10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 28, 2007

OR

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

For the transition period from              to             

Commission file Number: 0-09692

TELLABS, INC.

(Exact name of registrant as specified in its charter)

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

One Tellabs Center, 1415 W. Diehl Road, Naperville, Illinois	60563
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (630) 798-8800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  x    Accelerated Filer  ¨    Non-Accelerated Filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

Common Shares, $0.01 Par Value – 439,165,292 shares outstanding on October 26, 2007.

TELLABS, INC.

INDEX

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Income	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Cash Flow	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Results of Operations and Financial Condition	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 6.	Exhibits	22
SIGNATURE		23

2

TELLABS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Third Quarter						Nine Months
In millions, except per-share data	9/28/07			9/29/06			9/28/07			9/29/06
Revenue
Products	$	402.4		$	476.1		$	1,281.4		$	1,450.8
Services		55.5			46.4			162.9			135.7
		457.9			522.5			1,444.3			1,586.5
Cost of Revenue
Products		274.6			239.3			814.7			746.0
Services		39.0			29.5			111.8			90.3
		313.6			268.8			926.5			836.3
Gross Profit		144.3			253.7			517.8			750.2
Gross profit as a percentage of revenue		31.5	%		48.6	%		35.9	%		47.3	%
Gross profit as a percentage of revenue—products		31.8	%		49.7	%		36.4	%		48.6	%
Gross profit as a percentage of revenue—services		29.7	%		36.4	%		31.4	%		33.5	%
Operating Expenses
Research and development		86.6			89.6			256.4			274.2
Sales and marketing		41.8			43.5			132.0			133.5
General and administrative		23.5			27.7			74.8			84.3
Intangible asset amortization		5.6			6.5			16.9			20.6
Restructuring and other charges		5.6			(0.1	)		5.6			1.9
		163.1			167.2			485.7			514.5
Operating (Loss) Earnings		(18.8	)		86.5			32.1			235.7
Other Income
Interest income, net		13.1			11.3			38.3			33.2
Other income (expense), net		(2.4	)		(1.0	)		(1.8	)		(7.0	)
		10.7			10.3			36.5			26.2
(Loss) Earnings Before Income Tax		(8.1	)		96.8			68.6			261.9
Income tax benefit (expense)		11.7			(37.7	)		(9.9	)		(96.9	)
Net Earnings	$	3.6		$	59.1		$	58.7		$	165.0
Net Earnings Per Share
Basic	$	0.01		$	0.13		$	0.13		$	0.37
Diluted	$	0.01		$	0.13		$	0.13		$	0.36
Weighted Average Shares Outstanding
Basic		439.2			445.5			438.5			447.7
Diluted		444.5			451.2			443.8			456.9

The accompanying notes are an integral part of these statements.

3

TELLABS, INC.

CONSOLIDATED BALANCE SHEETS

	9/28/07			12/29/06
In millions, except share data	Unaudited
Assets
Current Assets
Cash and cash equivalents	$	244.0		$	153.6
Investments in marketable securities		1,127.9			1,146.5
		1,371.9			1,300.1
Other marketable securities		349.8			288.6
Accounts receivable, net of allowances of $3.9 and $3.8		352.3			411.0
Inventories
Raw materials		37.2			34.5
Work in process		17.4			19.7
Finished goods (includes costs of $9.4 and $28.6 related to deferred revenue)		112.1			112.8
		166.7			167.0
Income taxes		15.4			10.7
Miscellaneous receivables and other current assets		55.9			55.2
Total Current Assets		2,312.0			2,232.6
Property, Plant and Equipment
Land		21.1			20.8
Buildings and improvements		208.4			205.5
Equipment		431.5			411.2
		661.0			637.5
Accumulated depreciation		(363.3	)		(329.6	)
		297.7			307.9
Goodwill		1,110.0			1,107.4
Intangible Assets, net of amortization		72.7			89.6
Other Assets		162.5			184.9
Total Assets	$	3,954.9		$	3,922.4
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	84.0		$	119.5
Accrued compensation		51.4			70.7
Restructuring and other charges		12.4			7.8
Income taxes		57.3			97.9
Stock loan		349.8			288.6
Deferred revenue		34.5			55.4
Other accrued liabilities		114.6			122.3
Total Current Liabilities		704.0			762.2
Long-Term Restructuring Liabilities		16.1			22.3
Income Taxes		116.9			128.2
Other Long-Term Liabilities		83.8			71.4
Stockholders’ Equity
Preferred stock: authorized 5,000,000 shares of $0.01 par value; no shares issued and outstanding		—			—
Common stock: authorized 1,000,000,000 shares of $0.01 par value; 493,748,776 and 489,034,812 shares issued		4.9			4.9
Additional paid-in capital		1,449.2			1,395.3
Treasury stock, at cost: 54,605,837 and 49,919,908 shares		(649.7	)		(598.7	)
Retained earnings		2,107.0			2,042.0
Accumulated other comprehensive income		122.7			94.8
Total Stockholders’ Equity		3,034.1			2,938.3
Total Liabilities and Stockholders’ Equity	$	3,954.9		$	3,922.4

The accompanying notes are an integral part of these statements.

4

TELLABS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

	Nine Months
	9/28/07			9/29/06
In millions
Operating Activities
Net earnings	$	58.7		$	165.0
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		68.6			76.9
Stock-based compensation		23.7			43.7
Deferred income taxes		14.9			65.9
Excess tax benefits from stock-based compensation		(0.9	)		(16.2	)
Restructuring and other charges		5.6			1.9
Net changes in assets and liabilities:
Accounts receivable		73.9			(62.4	)
Inventories		6.0			(48.0	)
Miscellaneous receivables and other current assets		(2.5	)		(6.0	)
Other assets		12.6			22.2
Accounts payable		(40.3	)		(13.4	)
Restructuring and other charges		(7.2	)		(7.3	)
Deferred revenue		(20.9	)		7.2
Other accrued liabilities		(31.4	)		(26.5	)
Income taxes		(39.5	)		(0.9	)
Other long-term liabilities		3.1			0.5
Net Cash Provided by Operating Activities		124.4			202.6
Investing Activities
Capital expenditures		(37.5	)		(49.4	)
Disposals of property, plant and equipment		1.7			1.4
Payments for purchases of investments		(686.1	)		(1,313.5	)
Proceeds from sales and maturities of investments		706.0			520.0
Net Cash Used for Investing Activities		(15.9	)		(841.5	)
Financing Activities
Proceeds from issuance of common stock under stock plans		30.4			88.4
Repurchase of common stock		(51.0	)		(233.1	)
Excess tax benefits from stock-based compensation		0.9			16.2
Net Cash Used for Financing Activities		(19.7	)		(128.5	)
Effect of Exchange Rate Changes on Cash		1.6			11.2
Net Increase (Decrease) in Cash and Cash Equivalents		90.4			(756.2	)
Cash and Cash Equivalents—Beginning of Year		153.6			880.8
Cash and Cash Equivalents—End of Period	$	244.0		$	124.6

The accompanying notes are an integral part of these statements.

5

TELLABS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

IN MILLIONS EXCEPT SHARE AND PER-SHARE DATA

1. Basis of Presentation

We prepared our accompanying unaudited consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial statements, the requirements of Form 10-Q and applicable rules of the U.S. Securities and Exchange Commission’s Regulation S-X. Therefore, they do not include all disclosures normally required by generally accepted accounting principles for complete financial statements. Accordingly, the financial statements and notes herein are to be read in conjunction with our Annual Report on Form 10-K for the year ended December 29, 2006.

In our opinion, the accompanying unaudited consolidated financial statements include all adjustments (consisting of normal recurring accruals) that are necessary for a fair presentation. Operating results for interim periods are not necessarily indicative of operating results for the full year.

2. New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 157, Fair Value Measurements, which defines fair value, creates a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We will adopt SFAS 157 on its effective date. Currently, we are not able to estimate the impact SFAS 157 will have on our financial statements.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits all entities to choose to measure eligible items at fair value on specified election dates. The associated unrealized gains and losses on the items for which the fair value option has been elected shall be reported in earnings. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We will adopt SFAS 159 on its effective date. Currently, we are not able to estimate the impact SFAS 159 will have on our financial statements.

3. Restructuring and Other Charges

Under a plan announced on September 27, 2007, we initiated restructuring activities to better align our operating expenses with current revenue and market conditions. The cost of the plan is expected to be $5.9 million, which includes $5.8 million in cash severance expense and $0.1 million in facility related charges. We currently expect to realize annualized savings of $17.0 million from reduced salaries and related benefits.

We recorded $5.5 million related to these restructuring activities in the third quarter of 2007, of which $5.4 million is severance expenses and $0.1 million is facility related expenses. In addition, we recorded changes to restructuring expense in the third quarter of $0.1 million, including $0.2 million in facility related charges offset by a $0.1 million reduction in severance related costs, both due to a change in estimate from previous restructuring plans. In the fourth quarter, we will incur an additional $0.4 million of severance expense in the Broadband segment.

As of September 28, 2007, we had $28.6 million accrued for restructuring plans. The 2007 restructuring plan balance of $5.6 million primarily consists of cash severance that we expect to pay through the first quarter of 2008. The $23.0 million balance for previous restructuring plans relate to net lease obligations that expire by 2012.

The following table summarizes our restructuring and other charges activity, by segments, for the third quarter and nine months of 2007, and the status of the reserves at September 28, 2007:

6

	Balance at 6/29/07		Third Quarter Activity								Balance at 9/28/07
			Restructuring Expense			Cash Payments			Other Activities 1
2007 Restructuring Plans
Broadband	$	—	$	4.8		$	—		$	0.1	$	4.9
Transport		—		0.7			—			—		0.7
Subtotal 2007 Restructuring		—		5.5			—			0.1		5.6
Previous Restructuring Plans
Broadband		5.9		0.7			(0.6	)		—		6.0
Transport		20.2		(0.6	)		(2.6	)		—		17.0
Subtotal Previous Restructuring		26.1		0.1			(3.2	)		—		23.0
Total All Restructuring Plans	$	26.1	$	5.6		$	(3.2	)	$	0.1	$	28.6

	Balance at 12/29/06		Nine Months Activity								Balance at 9/28/07
			Restructuring Expense			Cash Payments			Other Activities 1
2007 Restructuring Plans
Broadband	$	—	$	4.8		$	—		$	0.1	$	4.9
Transport		—		0.7			—			—		0.7
Subtotal 2007 Restructuring		—		5.5			—			0.1		5.6
Previous Restructuring Plans
Broadband		7.3		0.7			(2.0	)		—		6.0
Transport		22.8		(0.6	)		(5.2	)		—		17.0
Subtotal Previous Restructuring		30.1		0.1			(7.2	)		—		23.0
Total All Restructuring Plans	$	30.1	$	5.6		$	(7.2	)	$	0.1	$	28.6

¹ Other activities include the effects of currency translation.

As of December 29, 2006, in addition to the aforementioned restructuring plans and related accruals, we had a $3.7 million accrual remaining for exit costs related to our 2004 acquisition of Advanced Fibre Communications, Inc. (AFC). During the third quarter of 2007, this accrual was charged $0.5 million. Total charges against this accrual were $1.5 million for the first nine months of 2007, leaving a balance of $2.2 million at September 28, 2007. These remaining exit costs are related to lease liabilities that expire by the end of 2009.

4. Stock-Based Plans

The Tellabs, Inc. 2004 Incentive Compensation Plan provides for the grant of short-term and long-term incentives, including stock options and stock appreciation rights (SARs), restricted stock and performance stock units. We approved 39,139,977 shares for grant under the plan, of which 21,870,413 remain available for grant at September 28, 2007. Under the 2004 plan and predecessor plans, we granted awards at market value on the date of grant.

Stock Options

Stock options granted in the first nine months of 2007 and 2006 generally vest over three years from the date of the grant. We recognize compensation expense on a straight-line basis over the service period based on the fair value of the stock options on the grant date. Compensation expense was $4.4 million for the third quarter of 2007, $17.3 million for the first nine months of 2007, $7.6 million for the third quarter of 2006 and $29.8 million for the first nine months of 2006. Options granted but unexercised generally expire 10 years from the grant date.

We estimate the fair value of stock options using the Black-Scholes option-pricing model. This model requires the use of assumptions that will have a significant impact on the fair value estimate. The following table summarizes the assumptions used to compute the weighted-average fair value of current period stock option grants:

	Nine Months
	9/28/07		9/29/06
Expected volatility	41.3	%	46.3	%
Risk-free interest rate	4.6	%	4.8	%
Expected term (in years)	4.6		4.5
Expected dividend yield	0.0	%	0.0	%

7

We based our calculation of expected volatility on a combination of historical and implied volatility for options granted in the first nine months of 2007 and 2006. We based the risk-free interest rate on the U.S. Treasury yield curve in effect at the date of grant. We estimated the expected term of the options using their vesting period, post-vesting employment termination behavior and historical exercise patterns.

The following is a summary of the activity in our stock options and stock-settled SARs during 2007 as of September 28, 2007:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding – beginning of year	41,699,013		$	16.91
Granted	1,716,419		$	10.57
Exercised	(3,648,913	)	$	7.59
Forfeited/expired	(1,488,746	)	$	19.62
Outstanding – end of period	38,277,773		$	17.41	5.1	$	35.4
Exercisable – end of period	33,024,508		$	18.49	4.6	$	33.9
Shares expected to vest	37,537,757		$	17.54	5.1	$	35.2
Weighted-average fair value of options granted during the quarter			$	4.32

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price as of September 28, 2007, that the option holders would have received had all holders exercised their options as of that date. The aggregate intrinsic value of exercised stock options during the third quarter of 2007 was $6.1 million.

