the decline in market value it had experienced in certain preferred and common stock holdings was other than temporary in nature. As a result, the Company recognized a pre-tax loss totaling $25.9 million related to the impairment and subsequent sale of these investments. Also during 2001, the Company also sold stock of a certain equity investment for a pre-tax gain of $12.8 million. In 2000, the Company sold stock in this same investment, of which approximately 40 percent was covered by various market price collars, for a pre-tax gain of $39.8 million. Also in 2000, the Company recognized a pre-tax gain of $13.2 million from distributions from certain of its tech nology investments.
Other investments
The Company also maintains investments in start-up technology companies and partnerships that invest in start-up technology companies. These investments are recorded in Other Assets at cost, which approximates fair market value. At December 28, 2001, and December 29, 2000, these investments totaled $36.0 million and $34.7 million, respectively.
Accounts receivable
Through the normal course of business, the Company markets its products to various telecommunications service providers (For a discussion of the Companys customers, see "Customers" in Part I of this Form 10-K). Sales to these customers have varying degrees of collection risk associated with them, depending on a variety of factors. The Company increased its reserve for uncollectable accounts $29.7 million, net of receivable write-offs of approximately $12.3 million, due to the downturn in the telecommunications industry and the overall weakness in the United States economy during 2001.
Purchase commitments
The Company, through its normal course of business, enters into a variety of non-cancelable, non-returnable commitments for the purchase of inventory piece parts. These commitments are entered into at market rates and expire within the next year. In the event of a dramatic decline in sales, such as was experienced in 2001, the Company may incur excess inventory and subsequent losses as a result of these commitments. During 2001, the Company accrued $127.0 million related to outstanding purchase commitments as part of its restructuring actions. The Company does not anticipate having to recognize any material losses on these contracts during 2002.
Financial Instruments
The Company 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, the Company developed a foreign currency exposure management policy with the objective of mitigating financial exposure to changing foreign exchange rates resulting from nonfunctional currency receivables and payables that are expected to be settled in one year or less. The Company utilizes derivatives, primarily foreign currency forward contracts, to manage its foreign currency exposure. The Company does not engage in hedging specific individual transactions, but rather uses derivatives to manage overall exposure levels for a specific currency. Gains and losses related to these derivatives are recorded to the consolidated statement of operations each month.
The Companys policy is to hedge 90% of the calculated exposure. Foreign currency forward contracts are executed weekly with the final contracts for each period executed one week before the end of the period. As a result of this timing additional nonfunctional foreign currency transactions can occur during the last week of the period that could cause the Companys hedge percentage at the end of the period to be greater or less than the 90% target. The Company enters into forward exchange contracts only to the extent necessary to meet its overall goal of minimizing nonfunctional foreign currency exposures. The Company does not enter into hedging transactions for speculative purposes. The Companys foreign currency exposure management policy and program remained unchanged during 1999, 2000 and 2001, and no significant changes are currently planned.
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 (expense), in the current period. Net losses on forward exchange contracts were $4,652,000, $1,826,000 and $5,889,000 for 2001, 2000 and 1999, respectively. The Companys 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.
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 Companys derivative transactions. The Company 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.
The table that follows presents a summary of the Companys underlying foreign currency exposure, along with the notional and fair values of the related foreign currency forward contracts being utilized at December 28, 2001 and December 29, 2000. The principal currencies currently being hedged by the Company are the British pound, Danish krone, Euro and U.S. dollar. The notional amounts shown are the 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.
(Dollars in millions) | Underlying Exposure at 12/28/01 | Notional Value of Forward Contract Maturing in 2002 | Average Contract Rate | Fair Value of Forward Contract at 12/28/01 | ||||
Forward contracts at 12/28/01: | ||||||||
Forward contracts to sell foreign currencies for Euro: | ||||||||
United States dollar | $73.8 | $68.3 | 0.8877 | $68.3 | ||||
Danish krone | 8.0 | 7.3 | 7.4385 | 7.2 | ||||
Norwegian krone | 2.7 | 2.3 | 8.0145 | 2.2 | ||||
British pound | 2.4 | 2.0 | 1.5798 | 1.9 | ||||
Swedish krone | 0.3 | 0.3 | 8.8765 | 0.3 | ||||
Thai baht | 6.2 | 5.4 | 40.2600 | 5.5 | ||||
  | $93.4 | $85.6 | $85.4 | |||||
Forward contracts to buy foreign currencies for Euro: | ||||||||
Japanese yen | $0.9 | $0.5 | 114.4635 | $0.5 | ||||
  | $0.9 | $0.5 |   | $0.5 | ||||
Forward contracts to sell foreign currencies for Danish krone: | ||||||||
United States dollar | $7.4 | $6.9 | 8.3262 | $6.9 | ||||
  | $7.4 | $6.9 |   | $6.9 | ||||
Forward contracts to sell foreign currencies for British pound: | ||||||||
Euro | $14.6 | $10.0 | 0.6078 | $10.0 | ||||
  | $14.6 | $10.0 |   | $10.0 | ||||
Forward contracts to buy foreign currencies for US dollar: | ||||||||
British pound | $0.4 | $0.2 | 1.4458 | $0.2 | ||||
  | $0.4 | $0.2 |   | $0.2 | ||||
Forward contracts to sell foreign currencies for US dollar: | ||||||||
Canadian dollar | $5.6 | $5.8 | 0.6337 | $5.7 | ||||
Euro | 1.5 | 1.3 | 0.8801 | 1.3 | ||||
  | $7.1 | $7.1 |   | $7.0 | ||||
Total contracts outstanding at December 28, 2001: | $123.8 | $110.3 |   | $110.0 | ||||
(Dollars in millions) | Underlying Exposure at 12/29/00 | Notional Value of Forward Contract Maturing in 2001 | Average Contract Rate | Fair Value of Forward Contract at 12/29/00 | ||||
Forward contracts at 12/29/00: | ||||||||
Forward contracts to sell foreign currencies for Euro: | ||||||||
United States dollar | $84.0 | $81.0 | 0.9309 | $81.0 | ||||
Danish krone | 13.9 | 21.7 | 0.7961 | 21.7 | ||||
Norwegian krone | 4.7 | 3.7 | 0.7189 | 3.7 | ||||
British pound | 8.1 | 5.5 | 1.6005 | 5.6 | ||||
Swiss franc | 0.7 | 0.6 | 3.8986 | 0.6 | ||||
  | $111.4 | $112.5 | $112.6 | |||||
Forward contracts to sell foreign currencies for Danish krone: | ||||||||
United States dollar | $10.3 | $7.0 | 8.0138 | $7.0 | ||||
Norwegian krone | 5.7 | 4.7 | 0.9027 | 4.7 | ||||
  | $16.0 | $11.7 | $11.7 | |||||
Forward contracts to sell foreign currencies for British pound: | ||||||||
United States dollar | $0.8 | $0.7 | 1.4934 | $0.7 | ||||
Euro | 2.8 | 2.4 | 0.6223 | 2.4 | ||||
  | $3.6 | $3.1 | $3.1 | |||||
Forward contracts to sell foreign currencies for US dollar: | ||||||||
Canadian dollar | $8.7 | $7.2 | 0.6634 | $7.2 | ||||
Singapore dollar | 0.3 | 0.3 | 0.5786 | 0.3 | ||||
Euro | 2.6 | 3.7 | 0.9284 | 3.7 | ||||
  | $11.6 | $11.2 |   | $11.2 | ||||
Total contracts outstanding at December 29, 2000: | $142.6 | $138.5 |   | $138.6 | ||||
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes and the Report of Independent Auditors on pages 31 through 49 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 registrants Proxy Statement (the "Proxy Statement") dated March 19, 2002.
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 the registrants Annual Report to Stockholders for the year ended December 28, 2001, were previously incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets: December 28, 2001, and December 29, 2000
Consolidated Statements of Operations: Years ended December 28, 2001, December 29, 2000, and December 31, 1999
Consolidated Statements of Stockholders Equity: Years ended December 28, 2001, December 29, 2000, and December 31, 1999
Consolidated Statements of Cash Flows: Years ended December 28, 2001, December 29, 2000, and December 31, 1999
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:
The Registrant filed a press release on October 18, 2001, announcing earnings for the quarter and nine months ended September 28, 2001.
The Registrant filed a press release on November 5, 2001, announcing its plans to discontinue its development of the TITAN 6700 optical switch and reallocate resources to the development of the TITAN 6100 metro DWDM platform.
The Registrant filed a press release on November 16, 2001, announcing its plans to reduce its work force by about 1,000 people.
The Registrant filed a press release on December 4, 2001, announcing that it will acquire Ocular Networks, Inc.
The Registrant filed a press release on January 28, 2002, announcing earnings for the quarter and year ended December 28, 2001.
(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/ |
2.3 |
Agreement and Plan of Merger Among Tellabs, Inc., Omaha Merger Corp. and Future Networks, Inc. 20/ |
2.4 |
Agreement and Plan of Merger Among Tellabs, Inc., Orbit Merger Sub, Inc. and Ocular Networks, Inc. |
3.1 |
Restated Certificate of Incorporation 5/ |
3.2 | Amended and Restated By-Laws, as amended 19/ |
3.3 | Certificate of Amendment to Restated Certificate of Incorporation 8/ |
3.4 | Certificate of Amendment to Restated Certificate of Incorporation 17/ |
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 | Tellabs Operations, Inc. Deferred Income Plan Amendment 20/ |
10.3 |
1981 Incentive Stock Option Plan, as amended and restated 1/ |
10.4 |
Amendment to Tellabs, Inc. 1981 Incentive Stock Option Plan 17/ |
10.5 |
1984 Incentive Stock Option Plan, as amended and restated 1/ |
10.6 |
Amendment to Tellabs, Inc. 1984 Incentive Stock Option Plan (As Amended and Restated June 26, 1992) 17/ |
10.7 |
Amendment to the Coherent Communications Systems Corporation Amended and Restated Stock Option Plan 17/ |
10.8 |
1986 Non-Qualified Stock Option Plan, as amended and restated 1/ |
10.9 |
Amendment to Tellabs, Inc. 1986 Non-Qualified Stock Option Plan (As Amended and Restated June 26, 1992) 17/ |
10.10 |
1987 Stock Option Plan for Non-Employee Corporate Directors, as amended and restated 1/ |
10.11 |
Amendment to Tellabs, Inc. 1987 Stock Option Plan for Non-Employee Corporate Directors (As Amended and Restated June 26, 1992) 17/ |
10.12 |
1989 Stock Option Plan, as amended and restated 1/ |
10.13 |
Amendment to Tellabs, Inc. 1989 Stock Option Plan (As Amended and Restated June 26, 1992) 17/ |
10.14 |
Employee Quality Stock Award Program 2/ |
10.15 |
Form of Employment Agreement 3/ |
10.16 |
1991 Stock Option Plan, as amended and restated 1/ |
10.17 |
Amendment to Tellabs, Inc. 1991 Stock Option Plan (As Amended and Restated June 26, 1992) 17/ |
10.18 |
Description of Split-Dollar Insurance Arrangement with the Michael J. Birck Irrevocable Trust 3/ |
10.19 |
Amendment to the Coherent Communications Systems Corporation Amended and Restated 1993 Equity Compensation Plan 17/ |
10.20 |
1994 Stock Option Plan 4/ |
10.21 |
Amendment to the Tellabs, Inc. 1994 Stock Option Plan 17/ |
10.22 |
Tellabs, Inc. Stock Bonus Plan for Former Employees of Steinbrecher Corporation 7/ |
10.23 |
Tellabs, Inc. Stock Bonus Plan for Former Employees of TRANSYS Networks Inc. 9/ |
10.24 |
Tellabs, Inc. Stock Bonus Plan for Former Employees of International Business Machines Corporation 9/ |
10.25 |
Amendment to the Tellabs, Inc. 1997 Stock Option Plan 17/ |
10.26 |
1998 Stock Option Plan 10/ |
10.27 |
Amendment to the Tellabs, Inc. 1998 Stock Option Plan 17/ |
10.28 |
Tellabs, Inc. Stock Bonus Plan for Former Employees of Switched Network Technologies, Inc. 11/ |
10.29 |
NetCore Systems, Inc. 1997 Stock Option Plan 14/ |
10.30 |
Tellabs Advantage Program 16/ |
10.31 |
1999 Tellabs, Inc. Stock Bonus Plan 16/ |
10.32 |
SALIX Technologies, Inc. 1998 Omnibus Stock Plan and Option Agreement Dated as of December 1, 1997 15/ |
10.33 |
Amendment to the SALIX Technologies, Inc. Omnibus Stock Plan 17/ |
10.34 |
Employment Agreement - Chairman of the Board 18/ |
10.35 |
Employment Agreement - President and Chief Executive Officer 18/ |
10.36 | Future Networks, Inc. Stock Incentive Plan 19/ |
10.37 | Amendment to the Coherent Communications Systems Corporation 1993 Equity Compensation Plan 21/ |
10.38 | Tellabs, Inc. 2001 Stock Option Plan 21/ |
10.39 | Change in Control Agreement for Corporate Officers 22/ |
10.40 | Change in Control Agreement for Senior Executives 22/ |
10.41 | Ocular Networks, Inc. Amended and Restated 2000 Stock Incentive Plan 23/ |
10.42 | Tellabs Advantage Plan, as amended and restated |
13 |
Annual Report to Stockholders |
21 |
Subsidiaries of Tellabs, Inc. |
23 |
Consent of Ernst & Young LLP |
99.1 |
Forward-Looking Statements and Risks and Future Factors Impacting Tellabs 22/ |
Exhibits 10.1 through 10.42 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).
16/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 31, 1999 (File No. 0-9692).
17/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 30, 2000 (File No. 0-9692).
18/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended September 29, 2000 (File No. 0-9692).
19/ Incorporated by reference from Tellabs, Inc. Form S-8 filed on March 5, 2001 (File No. 333-56546).
20/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 29, 2000 (File No. 0-9692).
21/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended March 30, 2001 (File No. 0-9692).
22/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 29, 2001 (File No. 0-9692).
23/ Incorporated by reference from Tellabs, Inc. Form S-8 filed on January 25, 2002 (File No. 333-81360).
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 22, 2002 |
By /s Richard C. Notebaert
|
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.
/s Michael J. Birck |
March 22, 2002 |
/s Richard C. Notebaert Richard C. Notebaert President, Chief Executive Officer and Director |
March 22, 2002 |
/s Joan E. Ryan |
March 22, 2002 |
/s James A. Dite |
March 22, 2002 |
/s John J. Goossens | March 22, 2002 |
/s Peter A. Guglielmi |
March 22, 2002 |
/s Brian J. Jackman |
March 22, 2002 |
/s Frederick A. Krehbiel |
March 22, 2002 |
/s Stephanie Pace Marshall |
March 22, 2002 |
/s William F. Souders | March 22, 2002 |
/s Jan H. Suwinski |
March 22, 2002 |
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 28, 2001, and December 29, 2000, and for each of the three years in the period ended December 28, 2001, and have issued our report thereon dated January 22, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14(a). This schedule is the responsibility of the Companys management. Our responsibility is to express an opinion based on that schedule.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s Ernst & Young LLP
Ernst & Young LLP
Chicago, Illinois
January 22, 2002
TELLABS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Three Years Ended December 28, 2001, December 29, 2000 and December 31, 1999
|
Balance at beginning of year |
Additions charged to costs and expenses |
Deductions (A) |
Balance at end of year |
2001 |
|
|
|
|
2000 |
|
|
|
|
1999 |
|
|
|
|
NOTE:
(A) - uncollectable accounts charged off, net
Exhibit Index
2.4 | Agreement and Plan of Merger Among Tellabs, Inc., Orbit Merger Sub, Inc. and Ocular Networks, Inc. |
10.42 | Tellabs Advantage Plan, as amended and restated |
13 | Annual Report to Stockholders |
21 | Subsidiaries of Tellabs, Inc. |
23 | Consent of Ernst & Young LLP |
EXECUTION COPY
Agreement And Plan of Merger
Among
Tellabs, Inc.
Orbit Merger Sub, Inc.
And
Ocular Networks, Inc.