As of September 28, 2007, we had $21.4 million of unrecognized compensation cost related to stock options that we expect to recognize over a weighted-average period of 1.6 years.

Cash-Settled Stock Appreciation Rights

Our 2004 Incentive Compensation Plan also provides for the granting of cash-settled SARs in conjunction with, or independent of, the stock options under the plans. These SARs allow the holder to receive in cash the difference between the cash-settled SARs’ grant price (market value of our stock on the grant date) and the market value of our stock on the date the holder exercises the SAR. These cash payments were negligible in the third quarter and first nine months of 2007, negligible in the third quarter of 2006 and $0.1 million in the first nine months of 2006. The cash-settled SARs are generally assigned 10-year terms. Cash-settled SARs generally vest over three years from the grant date. At September 28, 2007, there were 200,397 cash-settled SARs outstanding with exercise prices that ranged from $6.01 to $70.06. The weighted-average price of the 114,743 cash-settled SARs granted in the first nine months of 2007 was $10.70 and the weighted average price of the 43,200 cash-settled SARs granted in the first nine months of 2006 was $12.13.

Restricted Stock

We granted 1,350,421 restricted shares in the third quarter of 2007 and 986,971 in the third quarter of 2006. We granted 1,450,146 restricted shares in the first nine months of 2007 and 1,111,577 restricted shares in the first nine months of 2006. Of the shares granted in the first nine months of 2007, 1,415,146 shares vest over a two-year period and 35,000 shares vest over a one-year period. Of the shares granted in the first nine months of 2006, 1,046,971 shares vest over a two-year period and 64,606 shares vest over a one-year period. We recognize compensation expense on a straight-line basis over the vesting periods based on the market price of our stock on the grant date. Compensation expense was $2.8 million for the third quarter of 2007, $6.3 million for the first nine months of 2007, $2.0 million for the third quarter of 2006 and $6.5 million for the first nine months of 2006. The weighted-average issuance price of restricted stock granted in the first nine months of 2007 was $10.50 per share and the weighted-average issuance price of restricted stock granted in the first nine months of 2006 was $12.99 per share. Our non-vested stock award activity for 2007 follows:

8

	Nine Months
	9/28/07
	Shares		Weighted-Average Grant Date Fair Value
Non-vested – beginning of year	1,339,308		$	12.22
Granted	1,450,146		$	10.50
Vested	(789,402	)	$	11.83
Forfeited	(90,777	)	$	11.68
Non-vested – end of period	1,909,275		$	11.10

As of September 28, 2007, we had $16.7 million of unrecognized compensation cost related to restricted stock that we expect to recognize over a weighted-average period of 0.8 years.

Performance Stock Units

We granted 375,000 performance stock units (PSUs) in the third quarter of 2007 and 270,000 PSUs in the third quarter of 2006 to executive officers. We did not grant performance stock units (PSUs) in the first six months of 2007 or 2006. The PSUs granted in the third quarter of 2007 entitle the recipients to receive shares of our common stock commencing in March 2008, contingent on the achievement of company operating income and revenue-based targets for the 2007 fiscal year. Following achievement of these financial measures and subject to continued employment, one-third of such shares will be issued in annual installments in March 2008, March 2009 and March 2010. At minimum target performance, we will issue one-half share for each PSU granted and at maximum target performance, two shares will be granted for each PSU granted.

The PSUs granted in the third quarter of 2006 entitle the recipients to receive shares of our common stock in March 2008, contingent on the achievement of cumulative company operating income and revenue-based targets for the 2006 and 2007 fiscal years. At minimum target performance, we will issue one-half share for each PSU granted and at maximum target performance, three shares will be granted for each PSU granted. At September 28, 2007, there were 620,000 PSUs outstanding, which reflects a reduction of 25,000 shares forfeited in the first quarter of 2007. Due to a decline in operating performance relative to targets, compensation expense for PSUs was a credit of $0.6 million for the third quarter of 2007 and a credit of $0.4 million for the first nine months of 2007. Compensation expense was $0.5 million for the third quarter of 2006.

Employee Stock Purchase Plan

Under the 2005 Tellabs, Inc. Employee Stock Purchase Plan, there were no shares of common stock purchased in the third quarter of 2007, and no shares of stock were purchased during the third quarter of 2006. As of September 28, 2007, we had 8,845,990 shares available for purchase. Compensation expense for the plan was $0.4 million for the first nine months of 2007, and $0.8 million for the first nine months of 2006. Effective April 25, 2007, we suspended the 2005 plan. The final purchase for employees enrolled through the date of suspension occurred on April 30, 2007.

Stock-Based Compensation Expense

The following table sets forth the total stock-based compensation expense resulting from stock options, stock appreciation rights, restricted stock, performance stock units and our employee stock purchase plan:

	Third Quarter				Nine Months
	9/28/07		9/29/06		9/28/07		9/29/06
Cost of revenue – products	$	0.5	$	0.8	$	1.8	$	2.0
Cost of revenue – services		0.8		1.0		2.6		3.4
Research and development		2.7		3.4		9.2		15.1
Sales and marketing		1.4		2.1		4.8		7.4
General and administrative		1.2		2.7		5.3		13.4
Stock-based compensation expense before income taxes		6.6		10.0		23.7		41.3
Income tax benefit		2.2		3.7		8.1		12.6
Total stock-based compensation expense after income taxes	$	4.4	$	6.3	$	15.6	$	28.7

9

5. Retiree Medical Plan

The following table sets forth the components of the net periodic benefit costs for our retiree medical plan:

	Third Quarter						Nine Months
	9/28/07			9/29/06			9/28/07			9/29/06
Service cost	$	0.2		$	0.3		$	0.8		$	0.8
Interest cost		0.2			0.2			0.6			0.5
Expected return on plan assets		(0.1	)		(0.2	)		(0.3	)		(0.4	)
Amortization of prior service cost		—			—			—			0.1
Net periodic benefit cost	$	0.3		$	0.3		$	1.1		$	1.0

We currently do not anticipate contributing to the plan in 2007, as it is adequately funded at this time.

6. Product Warranties

We provide warranties for all of our products. The specific terms and conditions of those warranties vary depending on the product. We provide a basic limited warranty, including parts and labor, for all products except access products, for periods ranging from 90 days to 5 years. The basic limited warranty for access products covers parts and labor for periods generally ranging from 2 to 6 years.

Our estimate of warranty liability involves many factors, including the number of units shipped, historical and anticipated rates of warranty claims and cost per claim. We periodically assess the adequacy of our recorded warranty liability and adjust the amounts as necessary. We classify the portion of our warranty liability that we expect to incur in the next 12 months as a current liability. We classify the portion of our warranty liability that we expect to incur more than 12 months in the future as a long-term liability. Our product warranty liabilities are as follows:

	Third Quarter						Nine Months
	9/28/07			9/29/06			9/28/07			9/29/06
Balance – beginning of period	$	46.6		$	48.7		$	45.0		$	49.2
Accruals for product warranties issued		6.4			5.2			15.3			18.0
Settlements		(4.5	)		(6.3	)		(11.8	)		(19.6	)
Balance – end of period	$	48.5		$	47.6		$	48.5		$	47.6
Balance sheet classification—end of period							Balance at 9/28/07			Balance at 9/29/06
Other accrued liabilities							$	22.7		$	27.9
Other long-term liabilities								25.8			19.7
Total product warranty liabilities							$	48.5		$	47.6

7. Stock Repurchase Programs

On January 25, 2007, our Board of Directors authorized a one-year extension of the purchase of our outstanding stock under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. We intend to continue to use cash generated by employee stock option exercises (other than those of company officers and board members) to repurchase stock in the manner provided under this program. As of September 28, 2007, we purchased 7.0 million shares of our common stock under this program at a total cost of $89.9 million, including $13.6 million (1.2 million shares) in the third quarter of 2007 and $27.8 million (2.5 million shares) in the first nine months of 2007.

On July 31, 2006, our Board of Directors authorized a repurchase program of up to $300 million of our outstanding common stock. As of September 28, 2007, we purchased 11.9 million shares of our common stock under the program at a total cost of $123.9 million, with no shares purchased in the third quarter of 2007 and $21.0 million (2.0 million shares) in the first nine months of 2007. We may continue to repurchase shares under this program from time to time during open trading windows and when we do not possess material non-public information.

In addition, in the third quarter of 2007, we purchased 141,662 shares for $1.6 million to cover withholding taxes on shares issued under employee stock plans. In the first nine months of 2007, we purchased 195,510 shares for $2.2 million under this program. We record repurchased shares as Treasury stock.

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8. Comprehensive Income

Comprehensive income (net of tax) for the third quarter and nine months presented consists of the following:

	Third Quarter					Nine Months
	9/28/07		9/29/06			9/28/07			9/29/06
Net Earnings	$	3.6	$	59.1		$	58.7		$	165.0
Other comprehensive income:
Foreign currency translation adjustments		19.8		4.7			27.7			21.6
Unrealized gain (loss) on available-for-sale-securities		3.1		5.8			(0.1	)		4.7
Fair value adjustments of cash flow hedges		0.2		(0.5	)		0.3			(0.4	)
Comprehensive income	$	26.7	$	69.1		$	86.6		$	190.9

9. Derivative Financial Instruments

Financial Instruments and Market Risk

We conduct business on a global basis in U.S. and foreign currencies; therefore, our financial results are subject to risks associated with fluctuating foreign exchange rates. To mitigate these risks, we have a foreign currency exposure management program, which uses derivative foreign exchange contracts to address nonfunctional currency exposures that we expect to settle in one year or less. We enter into derivative foreign exchange contracts only to the extent necessary to meet our goal of mitigating nonfunctional foreign currency exposures. We do not enter into hedging transactions for speculative purposes. The derivative foreign exchange contracts consist primarily of foreign currency forward and option contracts.

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 foreign currency exchange rates, which generally are offset by changes in the value of the underlying assets or liabilities being held. Credit risk relates to the risk of nonperformance by a counterparty to one of our derivative contracts. We do not believe there is a significant credit risk associated with our hedging activities because the counterparties are all large international financial institutions with high credit ratings. In addition, we also limit the aggregate notional amount of agreements entered into with any one financial institution to mitigate credit risk.

Non-designated Hedges

We use derivative contracts to manage overall foreign currency exposures that are remeasured through income. We record these contracts on the balance sheet at fair value. Changes in the fair value of these contracts are included in earnings as part of Other income (expense), net. Receivables resulting from the contracts are included in Miscellaneous receivables and other current assets, while payables from the contracts are included as part of Other accrued liabilities. We do not engage in hedging specific individual transactions.

Cash Flow Hedges

We use derivative contracts designated as cash flow hedges to mitigate currency risk related to an imbalance of nonfunctional currency denominated costs and related revenue. We conducted effectiveness tests on a spot-to-spot basis (excluding time value), with the time-value portion recorded in Other income (expense), net. We reclassified the effective gains and losses recorded in Accumulated other comprehensive income to Operating Expenses when the hedged transaction was recognized in earnings. We record any ineffectiveness of the forward contracts in Other income (expense), net. When it becomes probable that an anticipated transaction that is hedged will not occur, we immediately reclassify the gains or losses related to that hedge from Accumulated other comprehensive income to Other income (expense), net. At September 28, 2007, we had a credit balance of $0.4 million in Accumulated Other Comprehensive Income. We held derivatives designated as cash flow hedges at the end of the quarter.

The following table summarizes the impact of cash flow hedges on Accumulated Other Comprehensive Income:

	Third Quarter						Nine Months
	9/28/07			9/29/06			9/28/07			9/29/06
Balance at beginning of the period	$	0.3		$	0.1		$	0.2		$	—
Net change on cash flow hedges		0.2			(0.2	)		0.3			(0.3	)
Reclassifications to operating expenses		(0.1	)		(0.2	)		(0.1	)		—
Balance at end of period	$	0.4		$	(0.3	)	$	0.4		$	(0.3	)

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10. Income Taxes

For the first nine months of 2007, we recorded a tax expense of $9.9 million at an effective tax rate of 14.4%. For the third quarter of 2007, we recorded a tax benefit of $11.7 million. Our effective rate differs from the U.S. federal statutory rate of 35% due to the impact of research and development tax credits and the generation of a greater percentage of our earnings from foreign operations that are taxed at lower rates.

We adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes, on December 30, 2006. As a result, we recognized a decrease of approximately $5.7 million in the liability for unrecognized tax benefits, which we accounted for as a cumulative effective increase of $6.3 million to retained earnings and an increase of $0.6 million to goodwill balances as of December 30, 2006. The total amount of unrecognized tax benefits as of December 30, 2006, was $76.5 million. This amount includes an accrual of $62.0 million of unrecognized tax benefits that if recognized, would affect the effective tax rate, and $14.5 million of unrecognized tax benefits that, if recognized, would decrease goodwill associated with prior acquisitions. We continue to recognize interest and penalties related to income tax matters as part of our income tax expense. Our tax provision included $1.2 million of interest and penalties for the third quarter of 2007 and $3.7 million for the first nine months of 2007. The balance of interest and penalties accrued was $11.7 million as of December 30, 2006, and $15.4 million as of September 28, 2007.