Dated as of November 29, 2001
TABLE OF CONTENTS
Page |
Introduction | 1 |
ARTICLE I | The Merger | 1 |
SECTION 1.1 | General | 1 |
SECTION 1.2 | Certificate of Incorporation | 2 |
SECTION 1.3 | The By-Laws | 2 |
SECTION 1.4 | Board of Directors and Officers | 2 |
SECTION 1.5 | Conversion of Securities | 2 |
SECTION 1.6 | Dissenting Shares | 4 |
SECTION 1.7 | Exchange Procedures; Distributions with Respect to Unexchanged Shares; Stock Transfer Books | 4 |
SECTION 1.8 | Return of Exchange Fund | 6 |
SECTION 1.9 | No Further Ownership Rights in Company Capital Stock | 6 |
SECTION 1.10 | Further Assurances | 6 |
ARTICLE II | Representations and Warranties of the Company | 7 |
SECTION 2.1 | Organization and Qualification | 7 |
SECTION 2.2 | Certificate of Incorporation and Bylaws | 7 |
SECTION 2.3 | Capitalization | 7 |
SECTION 2.4 | Authority | 8 |
SECTION 2.5 | No Conflict; Required Filings and Consents | 8 |
SECTION 2.6 | Financial Statements | 9 |
SECTION 2.7 | Absence of Certain Changes or Events | 9 |
SECTION 2.8 | Ownership and Condition of the Assets | 10 |
SECTION 2.9 | Leases | 10 |
SECTION 2.10 | Other Agreements | 11 |
SECTION 2.11 | Real Property | 12 |
SECTION 2.12 | Environmental Matters& | 13 |
SECTION 2.13 | Litigation | 13 |
SECTION 2.14 | Compliance with Laws | 14 |
SECTION 2.15 | Intellectual Property | 14 |
SECTION 2.16 | Taxes and Assessments | 16 |
SECTION 2.17 | Employment and Benefit Matters | 17 |
(a) | Pension and Benefit Plans and Other Arrangements | 17 |
(b) | Compliance | 17 |
(c) | Collective Bargaining Agreements | 18 |
(d) | Employee Information | 18 |
(e) | Employment Practices | 18 |
(f) | Contributions to the Company Benefit Plans | 18 |
(g) | Immigration Laws | 18 |
SECTION 2.18 | Transactions with Related Parties | 18 |
SECTION 2.19 | Insurance and List of Claims | 19 |
SECTION 2.20 | Brokers | 19 |
SECTION 2.21 | Disclosure | 19 |
ARTICLE III | Representations and Warranties of Parent | 19 |
SECTION 3.1 | Organization and Qualification | 19 |
SECTION 3.2 | Certificate of Incorporation and Bylaws | 20 |
SECTION 3.3 | Authority | 20 |
SECTION 3.4 | No Conflict; Required Filings and Consents | 20 |
SECTION 3.5 | Brokers | 20 |
SECTION 3.6 | SEC Filings | 20 |
SECTION 3.7 | Absence of Certain Changes or Events | 21 |
ARTICLE IV | Representations and Warranties of Merger Sub | 21 |
SECTION 4.1 | Organization and Qualification | 21 |
SECTION 4.2 | Authority | 21 |
SECTION 4.3 | No Conflict; Required Filings and Consents | 22 |
SECTION 4.4 | No Prior Activities | 22 |
ARTICLE V | Conduct Pending Closing | 22 |
SECTION 5.1 | Conduct of Business Pending Closing | 22 |
SECTION 5.2 | Prohibited Actions Pending Closing | 23 |
SECTION 5.3 | Access; Documents; Supplemental Information | 25 |
SECTION 5.4 | No Solicitation | 25 |
SECTION 5.5 | Stockholder Meeting | 27 |
SECTION 5.6 | Filings; Other Actions; Notification | 28 |
SECTION 5.7 | Information | 28 |
SECTION 5.8 | NASDAQ Listing | 28 |
SECTION 5.9 | Company Stock Options; Company Warrants | 28 |
SECTION 5.10 | Notification of Certain Matters | 29 |
SECTION 5.11 | Indemnification | 30 |
SECTION 5.12 | Actions by the Parties | 30 |
SECTION 5.13 | Interim Financing | 31 |
ARTICLE VI | Conditions Precedent | 32 |
SECTION 6.1 | Conditions Precedent to Each Partys Obligation to Effect the Merger | 32 |
(a) | Approvals | 32 |
(b) | No Injunction | 32 |
(c) | Stockholder Approval | 32 |
SECTION 6.2 | Conditions Precedent to Obligations of Parent | 32 |
(a) | Performance of Obligations; Representations and Warranties | 32 |
(b) | Consent | 32 |
(c) | Termination of Agreements | 33 |
(d) | Escrow Agreement | 33 |
(e) | No Litigation or Injunction | 33 |
(f) | FIRPTA Certificate | 33 |
(g) | Capital Structure Certificate | 33 |
SECTION 6.3 | Conditions Precedent to the Companys Obligations | 33 |
(a) | Performance of Obligations; Representations and Warranties | 33 |
(b) | Escrow Agreement | 34 |
ARTICLE VII | Survival of Representations and Warranties; Indemnification | 34 |
SECTION 7.1 | Survival of Representations and Warranties | 34 |
SECTION 7.2 | Indemnification; Escrow Agreements | 34 |
(a) | Indemnification | 34 |
(b) | Indemnification Threshold and Limitations | 34 |
(c) | Satisfaction of Indemnification Obligations; Escrow Fund | 35 |
SECTION 7.3 | Stockholders Representatives | 35 |
(a) | Appointment | 35 |
(b) | Indemnification of Stockholders Representatives | 35 |
(c) | Access to Information | 36 |
(d) | Reasonable Reliance | 36 |
(e) | Attorney-in-Fact | 36 |
(f) | Liability | 37 |
(g) | Orders | 37 |
(h) | Removal of Stockholders Representatives; Authority of Successor Stockholders Representatives | 37 |
SECTION 7.4 | Defense of Third Party Claims | 38 |
ARTICLE VIII | Miscellaneous and General | 39 |
SECTION 8.1 | Public Announcements | 39 |
SECTION 8.2 | Contents of Agreement; Parties in Interest; Etc | 39 |
SECTION 8.3 | Assignment and Binding Effect | 39 |
SECTION 8.4 | Termination | 39 |
(a) | Termination by Mutual Consent | 39 |
(b) | Termination by Either Parent or the Company | 39 |
(c) | Termination by the Company | 40 |
(d) | Termination by Parent | 40 |
(e) | Effect of Termination and Abandonment | 40 |
SECTION 8.5 | Definitions | 41 |
SECTION 8.6 | Notices | 44 |
SECTION 8.7 | Amendment | 45 |
SECTION 8.8 | Governing Law | 45 |
SECTION 8.9 | No Benefit to Others | 45 |
SECTION 8.10 | Severability | 45 |
SECTION 8.11 | Section Headings | 46 |
SECTION 8.12 | Schedules and Exhibits | 46 |
SECTION 8.13 | Extensions | 46 |
SECTION 8.14 | Counterparts | 46 |
SECTION 8.15 | Enforcement | 46 |
Agreement and Plan of Merger (this Agreement), dated as of November 29, 2001, by and among Tellabs, Inc., a Delaware corporation (Parent), Orbit Merger Sub, Inc., a Delaware corporation (Merger Sub), and Ocular Networks, Inc., a Delaware corporation (the Company).
Introduction
The Boards of Directors of each of Parent, Merger Sub and the Company have determined that the merger of Merger Sub with and into the Company (the Merger)in accordance with the provisions of the Delaware General Corporation Law, as amended (the DGCL), and subject to the terms and conditions of this Agreement, is advisable and in the best interests of Parent, Merger Sub and the Company and their respective stockholders.
The Company is a Delaware corporation and has authorized 40,000,000 shares of common stock, par value $0.001 per share (Company Common Stock), and 13,500,000 shares of preferred stock, $0.01 par value per share (Company Preferred Stock), of which 5,506,573 shares have been designated Series A Preferred Stock (Series A Preferred Stock) and 7,993,427 shares have been designated Series B Preferred Stock (Series B Preferred Stock and together with the Series A Preferred Stock, the Company Series Preferred Stock, and the Company Preferred Stock and the Company Common Stock are referred to as the Company Capital Stock).
Concurrently with this Agreement certain stockholders of the Company, including each of those who also is a director or officer of the Company and persons affiliated with such persons, are entering into Stockholder Agreements with Parent in the form attached hereto as Exhibit A, pursuant to which, among other things, each such stockholder agrees to vote in favor of adoption of this Agreement and the Merger.
In consideration of the foregoing and the mutual representations, warranties, covenants and agreements contained in and other good and valuable consideration, the parties agree as follows:
ARTICLE I
The Merger
SECTION 1.1 General.
SECTION 1.2 Certificate of Incorporation. The Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time (the Company Certificate), shall be amended so that Article Fourth reads in its entirety as follows: The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 1,000 shares of Common Stock, $.01 par value per share. As so amended the Company Certificate shall be the Certificate of Incorporation of the Surviving Company, until thereafter amended as provided therein and by law.
SECTION 1.3 The By-Laws. The By-laws of the Merger Sub, as in effect immediately prior to the Effective Time, shall be adopted at the Effective Time as the By-laws of the Surviving Company, until thereafter amended as provided therein and by law.
SECTION 1.4 Board of Directors and Officers. From and after the Effective Time, the Board of Directors and officers of Merger Sub at the Effective Time shall be the Board of Directors and officers of the Surviving Company, each to hold office until his or her respective successors are duly elected or appointed and qualified.
SECTION 1.5 Conversion of Securities.
(A) Each such share of Company Common Stock and each such share of Series B Preferred Stock (in addition to the right to receive the amount specified in Section 1.5(a)(iii)(C)(1)) shall be converted into the right to receive, in cash, without interest or dividends, an amount equal to the Post Preference Merger Consideration divided by the aggregate of all then issued and outstanding shares of Company Common Stock, on a fully diluted basis, assuming the exercise of all options and warrants and conversion of all equity interests in the Company into shares of Company Common Stock other than the conversion of shares of Series A Preferred Stock; provided, however, that in the event that each share of Series B Preferred Stock would become entitled to greater than $17.70 per share pursuant to the considerat ion allocable to the Series B Preferred Stock in accordance with this clause (A) together with the Series B Per Share Initial Liquidation Preference, then such shares of Series B Preferred Stock shall not be entitled to any payment in excess of $17.70 out of the Post Preference Merger Consideration unless and until each share of Company Common Stock has become entitled to $17.70 hereunder, thereafter the Series Breferred Stock and the Company Common Stock shall receive ratably any remaining portion of the Post Preference Merger Consideration (the portion of such per share consideration allocable to the Series B Preferred Stock pursuant to this clause (A) being the Series B Participating Payment and such per share consideration allocable to the Company Common Stock pursuant to this clause (A) being the Common Per Share Consideration).
(B) Each such share of Series A Preferred Stock shall be converted into the right to receive, in cash and without interest or dividends, $1.74 (the Series A Per Share Consideration).
(C) Each such share of Series B Preferred Stock shall be converted into the right to receive, in cash and without interest or dividends, (1) $7.08 (the Series B Per Share Initial Liquidation Preference) and (2) the Series B Participating Payment (collectively, the Series B Per Share Consideration).
For purposes of this Agreement, (i) the Post Preference Merger Consideration means the excess of (x) the Aggregate Merger Consideration over (y) the aggregate cash amount payable pursuant to Sections 1.5(a)(iii)(B) and 1.5(a)(iii)(C)(1); and (ii) the Common Stock Exchange Ratio shall mean the Common Per Share Consideration divided by the average, rounded down to the nearest cent, of the last reported sales price per share of Parent Common Stock on the Nasdaq National Market (Nasdaq) for the ten trading days immediately preceding the Effective Time.
In calculating the consideration payable under this Section 1.5, Parent shall be entitled to rely on the representations and warranties contained in Section 2.3 and the certificate delivered pursuant to Section 6.2(g). If such representations, warranties and certificate are not correct, Parent shall have the right to adjust the Series A Per Share Consideration, the Series B Per Share Consideration and the Common Per Share Consideration and the Common Stock Exchange Ratio accordingly and, notwithstanding anything else to the contrary contained in this Agreement, in no event shall the aggregate merger consideration payable by Parent, Sub or the Surviving Corporation to the holders of equity interests in the Company in connection with the Merger or the transactions contemplated hereby exceed such consideration payable assuming such representations, warranties and certificate are correct.
SECTION 1.6 Dissenting Shares. Notwithstanding any provision of this Agreement to the contrary, shares of Company Capital Stock that are outstanding immediately prior to the Effective Time and which are held by stockholders who shall not have voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of the DGCL (collectively, the Dissenting Shares) shall not be converted into or represent the right to receive the consideration set forth in Section 1.5. Such stockholders shall be entitled to receive such consideration as is determined to be due with respect to such Dissenting Shares in accordance with the provisions of Section 262 of the DGCL, except that all Dissenting Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal o f such shares under Section 262 of the DGCL shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive the consideration specified in Section 1.5, without any interest thereon, upon surrender, in the manner provided in Section 1.7, of the certificate or certificates that formerly evidenced by such Dissenting Shares less the cash allocable to such stockholder to be deposited in the Escrow Fund in respect of Company Capital Stock pursuant to Sections 1.7(b) and 7.2.
SECTION 1.7 Exchange Procedures; Distributions with Respect to Unexchanged Shares; Stock Transfer Books.
SECTION 1.8 Return of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the former holders of Company Capital Stock for one year after the Effective Date shall be delivered to Parent, upon its request, and any such former holders who have not theretofore surrendered to the Exchange Agent their Certificates in compliance herewith shall thereafter look only to Parent for payment of their claim for cash in respect of such Certificates. Neither Parent nor the Company shall be liable to any former holder of Company Capital Stock for any such cash held in the Exchange Fund which is delivered to a public official pursuant to an official request under any applicable abandoned property, escheat or similar law.
SECTION 1.9 No Further Ownership Rights in Company Capital Stock. All cash delivered upon the surrender for exchange of any Certificate in accordance with the terms hereof (including any cash paid pursuant to Section 1.7 or Section 1.8) shall be deemed to have been delivered (and paid) in full satisfaction of all rights pertaining to the Company Capital Stock previously represented by such Certificate.
SECTION 1.10 Further Assurances. If at any time after the Effective Time the Surviving Company shall consider or be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in the Surviving Company, its right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or Assets of either the Company or Merger Sub or (b) otherwise to carry out the purposes of this Agreement, the Surviving Company and its proper officers and directors or their designees shall be authorized to execute and deliver, in the name and on behalf of the Company, Merger Sub, all such deeds, bills of sale, assignments and assurances and do, in the name and on behalf of the Company or Merger Sub, all such other acts and things necessary, desirable or proper to vest, perfect or confirm its right, t itle or interest in, to or under any of the rights, privileges, powers, franchises, properties or Assets of the Company or Merger Sub, as applicable, and otherwise to carry out the purposes of this Agreement.
ARTICLE II
Representations and Warranties of the Company
SECTION 2.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of Delaware. The Company has the requisite power and authority to carry on its business as now being conducted and to perform the terms of this Agreement and the transactions contemplated hereby. The Company is duly qualified to conduct its business, and is in good standing, in each jurisdiction in which the ownership or leasing of its Assets or the nature of its activities in connection with the conduct of its business makes such qualification necessary, except for those jurisdictions in which the failure to be so qualified and in good standing would not have a Company Material Adverse Effect. The Company has no, and has never had any, Subsidiaries or any equity interest in any Person.
SECTION 2.2 Certificate of Incorporation and Bylaws. The Company has delivered to Parent a complete and correct copy of the Company Certificate and the bylaws of the Company, each as amended to date. Such Company Certificate and bylaws are in full force and effect. The Company is not in violation of any of the provisions of the Company Certificate or its bylaws.
SECTION 2.3 Capitalization. The authorized capital stock of the Company consists of 40,000,000 shares of common stock, $0.001 par value per share, of which, 20,279,627 shares are issued and outstanding, and 13,500,000 shares of preferred stock, par value $0.01 per share, of which 5,506,573 shares are designated as Series A Preferred Stock, all of which are issued and outstanding, and 7,993,427 shares are designated as Series B Preferred Stock, 5,350,195 of which are issued and outstanding. All of the issued and outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Common Stock of the Company are owned of record by the Stockholders of the Company shown on Schedule 2.3, which Schedule sets forth the number, class and series of such shares owned by each Stockholder. Except as set forth on Schedule 2.3, the Company has not granted any options, warrants or other rights, or entered into any agreements, arrangem ents or commitments of any character relating to the issued or unissued capital stock of the Company, or obligating the Company to issue or sell any shares of capital stock of, or other equity interests in the Company (Equity Rights), including any securities directly or indirectly convertible into or exercisable or exchangeable for any capital stock or other equity securities of the Company. Schedule 2.3 includes with respect to each Equity Right, the name of the person holding it and the exercise price and expiration date thereof. Except as set forth on Schedule 2.3, the Company does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with the Stockholders of the Company on any matter. Except as set forth on Schedule 2.3, there are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any shares of its capital stock or make any investment (in the form of a loan, capital contribution or otherwise) in any other Person except for outstanding rights of the Company to repurchase unvested shares of Company Common Stock, at the original purchase price paid per share, upon the holders termination of service or employment with the Company. All of the issued and outstanding shares of the Company Capital Stock have been duly authorized and validly issued in accordance with applicable laws and are fully paid and non-assessable and not subject to preemptive rights. Except as set forth on Schedule 2.3, no shares of capital stock of the Company have been reserved for any purpose. Each issued and outstanding share of Series B Preferred Stock is convertible into one share of Company Common Stock. Except as set forth in Schedule 2.3, the Company is not a party to, and does not otherwise have any knowledge of the current existence of, any stockholder agreement, voting trust agreement or any other similar contract, agreement, arrangement , commitment, plan or understanding relating to the voting, dividend, ownership or transfer rights of any shares of capital stock of the Company. The Company has provided to Parent a true and complete copy of the Companys Stock Plan and a sample of each the agreements and other instruments referred to in this Section 2.3, including warrants, options and redemption agreements. Each of the instruments and agreements referred to in Schedule 2.3 has been made available to Parent.
SECTION 2.4 Authority.
SECTION 2.5 No Conflict; Required Filings and Consents.
SECTION 2.6 Financial Statements. Attached hereto as Schedule 2.6 are (a) the audited balance sheets of the Company as of December 31, 1999 and 2000 and the audited statements of operations and cash flows for the fiscal years ended December 31, 1999 and 2000 and (b) the unaudited balance sheet of the Company as of September 30, 2001, and the unaudited statement of operations and cash flows for the nine months then ended (collectively, the Financial Statements). The audited financial statements referred to in this Section 2.6 present fairly, in all material respects, the financial condition of the Company as of the respective dates and the results of operations and cash flows for the respective periods indicated and have been prepared in accordance with United States generally accepted accounting principles (GAAP) applied on a consistent basis. Except as set forth on Schedule 2.6, the unaudit ed financial statements referred to in this Section 2.6 present fairly, in all material respects, the financial condition of the Company as of the respective dates and the results of operations and cash flows for the respective periods indicated and have been prepared in accordance with GAAP applied on a consistent basis except for the absence of required footnotes and subject to normal and recurring year-end audit adjustments not material in amount. All audited financial statements included in the Financial Statements are accompanied by unqualified audit reports of Arthur Andersen LLP. Except as set forth on Schedule 2.6 or as reflected in the unaudited balance sheet of the Company as of December 31, 2000 (the Balance Sheet Date), the Company has incurred no material liabilities, contingent or absolute, matured or unmatured, known or unknown, and knows of no basis for such liabilities, other than liabilities of the same nature as those set forth in the balance sheets as included in the Financial Statements and the notes thereto and incurred in the Ordinary Course of Business consistent with past practice after the Balance Sheet Date.
SECTION 2.7 Absence of Certain Changes or Events. Since the Balance Sheet Date, there has been no event or set of circumstances that resulted in or is reasonably likely to result in a Company Material Adverse Effect. Except as set forth on Schedule 2.7, since the Balance Sheet Date, the Company has conducted its business in the Ordinary Course of Business, and has not (a) paid any dividend or distribution in respect of, or redeemed or repurchased any of, its capital stock; (b) incurred loss of, or significant injury to, any of the material Assets, whether as the result of any natural disaster, labor trouble, accident, other casualty, or otherwise; (c) incurred, or become subject to, any material liability (absolute or contingent, matured or unmatured, known or unknown), and knows of no basis for such liabilities, except current liabilities incurred in the Ordinary Course of Business; (d) mortgaged, pledged or subjected to any Enc umbrance any of the Assets; (e) sold, leased (as lessor), exchanged, transferred or otherwise disposed of any of the Assets except in the Ordinary Course of Business, or canceled any debts or claims; (f) written down the value of any Assets or written off as uncollectible any accounts receivable, except write downs and write-offs in the Ordinary Course of Business, none of which, individually or in the aggregate, are material; (g) entered into any transactions other than in the Ordinary Course of Business; (h) made any change in any method of accounting or accounting practice; (i) made any Tax election not required by law or settled or compromised any material federal, state, local or foreign income Tax liability in excess of $50,000; or (j) made any agreement to do any of the foregoing, other than negotiations with Parent and its representatives and certain other parties regarding the transactions contemplated by this Agreement. Since the Balance Sheet Date, except as set forth on Schedule 2.7, there has n ot been: (a) any damage, destruction or loss (whether or not covered by insurance) or any other event materially and adversely affecting the business or Assets of the Company; (b) any forgiveness or cancellation of debts or claims owed to the Company; (c) any increase in the compensation or benefits payable or to become payable by the Company to any of the directors, officers, consultants or employees of the Company, other than salary increases in connection with customary performance reviews and customary bonuses consistent with past practices; (d) any discharge or satisfaction of any Lien or payment of any liability or obligation by the Company other than current liabilities in the Ordinary Course of Business; or (e) any agreement to do any of the foregoing, other than negotiations with Parent and its representatives and certain other parties regarding the transactions contemplated by this Agreement.
SECTION 2.8 Ownership and Condition of the Assets. Except as set forth on Schedule 2.8, the Company is the sole and exclusive legal and equitable owner of and has good and marketable title to the Assets it purports to own (including all of the assets reflected on the Balance Sheet as being owned by it and all of the assets thereafter acquired by it, except to the extent that such assets have been disposed of after the Balance Sheet Date in the Ordinary Course of Business consistent with past practice) and such Assets are free and clear of all Encumbrances other than Permitted Encumbrances. No person or Government Entity has an option to purchase, right of first refusal or other similar right with respect to all or any part of such Assets. All of the personal property of the Company is in good working order and repair, ordinary wear and tear excepted, and is suitable and adequate for the uses for which it is intended or is being used. The assets owned, leased or licensed by the Company constitute all the assets used in its business (including, but not limited to, all books, records, computers and computer programs and data processing systems).
SECTION 2.9 Leases. Schedule 2.9 lists all leases and other agreements under which the Company is lessee or lessor of any Asset, or holds, manages or operates any Asset owned by any third party, or under which any Asset owned by the Company is held, operated or managed by a third party. The Company is the holder of all the leasehold estates purported to be granted to such entity by the leases listed in Schedule 2.9 and is the owner of all equipment, machinery and other Assets purported to be owned by the Company thereon, free and clear of all Encumbrances other than Permitted Encumbrances. Each such lease and other agreement is in full force and effect and constitutes a legal, valid and binding obligation of, and is legally enforceable against, the respective parties thereto (except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability relating to or affecting creditors rights generally and by the application of general principles of equity) and grants the leasehold estate it purports to grant free and clear of all Encumbrances other than Permitted Encumbrances. All necessary governmental approvals required to be obtained by the Company with respect thereto have been obtained, all necessary filings or registrations therefor have been made, and to the Companys Knowledge, there have been no threatened cancellations thereof and are no outstanding disputes thereunder. The Company has performed in all material respects all obligations thereunder required to be performed by it to date. The Company is not in default in any material respect under any of the foregoing and to the Companys Knowledge, no other party is in default in any material respect under any of the foregoing, and there has not occurred any event which (whether with or without notice, lapse of time or the happening or occurrence of any other event) would, constitute a def ault on the part of the Company, or to the Companys Knowledge, a party other than the Company.
SECTION 2.10 Other Agreements.
SECTION 2.11 Real Property. Schedule 2.11 contains a list of all leasehold interests in real estate, easements, rights to access, rights-of-way and other real property interests which are owned, or are leased, used or held for use by the Company (collectively, the Real Property). The Real Property listed in Schedule 2.11 constitutes all real property interests necessary to conduct the business and operations of the Company as now conducted. The Company is not aware of any easement or other real property interest, other than those listed in Schedule 2.11, that is required, or that has been asserted by a Government Entity to be required, to conduct the business and operations of the Company. The Company has made available to Parent true and complete copies of all deeds, leases, easements, rights-of-way and other instruments pertaining to the Real Property (including any and all amendments and other modifications of such instruments). All Real Property (including the improvements thereon) (i) is in good condition and repair other than conditions that do not adversely affect its use by the Company and consistent with its present use, (ii) is available to the Company for immediate use in the conduct of its business and operations, and (iii) to the Knowledge of the Company complies in all material respects with all applicable building or zoning codes and in the regulations of any Government Entity having jurisdiction.
SECTION 2.12 Environmental Matters.
SECTION 2.13 Litigation. Except as set forth on Schedule 2.13, the Company is not directly involved in any pending action, suit, investigation, claim, arbitration or litigation and, to the Knowledge of the Company, no such matter is threatened against or involving the Company, or the Assets, at law or in equity, or before or by any court, arbitrator or Government Entity, in each case, which could, individually or in the aggregate, be reasonably expected to have a Company Material Adverse Effect. The Company is not operating under, and is not subject to, any judgment, writ, order, injunction, award or decree of any court, judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any Governmental Entity. No property or Assets of the Company has been taken or expropriated by any federal, state, provincial, municipal or other Government Entity nor has any notice or proceeding with respect to there of been given or commenced, nor is the Company aware of any intent or proposal by any Governmental Entity to give any such notice or commence any such proceeding.
SECTION 2.14 Compliance with Laws. The Company is in compliance in all material respects with all Laws applicable to the Assets and its business and operations, including all Laws applicable to the Companys relationship with its employees.
SECTION 2.15 Intellectual Property.
SECTION 2.16 Taxes and Assessments. The Company has (i) timely filed all Tax Returns required to have been filed by the Company; all such Tax Returns are complete and accurate in all material respects and disclose all Taxes required to be paid by the Company for the periods covered thereby and all Taxes shown to be due on such Tax Returns have been timely paid; (ii) duly and timely paid all Taxes which have become due and payable by it, and there are no agreements, waivers or other arrangements providing for an extension of time with respect to the filing of any Tax Return or the payment of any Tax; (iii) received no written notice of, nor does the Company have any Knowledge of, any notice of deficiency or assessment or proposed deficiency or assessment from any taxing Governmental Entity; (iv) no Knowledge of any audits pending and there are no outstanding agreements or waivers by the Company that extend the statutory period of limitations applicable to any Tax Returns or Taxes; and (v) not entered into any discussions with any taxing Governmental Entity about any Tax liability where such Governmental Entity has questioned the accuracy of a specific item included on or omitted from a Tax Return filed by the Company. Since the inception of the Company, the Tax Returns of the Company have never been audited by any taxing Governmental Entity. There are no Liens on any property of the Company that arose in connection with any failure (or alleged failure) to pay any material Tax when due. The Company has withheld from each payment made to any of its past or present employees, officers or directors, and to any other Person, the amount of Taxes and other deductions required to be withheld therefrom and has paid the same (or set aside for timely payment) to the proper Governmental Entity or other receiving officers within the time required under applicable Laws. The provision for Taxes of the Company, if any, as shown in the Financial Statements is adequate for Taxes due or accrued as of the date thereof. The Company is not, and has not been within the time period prescribed by Section 897(c)(1)(A)(ii), a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code. As a result of the transactions contemplated by this Agreement, the Company will not be obligated to make a payment that would be an excess parachute payment to a disqualified individual as those terms are defined in Section 280G of the Code. The Company is not party to any written or unwritten agreement or arrangement for the allocation or payment of Tax liabilities or payment for Tax benefits with respect to a consolidated, combined or unitary Tax Return which Tax Return includes the Company. Neither the Company nor any predecessor is or has ever been a member of (i) any affiliated group (as defined in Section 1504(a) of the Code without regard to the limitations contained in Section 1504(b) of th e Code) or (ii) any other group of corporations or entities which files or has filed Tax Returns on a combined, consolidated or unitary basis.
SECTION 2.17 Employment and Benefit Matters.
SECTION 2.18 Transactions with Related Parties. Except as set forth on Schedule 2.18, neither any present or former officer, director, stockholder of the Company or person known by the Company to be an Affiliate of any of them, is currently a party to any transaction or agreement with the Company, including, without limitation, any agreement providing for the employment of, furnishing of services by, rental of Assets from or to, or otherwise requiring payments to, any such officer, director, stockholder or Affiliate.
SECTION 2.19 Insurance and List of Claims. Schedule 2.19 contains a list of all policies of title, property, fire, casualty, liability, life, workmens compensation, libel and slander, and other forms of insurance of any kind relating to the business and operations of the Company in each case which are in full force and effect as of the date hereof. The Company has made available to Parent true and correct copies of all such policies. All such policies: (a) are sufficient for compliance by the Company with all requirements of applicable Law and of all licenses, franchises and other agreements to which the Company is a party; and (b) are valid, outstanding, and enforceable policies. All premiums due and payable on all such policies have been paid. The Company shall maintain such insurance or comparable insurance in full force and effect through the Effective Time. The Company has complied with each such insurance policy a nd has not failed to give any material notice or to present any material claim thereunder in a due and timely manner.
SECTION 2.20 Brokers. No broker, finder or investment banker is entitled to any brokerage, finders or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of any of the Company, except for a fee to be paid by the Company to Thomas Weisel Partners LLC upon consummation of the Merger (as reflected in an agreement between Thomas Weisel Partners LLC and the Company, a copy of which has been furnished to Parent).
SECTION 2.21 Disclosure. True and complete copies of all documents listed in the Schedules to this Agreement have been made available or provided to Parent. The books of account, stock record books and other financial and corporate records of the Company, all of which have been made available to Parent, are materially complete and correct and have been maintained in accordance with good business practices, including the maintenance of an adequate system of internal accounting controls, and such book and records are accurately reflected in the Financial Statements. The minute books of the Company contain accurate and complete records of all meetings held of, and corporate action by, the stockholders and the board of directors (and committees thereof) of the Company, and no meeting of any such stockholders or board of directors (or committees thereof) has been held for which minutes have not been prepared and are not contained in s uch minute books.
SECTION 2.22 Takeover Statutes. To the Knowledge of the Company, no state takeover statutes are applicable to the Merger, this Agreement or the Stockholders Agreement, and the transactions contemplated hereby and thereby.
ARTICLE III
Representations and Warranties of Parent
Parent represents and warrants to the Company as follows:
SECTION 3.1 Organization and Qualification. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Parent has the requisite power and authority to own, lease and operate its Assets and properties, to carry on its business as now being conducted and to perform the terms of this Agreement and the transactions contemplated hereby. Parent is duly qualified to conduct its business, and is in good standing, in each jurisdiction where the ownership or leasing of its properties or the nature of its activities in connection with the conduct of its business makes such qualification necessary, except for those jurisdictions in which the failure to be so qualified and in good standing would not have a Parent Material Adverse Effect.
SECTION 3.2 Certificate of Incorporation and Bylaws. Parent has previously made available to Company complete and correct copies of its Certificate of Incorporation and Bylaws, as amended to date (together, the Parent Charter Documents). Such Parent Charter Documents and equivalent organizational documents of each of its subsidiaries are in full force and effect.
SECTION 3.3 Authority. The execution and delivery of this Agreement by Parent and the consummation by Parent of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on the part of Parent are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Parent and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of Parent, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability relating to or affecting creditors rights generally and by the application of general principles of equity.
SECTION 3.4 No Conflict; Required Filings and Consents.
SECTION 3.5 Brokers. No broker, finder or investment banker is entitled to any brokerage, finders or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent, except for the fee to be paid by Parent to Credit Suisse First Boston.