It is reasonably possible that unrecognized benefits related to federal income taxes will decrease by approximately $47 million to $48 million as a result of the settlement of audits or the expiration of statute of limitations within the next 12 months.

It is reasonably possible that unrecognized benefits related to the deductibility of certain foreign expenses will decrease by approximately $15 million to $16 million as a result of the settlement of audits or the expiration of statute of limitations within the next 12 months.

We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. We are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities in our major jurisdictions for years before 2001. Our major jurisdictions currently include the United States, California, Illinois, Finland, Denmark and Mexico. The Internal Revenue Service (IRS) has completed its audit of our U.S. income tax returns for years 2001 through 2003 and has proposed various adjustments that could result in additional tax of $48.2 million, primarily related to the disallowance of a loss claimed with respect to an investment in a subsidiary. We do not agree with the proposed adjustments and are appealing this decision. We estimate that the issue will be resolved in the next 12 to 15 months. In addition, the IRS is examining our federal income tax returns for the 2004 and 2005 periods as well as the 2002 through 2004 pre-acquisition years of a subsidiary. We expect these examinations will be completed in 2008.

11. Operating Segments

We report operating results for three segments: Broadband, Transport and Services.

Our Broadband segment includes access, managed access and data product portfolios that facilitate the delivery of bundled voice, video and high-speed Internet/data services over copper-based and/or fiber-based networks. These products enable service providers to deliver business and next-generation wireline and wireless services to their customers. Access offerings include the Tellabs^® 1000 multiservice access platform, the Tellabs^® 1100 multiservice access platform, the Tellabs^® 8865 service-aware optical line terminal and the Tellabs^® 1600 optical network terminal (ONT) series. Managed access products include the Tellabs^® 2300 cable telephony distribution system, the Tellabs^® 6300 managed transport system and the Tellabs^® 8100 managed access system. Data products include the Tellabs^® 8600 managed edge system and the Tellabs^® 8800 multiservice router series.

Our Transport segment includes solutions that enable service providers to transport service and manage optical bandwidth by adding capacity when and where it’s needed. Wireline and wireless carriers use these products primarily within the metropolitan portion of their transport networks to support wireless services, business services for enterprise customers, and triple-play voice, video and data services for residential customers. Product offerings include the Tellabs^® 3000 voice-quality enhancement products, the Tellabs^® 5000 series of digital cross-connect systems, the Tellabs^® 5500 NGX transport switch and the Tellabs^® 7100 optical transport system (OTS).

Our Services segment delivers deployment, support, professional consulting, training and systems integration services to our customers. These services support all phases of the network: planning, building and operating.

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We define segment profit as gross profit less research and development expenses. Segment profit excludes sales and marketing expenses, general and administrative expenses, the amortization of purchased deferred stock compensation, intangibles, restructuring, and other charges, and the impact of equity-based compensation (which includes restricted stock and performance stock units granted after June 30, 2006, and stock options).

Financial information for each operating segment is as follows:

Revenue

	Third Quarter				Nine Months
	9/28/07		9/29/06		9/28/07		9/29/06
Broadband	$	279.2	$	273.0	$	744.3	$	831.1
Transport		123.2		203.1		537.1		619.7
Services		55.5		46.4		162.9		135.7
Total revenue	$	457.9	$	522.5	$	1,444.3	$	1,586.5

Segment Profit and Reconciliation to Operating Earnings (Loss)

	Third Quarter						Nine Months
	9/28/07			9/29/06			9/28/07			9/29/06
Broadband	$	23.1		$	41.4		$	7.5		$	100.9
Transport		21.5			110.2			213.4			345.1
Services		17.1			17.6			53.4			48.2
Total segment profit		61.7			169.2			274.3			494.2
Sales and marketing expenses		(41.8	)		(43.5	)		(132.0	)		(133.5	)
General and administrative expenses		(23.5	)		(27.7	)		(74.8	)		(84.3	)
Equity based compensation and deferred stock compensation not included in segment profit		(4.0	)		(5.1	)		(12.9	)		(18.2	)
Intangible asset amortization		(5.6	)		(6.5	)		(16.9	)		(20.6	)
Restructuring and other charges		(5.6	)		0.1			(5.6	)		(1.9	)
Operating earnings (loss)	$	(18.8	)	$	86.5		$	32.1		$	235.7

Our segments use many of the same assets. For internal reporting purposes, we do not allocate assets by segment and therefore no asset, depreciation and amortization, or capital expenditure by segment information is provided to our chief operating decision maker.

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Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

Introduction and Overview of Business

Tellabs designs, develops and supports telecommunications networking products around the world. Our product portfolio includes solutions for wireline and wireless transport, access networking, broadband data, optical transport and voice-quality enhancement.

We generate revenue principally through the sale of telecommunication products and services, both as stand-alone products and as elements of integrated systems, to many of the world’s telecommunications service providers. In addition, we generate revenue by providing services related primarily to our own products and systems. In 2006, we began reporting results under three reporting segments: Broadband, Transport and Services.

Our Broadband segment includes the access, managed access and data product portfolios that facilitate the delivery of bundled triple-play services. These products enable service providers to deliver business and next-generation wireline and wireless services to their customers. We earn revenue from our Broadband segment globally. We earn a majority of our access products revenue in North America for the support of copper-based and fiber-based networks. Driving demand for access products are consumer demand for the triple-play of bundled voice, video and high-speed Internet/data services in addition to competition among traditional telecommunications companies and cable service operators to be the sole provider of triple-play services. We generate the majority of our managed access product revenue outside North America. Driving demand for managed access products are business services for voice and high-speed data as well as network transport services for wireless communications. We earn revenue from our data products globally. Driving demand for data products are user demand for wireless and wireline carriers to deliver business services and next-generation wireless services.

Our Transport segment includes digital cross-connect systems, voice quality enhancement products, and converged transport systems. These products enable service providers to manage bandwidth, improve voice quality, and transport traffic by adding capacity when and where it is needed. We earn revenue from our Transport segment primarily in North America. Driving demand for transport products are the needs of wireline and wireless service providers to support wireless services, business services for enterprises and triple-play voice, video and data services for consumers.

Our Services segment delivers deployment, support, professional consulting, training and systems integration services to Tellabs customers. These services support various phases of the network including planning, installation and on-going support. We earn revenue from our Services segment globally. Deployment service revenue makes up almost half of our Services revenue, arises primarily from sales of our transport products in North America and tends to lag product sales by approximately one fiscal quarter. In the third quarter of 2007, revenue from support agreements (which includes professional consulting, systems integration and training) covers all of Tellabs products. The majority of support agreement revenue covers digital cross connects and managed access products.

We operate in a dynamic industry in which both our customers and competitors have consolidated, creating more pricing pressure and more competition. In the third quarter of 2007, North American wireless customers spent less, particularly on the Tellabs^® 5500 digital cross-connect system, compared with the third quarter of 2006, thus adversely affecting our overall revenue and profitability. It is not clear whether or when these customers will resume spending at previous levels.

We are transforming the company from a business based primarily on the circuit-switched Time Division Multiplexing (TDM) technology used in our digital cross-connect and managed access products to a business based on packet-switching and Internet Protocol (IP) technology used in our converged transport, access and multi-service data products. In the third quarter of 2007, about half of our revenue came from converged transport, access and multi-service data products. Some of these products carry gross profit margins lower than our corporate average. The mix of our products can affect overall profitability in any given quarter.

In light of these factors, management continues to prepare and implement initiatives to improve our overall gross profit margins, which may include further restructuring, impairment, and/or other charges. Management is also reviewing plans to reduce operating expenses and to further diversify our customer base to keep us highly competitive in a changing marketplace.

RESULTS OF OPERATIONS

For the third quarter of 2007, our revenue was $457.9 million, down 12.4% from $522.5 million in the third quarter of 2006. Year to date, revenue was $1,444.3 million, down 9.0% from $1,586.5 million in 2006. Consolidated gross margin decreased 17.1 percentage points to 31.5% in the third quarter compared with 48.6% in the third quarter of 2006. On a nine-month basis, consolidated gross margin was down 11.4 percentage points to 35.9% from 47.3% in 2006. Operating expenses decreased by $4.1 million to $163.1 million in the third quarter of 2007, from $167.2 million in the third quarter of 2006. For the first nine months of 2007, operating

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expenses were $485.7 million, a decrease of $28.8 million from $514.5 million in 2006. Net earnings for the third quarter of 2007 were $3.6 million or $0.01 per share (basic and diluted) compared with $59.1 million or $0.13 per share (basic and diluted) in the same period of 2006. Net earnings for the nine-month period in 2007 were $58.7 million or $0.13 per share (basic and diluted) compared with $165.0 million or $0.37 per basic share and $0.36 per diluted share for the first nine months in 2006.

Revenue (in millions)

	Third Quarter						Nine Months
	2007		2006		Change		2007		2006		Change
Products	$	402.4	$	476.1	(15.5	)%	$	1,281.4	$	1,450.8	(11.7	)%
Services		55.5		46.4	19.6	%		162.9		135.7	20.0	%
Total revenue	$	457.9	$	522.5	(12.4	)%	$	1,444.3	$	1,586.5	(9.0	)%

In 2007, product revenue declined 15.5% in the third quarter and 11.7% on a nine-month basis compared with 2006. The decrease was primarily due to reduced product revenue for our Tellabs^® 5500 digital cross-connect from North American wireless service providers.

In 2007, services revenue increased 19.6% in the third quarter and 20.0% on a nine-month basis compared with the same periods in 2006. The increase was primarily due to higher revenue from deployment, support and professional services.

On a geographic basis, revenue from customers in North America was $325.0 million in the third quarter of 2007, down 17.5% from a year ago. Revenue from customers outside North America was $132.9 million in the third quarter of 2007, up 3.3% from a year ago. On a nine-month basis, North America revenue was $1,079.6 million, down 12.3% from a year ago. Revenue from customers outside North America was $364.7 million, up 2.5% from a year ago.

Gross Margin

	Third Quarter						Nine Months
	2007		2006		% Point Change		2007		2006		% Point Change
Products	31.8	%	49.7	%	(17.9	)%	36.4	%	48.6	%	(12.2	)%
Services	29.7	%	36.4	%	(6.7	)%	31.4	%	33.5	%	(2.1	)%
Consolidated	31.5	%	48.6	%	(17.1	)%	35.9	%	47.3	%	(11.4	)%

In 2007, our product margin decreased in the third quarter and for the first nine months compared with the same periods in 2006. The decrease was due to a product mix shift with fewer Tellabs^® 5500 digital cross-connects, more Tellabs^® 7100 Optical Transport Systems (OTS) and more of our Optical Network Terminals (ONT), which are currently lower-margin products.

Our services margin decreased in the third quarter and first nine months of 2007 compared with 2006. Our margin decreased due to a higher proportion of revenue from lower-margin deployment services.

Operating Expenses (in millions)

	Third Quarter								Percent of Revenue
	2007		2006			Change			2007		2006
Research and development	$	86.6	$	89.6		$	(3.0	)	18.9	%	17.2	%
Sales and marketing		41.8		43.5			(1.7	)	9.1	%	8.3	%
General and administrative		23.5		27.7			(4.2	)	5.2	%	5.3	%
Subtotal		151.9		160.8			(8.9	)	33.2	%	30.8	%
Intangible asset amortization		5.6		6.5			(0.9	)
Restructuring and other charges		5.6		(0.1	)		5.7
Total Operating Expenses	$	163.1	$	167.2		$	(4.1	)

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	Nine Months							Percent of Revenue
	2007		2006		Change			2007		2006
Research and development	$	256.4	$	274.2	$	(17.8	)	17.8	%	17.3	%
Sales and marketing		132.0		133.5		(1.5	)	9.1	%	8.4	%
General and administrative		74.8		84.3		(9.5	)	5.2	%	5.3	%
Subtotal		463.2		492.0		(28.8	)	32.1	%	31.0	%
Intangible asset amortization		16.9		20.6		(3.7	)
Restructuring and other charges		5.6		1.9		3.7
Total Operating Expenses	$	485.7	$	514.5	$	(28.8	)

Operating expenses decreased by $4.1 million to $163.1 million in the third quarter of 2007, compared with $167.2 million in the third quarter of 2006. For the first nine months of 2007, operating expenses decreased by $28.8 million to $485.7 million compared with the same period in 2006. The reduction in our operating expenses for the quarter and nine months is primarily due to reduced accruals for incentive compensation plans, partially offset by higher restructuring charges.

Our restructuring and other charges for the third quarter of 2007 reflect a plan to better align our operating expenses with current revenue and market conditions. The charges were for headcount-related costs.

Other Income (in millions)

	Third Quarter									Nine Months
	2007			2006			Change			2007			2006			Change
Interest income, net	$	13.1		$	11.3		$	1.8		$	38.3		$	33.2		$	5.1
Other income (expense), net		(2.4	)		(1.0	)		(1.4	)		(1.8	)		(7.0	)		5.2
Total	$	10.7		$	10.3		$	0.4		$	36.5		$	26.2		$	10.3

Interest income, net, was higher in the third quarter and the first nine months of 2007, compared with 2006 due to larger invested balances and higher interest rates. Other income (expense), net, declined in the third quarter of 2007 compared with the third quarter of 2006 due to foreign exchange losses in the current year. Other income (expense), net, improved for the first nine months of 2007 compared with the same period in 2006 when we incurred a loss of $6.1 million related to other-than-temporary impairments on long-term investments.