SECTION 3.6 SEC Filings. Parent has filed all reports, forms and other documents (Parent SEC Documents) required to be filed by it with the Securities and Exchange Commission (the SEC) since January 1, 2001. The Parent SEC Documents (i) at the time filed, complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act) or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Parent SEC Documents and (ii) did not, at the time they were filed, contain any untrue statements of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The financial statements of Parent included in the Parent S EC Documents as of their respective dates comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved and fairly present in all material respects the consolidated financial position of Parent and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments not material in amount).
SECTION 3.7 Absence of Certain Changes or Events. Since September 30, 2001, there has not been any event or set of circumstances that resulted in or is reasonably likely to result in a Parent Material Adverse Effect.
SECTION 3.8 Sufficient Funds. At the Effective Time, Parent will have available funds sufficient to perform its obligations hereunder.
ARTICLE IV
Representations and Warranties of Merger Sub
Parent and Merger Sub jointly and severally represent and warrant to the Company as follows:
SECTION 4.1 Organization and Qualification. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Merger Sub has the requisite power and authority to own, lease and operate its Assets and properties, to carry on its business as now being conducted and to perform the terms of this Agreement and the transactions contemplated hereby. Merger Sub is duly qualified to conduct its business, and is in good standing, in each jurisdiction where the ownership or leasing of its properties or the nature of its activities in connection with the conduct of its business makes such qualification necessary.
SECTION 4.2 Authority. The execution and delivery of this Agreement by Merger Sub and the consummation by Merger Sub of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on the part of Merger Sub are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Merger Sub and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of Merger Sub, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability relating to or affecting creditors rights generally and by the application of general principles of equity.
SECTION 4.3 No Conflict; Required Filings and Consents.
SECTION 4.4 No Prior Activities. Except for obligations incurred in connection with its incorporation or organization or the negotiation and consummation of this Agreement and the transactions contemplated hereby, Merger Sub has neither incurred any obligation or liability nor engaged in any business or activity of any type or kind whatsoever or entered into any agreement or arrangement with any other person. As of the date hereof and the Effective Time, all of the outstanding capital stock of Merger Sub is and will be directly owned by Parent.
ARTICLE V
Conduct of Business Pending Closing
SECTION 5.1 Conduct of Business Pending Closing. From the date hereof until the Closing, the Company shall:
SECTION 5.2 Prohibited Actions Pending Closing. Unless otherwise listed on Schedule 5.2, or otherwise expressly required by this Agreement, or approved by Parent in writing, from the date hereof until the Closing, the Company shall not:
SECTION 5.3 Access; Documents; Supplemental Information.
SECTION 5.4 No Solicitation. The Company shall not, nor shall it authorize or permit any of its Affiliates or any officer, director, employee, investment banker, attorney or other adviser or representative of the Company or any of its Affiliates to (a) solicit, initiate, or encourage the submission of, any Acquisition Proposal (as hereinafter defined), (b) enter into any agreement with respect to any Acquisition Proposal or (c) participate in any discussions or negotiations regarding, or furnish to any Person any information for the purpose of facilitating the making of, or take any other action to facilitate any inquiries or the making of, any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal other than the transactions contemplated hereby; provided, however, that nothing contained in this Agreement shall prevent the Company or its Board of Directors at any time prior to the time the M erger has been approved by the Companys stockholders from: (a) providing information in response to a request therefor by a Person who has delivered to the Board of Directors of the Company an unsolicited bona fide written Acquisition Proposal if the Board of Directors of Company receives from the Person so requesting such information an executed confidentiality agreement the terms of which are (without regard to the terms of the Acquisition Proposal) (i) no less favorable to the Company and (ii) no less restrictive on the Person requesting such information than those contained in the Confidentiality Agreement; or (b) engaging in negotiations or discussions with a Person who has delivered to the Board of Directors of the Company an unsolicited bona fide written Acquisition Proposal; if, and only to the extent that, in each such case referred to in clause (a) or (b) above, (x) the Board of Directors of the Company determines in good faith (after reviewing the advice of its financial advisor and outside legal counsel) that the Acquisition Proposal, if accepted, is likely to be consummated, (y) the Board of Directors of the Company determines in good faith (after reviewing the advice of its financial adviser) that the Acquisition Proposal would, if consummated, result in a transaction that is more favorable to the Companys stockholders (with respect to financial terms) than the Merger (any Acquisition Proposal as to which such determinations are made being referred to in this Agreement as a Superior Proposal) and (z) the Board of Directors determines in good faith (after receiving advice of outside legal counsel) that taking such action is required in the exercise of its fiduciary duties under applicable law. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in this Section 5.4 by any officer, director, employee, investment banker, attorney, employee, or other adviser or representative of the Company or any of its Affiliates, whether o r not such Person is purporting to act on behalf of the Company or any of its Affiliates or otherwise, shall be deemed to be a breach of this Section 5.4 by the Company and its Affiliates. Nothing in this Section 5.4 shall permit the Company to enter into any agreement, orally or in writing, with respect to an Acquisition Proposal during the term of this Agreement (other than a confidentiality agreement as described above). Acquisition Proposal means any proposal for a merger or other business combination involving the Company or any proposal or offer to acquire in any manner, directly or indirectly, 10% or more (for purposes of this Section 5.4) or 20% or more (for purposes of Section 8.4) of the equity securities, voting securities or Assets of the Company (except in connection with employee stock option grants or exercises or warrant exercises to the extent such warrant is listed on Schedule 2.3). The Company will, and except as otherwise provided in this Agreement, will cause its Affi liates to, immediately cease and cause to be terminated any activities, discussions or negotiations existing as of the date of this Agreement with any Persons (other than Parent and its representatives) conducted heretofore with respect to any Acquisition Proposal, and will not pursue, directly or indirectly, any Acquisition Proposal received on or prior to the date of this Agreement from any Person (other than Parent and its representatives).
The Company shall advise Parent orally (within one business day) and in writing (as promptly as practicable) of (i) any Acquisition Proposal or any inquiry with respect to or which could lead to any Acquisition Proposal, (ii) the material terms of such Acquisition Proposal and (iii) the identity of the Person making any such Acquisition Proposal or inquiry. The Company will keep Parent fully informed of the status and details of any such Takeover Proposal or inquiry.
During the period from the date of this Agreement through the Effective Time, the Company shall not terminate, amend, modify or waive any provision of any confidentiality agreement relating to an Acquisition Proposal or standstill agreement to which the Company is a party (other than any involving Parent). During such period, the Company agrees to enforce, to the fullest extent permitted under applicable law, the provisions of any such agreements, including, but not limited to, injunctions to prevent any breaches of such agreements and to enforce specifically the terms and provisions thereof in any court of the United States or any state thereof having jurisdiction.
SECTION 5.5 Stockholder Meeting.
SECTION 5.6 Filings; Other Actions; Notification. The Company and Parent each shall from the date hereof until the Effective Time cooperate with the other and use its commercially reasonable efforts to cause to be done all things necessary, proper or advisable on its part under this Agreement and applicable Laws to consummate and make effective the Merger and the other transactions contemplated by this Agreement as soon as practicable, including preparing and filing as promptly as practicable all documentation to effect all necessary notices, reports and other filings and to obtain as promptly as practicable all consents, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any third party and/or any Governmental Entity, including filings under the Hart-Scott-Rodino Act, in order to consummate the Merger or any of the other transactions contemplated by this Agreement.
SECTION 5.7 Information. The Company and Parent each shall keep the other apprised of the status of matters relating to completion of the transactions contemplated hereby.
SECTION 5.8 NASDAQ Listing. As soon as practicable after the Effective Time, Parent shall list on NASDAQ the shares of Parent Common Stock to be issued upon exercise of Substitute Options.
SECTION 5.9 Company Stock Options; Company Warrants.
SECTION 5.10 Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (a) the occurrence, or non-occurrence, of any event which would be likely to cause (i) any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect or (ii) any covenant, condition or agreement contained in this Agreement not to be complied with or satisfied; and (iii) any failure of the Company, Parent or Merger Sub, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided that the delivery of any notice pursuant to this Section 5.10 shall not limit or otherwise affect the remedies available to the party receiving such notice.
SECTION 5.11 Indemnification. From and after the Effective Time for not less than (i) six years, in the case of acts or omissions under or pursuant to Section 174 of the DCGL and Section 8109 of Title 10 of the Delaware Code Annotated, and (ii) four years for all other acts or omissions, after the Effective Time, Parent shall fulfill and honor in all respects the obligations of the Company to indemnify each person who is or was a director or officer of the Company against losses such person may incur based upon matters existing or occurring prior to the Effective Time pursuant to any applicable indemnification agreements described in Schedule 2.10(b) and any indemnification and exculpation provision of the Company Certificate or its bylaws as each is in effect on the date hereof. Parent will cause to be maintained for a period of not less than four years from the Effective Time the Companys current directors and offi cers insurance and indemnification policy to the extent that it provides coverage for events occurring prior to the Effective Time for all persons who are directors and officers of the Company on the date of this Agreement, provided that in satisfying its obligation under this Section, Parent shall not be obligated to pay premiums in excess of 150% of the amount per annum the Company paid in its last full fiscal year, which amount has been disclosed to Parent, and if Parent is unable to obtain the insurance required by this Section 5.11, it shall obtain as much comparable insurance as possible for an annual premium equal to such maximum amount.
SECTION 5.12 Actions by the Parties. Upon the terms and subject to the conditions set forth in this Agreement, each of the parties hereto will use its commercially reasonable efforts to take or cause to be taken all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable law and regulations to consummate and make effective in the most expeditious manner practicable, the transactions contemplated by this Agreement including (i) obtaining all necessary actions and non-actions, waivers and consents, if any, from any governmental agency or authority and the making of all necessary registrations and filings and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by any governmental agency or authority; (ii) obtaining all necessary consents, approvals or waivers from any other Person; (iii) defending any claim, inves tigation, action, suit or other legal proceeding, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby; and (iv) executing additional instruments necessary to consummate the transactions contemplated by this Agreement. Each party will promptly consult with the other and provide necessary information (including copies thereof) with respect to all filings made by such party with the any agency or authority in connection with this Agreement and the transactions contemplated hereby. The Company will cause the Stockholders Representatives (or, if an individual named herein as a Stockholder Representative is unable or unwilling to serve in such capacity, a replacement Stockholders Representative) to execute and deliver to Parent and the Escrow Agent the Escrow Agreement prior to the Effective Time. Each party shall use all commercially reasonable efforts to not take any action, or enter into any transaction, which would cause any o f its representations or warranties contained in this Agreement to be untrue or result in a breach of any covenant made by it in this Agreement. Notwithstanding anything to the contrary contained in this Agreement, in connection with any filing or submission required or action to be taken by either Parent or the Company relating to this Agreement or the transactions contemplated hereby, (i) neither Parent nor any of its Affiliates shall be required to divest or hold separate or otherwise take or commit to take any action that limits its freedom of action with respect to, or its ability to retain, the Company or any of the businesses, product lines or assets of Parent, the Company or any of their respective Subsidiaries or Affiliates, or that otherwise would have an adverse effect in any material respect on Parent or the Company and (ii) the Company shall not, and shall not permit any of its Affiliates to, take or agree to take any such action without Parents prior written consent.
SECTION 5.13 Interim Financing. Parent hereby agrees to lend to the Company at any time and from time to time after the date hereof and before the Termination Date (each a Loan and collectively the Loans) up to a principal amount of $10,000,000.00 in immediately available funds; provided that Parent shall not be obligated to make any Loans to the Company (1) upon the termination of this Agreement in accordance with its terms, (2) if the Company is in breach in any material respect of any of its obligations hereunder and such breach has not been cured, (3) if the Company breaches in any material respect its obligations under Section 5.4 or (4) if the Company is in breach in any material respect of any of its obligations under the Interim Note and such breach has not been cured (each of the circumstances set forth in clauses (2), (3) and (4) above, a Loan Default). Each Loan shall be in a n amount of at least $1,000,000. The Loans shall be evidenced by a single Promissory Note, in the form of Exhibit B attached hereto (the Interim Note), executed by the Company on the date of this Agreement and payable to the order of Parent in an amount equal to the unpaid principal amount of the Loans. The Loans are not revolving in nature and no Loan may be reborrowed once it has been repaid. The Company shall give Parent at least five Business Days irrevocable written notice of the Companys intention to receive a Loan from Parent. Such notice shall specify the amount of the Loan, the date on which the Loan will be made by Parent and the wire transfer instructions for the Company bank account to which Parent shall transfer an amount of funds equal to the full amount of such Loan, and shall certify that, as of the date of such notice, no Loan Default exists. The Companys acceptance of any Loan shall constitute the Companys reaffirmation that as of the date of such Loan, no Loan Default exists. Subject to the proviso in the first sentence of this Section 5.13, Parent shall make such Loan in accordance with such notice. All of the other terms relating to the Loans are set forth in the Interim Note.
SECTION 5.14 Employment Agreements. Promptly following the date of this Agreement, Parent, in consultation with the Company, shall identify, in good faith, key employees of the Company whom it desires to enter into the employment agreements contemplated by Section 6.2(i). Parent agrees to use reasonable commercial efforts to negotiate such employment agreements with such employees as soon as reasonably practicable after such identification. The Company agrees to use its reasonable best efforts to assist Parent with respect to the foregoing.
ARTICLE VI
Conditions Precedent
SECTION 6.1 Conditions Precedent to Each Partys Obligation to Effect the Merger. The respective obligations of each party hereto to effect the Merger shall be subject to the fulfillment or satisfaction, prior to or on the Closing Date of the following conditions:
SECTION 6.2 Conditions Precedent to Obligations of Parent. The obligations of Parent to effect the Merger shall be subject to the fulfillment or satisfaction, prior to or on the Closing Date, of each of the following conditions precedent:
SECTION 6.3 Conditions Precedent to the Companys Obligations. The obligations of the Company to effect the Merger shall be subject to the fulfillment or satisfaction, prior to or on the Closing Date, of each of the following conditions precedent:
ARTICLE VII
Survival of Representations and Warranties;
SECTION 7.1 Survival of Representations and Warranties. All of the Companys, Parents and Merger Subs representations and warranties representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Merger and continue until the date which is one year following the Closing Date, except to the extent a claim for indemnification shall be pending with respect thereto in accordance with this Article VII and the Escrow Agreement.
SECTION 7.2 Indemnification; Escrow Agreements.
SECTION 7.3 Stockholders Representatives.
SECTION 7.4 Defense of Third Party Claims.
ARTICLE VIII
Miscellaneous and General
SECTION 8.1 Public Announcements. Parent and Merger Sub, on the one hand, and the Company on the other hand, will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement, including the Offer and the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange. The parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement will be in the form previously agreed to by the parties.
SECTION 8.2 Contents of Agreement; Parties in Interest; Etc. This Agreement and the agreements referred to or contemplated herein and the Confidentiality Agreement set forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby, and, except as set forth in this Agreement, such other agreements and the Exhibits hereto and the Confidentiality Agreement, there are no representations or warranties, express or implied, made by any party to this Agreement with respect to the subject matter of this Agreement and the Confidentiality Agreement. Except for the matters set forth in the Confidentiality Agreement, any and all previous agreements and understandings between or among the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement and the agreements referred to or contemplated herein.
SECTION 8.3 Assignment and Binding Effect. This Agreement may not be assigned by either party hereto without the prior written consent of the other party. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto.
SECTION 8.4 Termination.
SECTION 8.5 Definitions. As used in this Agreement the terms set forth below shall have the following meanings:
Affiliate of a Person means any other Person who directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with such Person. Control means the possession of the power, directly or indirectly, to direct or cause the direction of the management and policies of a Person whether through the ownership of voting securities, by contract or otherwise.
Assets means assets of every kind and everything that is or may be available for the payment of liabilities (whether inchoate, tangible or intangible), including, without limitation, real and personal property but excluding Intellectual Property Rights.
Business Day means a day other than Saturday or Sunday or a day on which banks are required or authorized to close in the State of Virginia.
Code means the Internal Revenue Code of 1986, as amended.
Company Material Adverse Effect means any event, change or effect that has, or could reasonably be expected to have, a material adverse effect on the business, financial condition, Assets, liabilities or results of operations of the Company; provided, however, that none of the following shall be deemed in themselves, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Company Material Adverse Effect: (a) any adverse effect to the extent attributable to the announcement or pendency of the Merger (including any cancellations of or delays in customer orders, any reduction in sales, any disruption in supplier, distributor, partner or similar relationships or any loss of employees); or (b) any adverse effect attributable to conditions generally affecting the industries in which the Company participates, the U.S. economy as a whole or foreign economies in any locations where the Company has material operations or sales or suppliers or customers.