Income Taxes

For the first nine months of 2007, we recorded a tax expense of $9.9 million at an effective tax rate of 14.4%, compared with a tax expense of $96.9 million and a tax rate of 37.0% for the first nine months of 2006. For the third quarter of 2007 we recorded a tax benefit of $11.7 million, which reflects the impact of a decrease in our annual effective tax rate, compared with a tax expense of $37.7 million for the third quarter of 2006. The reduction in our tax expense and tax rate is primarily attributable to a decrease in income earned from domestic operations and the inclusion of a benefit for U.S. research and development credits in the current year.

We adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes, on December 30, 2006. The liability for unrecognized tax benefits as of December 30, 2006, as determined under FIN 48 was $76.5 million. Although we cannot reliably estimate the periods of cash settlement, we expect that the resolution of tax issues related to $12 million to $14 million of unrecognized tax benefits could be reached in the next 12 months, resolution of tax issues with respect to approximately $48 million could be reached in the next 12 to 15 months. We cannot reliably estimate the period of cash settlement with respect to the remaining balance of $14.5 million to $16.5 million of unrecognized tax benefits, as such settlement will depend on examination of returns by various jurisdictions, the amounts and timing of which are uncertain.

Segments

Revenue (in millions)

	Third Quarter						Nine Months
	2007		2006		Change		2007		2006		Change
Broadband	$	279.2	$	273.0	2.3	%	$	744.3	$	831.1	(10.4	)%
Transport		123.2		203.1	(39.3	)%		537.1		619.7	(13.3	)%
Services		55.5		46.4	19.6	%		162.9		135.7	20.0	%
Total revenue	$	457.9	$	522.5	(12.4	)%	$	1,444.3	$	1,586.5	(9.0	)%

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Segment Profit * (in millions)

	Third Quarter						Nine Months
	2007		2006		Change		2007		2006		Change
Broadband	$	23.1	$	41.4	(44.2	)%	$	7.5	$	100.9	(92.6	)%
Transport		21.5		110.2	(80.5	)%		213.4		345.1	(38.2	)%
Services		17.1		17.6	(2.8	)%		53.4		48.2	10.8	%
Total segment profit	$	61.7	$	169.2	(63.5	)%	$	274.3	$	494.2	(44.5	)%

* We define segment profit as gross profit less research and development expenses. Segment profit excludes sales and marketing expenses, general and administrative expenses, the amortization of purchased deferred stock compensation and intangibles, restructuring and other charges, and the impact of equity-based compensation (which contains restricted stock and performance stock units granted after June 30, 2006, and stock options).

Broadband

Revenue

Revenue from our Broadband segment was $279.2 million in the third quarter of 2007, up $6.2 million from the prior-year quarter. For the first nine months, revenue from our Broadband segment was $744.3 million, down $86.8 million from the first nine months of 2006. While our access and managed access revenue decreased for both time-period comparisons, our data product revenue increased.

Third quarter access revenue decreased to $157.0 million in 2007 from $161.1 million in 2006. On a nine-month basis, access revenue decreased to $412.8 million in 2007 from $515.0 million in 2006. Revenue was lower in both time periods due to lower unit prices on our single-family ONTs, partially offset by higher ONT unit volume; lower revenue from Fiber-to-the-Curb platforms; and lower revenue from independent operating companies for copper-based platforms. Approximately 72% of access revenue came from fiber-based platforms, with the balance coming from copper-based platforms.

Managed access revenue declined to $65.2 million in the third quarter of 2007 from $80.0 million in the same quarter of 2006. For the first nine months of 2007, managed access revenue declined to $211.0 million from $240.0 million in the first nine months of 2006. Revenue decreased in both time periods due to lower demand in our Europe, Middle East and Africa (EMEA) region. On a nine-month basis, our decrease was partially offset by revenue from a project in the Asia Pacific region.

Data product revenue was $57.0 million in the third quarter of 2007, up 78.7% from the year-ago quarter. Data product revenue was $120.5 million for the first nine months of 2007, up 58.3% compared with the first nine months of 2006. Our revenue increase came from existing and new customers, as well as from completion of the second phase of a large project in the Asia Pacific region.

Segment Profit

Our Broadband segment produced a profit of $23.1 million in the third quarter of 2007 compared with a profit of $41.4 million in the third quarter of 2006. For the first nine months of 2007, our Broadband segment produced a profit of $7.5 million, down $93.4 million from a profit of $100.9 million in the comparable period of 2006. The decrease in both time periods resulted from a shift in our product mix toward lower-margin products, including our single-family ONT, and lower segment revenue.

Transport

Revenue

Revenue from our Transport segment was $123.2 million in the third quarter of 2007, compared with $203.1 million in the third quarter of 2006. On a nine-month basis, transport revenue was $537.1 million, down from $619.7 million in the comparable period of 2006. Our revenue declined due to fewer Tellabs^® 5500 digital cross-connects sold to North American wireless service providers. This decrease was partially offset by higher revenue from the rollout of our Tellabs^® 7100 OTS with a reconfigurable optical add/drop multiplexer (ROADM).

During the third quarter of 2007, approximately 28% of the Tellabs^® 5500 digital cross-connect product revenue came from new systems, system expansions and system upgrades. The remaining balance of 72% consisted of port-card growth on the installed base. We shipped approximately 1.0 million T-1 equivalents during the third quarter of 2007 and approximately 5.3 million in the first nine months of 2007. In 2006, we shipped approximately 2.8 million in the third quarter and approximately 8.3 million in the first nine months.

Segment Profit

Our Transport segment profit was $21.5 million in the third quarter of 2007, down from $110.2 million in the third quarter of 2006. Our segment profit for the first nine months was $213.4 million, compared with $345.1 million in the same time period in 2006. The

17

decreases for the quarter and the first nine months were due to lower segment revenue primarily from our Tellabs^® 5500 digital cross-connect and a shift in our product mix, which includes higher amounts of Tellabs^® 7100 OTS revenue.

Services

Revenue

Revenue from our Services segment grew by $9.1 million to $55.5 million for the third quarter of 2007, compared with $46.4 million in the third quarter of 2006. On a nine-month basis, revenue from our Services segment was $162.9 million in 2007, up $27.2 million from the first nine months of 2006. During both time periods, our revenue from deployment services increased, primarily due to the rollout of our Tellabs^® 7100 OTS product. Our revenue increase also came from support and professional services.

Segment Profit

Our Services segment profit was $17.1 million for the third quarter of 2007, down $0.5 million from the third quarter of 2006. The decrease for the quarter was due to a higher proportion of revenue from lower-margin deployment services. For the first nine months, Services segment profit was $53.4 million in 2007, up $5.2 million from $48.2 million in 2006. The increase for the first nine months was due to a higher proportion of revenue from higher-margin support services.

Financial Condition, Liquidity & Capital Resources

Our principal source of liquidity remained our cash, cash equivalents and marketable securities of $1,371.9 million as of the end of the third quarter of 2007, which increased by $52.9 million during the quarter and $71.8 million since year-end 2006. The increase in the third quarter was primarily driven by cash from operating activities of $64.6 million, which was positively impacted by reduced working capital balances and the Euro strengthening against the U.S. dollar. The year-to-date increase reflects an increase of cash from operating activities of $124.4 million, partially offset by cash used to repurchase our common stock and for the purchase of capital equipment.

Under a previously announced share repurchase program, we repurchased 1.2 million shares of our common stock at a cost of $13.6 million during the third quarter of 2007. For the first nine months of 2007, we repurchased 4.5 million shares of our common stock at a cost of $48.8 million.

Tellabs’ Board of Directors and management are assessing our stock repurchase programs. We provide no assurance that we will continue or change our repurchase activity, and we cannot estimate the timing of any such change or the impact on our cash, cash equivalents and marketable securities.

We believe that the current level of working capital, particularly cash and marketable securities, is sufficient to meet our normal operating requirements for the foreseeable future. Further, we believe that sufficient resources exist to support our future growth and strategic needs. Future available sources of working capital include cash-on-hand, cash generated from future operations, short-term or long-term financing, equity offerings or any combination of these sources. Our current policy is to retain our earnings to provide funds to enhance stockholder value by continuing to expand our business and support our operating activities. We may also utilize our funds for the repurchase of our common stock. We do not anticipate paying a cash dividend in the foreseeable future.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

There were no material changes in our critical accounting policies during the quarter.

Outlook for Fourth Quarter

Exclusive of restructuring charges, we expect revenue, gross margin and operating expense in the fourth quarter to be about the same as third quarter 2007. We are assuming a similar product mix.

Forward-Looking Statements

This Management’s Discussion and Analysis and other sections of this Form 10-Q, including the statements under the caption “Outlook for Fourth Quarter”, contain 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 management’s 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,” “foreseeable,” “estimate,” “target,” “expect,” “predict,” “plan,” “project,” “intend,” “likely,” “possible,” “will,” “would,” “should,” “could,” “may,” “continue,” 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 that may 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

18

those in forward-looking statements include, but are not limited to: economic changes impacting the telecommunications industry; financial condition of telecommunications service providers and equipment vendors, including any impact of bankruptcies; the impact of customer and vendor consolidation; new product acceptance; product demand and industry capacity; competitive products and pricing; competitive pressures from new entrants to the telecommunications industry; initiatives to improve profitability that may have financial consequences including further restructuring charges, exiting businesses and product areas; impairment charges and other cost cutting initiatives and related charges and costs; manufacturing efficiencies; research and new product development; protection of and access to intellectual property, patents and technology; ability to attract and retain highly qualified personnel; availability of components and critical manufacturing equipment and capacity; foreign economic conditions, including currency rate fluctuations; the regulatory and trade environment; the impact of new or revised accounting rules or interpretations, including revenue recognition requirements; availability and terms of future acquisitions; divestitures and investments; uncertainties relating to synergies, charges and expenses associated with business combinations and other transactions; and other risks and future factors that may be detailed from time to time in the Company’s filings with the SEC. For a further description of such risks and future factors, see Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 29, 2006, filed with the SEC on February 26, 2007 as well as Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 30, 2007, filed with the SEC on May 9, 2007. Our 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 forward-looking statements in determining whether to buy, sell or hold any of our securities. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of our business. We undertake 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of September 28, 2007, there were no material changes to our market risks disclosure in our Annual Report on Form 10-K for the year ended December 29, 2006.

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 28, 2007. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. There were no changes during the period covered by this Form 10-Q in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On June 18, 2002, a class action complaint was filed in the United States District Court of the Northern District of Illinois against Tellabs, Michael Birck (Chairman of the Board of Tellabs) and Richard Notebaert (former CEO, President and Director of Tellabs). Thereafter, eight similar complaints were also filed in the United States District Court of the Northern District of Illinois. All nine of these actions were subsequently consolidated, and on December 3, 2002, a consolidated amended class action complaint was filed against Tellabs, Mr. Birck, Mr. Notebaert, and certain other of our current or former officers and/or directors. The consolidated amended complaint alleged that during the class period (December 11, 2000-June 19, 2001) the defendants violated the federal securities laws by making materially false and misleading statements, including, among other things, allegedly providing revenue forecasts that were false and misleading, misrepresenting demand for our products, and reporting overstated revenue for the fourth quarter 2000 in our financial statements. Further, certain of the individual defendants were alleged to have violated the federal securities laws by trading our securities while allegedly in possession of material, non-public information about us pertaining to these matters. The consolidated amended complaint seeks unspecified restitution, damages and other relief.

On January 17, 2003, Tellabs and the other named defendants filed a motion to dismiss the consolidated amended class action complaint in its entirety. On May 19, 2003, the Court granted our motion and dismissed all counts of the consolidated amended complaint, while affording plaintiffs an opportunity to replead. On July 11, 2003, plaintiffs filed a second consolidated amended class action complaint against Tellabs, Messrs. Birck and Notebaert, and many (although not all) of the other previously named individual defendants, realleging claims similar to those contained in the previously dismissed consolidated amended class action complaint. We filed a second motion to dismiss on August 22, 2003, seeking the dismissal with prejudice of all claims alleged in the second consolidated amended class action complaint. On February 19, 2004, the Court issued an order granting that motion and dismissed the action with prejudice. On March 18, 2004, the plaintiffs filed a Notice of Appeal to the United States Federal Court of Appeal for the Seventh Circuit, appealing the dismissal. The appeal was fully briefed and oral argument was heard on January 21, 2005. On January 25, 2006, the Seventh Circuit issued an opinion affirming in part and reversing in part the judgment of the district court, and

19

remanding for further proceedings. On February 8, 2006, defendants filed with the Seventh Circuit a petition for rehearing with suggestion for rehearing en banc. On April 19, 2006, the Seventh Circuit ordered plaintiffs to file an answer to the petition for rehearing, which was filed by the plaintiffs on May 3, 2006. On July 10, 2006, the Seventh Circuit denied the petition for rehearing with a minor modification to its opinion. On September 22, 2006, defendants filed a motion in the district court to dismiss some (but not all) of the remaining claims. On October 3, 2006, the defendants filed with the United States Supreme Court a petition for a writ of certiorari seeking to appeal the Seventh Circuit’s decision. On January 5, 2007, the defendants’ petition was granted. The United States Supreme Court heard oral arguments on March 28, 2007. On June 21, 2007, the United States Supreme Court vacated the Seventh Circuit’s judgment and remanded the case for further proceedings. On November 1, 2007, the Seventh Circuit heard oral arguments for the remanded case. We believe the case is without merit.

On April 5, 2006, a class action complaint was filed in the United States District Court of the Northern District of Illinois against Tellabs, Michael Birck, Richard Notebaert and current or former Tellabs employees who, during the alleged class period of December 11, 2000 to July 1, 2003, participated on the Tellabs Investment and Administrative Committees of the Tellabs, Inc. Profit Sharing and Savings Plan (“Plan”). Thereafter, two similar complaints were filed in the United States District Court of the Northern District of Illinois.

The complaints allege that during the alleged class period, the defendants allegedly breached their fiduciary duties under the Employee Retirement Income Security Act by, among other things, continuing to offer Tellabs common stock as a Plan investment option when it was imprudent to do so and allegedly misrepresenting and failing to disclose material information necessary for Plan participants to make informed decisions concerning the Plan. Further, certain of the defendants allegedly failed to monitor the fiduciary activities of the fiduciaries they appointed and certain of the defendants allegedly breached their duty of loyalty by trading Tellabs stock, while taking no protective action on behalf of Plan participants. The complaints seek unspecified restitution, damages and other relief.

On June 28, 2006, the Court consolidated all three actions and on August 14, 2006, plaintiffs filed a consolidated class action complaint. On September 15, 2006, defendants filed a Motion to Dismiss, or in the Alternative, for Summary Judgment seeking the dismissal with prejudice of all claims in the consolidated amended class action complaint. On February 13, 2007, the court denied defendants’ motion. Based on the court’s decision, the defendants requested that the court certify an issue for interlocutory appeal to the United States Federal Court of Appeal for the Seventh Circuit; the court denied defendants’ request. Plaintiffs moved to certify a class, discovery was conducted to determine the propriety of class certification, and Tellabs opposed class certification. On September 20, 2007, the court granted plaintiff’s motion to certify a class. Tellabs may appeal class certification, and if no appeal occurs, discovery on the merits may proceed. We believe the case is without merit.

Apart from the matters described above, we are subject to various legal proceedings, claims and litigation arising in the ordinary course of business. Based on our historical experience for these types of litigation, we do not expect that the ultimate costs to resolve these matters will have a material effect on our results of operations, financial position or cash flows.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 29, 2006, and in Part II, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 30, 2007. The risk factors described in our Annual Report and Quarterly Report could materially adversely affect our business, financial condition or future results. The risks described in our Annual Report and Quarterly Report are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently consider immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of Common Stock:

Period of Purchases	Total Number of Shares Purchased	Average Purchase Price Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Remaining Dollar Value of Shares Available to be Purchased Under the Programs (In Millions) (1)
12/30/06 through 2/2/07	522,931	$	10.12	522,931	$	193.1
2/3/07 through 3/2/07	1,793,207	$	10.70	1,793,207	$	176.1
3/3/07 through 3/30/07	73,509	$	10.12	73,509	$	176.1
3/31/07 through 5/4/07	362,569	$	10.69	362,569	$	176.1
5/5/07 through 6/1/07	328,216	$	11.03	328,216	$	176.1
6/2/07 through 6/29/07	230,467	$	10.80	230,467	$	176.1
6/30/07 through 8/3/07	934,498	$	11.82	934,498	$	176.1
8/4/07 through 8/31/07	117,842	$	10.62	117,842	$	176.1
9/01/07 through 9/28/07	127,180	$	10.49	127,180	$	176.1
Total	4,490,419	$	10.88	4,490,419

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⁽¹⁾ The amounts in this column represent the remaining amounts under the current $300 million program described below. The Rule10b5-1 repurchase program described below does not have a repurchase amount limit; therefore, it is not included in the remaining value of shares.

On January 25, 2007, our Board of Directors authorized a one-year extension of the purchase of our outstanding stock under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. We intend to continue to use cash generated by employee stock option exercises (other than those of company officers and board members) to repurchase stock in the manner provided under this program. As of September 28, 2007, we purchased 7.0 million shares of our common stock under this program at a total cost of $89.9 million, including $13.6 million (1.2 million shares) in the third quarter of 2007 and $27.8 million (2.5 million shares) in the first nine months of 2007.

On July 31, 2006, our Board of Directors authorized a repurchase program of up to $300 million of our outstanding common stock. As of September 28, 2007, we purchased 11.9 million shares of our common stock under the program at a total cost of $123.9 million, with no shares purchased in the third quarter of 2007 and $21.0 million (2.0 million shares) in the first nine months of 2007. We may continue to repurchase shares under this program from time to time during open trading windows and when we do not possess material non-public information.

In addition, in the third quarter of 2007, we purchased 141,662 shares for $1.6 million to cover withholding taxes on shares issued under employee stock plans and in the first nine months of 2007, we purchased 195,510 shares for $2.2 million.

We record repurchased shares as Treasury stock.

21

Item 6. Exhibits

(A) Exhibits

3.2	Second Amended and Restated By-Laws dated July 24, 2007 (incorporated by reference to Exhibit 3.2 of Tellabs, Inc. Form 8-K filed with the SEC on July 26, 2007)
10.40	Description of Grants of Performance Stock Units to Executive Officers of Tellabs, Inc. (incorporated by reference to Item 101 of Tellabs, Inc. Form 8-K filed with the SEC on July 26, 2007.
10.41	401(k) Plan as Amended and Restated Effective January 1, 2007
10.42	Addendum Incorporating Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) to Tellabs 401(k) Plan
11	Computation of Per Share Earnings
31.1	CEO Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2	CFO Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1	CEO Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2	CFO Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002

22

SIGNATURE

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

TELLABS, INC.

(Registrant)

/s/ Tom Minichiello

Tom Minichiello

Vice President of Finance and Chief Accounting Officer

(Principal Accounting Officer and duly authorized officer)

November 5, 2007

(Date)

23

EX-10.41

Exhibit 10.41

TELLABS 401(K) PLAN

(January 1, 2007 Restatement)

TABLE OF CONTENTS

PREAMBLE		1
ARTICLE I DEFINITIONS		1
1.1	PLAN DEFINITIONS	1
1.2	INTERPRETATION	19
ARTICLE II SERVICE		20
2.1	CREDITING OF HOURS OF SERVICE	20
2.2	ELIGIBILITY SERVICE	20
2.3	VESTING SERVICE	20
ARTICLE III ELIGIBILITY		21
3.1	ELIGIBILITY	21
3.2	TRANSFERS OF EMPLOYMENT	21
3.3	REEMPLOYMENT	21
3.4	NOTIFICATION CONCERNING NEW ELIGIBLE EMPLOYEES	21
3.5	PERSONS FROM ACQUIRED EMPLOYERS	21
3.6	LEAVES OF ABSENCE	22
3.7	QUALIFIED MILITARY SERVICE	22
3.8	EFFECT AND DURATION	22
ARTICLE IV TAX-DEFERRED CONTRIBUTIONS		23
4.1	TAX-DEFERRED CONTRIBUTIONS	23
4.2	AMOUNT OF TAX-DEFERRED CONTRIBUTIONS	23
4.3	AMENDMENTS TO REDUCTION AUTHORIZATION	24
4.4	SUSPENSION OF TAX-DEFERRED CONTRIBUTIONS	24
4.5	RESUMPTION OF TAX-DEFERRED CONTRIBUTIONS	24
4.6	DELIVERY OF TAX-DEFERRED CONTRIBUTIONS	24
4.7	VESTING OF TAX-DEFERRED CONTRIBUTIONS	25
ARTICLE V AFTER-TAX AND ROLLOVER CONTRIBUTIONS		26
5.1	AFTER-TAX CONTRIBUTIONS	26
5.2	ROLLOVER CONTRIBUTIONS	26
5.3	VESTING OF AFTER-TAX CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS	26
ARTICLE VI EMPLOYER CONTRIBUTIONS		27
6.1	EMPLOYER CONTRIBUTIONS	27
6.2	CONTRIBUTION PERIOD	27
6.3	DISCRETIONARY CONTRIBUTIONS	27
6.4	ALLOCATION OF DISCRETIONARY CONTRIBUTIONS	27
6.5	QUALIFIED NONELECTIVE CONTRIBUTIONS	28
6.6	ALLOCATION OF QUALIFIED NONELECTIVE CONTRIBUTIONS	28

i

6.7	AMOUNT AND ALLOCATION OF MATCHING CONTRIBUTIONS	28
6.8	TRUE UP MATCHING CONTRIBUTIONS	29
6.9	VERIFICATION OF AMOUNT OF EMPLOYER CONTRIBUTIONS BY THE SPONSOR	29
6.10	PAYMENT OF EMPLOYER CONTRIBUTIONS	29
6.11	ALLOCATION REQUIREMENTS FOR EMPLOYER CONTRIBUTIONS	30
6.12	EXCEPTIONS TO ALLOCATION REQUIREMENTS FOR EMPLOYER CONTRIBUTIONS	30
6.13	VESTING OF EMPLOYER CONTRIBUTIONS	30
ARTICLE VII LIMITATIONS ON CONTRIBUTIONS		31
7.1	DEFINITIONS	31
7.2	CODE SECTION 402(G) LIMIT	31
7.3	DISTRIBUTION OF EXCESS DEFERRALS	32
7.4	LIMITATION ON TAX-DEFERRED CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES	32
7.5	DETERMINATION AND ALLOCATION OF EXCESS TAX-DEFERRED CONTRIBUTIONS AMONG HIGHLY COMPENSATED EMPLOYEES	34
7.6	DISTRIBUTION OF EXCESS TAX-DEFERRED CONTRIBUTIONS	35
7.7	LIMITATION ON MATCHING CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES	35
7.8	DETERMINATION AND ALLOCATION OF EXCESS MATCHING CONTRIBUTIONS AMONG HIGHLY COMPENSATED EMPLOYEES	37
7.9	DISTRIBUTION OF EXCESS CONTRIBUTIONS	38
7.10	TREATMENT OF FORFEITED MATCHING CONTRIBUTIONS	38
7.11	DETERMINATION OF INCOME OR LOSS	38
7.12	DEEMED SATISFACTION OF THE LIMITATIONS ON TAX-DEFERRED CONTRIBUTIONS AND MATCHING CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES	39
7.13	NOTICE REQUIREMENTS FOR MATCHING CONTRIBUTIONS	39
7.14	CODE SECTION 415 LIMITATIONS ON CREDITING OF CONTRIBUTIONS AND FORFEITURES	40
7.15	APPLICATION OF CODE SECTION 415 LIMITATIONS WHERE PARTICIPANT IS COVERED UNDER OTHER QUALIFIED DEFINED CONTRIBUTION PLAN	41
7.16	SCOPE OF LIMITATIONS	41
ARTICLE VIII TRUST FUNDS AND ACCOUNTS		42
8.1	GENERAL FUND	42
8.2	INVESTMENT FUNDS	42
8.3	LOAN INVESTMENT FUND	42
8.4	INCOME ON TRUST	42
8.5	ACCOUNTS	43
8.6	SUB-ACCOUNTS	43
ARTICLE IX LIFE INSURANCE CONTRACTS		44
9.1	NO LIFE INSURANCE CONTRACTS	44

ii

ARTICLE X DEPOSIT AND INVESTMENT OF CONTRIBUTIONS		45
10.1	FUTURE CONTRIBUTION INVESTMENT ELECTIONS	45
10.2	DEPOSIT OF CONTRIBUTIONS	45
10.3	ELECTION TO TRANSFER BETWEEN FUNDS	45
10.4	VOTING AND TENDERING COMPANY STOCK	46
ARTICLE XI CREDITING AND VALUING ACCOUNTS		48
11.1	CREDITING ACCOUNTS	48
11.2	VALUING ACCOUNTS	48
11.3	PLAN VALUATION PROCEDURES	48
11.4	NOTIFICATION	49
ARTICLE XII LOANS		50
12.1	APPLICATION FOR LOAN	50
12.2	REDUCTION OF ACCOUNT UPON DISTRIBUTION	50
12.3	REQUIREMENTS TO PREVENT A TAXABLE DISTRIBUTION	51
12.4	ADMINISTRATION OF LOAN INVESTMENT FUND	53
12.5	DEFAULT	53
12.6	DEEMED DISTRIBUTION UNDER CODE SECTION 72(P)	54
12.7	TREATMENT OF OUTSTANDING BALANCE OF LOAN DEEMED DISTRIBUTED UNDER CODE SECTION 72(P)	54
12.8	SPECIAL RULES APPLICABLE TO LOANS	55
12.9	LOANS GRANTED PRIOR TO AMENDMENT	55
ARTICLE XIII WITHDRAWALS WHILE EMPLOYED		56
13.1	AGE 59  1/2 WITHDRAWALS	56
13.2	OVERALL LIMITATIONS ON IN-SERVICE WITHDRAWALS	56
13.3	HARDSHIP WITHDRAWALS	56
13.4	HARDSHIP DETERMINATION	57
13.5	SATISFACTION OF NECESSITY REQUIREMENT FOR HARDSHIP WITHDRAWALS	58
13.6	CONDITIONS AND LIMITATIONS ON HARDSHIP WITHDRAWALS	58
13.7	ORDER OF WITHDRAWAL FROM A PARTICIPANT'S SUB-ACCOUNTS	59
ARTICLE XIV TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE		60
14.1	TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE	60
ARTICLE XV DISTRIBUTIONS		61
15.1	DISTRIBUTIONS TO PARTICIPANTS	61
15.2	DISTRIBUTIONS TO BENEFICIARIES	61
15.3	CASH OUTS AND PARTICIPANT CONSENT	62
15.4	REQUIRED COMMENCEMENT OF DISTRIBUTION	62
15.5	REEMPLOYMENT OF A PARTICIPANT	63
15.6	RESTRICTIONS ON ALIENATION	63