Encumbrances means Liens, security interests, deeds of trust, encroachments, reservations, orders of Governmental Entities, decrees, judgments, contract rights, claims or equity of any kind.
Environmental Laws means all applicable federal, state, local or foreign laws, rules and regulations, orders, decrees, judgments, permits, filings and licenses relating (i) to protection and clean-up of the environment and activities or conditions related thereto, including those relating to the generation, handling, disposal, transportation or release of Hazardous Substances and (ii) the health or safety of employees in the workplace environment, all as amended from time to time, and shall also include any common law theory based on nuisance, trespass, negligence or other tortious conduct.
ERISA means the Employee Retirement Income Security Act of 1974, as amended, and all Laws promulgated pursuant thereto or in connection therewith.
Escrow Agreement means the Escrow Agreement, in the form attached hereto as Exhibit B, with such changes in form and substance as shall be requested by the Escrow Agent and reasonably acceptable to Parent and the Company.
Exchange Agent means a bank or trust company designated as the exchange agent by Parent (which designation shall be reasonably acceptable to the Stockholders Representatives).
Governmental Entity means any United States or other national, state, municipal or local government, domestic or foreign, any subdivision, agency, entity, commission or authority thereof, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority.
Hazardous Substances means any and all hazardous and toxic substances, wastes or materials, any pollutants, contaminants, or dangerous materials (including, but not limited to, polychlorinated biphenyls, PCBs, friable asbestos, volatile and semi-volatile organic compounds, oil, petroleum products and fractions, and any materials which include hazardous constituents or become hazardous, toxic, or dangerous when their composition or state is changed), or any other similar substances or materials which are included under or regulated by any Environmental Laws.
Holders means, with respect to any Person entitled to receive any portion of the Aggregate Merger Consideration distributable in accordance with Article I hereof, such holders on and as of the Effective Time and their respective successors by operation of law, heirs, executors, administrators and legal representatives.
Investor Rights Agreements means, collectively, (i) the Amended and Restated Investor Rights Agreement dated as of December 26, 2000 among the Company and the stockholders of the Company named therein, (ii) the Amended and Restated Right of First Refusal and Co-Sale Agreement dated as of December 26, 2000 among the Company and the stockholders of the Company named therein and (iii) the Amended and Restated Voting Agreement dated as of December 26, 2000 among the Company and the stockholders of the Company named therein.
Knowledge of the Company or Companys Knowledge means the actual knowledge of any of the directors, executive officers, the chief technology officer and the chief financial officer of the Company as of the date hereof.
Laws means all foreign, federal, state and local statutes, laws, ordinances, regulations, rules, resolutions, orders, determinations, writs, injunctions, awards (including, without limitation, awards of any arbitrator), judgments and decrees applicable to the specified persons or entities.
Liens means any mortgage, pledge, lien, security interest, conditional or installment sale agreement, encumbrance, charge or other claims of third parties of any kind.
Ordinary Course of Business means all actions taken by a Person if such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person.
Parent Material Adverse Effect means a material adverse effect on the business, financial condition, assets, liabilities or results of operations of Parent and its Subsidiaries, taken as a whole; provided, however, that none of the following shall be deemed in themselves, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Parent Material Adverse Effect: (a) any adverse effect to the extent attributable to the announcement or pendency of the Merger (including any cancellations of or delays in customer orders, any reduction in sales, any disruption in supplier, distributor, partner or similar relationships or any loss of employees); or (b) any adverse effect attributable to conditions affecting the industries in which Parent participates, the U.S. economy as a whole or foreign economies in any locations where Parent has material operations or sales or sup pliers or customers.
Permitted Encumbrances means (i) Liens for Taxes not yet due or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with applicable generally accepted accounting principles; (ii) such minor encumbrances, easements or reservations of, or rights of others for, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning restrictions as to the use of real properties, which do not materially interfere with the use, occupation and enjoyment of the property subject to the Lien by and in connection with the applicable business; (iii) Liens in immaterial amounts incurred in the Ordinary Course of Business in connection with workers compensation, unemployment insurance and other types of social security; and (iv) Liens in immaterial amounts in favor of customs authorities arising as a matter of law to secure payment of customs duties in connect ion with the importation of goods to the extent accrued on the relevant Financial Statements.
Person means any individual, corporation, partnership, limited partnership, limited liability company, trust, association or entity or government agency or authority.
Stock Plan means the Amended and Restated 2000 Stock Incentive Plan of the Company, as approved and adopted by the Board of Directors and stockholders of the Company on December 26, 2000.
Subsidiary of a Person means any corporation, partnership, joint venture or other entity in which such person (a) owns, directly or indirectly, 50% or more of the outstanding voting securities or equity interests or (b) is a general partner.
Tax (and, with correlative meaning, Taxes and Taxable) means any federal, state, local or foreign net income, gross income, gross receipts, windfall profit, severance, property, production, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, value-added, transfer, stamp, or environmental tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount imposed by any governmental authority.
Tax Return means any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax.
SECTION 8.6 Notices. Any notice, request, demand, waiver, consent, approval, or other communication which is required or permitted to be given to any party hereunder shall be in writing and shall be deemed given only if delivered to the party personally or sent to the party by facsimile transmission (promptly followed by a hard-copy delivered in accordance with this Section 8.8) or by registered or certified mail (return receipt requested), with postage and registration or certification fees thereon prepaid, addressed to the party at its address set forth below:
If to Parent:
Tellabs, Inc.
1415 West Diehl
Naperville, Illinois 60563
Attention: General Counsel
Facsimile: 630-798-3231
with a copy to:
Sidley Austin Brown & Wood
Bank One Plaza
10 South Dearborn
Chicago, Illinois 60603
Facsimile: 312-853-7036
Attention: Imad I. Qasim
If to the Company:
Ocular Networks, Inc.
Sunset Corporate Plaza II
11109 Sunset Hills Road
Reston, VA 20190
Facsimile: 703-435-3394
Attention: Edward H. Kennedy
with a copy to:
Covington & Burling
1201 Pennsylvania Avenue, NW
Washington, DC 20004
Facsimile: 202-662-6291
Attention: Paul V. Rogers
or to such other address or Person as any party may have specified in a notice duly given to the other party as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date so delivered, telegraphed or mailed.
SECTION 8.7 Amendment. This Agreement may be amended, modified or supplemented at any time prior to the Effective Time by mutual agreement of the respective Boards of Directors of the Company and Parent, except as provided in Section 251(d) of the DGCL. Any amendment, modification or revision of this Agreement and any waiver of compliance or consent with respect hereto shall be effective only if in a written instrument executed by the parties hereto.
SECTION 8.8 Governing Law. This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the State of Delaware as applied to contracts made and fully performed in such state.
SECTION 8.9 No Benefit to Others. The representations, warranties, covenants and agreements contained in this Agreement are for the sole benefit of the parties hereto, and their respective successors and assigns, and they shall not be construed as conferring, and are not intended to confer, any rights on any other Person except as provided in Section 5.13 and 7.3(b).
SECTION 8.10 Severability. If any term or other provision of this Agreement is determined to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms and provisions of the Agreement shall remain in full force and effect. Upon such determination, the parties hereto shall negotiate in good faith to modify this Agreement so as to give effect to the original intent of the parties to the fullest extent permitted by applicable law.
SECTION 8.11 Section Headings. All section headings are for convenience only and shall in no way modify or restrict any of the terms or provisions hereof.
SECTION 8.12 Schedules and Exhibits. All Schedules and Exhibits referred to herein are intended to be and hereby are specifically made a part of this Agreement.
SECTION 8.13 Extensions. At any time prior to the Effective Time, Parent, on the one hand, and the Company on the other may by corporate action, extend the time for compliance by or waive performance of any representation, warranty, condition or obligation of the other party subject to the provisions of Section 8.7 regarding the manner of waiver.
SECTION 8.14 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and the Company and Parent may become a party hereto by executing a counterpart hereof. This Agreement and any counterpart so executed shall be deemed to be one and the same instrument.
SECTION 8.15 Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court in the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.
SECTION 8.16 Fees and Expenses. Except as provided in this Section 8.16 and Section 8.4, whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby including, without limitation, the fees and disbursements of counsel, financial advisors and accountants, shall be paid by the party incurring such costs and expenses.
The parties hereto, intending to be legally bound hereby, have duly executed this Agreement and Plan of Merger as of the date first above written.
TELLABS, INC.
By:/s Richard C. Notebaert
ORBIT MERGER SUB, INC.
By:/s Richard C. Notebaert
OCULAR NETWORKS, INC.
By:/s Edward H. Kennedy
EXHIBIT C
[form of]
Escrow Agreement
Among
Tellabs, Inc.
Orbit Merger Sub, Inc.
Ocular Networks, Inc.
[Escrow Agent]
And
The Stockholders Representatives
Dated as of November __, 2001
Escrow Agreement (this Agreement), dated as of November __, 2001, by and among Tellabs, Inc., a Delaware corporation (Parent), Orbit Merger Sub., Inc., a Delaware corporation (Merger Sub), Ocular Networks, Inc., a Delaware corporation (the Company), [Name] (the Escrow Agent), and Edward H. Kennedy and Rob L. Soni, acting by virtue of the Agreement and Plan of Merger dated as of November 29, 2001 (the Merger Agreement) as the attorney-in-fact and Representative of the Stockholders of the Company (the Stockholders Representatives).
Introduction
Parent, Merger Sub and the Company have entered into the Merger Agreement, providing for the merger of the Merger Sub with and into the Company, and in connection with which the Stockholders of the Company shall receive the consideration described in the Merger Agreement.
Pursuant to the Merger Agreement, Parent, Merger Sub and the Company have agreed that the rights of indemnification under Article VII of the Merger Agreement shall survive the consummation of the transactions contemplated by the Merger Agreement and shall be secured, pursuant to this Agreement, by the Escrow Amount (together with any accumulations thereto as provided herein, the Escrow Fund), to be held by the Escrow Agent, as escrow agent hereunder, and deposited in escrow with the Escrow Agent. The Escrow Agent is willing to act in the capacity of Escrow Agent hereunder subject to, and upon the terms and conditions of this Agreement.
Pursuant to the Merger Agreement, the Stockholders Representative has been appointed as the Stockholders attorney-in-fact and authorized and empowered to act, for and on behalf of any or all of the Stockholders (with full power of substitution in the premises) in connection with the indemnity provisions of the Merger Agreement, this Agreement, and such other matters as are reasonably necessary for the consummation of the transactions contemplated hereby and thereby.
Capitalized terms used and not defined herein have the meanings assigned to such terms in the Merger Agreement.
In consideration of the promises, covenants and agreements set forth in this Agreement and of other good and valuable consideration, the receipt and legal sufficiency of which they hereby acknowledge, and intending to be legally bound hereby, and as an inducement for the execution and delivery of the Merger Agreement, Parent, Merger Sub, the Company, the Escrow Agent and the Stockholders Representative hereby agree as follows:
ARTICLE I
Designation of Escrow Agent and Capital Shares Subject to Escrow
SECTION 1.1 Designation of Escrow Agent. Parent, Merger Sub and the Company hereby mutually designate and appoint [Name], a corporation having an office and place of business located at [Address], as Escrow Agent for the purposes set forth herein. The Escrow Agent hereby accepts such appointment and agrees to act in furtherance of the provisions of the Merger Agreement, but only upon the terms and conditions provided in this Agreement.
SECTION 1.2 Capital Stock Subject to Escrow. In accordance with Section 7.2 of the Merger Agreement, upon execution of this Agreement, Parent shall on the Closing Date deposit with the Escrow Agent as escrow agent hereunder the Escrow Amount. The Escrow Agent shall hold and distribute the Escrow Fund in accordance with the terms hereof.
SECTION 1.3 Powers of Stockholders Representatives. Pursuant to the Merger Agreement, Edward H. Kennedy and Rob L. Soni each has irrevocably been appointed as the Stockholders Representatives to act as the true and lawful agent of the Stockholders and attorney-in-fact with respect to all matters arising in connection with this Agreement, including but not limited to the power and authority on behalf of each Stockholder (other than in his or her own right) to do any one or all of the following:
ARTICLE II
Treatment of Accumulations to Escrow Amount
SECTION 2.1 Escrow Period; Distribution Upon Termination of Escrow Periods. Subject to the following requirements, the Escrow Fund shall be in existence immediately following the Closing Date and shall terminate on the first anniversary of the Closing Date (the Escrow Period); provided, however, that the Escrow Period shall not terminate with respect to any amount which, in the reasonable judgment of Parent, is necessary to satisfy any unsatisfied claims specified in any Officers Certificate (as defined below) delivered to the Escrow Agent prior to termination of such Escrow Period with respect to facts and circumstances existing prior to the termination of such Escrow Period. The Escrow Agent shall promptly deliver to the Stockholders, and the Escrow Period shall terminate with respect to, the remaining portion of the Escrow Fund not required to satisfy such claims following the termination of the Escro w Period. As soon as all such claims have been resolved and obligations have been satisfied, the Escrow Agent shall deliver to the Stockholders all portions of the Escrow Fund not required to satisfy such claims. Stockholders shall receive a pro rata portion of the funds released from the Escrow Fund in proportion to their respective contributions to the Escrow Fund.
SECTION 2.2 Protection and Investment of Escrow Fund.
ARTICLE III
Distribution of Escrow Fund Upon Termination of this Agreement
SECTION 3.1 Third-Party Claims. In the event Parent notifies the Stockholders Representatives of a claim or Legal Proceeding pursuant to Section 7.4 of the Merger Agreement, the Stockholders Representatives shall be entitled to participate in any defense of such claim in accordance with Section 7.4 of the Merger Agreement. The Indemnified Party with respect to such claim or Legal Proceeding may not settle any such claim or Legal Proceeding without the consent of the Stockholders Representatives, which consent shall not be unreasonably withheld or delayed. In the event that the Stockholders Representatives have consented to any such settlement or if they elected to participate in the defense of any such claim or Legal Proceeding, the Stockholders shall have no power or authority to object under any provision of this Article III to the amount of any claim by an Indemnified Party against the Escrow Fund wit h respect to such settlement or Losses that may result from such claim or Legal Proceeding; provided that such claim by such Indemnified Party is consistent with such settlement or the amount of Losses that have been incurred in connection with such claim or Legal Proceeding, as applicable.
SECTION 3.2 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent at any time on or before the last day of the Escrow Period of a certificate signed in good faith by any officer of Parent (an Officers Certificate): (a) stating that an Indemnified Party has paid, incurred or properly accrued or reasonably anticipates that it will have to pay, incur or accrue Losses, and (b) specifying in reasonable detail the individual items of Losses included in the amount so stated (to the extent known by such person), the date each such item was paid, incurred or properly accrued, or the basis for such anticipated liability, and the nature of the misrepresentation, breach of warranty or covenant to which such item is related, the Escrow Agent shall deliver to Parent out of the Escrow Fund, as promptly as practicable, but subject to Section 3.3, an amount of funds held in the Escrow Fund in the manner set forth in t he immediately following sentence, with an aggregate value equal to such Losses; provided, however, that in the event of a third party claim that is the subject of the demand on the Escrow Fund, no funds shall be delivered out of the Escrow Fund for payment of such claim until the claim is settled or adjudicated. The Escrow Agent shall allocate any amount of Loss it is required to reimburse to Parent in accordance with this Agreement among the Stockholders based on the amount contributed to the Escrow Fund at the Closing Date by each such Stockholder; thereafter, the Escrow Agent shall pay to Parent the amount of the Loss. Any funds delivered to Parent out of the Escrow Fund shall reduce each such Stockholders interest in the Escrow Fund in proportion to such Stockholders respective original contributions to the Escrow Fund.