iii

15.7	FACILITY OF PAYMENT	63
15.8	INABILITY TO LOCATE PAYEE	63
15.9	DISTRIBUTION PURSUANT TO QUALIFIED DOMESTIC RELATIONS ORDERS	64
ARTICLE XVI FORM OF PAYMENT		65
16.1	APPLICABILITY	65
16.2	FORM OF PAYMENT	65
16.3	DIRECT ROLLOVER	65
16.4	NOTICE REGARDING FORM OF PAYMENT	66
16.5	DISTRIBUTION IN THE FORM OF COMPANY STOCK	66
ARTICLE XVII BENEFICIARIES		67
17.1	DESIGNATION OF BENEFICIARY	67
17.2	SPOUSAL CONSENT REQUIREMENTS	67
ARTICLE XVIII ADMINISTRATION		68
18.1	POWERS AND DUTIES OF ADMINISTRATIVE COMMITTEE	68
18.2	POWERS AND DUTIES OF INVESTMENT COMMITTEE	69
18.3	DISCRETIONARY AUTHORITY	70
18.4	ACTION OF THE SPONSOR	70
18.5	CLAIMS REVIEW PROCEDURE	70
18.6	QUALIFIED DOMESTIC RELATIONS ORDERS	71
18.7	INDEMNIFICATION	72
18.8	ACTIONS BINDING	72
ARTICLE XIX AMENDMENT AND TERMINATION		73
19.1	AMENDMENT	73
19.2	LIMITATION ON AMENDMENT	73
19.3	TERMINATION	73
19.4	REORGANIZATION	74
19.5	WITHDRAWAL OF AN EMPLOYER	75
ARTICLE XX ADOPTION BY OTHER ENTITIES		76
20.1	ADOPTION BY RELATED COMPANIES	76
20.2	EFFECTIVE PLAN PROVISIONS	76
ARTICLE XXI MISCELLANEOUS PROVISIONS		77
21.1	NO COMMITMENT AS TO EMPLOYMENT	77
21.2	BENEFITS	77
21.3	NO GUARANTEES	77
21.4	EXPENSES	77
21.5	PRECEDENT	77
21.6	DUTY TO FURNISH INFORMATION	77
21.7	MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS	78
21.8	BACK PAY AWARDS	78

iv

21.9	CONDITION ON EMPLOYER CONTRIBUTIONS	78
21.10	RETURN OF CONTRIBUTIONS TO AN EMPLOYER	79
21.11	VALIDITY OF PLAN	79
21.12	TRUST AGREEMENT	79
21.13	PARTIES BOUND	79
21.14	APPLICATION OF CERTAIN PLAN PROVISIONS	79
21.15	MERGED PLANS	80
21.16	TRANSFERRED FUNDS	80
21.17	VETERANS REEMPLOYMENT RIGHTS	80
21.18	DELIVERY OF CASH AMOUNTS	80
21.19	WRITTEN COMMUNICATIONS	80
ARTICLE XXII TOP-HEAVY PROVISIONS		82
22.1	DEFINITIONS	82
22.2	APPLICABILITY	82
22.3	MINIMUM EMPLOYER CONTRIBUTION	82
ADDENDUM TELLABS 401(K) PLAN		84
A.1	APPLICABILITY	84
A.2	DEFINITIONS	84
A.3	NORMAL FORM OF PAYMENT	85
A.4	CHANGE OF ELECTION	85
A.5	AUTOMATIC ANNUITY REQUIREMENTS	85
A.6	QUALIFIED PRERETIREMENT SURVIVOR ANNUITY REQUIREMENTS	86
A.7	NOTICE REGARDING FORMS OF PAYMENT	86
APPENDIX TO TELLABS 401(K) PLAN		88
SECTION I DEFINITIONS		88
1.1	DEFINITIONS	88
SECTION II GENERAL RULES		89
2.1	EFFECTIVE DATE	89
2.2	PRECEDENCE	89
2.3	REQUIREMENTS OF TREASURY REGULATIONS INCORPORATED	89
SECTION III TIME AND MANNER OF DISTRIBUTION		89
3.1	REQUIRED BEGINNING DATE	89
3.2	DEATH OF PARTICIPANT BEFORE DISTRIBUTIONS BEGIN	89
3.3	FORMS OF DISTRIBUTION	90
SECTION IV REQUIRED MINIMUM DISTRIBUTIONS DURING PARTICIPANT'S LIFETIME		90
4.1	AMOUNT OF REQUIRED MINIMUM DISTRIBUTION FOR EACH DISTRIBUTION CALENDAR YEAR	90

v

4.2	LIFETIME REQUIRED MINIMUM DISTRIBUTIONS CONTINUE THROUGH YEAR OF PARTICIPANT'S DEATH	91
SECTION V REQUIRED MINIMUM DISTRIBUTIONS AFTER PARTICIPANT'S DEATH		91
5.1	DEATH ON OR AFTER DATE DISTRIBUTIONS BEGIN	91
5.2	DEATH BEFORE DATE DISTRIBUTIONS BEGIN	92

vi

PREAMBLE

The Tellabs 401(k) Plan (“Plan”) sponsored by Tellabs Operations, Inc., originally effective as of January 1, 1983 and previously known as the Tellabs Profit Sharing and Savings Plan, is hereby amended and restated in its entirety. This amendment and restatement shall be effective as of January 1, 2007. The Plan, as amended and restated hereby, is intended to qualify as a profit-sharing plan under Code Section 401(a), and includes a cash or deferred arrangement that is intended to qualify under Code Section 401(k). The Plan is maintained for the exclusive benefit of eligible employees and their beneficiaries.

Notwithstanding any other provision of the Plan to the contrary, a Participant's vested interest in his Account under the Plan on and after the effective date of this amendment and restatement shall not be less than his vested interest in his account on the day immediately preceding the effective date. Any provision of the Plan that restricted or limited withdrawals, loans, or other distributions, or otherwise required separate accounting with respect to any portion of a Participant's Account immediately prior to the later of the effective date of this amendment and restatement or the date this amendment and restatement is adopted and the elimination of which would adversely affect the qualification of the Plan under Code Section 401(a) shall continue in effect with respect to such portion of the Participant's Account as if fully set forth in this amendment and restatement.

Effective as of April 1, 2006 (the “spin-off date”), accounts under the Tellabs Retirement Plan (the “spin-off plan”) that were attributable to money purchase contributions made under the spin-off plan were spun off from the spin-off plan and transferred to and made a part of the Plan. Unless otherwise noted herein, Addendum 1 shall govern the portion of Participants’ Accounts attributable to money purchase contributions.

ARTICLE I

DEFINITIONS

1.1 Plan Definitions

As used herein, the following words and phrases have the meanings hereinafter set forth, unless a different meaning is plainly required by the context:

An “Account” means the account maintained by the Trustee in the name of a Participant that reflects his interest in the Trust and any Sub-Accounts maintained thereunder, as provided in Article VIII.

An “Acquired Employer” means an entity which is acquired by or merged with the Sponsor or a Related Company.

1

The “Administrative Committee” means the Plan committee with the powers and duties set forth in Article XVIII. The Administrative Committee is the named fiduciary of the Plan.

The “Administrator” means the Administrative Committee.

An “After-Tax Contribution” means any after-tax employee contribution made by a Participant to the Plan as may be permitted under Article V or as may have been permitted under the terms of the Plan prior to January 1, 1994.

An “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 15.9 (Qualified Domestic Relations Order).

The “Annual Addition”, as used in Article VII, with respect to a Participant for a Limitation Year means the sum of the Tax-Deferred Contributions and Employer Contributions allocated to his Account for the Limitation Year (including any Excess Contributions that are distributed pursuant to Article VII), the employer contributions, Employee Contributions, and forfeitures allocated to his accounts for the Limitation Year under any other qualified defined contribution plan (whether or not terminated) maintained by an Employer or a Related Company concurrently with the Plan, and amounts described in Code Sections 415(l)(2) and 419A(d)(2) allocated to his account for the Limitation Year.

The “Beneficiary” of a Participant means the person or persons entitled under the provisions of the Plan to receive distribution hereunder in the event the Participant dies before receiving distribution of his entire interest under the Plan.

A Participant's “Benefit Payment Date” means (i) if a Participant has a Money Purchase Contribution Sub-Account payment is made through the purchase of an annuity, the first day of the first period for which the annuity is payable from the Money Purchase Contribution Sub-Account or (ii) if payment is made in any other form, the first day on which all events have occurred which entitle the Participant to receive payment of his benefit.

The “Code” means the Internal Revenue Code of 1986, as amended from time to time and regulations promulgated thereunder. Reference to a Code section includes such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section.

The “Company” means Tellabs, Inc., a Delaware corporation, and any successor to all or substantially all of the Company’s assets or business.

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The “Company Stock” means the common stock, $.01 par value per share of Tellabs, Inc., or any other equity securities of the Company designated by the Investment Committee.

The “Compensation” of a Participant for any period means his wages, salaries, fees for professional service, and all other amounts received for personal services actually rendered in the course of employment with an Employer paid to him for such period for services as an Employee, including (i) amounts described in Code Section 104(a)(3), 105(a), or 105(h), but only to the extent that they are includible in the gross income of the Participant, and (ii) the amount includible in the gross income of the Participant upon making the election described in Code Section 83(b) with respect to property transferred to the Participant by the Employer.

Notwithstanding the foregoing, Compensation shall not include the following:

(a) contributions made by the Participant's Employer to a plan of deferred compensation to the extent that, before application of the limitations of Code Section 415 to such plan, the contributions are not includible in the gross income of the Participant for the taxable year in which contributed

(b) contributions made by the Employer to a simplified employee pension described in Code Section 408(k)

(c) any distributions from a plan of deferred compensation (except amounts received pursuant to an unfunded non-qualified plan in the year such amounts are includible in the gross income of the Participant)

(d) amounts received from the exercise of a non-qualified stock option or when restricted stock held by the Participant becomes freely transferable or is no longer subject to substantial risk of forfeiture

(e) amounts received from the sale, exchange or other disposition of stock acquired under a qualified or incentive stock option

(f) any other amounts which receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includible in the gross income of the Participant)

(g) reimbursements or other expense allowances

(h) fringe benefits

(i) all moving expenses

(j) welfare benefits

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(k) the value of any qualified or non-qualified stock option granted to the Participant by his Employer to the extent such value is includible in the Participant's taxable income

(l) education expenses

(m) income from participation in any stock purchase plan

(n) income from stock awards

(o) income from the exercise of stock appreciation rights

(p) dividends on restricted stock

(q) adjustments to wages for temporary assignments

(r) ex-pat assignment related expenses

(s) any other extraordinary remuneration

Notwithstanding the foregoing, Compensation includes any amount that would have been included in the foregoing description, but for the Participant's election to defer payment of such amount under Code Section 125, 402(e)(3), 402(h)(1)(B), 403(b), or 457(b), certain contributions described in Code Section 414(h)(2) that are picked up by the employing unit and treated as employer contributions, and any amount that is not included in the Participant's taxable gross income pursuant to Code Section 132(f).

In no event, however, shall the Compensation of a Participant taken into account under the Plan for any Plan Year exceed $150,000 (subject to adjustment annually as provided in Code Sections 401(a)(17)(B) and 415(d); provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year, e.g., $225,000 for the 2007 Plan Year). If the Compensation of a Participant is determined over a period of time that contains fewer than 12 calendar months, then the annual compensation limitation described above shall be adjusted with respect to that Participant by multiplying the annual compensation limitation in effect for the Plan Year by a fraction of the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is required for a Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Compensation for a period of at least 12 months.

The “Contribution Percentage” with respect to an Eligible Participant for a particular Plan Year, as used in Article VII, means the ratio of the Matching Contributions made to the Plan on his behalf for the Plan Year to his Test Compensation for such Plan Year. To the extent permitted by regulations issued under Code Section 401(m), the Sponsor may elect to include the Tax-Deferred

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Contributions and/or Qualified Nonelective Contributions made to the Plan on an Eligible Participant's behalf for the Plan Year in computing the numerator of such Eligible Participant's Contribution Percentage. Notwithstanding the foregoing, any Tax-Deferred Contributions and/or Qualified Nonelective Contributions that are included in determining the numerator of an Eligible Participant's Deferral Percentage may not be included in determining the numerator of his Contribution Percentage.

Notwithstanding the foregoing, the following special rules apply for any Plan Year in which the limitations on Tax-Deferred Contributions described in Section 7.4 are deemed satisfied, as provided in Section 7.13:

(a) Tax-Deferred Contributions and Matching Contributions that are required to satisfy the requirements of Code Section 401(k)(12)(B) shall not be included in determining the numerator of an Eligible Participant's Contribution Percentage for such Plan Year.