SECTION 3.3 Notification of Stockholders Representatives. At the time of delivery of any Officers Certificate to the Escrow Agent, a duplicate copy of such certificate shall be delivered to the Stockholders Representatives, and for a period of thirty days after such delivery, the Escrow Agent shall make no delivery to Parent of any funds unless the Escrow Agent shall have received written authorization from the Stockholders Representatives to make such delivery. After the expiration of such thirty day period, the Escrow Agent shall make delivery of funds from the Escrow Fund; provided, however, that no such payment or delivery may be made if the Stockholders Representatives shall object in a written statement to the claim made in the Officers Certificate, and such statement shall have been delivered to the Escrow Agent prior to the expiration of such thirty-day period.
SECTION 3.4 Resolution of Conflicts; Arbitration.
ARTICLE IV
Escrow Agent
SECTION 4.1 Escrow Agents Duties.
SECTION 4.2 Fees. All fees of the Escrow Agent for performance of its duties hereunder shall be paid by Parent in accordance with the standard fee schedule of the Escrow Agent. It is understood that the fees and usual charges agreed upon for services of the Escrow Agent shall be considered compensation for ordinary services as contemplated by this Agreement. In the event that the conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent renders any service not provided for in this Agreement, or if the parties request a substantial modification of its terms, or if any controversy arises, or if the Escrow Agent is made a party to, or intervenes in, any litigation or arbitration pertaining to the Escrow Fund or its subject matter, the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorneys fees, including allocated costs of in-house counsel, a nd expenses occasioned by such default, delay, controversy or litigation or arbitration.
SECTION 4.3 Consequential Damages. In no event shall the Escrow Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.
SECTION 4.4 Successor Escrow Agents. Any corporation into which the Escrow Agent in its individual capacity may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Escrow Agent in its individual capacity shall be a party, or any corporation to which substantially all the corporate trust business of the Escrow Agent in its individual capacity may be transferred, shall be the Escrow Agent under this Escrow Agreement without further act.
SECTION 4.5 Taxes. All dividends, distributions, interest and gains earned or realized on the Escrow Fund (Earnings) shall be treated as having been received, for tax purposes, by the Stockholders to whom the Earnings are credited. Annex A hereto sets forth a list of each Stockholders address and Taxpayer Identification Number. The Escrow Agent annually shall file information returns with the United States Internal Revenue Service and payee statements with the Stockholders, documenting such Earnings. Upon request of the Escrow Agent, the Stockholders shall provide to the Escrow Agent all forms and information necessary to complete such information returns and payee statements. In the event the Escrow Agent becomes liable for the payment of taxes, including withholding taxes, relating to Earnings or any payment made hereunder, the Escrow Agent may deduct such taxes from the Indemnity Fund.
ARTICLE V
The Stockholders Representatives
SECTION 5.1 Stockholders Representatives Powers and Authority. The Stockholders Representatives shall have full power and authority to represent all of the Stockholders and their successors with respect to all matters arising under this Agreement and the Merger Agreement and all actions taken by the Stockholders Representatives hereunder and thereunder shall be binding upon all such Stockholders and their successors as if expressly confirmed and ratified in writing by each of them. The Stockholders Representatives shall take any and all actions which they believe are necessary or appropriate under this Agreement and the Merger Agreement for and on behalf of the Stockholders, as fully as if the Stockholders were acting on their own behalf, including, without limitation, defending all indemnity claims against the Stockholders pursuant to Section 7.2 of the Merger Agreement (an Indemnity Claim 148;), consenting to, compromising or settling all Indemnity Claims, conducting negotiations with Parent and its agents regarding such claims, dealing with Parent and the Escrow Agent under this Agreement and the Merger Agreement with respect to all matters arising under this Agreement and the Merger Agreement, taking any and all other actions specified in or contemplated by this Agreement and the Merger Agreement, and engaging counsel, accountants or other Stockholders Representatives in connection with the foregoing matters. Without limiting the generality of the foregoing, the Stockholders Representatives shall have full power and authority to interpret all the terms and provisions of this Agreement and the Merger Agreement and to consent to any amendment hereof or thereof on behalf of all such Stockholders and such successors. Any action taken by the Stockholders Representatives hereunder must be taken jointly by both Stockholders Representatives to be effective.
SECTION 5.2 Indemnification of Stockholders Representative. The Stockholders Representatives may act upon any instrument or other writing believed by the Stockholders Representatives in good faith to be genuine and to be signed or presented by the proper person and shall not be liable in connection with the performance by him of his duties pursuant to the provisions of this Agreement, except for his own willful default or gross negligence. The Stockholders Representatives shall be, and hereby are, indemnified and held harmless, jointly and severally, by the Stockholders from all losses, costs and expenses (including attorneys fees) that may be incurred by the Stockholders Representatives as a result of the Stockholders Representatives performance of their duties under this Agreement and the Merger Agreement; provided that a Stockholders Representative shall not be entitled to indemnification for losses, costs or expenses that result from any action taken or omitted by such Stockholders Representative as a result of his willful default or gross negligence; and provided, further, that each Stockholders obligation to indemnify the Stockholders Representatives under this Agreement and the Merger Agreement shall be limited to, and payable only from, each Stockholders pro rata interest in the Escrow Fund and cash available, if any, to the Stockholders under the Escrow Agreement. The Escrow Agent shall from time to time pay such Stockholders Representatives costs and expenses, to the extent required by the preceding sentence.
SECTION 5.3 Access to Information. The Stockholders Representatives shall have reasonable access to information of and concerning any Indemnity Claim and which is in the possession, custody or control of the Company and the reasonable assistance of the Companys officers and employees for purposes of performing the Stockholders Representatives duties under this Agreement or the Merger Agreement and exercising its rights under this Agreement and the Merger Agreement, including for the purpose of evaluating any Indemnity Claim against the Escrow Shares by Parent; provided that the Stockholders Representatives shall treat confidentially and not disclose any nonpublic information from or concerning any Indemnity Claim to anyone (except to the Stockholders Representatives attorneys, accountants and other advisers, to Stockholders, to the arbitrators appointed to resolve disputes pursuant to thi s Agreement, and on a need-to-know basis to other individuals who agree to keep such information confidential pursuant to confidentiality agreements reasonably acceptable to Parent).
SECTION 5.4 Reasonable Reliance. In the performance of their duties hereunder, the Stockholders Representatives shall be entitled to rely upon any document or instrument reasonably believed by him to be genuine, accurate as to content and signed by any Stockholder or Parent. The Stockholders Representatives may assume that any person purporting to give any notice in accordance with the provisions hereof has been duly authorized to do so.
SECTION 5.5 Attorney-in-Fact.
SECTION 5.6 Liability. If the Stockholders Representatives are required by the terms of this Agreement to determine the occurrence of any event or contingency, the Stockholders Representatives shall, in making such determination, be liable to the Stockholders only for their proven bad faith as determined in light of all the circumstances, including the time and facilities available to him in the ordinary conduct of business. In determining the occurrence of any such event or contingency, the Stockholders Representatives may request from any of the Stockholders or any other person such reasonable additional evidence as the Stockholders Representatives in their sole discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency, and may at any time inquire of and consult with others, including any of the Stockholders, and the Stockholders Representatives sh all not be liable to any Stockholder for any damages resulting from his delay in acting hereunder pending his receipt and examination of additional evidence requested by him.
SECTION 5.7 Orders. The Stockholders Representatives are authorized, in their sole discretion, to comply with final, nonappealable orders or decisions issued or process entered by any court of competent jurisdiction or arbitrator with respect to the Escrow Funds. If any portion of the Escrow Fund is disbursed to the Stockholders Representatives and is at any time attached, garnished or levied upon under any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in any order, judgment or decree shall be made or entered by any court affecting such property or any part thereof, then and in any such event, the Stockholders Representatives are authorized, in their sole discretion, but in good faith, to rely upon and comply with any such order, writ, judgment or decree which he is advised by legal counsel selected by hi m is binding upon him without the need for appeal or other action; and if the Stockholders Representatives comply with any such order, writ, judgment or decree, they shall not be liable to any Stockholder or to any other Person by reason of such compliance even though such order, writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated.
SECTION 5.8 Removal of Stockholders Representatives; Authority of Successor Stockholders Representatives. Stockholders who in the aggregate hold at least a majority of the Stockholders interest in the Escrow Fund shall have the right at any time during the term of the Escrow Agreement to remove the then-acting Stockholders Representatives and to appoint a successor Stockholders Representatives; provided, however, that neither such removal of the then acting Stockholders Representatives nor such appointment of successor Stockholders Representatives shall be effective until the delivery to the Escrow Agent of executed counterparts of a writing signed by each such Stockholder with respect to such removal and appointment, together with an acknowledgment signed by the successor Stockholders Representatives appointed in such writing they accept the responsibility of successor Stockholders Representatives and agree to perform and be bound by all of the provisions of this Agreement applicable to the Stockholders Representatives. Each successor Stockholders Representative shall have all of the power, authority, rights and privileges conferred by this Agreement upon the original Stockholders Representatives, and the term Stockholders Representatives as used herein and in the Escrow Agreement shall be deemed to include any interim or successor Stockholders Representatives.
ARTICLE VI
Miscellaneous
SECTION 6.1 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the Stockholders (by and through the Stockholders Representatives), Parent and the Escrow Agent, and their respective successors and assigns, whether so expressed or not.
SECTION 6.2 Waiver of Consent. No failure or delay on the part of any party hereto in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the parties hereunder are cumulative and not exclusive of any rights or remedies which they would otherwise have. No modification or waiver of any provision of this Agreement, nor consent to any departure by any party therefrom, shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any party in any case shall entitle such party to any other or furthe r notice or demand in similar or other circumstances.
SECTION 6.3 Captions. The Article and Section captions used herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
SECTION 6.4 Notices. Any notice or other communication required or permitted hereunder shall be sufficiently given if delivered in person or sent by facsimile or by registered or certified mail or by recognized overnight courier, postage prepaid, addressed as follows:
Tellabs, Inc.
1415 West Diehl Road
Naperville, Illinois 60563
Attention: General Counsel
Facsimilie: 630-798-3231
with a copy (which shall not constitute notice) to its counsel:
Sidley Austin Brown & Wood
Bank One Plaza
10 South Dearborn
Chicago, Illinois 60603
Attention: Imad I. Qasim
Facsimile: (312) 853-7036
Ocular Networks, Inc.
Sunset Corporate Plaza II
11109 Sunset Hills Road
Reston, VA 20190
Attention: Edward H. Kennedy
Facsimile: (703) 435-3394
with a copy (which shall not constitute notice) to its counsel:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, DC 20004
Attention: Paul V. Rogers
Facsimile: (202) 662-6291
Such notice or communication shall be deemed to have been given as of the date so delivered, sent by facsimile or mailed.
SECTION 6.5 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original.
SECTION 6.6 Governing Law. The interpretation and construction of this Agreement, and all matters relating thereto, shall be governed by the laws of the State of Delaware, without regard to the choice of law provisions thereof. Except as set forth in Section 3.4(c) with respect to any arbitration commenced pursuant to Section 3.4, the non-prevailing party in any dispute arising hereunder shall bear and pay the costs and expenses (including without limitation reasonable attorneys fees and expenses) incurred by the prevailing party or parties in connection with resolving such dispute.
SECTION 6.7 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
SECTION 6.8 Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the written consent of Parent, the Stockholders Representative and the Escrow Agent, and any amendment or waiver hereunder shall be effective and binding upon all Stockholders if signed by the Stockholders Representative.
[Signature Page Follows]
In Witness Whereof, each of the parties hereto, intending to be legally bound hereby, has duly executed this Escrow Agreement as of the date first above written.
TELLABS, INC.
By:______________________________
Name:
Title:
ORBIT MERGER SUB, INC.
By:______________________________
Name:
Title:
OCULAR NETWORKS, INC.
By:______________________________
Edward H. Kennedy
President
[ESCROW AGENT]
By:______________________________
Name:
Title:
______________________________
Edward H Kennedy,
as Stockholders Representative
_______________________________
Rob L. Soni,
as Stockholders Representative
TELLABS
ADVANTAGE PROGRAM
Amended and Restated Effective January 1, 1997
Except as Specifically Provided Otherwise
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 | Definititions | 1 |
Account | 1 | |
Accounts | 1 | |
Active Participant | 1 | |
Actual Deferral Percentage | 2 | |
Administrative Committee | 2 | |
Affiliate | 2 | |
After-Tax Contribution | 2 | |
Aggregate Limit | 2 | |
Alternative Payee | 2 | |
Annual Addition | 2 | |
Annuity Starting Date | 2 | |
Basic before-Tax Contribution | 2 | |
Board of Directors | 2 | |
Business Day | 3 | |
Code | 3 | |
Coherent Accounts | 3 | |
Coherent Acquisition Date | 3 | |
Coherent Participant | 3 | |
Coherent Plan | 3 | |
Committees | 3 | |
Company | 3 | |
Compensation | 4 | |
Contribution Percentage | 4 | |
Defined Contribition Dollar Limitation | 4 | |
Dependent | 4 | |
Designated Before-Tax Contribution | 4 | |
Determination Period | 4 | |
Disability Plan | 4 | |
Election Period | 4 | |
Eligible Employee | 4 | |
Eligible Individual | 5 | |
Eligible Limited Participant | 5 | |
Eligible Participant | 5 | |
Eligible Retiree | 5 | |
Eligible Retirement Plan | 5 | |
Eligible Rollover Distribution | 5 | |
Eligibility Period | 5 | |
Employer | 6 | |
Entry Date | 6 | |
ERISA | 6 | |
Employer Excess Contribution | 6 | |
Excess Forfeiture Suspense Account | 6 | |
Excess Tentative Employer Contribution | 6 | |
Five-Percent Owner | 6 | |
Funds | 6 | |
Health Plan | 6 | |
Highly Compensated Employee | 6 | |
Hours of Service | 7 | |
Individual Beneficiary | 7 | |
Intern Employee | 8 | |
Investment Committee | 8 | |
Investment Manager | 8 | |
Key Employee | 8 | |
Leased Employee | 8 | |
Limited Term Employee | 8 | |
Limitation Year | 8 | |
Matching Contribution | 8 | |
Maximum Annual Addition | 8 | |
Medical Benefits | 8 | |
Medical Benefits Account | 8 | |
Member of a Collective Bargaining Unit | 9 | |
Multiple Use | 9 | |
Non-Highly Compensated Employee | 9 | |
Normal Retirement Date | 9 | |
One-Percent Owner | 9 | |
Participant | 9 | |
Plan | 9 | |
Permissive Aggregation Group | 9 | |
Plan Year | 9 | |
Pre-Retirement Survivor Annuity | 9 | |
Present Value | 9 | |
Prior Plan | 10 | |
Profit Sharing Contribution | 10 | |
Provisional Annual Addition | 10 | |
Qualified Domestic Relations Order | 10 | |
Qualified Joint and Survivor Annuity | 10 | |
Qualified Military Service | 10 | |
Required Aggregation Group | 10 | |
Required Beginning Date | 10 | |
Retirement Contribution | 11 | |
Retirement Program | 11 | |
Rollover Contribution | 11 | |
Salix Accounts | 11 | |
Salix Acquisition Date | 11 | |
Salix Participant | 11 | |
Salix Plan | 11 | |
Savings Program | 12 | |
Service | 12 | |
Simplified Employee Pension Plan | 13 | |
Supplemental Before-Tax Contribution | 13 | |
Tellabs Stock Fund | 13 | |
Tentative Employer Contribution | 13 | |
Top-Heavy | 13 | |
Top-Heavy Determination Date | 13 | |
Top-Heavy Ratio | 14 | |
Trust | 14 | |
Trustee | 14 | |
Unit | 14 | |
Valuation Date | 14 | |
1.5 | EGTRRA Compliance | 14 |
ARTICLE 2 | ELIGIBILITY AND PARTICIPATION | 15 |
2.1 | Eligibility Requirements | 15 |
2.2 | Continued Participaton; Reemployment | 16 |
2.3 | Transfers and Changes in Status | 16 |
2.4 | Leaves of Absence | 17 |
2.5 | Qualifed Military Service | 17 |
ARTICLE 3 | CONTRIBUTIONS | 18 |
3.1 | Employer Contributions | 18 |
3.2 | Retirement Contribution Under the Retirement Program | 18 |
3.3 | Profit Sharing Contribution Under the Savings Program | 18 |
3.4 | Before-Tax Contributions Under the Savings Program | 19 |
3.5 | Limitations On Before-Tax Contributions Under the Savings Program | 19 |
3.6 | Matching Contribution Under the Savings Program | 22 |
3.7 | Limitations on Matching Contributions Under the Savings Program | 23 |
3.8 | Multiple Use | 25 |
ARTICLE 4 | CONTRIBUTIONS BY EMPLOYEE | 27 |
4.1 | No After-Tax Contributions | 27 |
4.2 | Rollover Contribution | 27 |
ARTICLE 5 | ACCOUNTING PROVISIONS AND ALLOCATIONS | 28 |
5.1 | Participants Accounts | 28 |
5.2 | Common Fund | 28 |
5.3 | Unit Values | 31 |
5.4 | Eligibility to Share in Employer Contributions and Forfeitures | 31 |
5.5 | Allocation of Before-Tax Contributions | 32 |
5.6 | Allocation of Matching Contributions | 32 |
5.7 | Allocation of After-Tax Contributions | 32 |
5.8 | Allocation of Retirement Contribution and Forfeitures | 32 |
5.9 | Allocation of Profit Sharing Contribution and Forfeitures | 32 |
5.10 | Crediting Accounts | 32 |
5.11 | Provisional Annual Addition | 33 |
5.12 | Limitation on Annual Additions | 33 |
ARTICLE 6 | AMOUNT OF PAYMENTS TO PARTICIPANTS | 36 |
6.1 | General Rule | 36 |
6.2 | Normal Retirement | 36 |
6.3 | Death | 36 |
6.4 | Disability | 36 |
6.5 | Vesting | 36 |
6.6 | Resignation or Dismissal | 36 |
6.7 | Treatment of Forfeitures | 37 |
ARTICLE 7 | DISTRIBUTIONS | 38 |
7.1 | Commencement and Form of Distributions | 38 |
7.2 | Qualified Joint and Survivor Annuity - Retirement Account, Salix Accounts and Coherent Accounts | 41 |
7.3 | Pre-Retirement Survivor Annuity - Retirement Account, Salix Accounts and Coherent Accounts | 43 |
7.4 | Distributions to Beneficiaries | 44 |
7.5 | Beneficiary Designations | 45 |
7.6 | Installment or Deferred Distributions | 46 |
7.7 | Form of Elections and Applications for Benefits | 46 |
7.8 | Unclaimed Distributions | 46 |
7.9 | Distributions in Kind | 47 |
7.10 | Distributions of Participant's After-Tax Account, Rollover Account, Salix Rollover Account and Coherent Rollover Accounts Prior to Termination of Employment | 47 |
7.11 | Loans | 48 |
7.12 | Withdrawals Prior to Termination of Employment and After Age 59-1/2 | 50 |
7.13 | Pre-59-1/2 Coherent Account Withdrawals; Hardship Withdrawals | 51 |
7.14 | Eligible Rollover Distributions | 53 |
7.15 | Facility of Payment | 54 |
7.16 | Claims Procedure | 55 |
ARTICLE 8 | TOP-HEAVY PLAN REQUIREMENTS | 57 |
8.1 | Top-Heavy Definitions | 57 |
8.2 | Top-Heavy Plan Requirements | 60 |
ARTICLE 9 | POWERS AND DUTIES OF COMMITTEES | 62 |
9.1 | Appointment of Committees | 62 |
9.2 | Powers and Duties of Administrative Committee | 62 |
9.3 | Powers and Duties of the Investment Committee | 63 |
9.4 | Committee Procedures | 64 |
9.5 | Consultation with Advisors | 65 |
9.6 | Committee Members as Participants | 65 |
9.7 | Records and Reports | 65 |
9.8 | Investment Policy | 65 |
9.9 | Designation of Other Fiduciaries | 66 |
9.10 | Obligations of Each Committee | 66 |
9.11 | Indemnification of Each Committee | 67 |
ARTICLE 10 | TRUSTEE AND TRUST FUND | 68 |
10.1 | Trust Fund | 68 |
10.2 | Payments to Trust Fund and Expenses | 68 |
10.3 | Trustees Responsibilities | 68 |
10.4 | Reversion to the Employer | 68 |
ARTICLE 11 | AMENDMENT OR TERMINATION | 69 |
11.1 | Amendment | 69 |
11.2 | Termination | 69 |
11.3 | Form of Amendment, Discontinuance of Employer Contributions, and Termination | 69 |
11.4 | Limitations on Amendments | 69 |
11.5 | Level of Benefits Upon Merger | 70 |
11.6 | Vesting Upon Termination or Discontinuance of Employer Contributions; Liquidation of Trust | 70 |
ARTICLE 12 | MISCELLANEOUS | 72 |
12.1 | No Guarantee of Employment, Etc. | 72 |
12.2 | Nonalienation | 72 |
12.3 | Qualified Domestic Relations Order | 72 |
12.4 | Controlling Law | 72 |
12.5 | Severability | 73 |
12.6 | Notification of Addresses | 73 |
12.7 | Gender and Number | 73 |
ARTICLE 13 | ADOPTION BY AFFILIATES | 74 |
13.1 | Adoption of Plan | 74 |
13.2 | The Company as Agent for Employer | 74 |
13.3 | Termination of Amendments | 74 |
13.4 | Termination | 74 |
13.5 | Date to Be Furnished by Employers | 74 |
13.6 | Joint Employers | 74 |
13.7 | Expenses | 75 |
13.8 | Withdrawal | 75 |
13.9 | Prior Plans | 75 |
ARTICLE 14 | RETIREE MEDICAL BENEFITS | 76 |
14.1 | Medical Benefits Account | 76 |
14.2 | Retiree Medical Benefits Definitions | 76 |
14.3 | Separate Account | 76 |
14.4 | Impossibility of Diversion Prior to Satisfaction of All Liabilities | 77 |
14.5 | Reversion upon Satisfaction of All Liabilities | 77 |
14.6 | Medical Benefits | 77 |
14.7 | Coordination with Health Plan | 77 |
14.8 | Employer Contributions | 77 |
14.9 | Reservation of Right to Terminate Medical Benefits | 77 |
ARTICLE 1
General
SECTION 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 Code Section 401(h) 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 an Employer, in accordance with the provisions of Code Sections 401 and 501 and in accordance with other provisions of law relating to money purchase pension plans and profit sharing plans containing a Code Section 401(k) arrangement. Except as otherwise provided in this Plan or the Trust, upon the transfer by an Employer of any funds to the Trust Fund in accordance with the provisio ns of this Plan, all interest of the 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.
SECTION 1.2 Source of Funds. The Trust Fund shall be created, funded and maintained by contributions of an Employer, by contributions of the Participants, and by such net earnings as are obtained from the investment of the funds of the Trust Fund.
SECTION 1.3 Scope of Plan Coverage. The provisions of the Plan as herein restated shall be effective as of January 1, 1997, except for certain provisions the effective dates of which are set forth therein. However, the rights and benefits of any Participant whose employment with an Employer prior to the Effective Date shall be determined in accordance with the corresponding provisions of the Prior Plan documents as in effect upon the Participants termination of employment and, to the extent necessary, the provisions of the Prior Plan documents are hereby specifically incorporated by reference into this Plan. 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.
SECTION 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 Participants allocable share of the Trust Fund.
Accounts means the collective individual accounts established pursuant to Article 5 (Accounting Provisions and Allocations).
Active Participant means a Participant who, on a given date, is employed by an Employer as an Eligible Employee.
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 Participants Annual Addition or Total Compensation and applying the limitations of Code Section 415 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 Code Sections 414(b) or (c) as modified by Code Section 415(h), 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).
Alternate Payee means the person, other than the Participant, designated by a court to receive benefits under the Plan in a Qualified Domestic Relations Order as further described in Section 12.3 (Qualified Domestic Relations Order).
Annual Addition means for any Limitation Year, the sum of (a) all Before-Tax Contributions, Matching Contributions, Profit Sharing Contributions (including forfeitures allocated as a part thereof), Retirement 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 this or any other defined contribution plan maintained by the Employer or an 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 the separate account of a key employee, as described in Code Section 419A(d)(3) maintained by the Employer or an Affiliate.
Annuity Starting Date means 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 Participants Considered Compensation paid during such period or the Participants 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.
Business Day means each day on which the Federal Reserve, the New York Stock Exchange and the Trustee are open for business, or if different and to the extent applicable, each day as of which trades are recognized under the rules governing an investment fund of the Plan.
Code means the Internal Revenue Code of 1986 and the regulations promulgated thereunder, 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.
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, a predecessor of such corporation, or any successor to it in ownership of all or substantially all of its assets.
Compensation means a Participants Considered Compensation or Total Compensation, as follows:
Contribution Percentage and Contribution Percentage Tests are described in Section 3.7 (Limitations on Matching Contributions Under the Savings Program).
Defined Contribution Dollar Limitation effective for Limitation Years beginning after December 31, 1994, means an amount equal to $30,000 ($40,000 beginning with the 2002 Limitation Year), as adjusted by the Secretary of the Treasury pursuant to Code Section 415(d), prorated for any Limitation Year of less than 12 months; provided that for purposes of Code Section 511(a)(ii), such amount shall be reduced by the amounts allocated to any medical accounts described in subsection (c) of the definition of Annual Addition.
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).
Designated Before-Tax Contributions means the contributions referred to in Section 3.7 (Limitations on Matching Contributions Under the Savings Program).
Determination Period means the Plan Year containing the Top-Heavy Determination Date and the 4 preceding Plan Years, as further referenced in Article 8 (Top-Heavy Plan Requirements).
Disability Plan with respect to any Participant means the long term disability plan maintained by the Employer and covering such Participant.
Election Period means the period defined in Section 7.2 (Qualified Joint and Survivor Annuity Retirement Account, Salix Accounts and Coherent Accounts) relating to the period during which a Participant may elect to have the Participants Retirement Account distributed in a form other than a Qualified Joint and Survivor Annuity.
Eligible Employee means any employee of the Employer but excluding any employee who is (1) a Member of a Collective Bargaining Unit; (2) an individual providing services to the Employer in the capacity of, or who is or was designated by the Employer as, a Leased Employee, an independent contractor, Intern Employee or a Limited Term Employee; or (3) are non-resident aliens who receive no earned income from the Employer which constitutes income from services within the United States. Notwithstanding the foregoing, any employee of Salix Technologies, Inc. or any subsidiary thereof who was eligible to participate in the Salix Plan as of May 19, 2000 will be considered an Eligible Employee as of May 19, 2000. 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&n bsp;1, 1999.
Eligible Individual means an individual entitled to Medical Benefits, as described in Section 14.2 (Retiree Medical Benefits Definitions).
Eligible Limited Participant means an individual eligible to make Before-Tax Contributions under the Savings Program, but not entitled to receive the matching contribution portions of the Profit Sharing Contribution and the Retirement Contribution provisions of the Plan, as further described in subsection 2.1(d).
Eligible Participant means an Active Participant who has completed his Eligibility Period making him eligible to share in the Matching Contribution bi-weekly, and share in the Profit Sharing Contribution and forfeitures and Retirement Contribution and forfeitures 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 and as further defined in Section 5.4 (Eligibility to Share in Employer Contributions and Forfeitures).
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 means any rollover distribution 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), (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 and (c) the portion of the Account distributed to a Participant as a hardship withdrawal pursuant to subsection 7.13(b) (Pre-59-1/2 Coherent Account Withdrawals; Hardship Withdrawals) shall not constitute an Eligible Rollover Distribution.
Eligibility Period is a rolling one-year period used for the purpose of determining when an employee is eligible to share in the Matching Contribution, the Profit Sharing Contribution and forfeitures and the Retirement Contribution and forfeitures. An employees 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 and any Affiliate which adopts this Plan pursuant to Article 13 (Adoption by Affiliates).
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 subsection 2.1(d) (Eligibility Requirements) and the ability to participate in the Savings Program as an Eligible Limited Participant commencing April 1, 1999, each business day shall also be an Entry Date.
ERISA means the Employee Retirement Income Security Act of 1974 and the regulations promulgated thereunder, 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 5.12 (Limitations on Annual Additions).
Excess Tentative Employer Contribution means the excess contribution described in Section 5.12 (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 (Common Fund).
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 an employee of the Employer or an Affiliate who was a Participant eligible during the Plan Year to make Before-Tax Contributions and who:
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:
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 (Leaves of Absence), no more than 501 Hours of Service shall be credited with respect to any continuous period of a leave of absence.
Individual Beneficiary means a natural person designated by the Participant in accordance with Section 7.5 (Beneficiary Designations) to receive all or any portion of the amounts remaining in the Participants Accounts at the time of the Participants 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 (Beneficiary Designations) 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 trusts interest in the Participants 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.
Intern Employee means an employee who is hired on a temporary basis in connection with an intern program established by the Employer. If an Intern Employee is later offered a full-time position with Employer, such employee will become an Eligible Employee, at that time, and will receive credit, for purposes of determining eligibility to participate under Section 2.1 (Eligibility Requirements), for Hours of Service accumulated as an Intern Employee. However, such employee will not be entitled to share in any benefits under the Program while he was classified as an Intern Employee.
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 carried on the payroll of the Employer or an Affiliate and who, pursuant to an agreement between the Employer or an Affiliate and any other person (leasing organization), has performed services for the Employer or an Affiliate (or a related person as determined in accordance with Code Section 414(n)(6)) on a substantially full-time basis for a period of at least one year, and such services are performed under primary direction or control by the Employer or Affiliate. Contributions or benefits provided a leased employee by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer.
Limited Term Employee means an employee whose employment is for a temporary basis and is classified as a limited term employee or a coop employee under the records of his Employer.
Limitation Year means the relevant 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 5.12 (Limitations on Annual Additions).
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 means 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 the Employer or Affiliate who:
Normal Retirement Date means a Participants 65th birthday.
One-Percent Owner means an employee described in Code Section 416(i)(1).
Participant means:
Plan means the Tellabs Advantage Program set forth herein, including all Appendices hereto.
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, as further referenced in Article 8 (Top-Heavy Plan Requirements).
Plan Year means a 12-month period beginning on January 1 and ending on December 31.
Pre-Retirement Survivor Annuity means the surviving spouse survivor annuity defined in Section 7.3 (Pre-Retirement Survivor Annuity Retirement Account, Salix Account and Coherent Accounts).
Present Value means 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), as determined in accordance with Code Section 416 and the regulations thereunder, as further defined in Article 8 (Top-Heavy Plan Requirements).
Prior Plan means prior versions of the Plan.
Profit Sharing Contribution means the contribution referred to in Section 3.3 (Profit Sharing Contribution under the Savings Program)
Provisional Annual Addition is the amount described in Section 5.11 (Provisional Annual Addition).
Qualified Domestic Relations Order means any domestic relations order that creates, recognizes or assigns to an Alternate Payee the right to receive all or a portion of Participants benefits payable hereunder and meets the requirements of Code Section 414(p).
Qualified Joint and Survivor Annuity for a married Participant, means an annuity for the life of a Participant with a survivor annuity for the life of the Participants surviving spouse equal to fifty percent (50%) of in the amount of the annuity which is payable during the joint lives of the Participant and his surviving spouse. The Qualified Joint and Survivor Annuity shall be the actuarial equivalent of the Participants vested Account Balance.
Qualified Military Service means the performance of duty on a voluntary or involuntary basis in the Uniformed Services of the United States by an Eligible Employee provided he is re-employed by the Employer or an Affiliate within the applicable time period specified in Chapter 43 of Title 38 of the United States Code (Employment and Reemployment Rights of Members of the Uniformed Services) and the total length of all such absences does not exceed the maximum specified by law for the retention of reemployment rights. The term Uniformed Services of the United States means the Armed Forces, the Army National Guard and the Air National Guard when engaged in active duty for training, inactive duty training, or full-time National Guard duty, or full-time duty in the commissioned corps of the Public Health Service as defined in Chapter 43 of Title 38 of the United States Code.
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 subsection (i) above to meet the requirements of Code Sections 401(a)(4) or 410 as further referenced in Article 8 (Top-Heavy Plan Requirements).
Required Beginning Date means:
Retirement Contribution means the contribution referred to in Section 3.2 (Retirement Contribution Under the 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:
Salix Accounts means the separate Salix Before-Tax Account, Salix Employer Account and Salix Rollover Account of Salix Participants described in Section 5.1 (Participant Accounts).
Salix Acquisition Date means the date of the acquisition of Salix Technologies, Inc. by Tellabs, Inc.