(b) If the limitations on Matching Contributions described in Section 7.7 are also deemed satisfied for the Plan Year, as provided in Section 7.13, the Sponsor may elect to exclude Matching Contributions made on an Eligible Participant's behalf for the Plan Year in determining the numerator of the Eligible Participant's Contribution Percentage for such Plan Year.

(c) If the limitations on Matching Contributions described in Section 7.7 are not deemed satisfied for the Plan Year, the Sponsor may only elect to exclude Matching Contributions made on an Eligible Participant's behalf for the Plan Year in an amount up to four percent of the Eligible Participant's Test Compensation for the Plan Year in determining the numerator of the Eligible Participant's Contribution Percentage for such Plan Year.

Contributions made on an Eligible Participant's behalf for a Plan Year shall be included in determining his Contribution Percentage for such Plan Year only if the contributions are allocated to the Eligible Participant's Account as of a date within such Plan Year and are made to the Plan before the end of the 12-month period immediately following the Plan Year to which the contributions relate. For Plan Years in which the Testing Year means the Plan Year preceding the Plan Year for which the limitation on Matching Contributions described in Section 7.7 is being determined, contributions included for purposes of determining the Contribution Percentage for the Testing Year of an Eligible Participant who is not a Highly Compensated Employee must be made before the last day of the Plan Year for which the limitation is being determined. The determination of an Eligible Participant's Contribution Percentage shall be made after any reduction required to satisfy the Code Section 415 limitations is made as provided in this Article VII and shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury.

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Effective for Plan Years beginning on or after January 1, 1999, if an Employer elects to change from the current year testing method to the prior year testing method, Tax-Deferred Contributions that were included in computing the numerator of an Eligible Participant's Contribution Percentage under the current year testing method for the Plan Year immediately preceding the Plan Year in which the prior year testing method is first effective and Qualified Nonelective Contributions that were included in computing the numerator of an Eligible Participant's Contribution Percentage or Deferral Percentage under the current year testing method for such immediately preceding Plan Year shall not be included in computing the numerator of a non-Highly Compensated Employee's Contribution Percentage under the prior year testing method for such immediately preceding Plan Year.

A “Contribution Period” means the periods specified in Article VI for which Employer Contributions shall be made.

The “Deferral Percentage” with respect to an Eligible Employee for a particular Plan Year, as used in Article VII, means the ratio of the Tax-Deferred Contributions made on his behalf for the Plan Year to his Test Compensation for the Plan Year. To the extent permitted by regulations issued under Code Section 401(k), the Sponsor may elect to include Qualified Nonelective Contributions made to the Plan on the Eligible Employee's behalf for the Plan Year in computing the numerator of such Eligible Employee's Deferral Percentage. Notwithstanding the foregoing, any Tax-Deferred Contributions, and/or Qualified Nonelective Contributions that are included in determining the numerator of an Eligible Employee's Contribution Percentage may not be included in determining the numerator of his Deferral Percentage.

Contributions made on an Eligible Employee's behalf for a Plan Year shall be included in determining his Deferral Percentage for such Plan Year only if they meet the following requirements:

(a) Tax-Deferred Contributions must relate to Compensation that would, but for the Eligible Employee's deferral election, have been received by the Eligible Employee during such Plan Year.

(b) The contributions must be allocated to the Eligible Employee's Account as of a date within such Plan Year.

(c) The contributions must be made to the Plan before the end of the 12-month period immediately following the Plan Year to which they relate.

For Plan Years in which the Testing Year means the Plan Year preceding the Plan Year for which the limitation on Tax-Deferred Contributions described in Section 7.4 is being determined, Qualified Nonelective Contributions included for purposes of determining the Deferral Percentage of an Eligible Employee who is not a Highly Compensated Employee must be made before the last day of the Plan Year for which the limitation is being determined.

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The determination of an Eligible Employee’s Deferral Percentage shall be made after any reduction required to satisfy the Code Section 415 limitations is made as provided in this Article VII and shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury.

The “Determination Date”, as used in Article XXII, with respect to any Plan Year means the last day of the preceding Plan Year, except that the Determination Date with respect to the first Plan Year of the Plan, shall mean the last day of such Plan Year.

“Disabled” a Participant shall be considered Disabled only if he is eligible to receive a benefit under his employer’s long-term disability plan.

A “Discretionary Contribution” means any Employer Contribution made to the Plan at the discretion of the Sponsor’s Board of Directors after June 30, 2003, in accordance with the provisions of Sections 6.2 and 6.3.

An “Elective Contribution” as used in Article VII means any employer contribution made to a plan maintained by an Employer or a Related Company on behalf of a Participant in lieu of cash compensation pursuant to his written election to defer under any qualified CODA as described in Code Section 401(k), any simplified employee pension cash or deferred arrangement as described in Code Section 402(h)(1)(B), any eligible deferred compensation plan under Code Section 457, or any plan as described in Code Section 501(c)(18), and any contribution made on behalf of the Participant by an Employer or a Related Company for the purchase of an annuity contract under Code Section 403(b) pursuant to a salary reduction agreement.

An “Eligible Employee” means any Employee who has met the eligibility requirements of Article III to participate in the Plan.

An “Eligible Participant”, as used in Article VII, means any Eligible Employee who is eligible to have Tax-Deferred Contributions made on his behalf (if Tax-Deferred Contributions are taken into account in determining Contribution Percentages), or to participate in the allocation of Matching Contributions.

The “Eligibility Service” of an employee means the period or periods of service credited to him under the provisions of Article II for purposes of determining his eligibility to participate in the Plan as may be required under Article III.

An “Employee” means any individual who is classified in accordance with the records of an Employer as an employee of the Employer other than the following:

(a) any individual who is employed as an intern

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(b) any Limited Term Employee, as defined below

(c) any individual who is covered by a collective bargaining agreement that does not specifically provide for coverage under the Plan

(d) a nonresident alien who does not receive United States source income

(e) any Leased Employee, as defined below

For purposes of this definition, a “Limited Term Employee” means any employee whose employment is on a temporary basis and who is classified as a limited term employee or a co-op employee in accordance with the records of his Employer. Any individual who is not treated by an Employer as a common law employee of the Employer shall be excluded from Plan participation even if a court or administrative agency determines that such individual is a common law employee and not an independent contractor, unless and until the Employer extends coverage to such individual.

Notwithstanding any other provision of the Plan to the contrary, a Leased Employee working for an Employer or a Related Company (other than an “excludable leased employee”) shall be considered an employee of such Employer or Related Company for purposes of Code Sections 401(a)(3), (4), (7) and (16), and 408 (k), 410, 411, 415, and 416, but shall not be considered an Employee eligible to participate in the Plan.

A “Leased Employee” means any person who performs services for an Employer or a Related Company (the “recipient”) (other than an employee of the “recipient”) pursuant to an agreement between the “recipient” and any other person (the “leasing organization”) on a substantially full-time basis for a period of at least one year, provided that such services are performed under primary direction of or control by the “recipient”. An “excludable leased employee” means any “leased employee” of the “recipient” who is covered by a money purchase pension plan maintained by the “leasing organization” which provides for (i) a nonintegrated employer contribution on behalf of each participant in the plan equal to at least ten percent of compensation, as defined in Code Section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee’s gross income under Code Sections 125, 132(f)(4), 402(e)(3), 402(h) or 403(b), (ii) full and immediate vesting, and (iii) immediate participation by employees of the “leasing organization” (other than employees who perform substantially all of their services for the “leasing organization” or whose compensation from the “leasing organization” in each plan year during the four-year period ending with the plan year is less than $1,000); provided, however, that “leased employees” do not constitute more than 20 percent of the “recipient's” nonhighly compensated work force. For purposes of this Section, contributions or benefits provided to a “leased employee” by the “leasing organization” that are attributable to services performed for the “recipient” shall be treated as provided by the “recipient”.

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An “Employee Contribution”, as used in Article VII, means any employee after-tax contribution allocated to an Eligible Employee's account under any qualified plan of an Employer or a Related Company.

An “Employer” means the Sponsor and any Related Entity which has adopted the Plan as may be provided under Article XX.

An “Employer Contribution” means the amount, if any, that an Employer contributes to the Plan as may be provided under Article VI or Article XXII.

An “Enrollment Date” means each business day of the Plan Year.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time and regulations promulgated thereunder. Reference to a section of ERISA includes such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section.

An “Excess Contribution”, as used in Article VII, means any contribution made to the Plan on behalf of a Participant that exceeds one of the limitations described in this Article.

An “Excess Deferral”, as used in Article VII, with respect to a Participant means that portion of a Participant's Tax-Deferred Contributions for his taxable year that, when added to amounts deferred for such taxable year under other plans or arrangements described in Code Section 401(k), 408(k), or 403(b) (other than any such plan or arrangement that is maintained by an Employer or a Related Company), would exceed the dollar limit imposed under Code Section 402(g) as in effect on January 1 of the calendar year in which such taxable year begins and is includible in the Participant's gross income under Code Section 402(g).

The “Gap Period”, as used in Article VII, means the period between the close of the Plan Year in which Excess Contributions were made and the date the contributions are distributed.

The “General Fund” means a Trust Fund maintained by the Trustee as required to hold and administer any assets of the Trust that are not allocated among any separate Investment Funds as may be provided in the Plan or the Trust Agreement. No General Fund shall be maintained if all assets of the Trust are allocated among separate Investment Funds.

A “Highly Compensated Employee” means any Employee or former Employee who is a “highly compensated active employee” or a “highly compensated former employee” as defined hereunder.

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A “highly compensated active employee” includes any Employee who performs services for an Employer or any Related Company during the Plan Year and who (i) was a five percent owner at any time during the Plan Year or the “Look Back Year” or (ii) received “Total Compensation” from the Employers and Related Companies during the “Look Back Year” in excess of $80,000, $100,000 for the 2007 Plan Year (subject to adjustment annually at the same time and in the same manner as under Code Section 415(d)) and was in the top paid group of employees for the “Look Back Year”. An Employee is in the top paid group of employees if he is in the top 20 percent of the employees of his Employer and all Related Companies when ranked on the basis of compensation paid during the “Look Back Year”.

A “highly compensated former employee” includes any Employee who (1) separated from service from an Employer and all Related Companies (or is deemed to have separated from service from an Employer and all Related Companies) prior to the Plan Year, (2) performed no services for an Employer or any Related Company during the Plan Year, and (3) was a “highly compensated active employee” for either the separation year or any Plan Year ending on or after the date the Employee attains age 55, as determined under the rules in effect under Code Section 414(q) for such year.

The determination of who is a Highly Compensated Employee hereunder, including determinations as to the number and identity of employees in the top paid group, shall be made in accordance with the provisions of Code Section 414(q) and regulations issued thereunder.

For purposes of this definition, the following terms have the following meanings:

(a) An employee's “Total Compensation” means compensation as defined in Code Section 415(c)(3) and regulations issued thereunder.

(b) The “Look Back Year” means the 12-month period immediately preceding the Plan Year.

An “Hour of Service” with respect to a Employee means each hour, if any, that may be credited to him in accordance with the provisions of Article II.

The “Investment Committee” means the Plan committee with the powers and duties set forth in Article XVIII.

An “Investment Fund” means any separate investment Trust Fund maintained by the Trustee as may be provided in the Plan or the Trust Agreement or any separate investment fund maintained by the Trustee, to the extent that there are Participant Sub-Accounts under such funds, to which assets of the Trust may be allocated and separately invested.

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A “Key Employee”, as used in Article XXII, means any Employee or former Employee who is a Key Employee pursuant to the provisions of Code Section 416(i)(1) and any Beneficiary of such Employee or former Employee.

A “Limitation Year”, as used in Article VI, means the Plan Year.

A “Matching Contribution” means any Employer Contribution made to the Plan on account of a Participant's Tax-Deferred Contributions as provided in Article VI.

A “Money Purchase Contribution” means any employer contribution made to the Tellabs Retirement Plan, other than for Retiree Medical Contributions that was spun off and transferred to the Plan effective April 1, 2006. All Money Purchase Contributions were made prior to July 1, 2003.

A “Non-key Employee”, as used in Article XXII, means any Employee who is not a Key Employee.

The “Normal Retirement Date” of an employee means the date he attains age 65.

A “Participant” means any Employee or former Employee who has an Account in the Trust.

A “Permissive Aggregation Group”, as used in Article XXII, means those plans included in each Employer's Required Aggregation Group together with any other plan or plans of the Employer, so long as the entire group of plans would continue to meet the requirements of Code Sections 401(a)(4) and 410.

The “Plan” means the Tellabs 401(k) Plan, as from time to time in effect.

A “Plan Year” means the 12-consecutive-month period ending each December 31.

A “Prior Employer Contribution” means any employer contribution (excluding elective deferrals, as defined in Section 7.1) made to one of the following plans prior to its merger into the Plan: (i) the Coherent Communications Systems Corporation Savings Incentive Plan; (ii) the Ocular Networks, Inc. 401(k) Plan; (iii) the Salix Technologies, Inc. 401(k) Plan; (iv) Vivace Networks Inc. 401(k) Retirement plan, (v) Advanced Fibre Communications 401(k) Savings plan and (vi) Vinci Systems, Inc. 401(k) Profit Sharing Plan.

A “Profit-Sharing Contribution” means the Profit Sharing Contribution made to the Plan prior to July 1, 2003 in accordance with provisions of the Plan that are no longer in effect.