Salix Participant means employees of Salix Technologies, Inc. or any subsidiary thereof who were participants in the Salix Plan on May 19, 2000 and (a) became Participants in the Plan on May 19, 2000, or (b) whose Salix Accounts were subsequently transferred from the Salix Plan to the Trust Fund as a result of the merger of the Salix Plan into the Plan effective May 19, 2000.
Salix Plan means the Salix Technologies, Inc. 401(k) Plan as in effect on the Salix Acquisition Date, and as amended from time to time thereafter up to and including its merger into the Plan effective May 19, 2000.
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 Participants nonforfeitable benefits under the Tellabs Retirement Program. A Participants or Eligible Employees 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:
Simplified Employee Pension Plan means a plan designed to meet the requirements of a simplified pension plan pursuant to Code Section 408(k), as further referenced in Article 8 (Top-Heavy Plan Requirements) and subsection 11.6(c).
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 Participants 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.
Tellabs Stock Fund is the Fund described in Section 5.2 (Common Fund).
Tentative Employer Contribution is the contribution described in Section 3.3 (Profit Sharing Contribution Under the Savings Program).
Top-Heavy describes a plan which is determined to be Top-Heavy in accordance with Code Section 416 as further detailed in Section 8.1 (Top-Heavy Definitions).
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 as further described in Section 8.1 (Top-Heavy Definitions).
Top-Heavy Ratio means the ratio set forth in Code Section 416, as further described in Section 8.1 (Top-Heavy Definitions).
Trust or Trust Fund means the Tellabs, Inc. Profit Sharing and Savings Trust or such other trust established in accordance with Article 9 (Powers and Duties of Committees).
Trustee means the Trustee or Trustees under the Trust referred to in Article 9 (Powers and Duties of Committees).
Unit means the unit of measure (determined as provided in Article 5 (Accounting Provisions and Allocations) 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 each Business Day as of which the Administrative Committee shall determine the value of each Account.
SECTION 1.5 EGTRRA Compliance. This Plan reflects certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The provisions of the Plan relating to EGTRRA are intended to demonstrate good faith compliance with the requirements of EGTRRA and are to be construed in accordance with EGTRRA and guidance issued thereunder, including but not limited to IRS Notice 2001-57. Except as otherwise provided, the provisions of the Plan relating to EGTRRA shall be effective as of the first day of the 2002 Plan Year, and shall supercede other provisions of the Plan to the extent such provisions are inconsistent therewith.
ARTICLE 2
Eligibility and Participation
SECTION 2.1 Eligibility Requirements.
SECTION 2.2 Continued Participation; Reemployment.
SECTION 2.3 Transfers and Changes in Status.
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 Employees 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 (Eligibility Requirements) as of the date of such acquisition or transfer provided he is an Eligible Employee as of such date.
SECTION 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 other than with respect to a leave of absence for service in the United States armed forces, 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 Employers established leave policy, which shall be administered in a uniform and nondiscriminatory manner to similarly situated employees.
SECTION 2.5 Qualified Military Service. Notwithstanding any provision of this Plan to the contrary, effective on and after December 12, 1994, contributions, benefits and service credit with respect to Qualified Military Service will be provided in accordance with Code Section 414(u).
ARTICLE 3
Contributions
SECTION 3.1 Employer Contributions. Subject to the right reserved to the Company to alter, amend or discontinue this Plan and the Trust, each Employer shall for each Plan Year contribute to the Trust Fund an amount equal to the sum of:
Such sum, which is known as the Tentative Employer Contribution, shall be reduced by an amount equal to the Excess Tentative Employer Contribution (as provided in Section 5.12 (Limitation on Annual Additions)); provided that in no event shall the Tentative Employer Contribution, as reduced by the Excess Tentative Employer Contribution, exceed the amount deductible by the Employer for said year for federal income tax purposes.
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.
SECTION 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:
of the Considered Compensation of each Eligible Participant for such quarter. Such contribution is known as the Retirement Contribution.
SECTION 3.3 Profit Sharing Contribution Under the Savings Program. Subject to the provisions of Section 3.1 (Employer Contributions):
Such contributions are, collectively, known as the Profit Sharing Contribution.
SECTION 3.4 Before-Tax Contributions Under the Savings Program.
SECTION 3.5 Limitations on Before-Tax Contributions Under the Savings Program.
If a Participants Before-Tax Contributions, together with any additional elective contributions to any other qualified cash or deferred arrangement, and any elective deferrals under a tax-sheltered annuity program or a simplified employee pension plan, exceed such dollar limitation for any calendar year, such excess, and any earnings allocable thereto, shall be distributed to the Participant by April 15 of the 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.
The provisions of this subsection (b) 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.
SECTION 3.6 Matching Contribution Under the Savings Plan. Subject to the provisions of Section 3.1 (Employer Contributions), each Employer shall each payroll period of the Plan Year contribute to the Trust Fund 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 Participants 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.
SECTION 3.7 Limitations on Matching Contributions Under the Savings Program
The provisions of this subsection (a) shall not apply to any group of employees who are Members of a Collective Bargaining Unit.
SECTION 3.8 Multiple Use. The multiple use test described in Treasury Regulation Section 1.401(m)-2 and this Section 3.8 shall not apply for Plan Years beginning after December 31, 2001.
ARTICLE 4
Contributions by Employee
SECTION 4.1 No After-Tax Contributions. No Participant shall be required or permitted to make any after-tax contributions to this Plan.
SECTION 4.1 Rollover Contribution.
ARTICLE 5
Accounting Provisions and Allocations
SECTION 5.1 Participants Accounts.
SECTION 5.2 Common Fund.
SECTION 5.3 Unit Values.
SECTION 5.4 Eligibility to Share in Employer Contributions and Forfeitures.
SECTION 5.5 Allocation of Before-Tax Contributions. The Before-Tax Contributions made on behalf of a Participant shall be allocated to such Participants Before-Tax Account as soon as practicable after the Trustee receives such contribution.
SECTION 5.6 Allocation of Matching Contributions. The portion of Matching Contributions made on a bi-weekly payroll basis shall on behalf of a Participant be allocated to the Matching Account of such Participant as soon as practicable after the Trustee receives such contribution.
SECTION 5.7 Allocation of After-Tax Contributions. While After-Tax Contributions are not allowed after January 1, 1994, for those Participants who still have an After-Tax Account then as of each Valuation Date, the earnings and interest on the After-Tax Contributions of a Participant received since the prior Valuation Date shall be allocated to such Participants After-Tax Account.
SECTION 5.8 Allocation of Retirement Contribution and Forfeitures. As of the last day 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 subsection 5.4(a) in the ratio that the Considered Compensation of each such Participant for such Plan Year bears to the Considered Compensation of all such Participants for such Plan Year.
SECTION 5.9 Allocation of Profit Sharing Contribution and Forfeitures. 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 subsection 3.3(a)) above shall be allocated among the Profit Sharing Accounts of all Eligible Participants under subsection 5.4(b) above 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 subsection 3.3(b) above, if any, to be allocated for the Plan Year shall be allocated among the Profit Sharing Accounts of all Eligible Participants under subsection 5.4(b) above in the manner prescribed by the Board of Directors with respect to such Profit Sharing Contribution.
SECTION 5.10 Crediting Accounts.
SECTION 5.11 Provisional Annual Addition. The sum of the amounts allocated to the Accounts of each Participant pursuant to Sections 5.5 (Allocation of Before-Tax Contributions), 5.6 (Allocation of Matching Contributions), 5.7 (Allocation of After-Tax Contributions), 5.8 (Allocation of Retirement Contribution and Forfeitures) and 5.9 (Allocation of Profit Sharing Contribution and Forfeitures) for a Plan Year shall be known as the Provisional Annual Addition and shall be subject to the limitation on Annual Additions in Section 5.12 (Limitation on Annual Additions).
SECTION 5.12 Limitation on Annual Additions.
The compensation limit referred to in subsection (A) above shall not apply to any contribution for medical benefits after separation from service (within the meaning of Code Section 401(h) or Code Section 419A(f)(2)) which is otherwise treated as an Annual Addition.
If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12 consecutive month period, the Maximum Annual Addition will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year
12
The limitation under subsection (a) above shall not apply to any contribution for medical benefits within the meaning of Code Section 419A(f)(2) after separation from service which is otherwise treated as an Annual Addition, or any amount otherwise treated as an Annual Addition under Code Section 415(l)(2).
The Provisional Annual Addition remaining after such reductions shall be allocated to the Participants respective Accounts.
ARTICLE 6
Amount of Payments to Participants
SECTION 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:
The time and manner of distribution of a Participants Accounts shall be determined in accordance with Article 7 (Distributions).
SECTION 6.2 Normal Retirement. Any Participant may retire on or after his Normal Retirement Date, at which date the forfeitable portion, if any, of his Retirement Account and Post-1992 Profit Sharing 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.
SECTION 6.3 Death. As of the date any Participant dies while employed by the Employer or an Affiliate, the forfeitable portion, if any, of his Retirement Account and Post-1992 Profit Sharing Account shall become nonforfeitable.
SECTION 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 Disability Plan while in the employ of the Employer or an Affiliate and his employment shall have terminated, the forfeitable portion, if any, of his Retirement Account and Post-1992 Profit Sharing Account shall become nonforfeitable.
SECTION 6.5 Vesting. A Participants interest in his Accounts, other than his Retirement Account and Post-1992 Profit Sharing Account (and Coherent Employer Account in accordance with Section 6.6 (Resignation or Dismissal), 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.
SECTION 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 (Disability), 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 Participants termination of emp loyment occurred on April 1, 1999.
SECTION 6.7 Treatment of Forfeitures.
ARTICLE 7
Distributions
SECTION 7.1 Commencement and Form of Distributions.
SECTION 7.2 Qualified Joint and Survivor Annuity Retirement Account, Salix Accounts and Coherent Accounts.
SECTION 7.3 Pre-Retirement Survivor Annuity Retirement Account, Salix Accounts and Coherent Accounts
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 Accounts, the Election Period shall commence on the date of his separation from service with respect to his Accounts as of such date.
SECTION 7.4 Distributions to Beneficiaries
SECTION 7.5 Beneficiary Designations.
SECTION 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 vested 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).
SECTION 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:
SECTION 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 persons Employer for said Plan Year, and shall be allocated as part of such Contributions to the Trust Fund in accordance with Section 5.8 (Allocation of Retirement Contribution and Forefeitures). 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 Participants Accounts by an additional Employer Contribution (as defined in Section 3.1 (Employer Contribution)) allocable to such Accounts.
SECTION 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 distribution date established by the Administrative Committee.
SECTION 7.10 Distribution of Participants After-Tax Account, Rollover Account, Salix Rollover Account and Coherent Rollover Accounts Prior to Termination of Employment. A Participant, with the written consent of his spouse if applicable, may direct the Administrative Committee to make the following payments:
SECTION 7.11 Loans.
SECTION 7.12 Withdrawals Prior to Termination of Employment and After Age 59-1/2.
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 (Common Fund).
SECTION 7.13 Pre-59-1/2 Coherent Account Withdrawals; Hardship Withdrawals.
SECTION 7.14 Eligible Rollover Distributions.
For distributions made on or after January 1, 2002, an eligible retirement plan shall also mean an annuity contract described in Code Section 403(b) and an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the Alternate Payee under a Qualified Domestic Relation Order, as defined in Code Section 414(p).
SECTION 7.15 Facility of Payment. When, in the Administrative Committees 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:
Any such payment shall constitute a complete discharge therefor with respect to the Trustee and the Administrative Committee.
SECTION 7.16 Claims Procedure.
ARTICLE 8
Top-Heavy Plan Requirements
SECTION 8.1 Top-Heavy Definitions. For purposes of this Article 8:
For Plan Years beginning on or after January 1, 2002, a Key Employee is any employee or former employee (including any deceased employee) who at any time during the Determination Period was an officer of the Employer having annual compensation greater than $130,000 (as adjusted under Code Section 416(i)(1) for Plan Years beginning after December 31, 2002), a 5-percent owner of the Employer, or a 1-percent owner of the Employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Code Section 415(c)(3).
The determination of who is a Key Employee will be made in accordance with Code Section 416(i)(1) and the regulations thereunder.
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).
SECTION 8.2 Top-Heavy Plan Requirements.
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 |
The minimum vesting schedule applies to all benefits within the meaning of Code Section 411(a)(7) except those attributable to employee contributions, including benefits accrued before the effective date of Code Section 416 and benefits accrued before the Plan became Top-Heavy. Further, no decrease in a Participants nonforfeitable percentage may occur in the event the Plans status as Top-Heavy 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 employees Account balance attributable to Profit Sharing Contributions and forfeitures will be determined without regard to this Section 8.2.
ARTICLE 9
Powers and Duties of Committees
SECTION 9.1 Appointment of Committees.
SECTION 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:
SECTION 9.3 Powers and Duties of the Investment Committee.
SECTION 9.4 Committee Procedures.
SECTION 9.5 Consultation with Advisors. Each Committee (or any fiduciary designated by a Committee pursuant to Section 9.9 (Designation of Other Fiduciaries)) 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).
SECTION 9.5 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.
SECTION 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.
SECTION 9.7 Investment Policy.
SECTION 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.
SECTION 9.10 Obligations of Each Committee.
SECTION 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 Employers state of incorporation.
ARTICLE 10
Trustee and Trust Fund
SECTION 10.1 Trust Fund. A Trust Fund to be known as the Tellabs, Inc. Profit Sharing and Savings Trust 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.
SECTION 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.
SECTION 10.3 Trustees 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.
SECTION 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 the Employer, directly or indirectly, except that an Employer shall upon written request have a right to recover:
ARTICLE 11
Amendment or Termination
SECTION 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.
SECTION 11.2 Termination. The Company further reserves the right to terminate this Plan at any time.
SECTION 11.3 Form of Amendment, Discontinuance of Employer Contributions, and Termination Any such amendment, discontinuance of Employer Contributions (as defined in Section 3.1 (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.
SECTION 11.4 Limitations on Amendments. The provisions of this Article 11 are subject to the following restrictions:
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.
SECTION 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).
SECTION 11.6 Vesting Upon Termination or Discontinuance of Employer Contributions; Liquidation of Trust.
ARTICLE 12
Miscellaneous
SECTION 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 the Employer any right to remain in the employ of an 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.
SECTION 12.2 Nonalienation.
SECTION 12.3 Qualified Domestic Relations Order. Notwithstanding anything in this Plan to the contrary, the Administrative Committee shall distribute a Participants 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 Code Section 414(p). Further notwithstanding any other provision of this Plan to the contrary, such distribution of a Participants 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 single sum as soon as administratively practicable after the Administrative Committee has determined that a domestic relations order is a Qualified Domestic Relations Order described in Code Section 414(p). No Qualified Domestic Relations Order shall permit the payment of any benefit in any amount, form of benefit, time of payment or any option not otherwise provided; however, to the extent provided in Code Section 414(p), benefits may be paid to an Alternate Payee in any form in which benefits may be paid to the Participant (even though the Participant has not separated from Service) as if he had retired on the date payment is to begin under such Qualified Domestic Relations Order. The account of any Alternate Payee shall be paid to such Alternate Payee immediately if the Qualified Domestic Relations Order so states.
SECTION 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.
SECTION 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.
SECTION 12.6 Notification of Addresses. Each Participant and each beneficiary eligible for benefits under this Plan 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 Employers 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 Par ticipants or beneficiarys failure to so file such Participants or beneficiarys address with the Administrative Committee.
SECTION 12.7 Gender and Number. Whenever the context requires or permits, the gender and number of words shall be interchangeable.
ARTICLE 13
Adoption by Affiliates
SECTION 13.1 Adoption of Plan. Subject to any resolution or terms of any agreement approved by the Board of Directors of the Company 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 Affiliates 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.
SECTION 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 any Committee 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 so lely 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).
SECTION 13.3 Adoption of Amendments.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
ARTICLE 14
Retiree Medical Benefits
SECTION 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).
SECTION 14.2 Retiree Medical Benefits Definitions. For purposes of this Article 14, the following definitions shall apply:
SECTION 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.
SECTION 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.
SECTION 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).
SECTION 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.
SECTION 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.
SECTION 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 25% of the total aggregate actual contributions made af ter 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.
SECTION 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.