The “QNEC Limit”, as used in Article VII, means the product of an Eligible Employee's Test Compensation for the Plan Year multiplied by the greater of 5% or two times the Plan's “representative contribution rate”. If the Plan provides for Matching

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Contributions and/or After-Tax Contributions, the QNEC Limit will be applied separately in allocating Qualified Nonelective Contributions that may be included in calculating an Eligible Employee's Deferral Percentage and his Contribution Percentage.

The Plan's “representative contribution rate” is the lowest “applicable contribution rate” of any Eligible Employee who is not a Highly Compensated Employee for the Plan Year in either (i) the group consisting of half of all Eligible Employees who are not Highly Compensated Employees for the Plan Year or (ii) the group of all Eligible Employees who are not Highly Compensated Employees for the Plan Year and who are employed by the Employer or a Related Company on the last day of the Plan Year, whichever results in the greater amount.

An Eligible Employee's “applicable contribution rate” for purposes of allocating Qualified Nonelective Contributions that may be included in calculating his Deferral Percentage means (i) the Qualified Nonelective Contributions allocated to the Eligible Employee for the Plan Year (excluding any Qualified Nonelective Contributions that are included in calculating his Contribution Percentage for the Plan Year) (ii) divided by the Eligible Employee's Test Compensation for the Plan Year. An Eligible Employee's “applicable contribution rate” for purposes of allocating Qualified Nonelective Contributions that may be included in calculating his Contribution Percentage means (i) the sum of the Eligible Employee's Matching Contributions included in calculating his Contribution Percentage for the Plan Year and the Qualified Nonelective Contributions allocated to the Eligible Employee for the Plan Year (excluding any Qualified Nonelective Contributions that are included in calculating his Deferral Percentage for the Plan Year) (ii) divided by the Eligible Employee's Test Compensation for the Plan Year.

A “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 Participant’s benefits payable hereunder and meets the requirements of Code Section 414(p).

A “Qualified Joint and Survivor Annuity” means, for a married Participant with a Money Purchase Contribution Sub-Account, an immediate annuity payable at earliest retirement age under the Plan, as defined in regulations issued under Code Section 401(a)(11), that is payable (i) for the life of a Participant, if the Participant is not married, or (ii) for the life of a Participant with a survivor annuity payable for the life of the Participant's spouse that is equal to 50 percent, of the amount of the annuity payable during the joint lives of the Participant and his spouse, if the Participant is married. No survivor annuity shall be payable to the Participant's spouse under a Qualified Joint and Survivor Annuity if such spouse is not the same spouse to whom the Participant was married on his Benefit Payment Date. The Qualified Joint and Survivor Annuity shall be the actuarial equivalent of a Participant’s vested Money Purchase Contribution Sub-Account balance.

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A “Qualified Nonelective Contribution” means any Employer Contribution made to the Plan as provided in Article VI that is allocated to an Eligible Employee's account under any plan of an Employer or a Related Company that the Participant could not elect instead to receive in cash, that is a qualified nonelective contribution as defined in Code Sections 401(k) and 401(m) and regulations issued thereunder, is nonforfeitable when made, and is distributable only as permitted in regulations issued under Code Section 401(k) and may be taken into account to satisfy the limitations on Tax-Deferred Contributions and/or Matching Contributions made by or on behalf of Highly Compensated Employees under Article VII.

A “Qualified Preretirement Survivor Annuity” means an annuity for a Participant with a Money Purchase Contribution Sub-Account payable for the life of a Participant's surviving spouse if the Participant dies prior to his Benefit Payment Date.

A “Related Company” means any corporation or business, other than an Employer, which is a member of the same Control Group as that is defined under Code Section 414.

A “Required Aggregation Group”, as used in Article XXII, means the group of tax-qualified plans maintained by an Employer or a Related Company consisting of each plan in which a Key Employee participates and each other plan that enables a plan in which a Key Employee participates to meet the requirements of Code Section 401(a)(4) or Code Section 410, including any plan that terminated within the five-year period ending on the relevant Determination Date.

A Participant's “Required Beginning Date” means the following:

(a) for a Participant who is not a “Five Percent Owner”, April 1 of the calendar year following the calendar year in which occurs the later of the Participant's (i) attainment of age 70  ¹/2 or (ii) Settlement Date.

(b) for a Participant who is a “Five Percent Owner”, April 1 of the calendar year following the calendar year in which the Participant attains age 70  ¹/2.

A Participant is a “Five Percent Owner” if he is a five percent owner, as defined in Code Section 416(i) and determined in accordance with Code Section 416, but without regard to whether the Plan is top-heavy, for the Plan Year ending with or within the calendar year in which the Participant attains age 70  ¹/2. The Required Beginning Date of a Participant who is a “Five Percent Owner” hereunder shall not be redetermined if the Participant ceases to be a five percent owner as defined in Code Section 416(i) with respect to any subsequent Plan Year.

A “Rollover Contribution” means any rollover contribution to the Plan made by a Participant as may be permitted under Article V.

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“Service” means the period credited to an Eligible Employee or Participant for purposes of determining the level of a Participant’s nonforfeitable benefits under the Tellabs Retirement Program. A Participant’s or Eligible Employee’s Service shall be the period beginning on his Employment Commencement Date (or Re-employment Commencement Date, if applicable) and ending on his Termination Date, computed in accordance with the following rules:

(a) Special Definitions.

(i) “Employment Commencement Date” means the date an employee first performs an Hour of Service.

(ii) “Termination Date” means the earlier of:

(A) The date on which an employee quits, retires, is discharged or dies; or

(B) The first anniversary of the first day of a period in which an employee remains absent from service (with or without pay) for any reason other than a quit, retirement, discharge or death, such as vacation, holiday, sickness, disability, leave of absence or layoff, except that this clause (B) shall not apply to an employee on leave of absence for service in the United States armed forces or the Family and Medical Leave Act of 1993.

(iii) “Re-employment Commencement Date” means the date on which an employee first performs an Hour of Service following a Period of Severance.

(iv) “Period of Severance” means the period beginning on an employee’s Termination Date and ending on his Re-employment Commencement Date.

(v) “Year of Service” means each full year (on the basis that 365 days equal a full year) in the employee’s period of Service.

(b) Aggregation Rule. All of an employee’s periods of Service with any Affiliate shall be aggregated on the basis that 365 days equal a full year, except that if an employee has a Period of Severance of five years or more:

(i) The prior period of Service shall be disregarded unless (A) his Retirement Account was nonforfeitable at the time the Period of Severance began or (B) the Period of Severance is less than the prior period of Service, and

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(ii) Any period of Service after such Period of Severance shall be disregarded in determining the vested percentage of his Retirement Account which accrued before the Period of Severance.

(c) Service Spanning Rule. If an employee’s Re-employment Commencement Date occurs within 12 months after his Termination Date, his Service shall include the intervening Period of Severance.

(d) Service with Predecessor and Related Employers. An employee’s period of service,

(i) with another employer before the acquisition of that employer’s business by the Employer shall, to the extent provided in the agreement pertaining to such acquisition or as approved by the Board of Directors, be included in his Service to the same extent as if such service was performed for the Employer, provided however, that in no event shall any service prior to January 6, 1975 be deemed Service hereunder; and

(ii) with any employer while such employer is an Affiliate shall be included in his Service to the same extent as if such service was performed for the Employer, provided however, that in no event shall any service prior to January 6, 1975 be deemed Service hereunder.

(e) Recognition of Services under Salix Plan and Coherent Plan. Solely with respect to former Salix Participants, Coherent Participants and Ocular Participants, each such Participant’s period of service shall include such period or periods of employment previously credited to that Participant under the Salix Plan, Coherent Plan or Ocular Plan, as applicable; provided, however, that in no event shall any service prior to January 6, 1975 be deemed Service hereunder.

The “Settlement Date” of a Participant means the date on which a Participant's interest under the Plan becomes distributable in accordance with Article XIV because he is no longer an Employee due to separation from service for any reason, voluntary or involuntary.

A “Single Life Annuity” means an annuity payable for the life of a Participant who has Money Purchase Contribution Sub-Account. Such annuity shall have an actuarial value equal to at least the balance of such Participant’s Money Purchase Contribution Sub-Account.

The “Sponsor” means Tellabs Operations, Inc., its predecessor, or any successor thereto which acquires substantially all of its assets.

A “Sub-Account” means any of the individual sub-accounts of a Participant's Account that is maintained as provided in Article VIII.

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A “Super Top-heavy Group”, as used in Article XXII, with respect to a particular Plan Year means a Required or Permissive Aggregation Group that, as of the Determination Date, would qualify as a “Super Top-heavy Group” under the definition in this Section with “90 percent” substituted for “60 percent” each place where “60 percent” appears in the definition.

A “Super Top-heavy Plan”, as used in Article XXII, with respect to a particular Plan Year means a plan that, as of the Determination Date, would qualify as a Top-heavy Plan under the definition in this Section with “90 percent” substituted for “60 percent” each place where “60 percent” appears in the definition. A plan is also a “Super Top-heavy Plan” if it is part of a Super Top-heavy Group.

A “Tax-Deferred Contribution” means the amount contributed to the Plan on a Participant's behalf by his Employer in accordance with Article IV.

The “Tellabs Stock Fund” is the Fund described in Section 8.2.

The “Test Compensation” of an Eligible Employee or Eligible Participant for a Plan Year, as used in Article VII, means compensation as defined in Code Section 414(s) and regulations issued thereunder, limited, however, to $150,000 (subject to adjustment annually as provided in Code Sections 401(a)(17)(B) and 415(d); provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year) and, if elected by the Sponsor, further limited solely to Test Compensation of an Employee attributable to periods of time when he is an Eligible Employee or Eligible Participant. If the Test Compensation of an Eligible Employee or Eligible Participant is determined over a period of time that contains fewer than 12 calendar months, then the annual compensation limitation described above shall be adjusted with respect to that Eligible Employee or Eligible Participant by multiplying the annual compensation limitation in effect for the Plan Year by a fraction of the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is required for an Eligible Employee or Eligible Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Compensation for a period of at least 12 months.

The “Testing Year”, as used in Article VII, means the Plan Year for which the limitations on Deferral Percentages and Contribution Percentages of Highly Compensated Employees are being determined.

For Plan Years prior to the effective date of this amendment and restatement, the limitations on Deferral Percentages and Contribution Percentages of Highly Compensated Employees were determined using the Plan Year immediately preceding the Plan Year for which the limitations were being determined as the Testing Year. The prior Plan Year was the Testing Year for the following Plan Year(s): prior to 2004.

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The “Top heavy Compensation” of an employee, as used in Article XXII, means compensation as defined in Code Section 415 and regulations issued thereunder. In no event, however, shall the Top Heavy compensation of a Participant taken into account under the Plan for any Plan Year exceed $150,000 (subject to adjustment annually as provided in Code Sections 401(a)(17)(B) and 415(d); provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year). If the Top Heavy compensation of a Participant is determined over a period of time that contains fewer than 12 calendar months, then the annual Top Heavy compensation limitation described above shall be adjusted with respect to that Participant by multiplying the annual Top Heavy compensation limitation in effect for the Plan Year by a fraction of the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is “required” for a Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Top Heavy compensation for a period of at least 12 months.

A “Top-heavy Group”, as used in Article XXII, with respect to a particular Plan Year means a Required or Permissive Aggregation Group if the sum, as of the Determination Date, of the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans included in such group and the aggregate of the account balances of Key Employees under all defined contribution plans included in such group exceeds 60 percent of a similar sum determined for all employees covered by the plans included in such group.

A “Top-heavy Plan”, as used in Article XXII, with respect to a particular Plan Year means (i), in the case of a defined contribution plan (including any simplified employee pension plan), a plan for which, as of the Determination Date, the aggregate of the accounts (within the meaning of Code Section 416(g) and the regulations and rulings thereunder) of Key Employees exceeds 60 percent of the aggregate of the accounts of all participants under the plan, with the accounts valued as of the relevant valuation date and increased for any distribution of an account balance made in the five-year period ending on the Determination Date, (ii), in the case of a defined benefit plan, a plan for which, as of the Determination Date, the present value of the cumulative accrued benefits payable under the plan (within the meaning of Code Section 416(g) and the regulations and rulings thereunder) to Key Employees exceeds 60 percent of the present value of the cumulative accrued benefits under the plan for all employees, with the present value of accrued benefits for employees (other than Key Employees) to be determined under the accrual method uniformly used under all plans maintained by an Employer or, if no such method exists, under the slowest accrual method permitted under the fractional accrual rate of Code Section 411(b)(1)(C) and including the present value of any part of any accrued benefits distributed in the five-year period ending on the Determination Date, and (iii) any plan (including any simplified employee pension plan) included in a Required Aggregation Group that is a Top-heavy Group. For purposes of this paragraph, the accounts and accrued benefits of any employee who has not performed services for an Employer or a Related Company during the five-year period ending on the Determination Date shall be

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disregarded. For purposes of this paragraph, the present value of cumulative accrued benefits under a defined benefit plan for purposes of top-heavy determinations shall be calculated using the actuarial assumptions otherwise employed under such plan, except that the same actuarial assumptions shall be used for all plans within a Required or Permissive Aggregation Group. A Participant's interest in the Plan attributable to any Rollover Contributions, except Rollover Contributions made from a plan maintained by an Employer or a Related Company, shall not be considered in determining whether the Plan is top-heavy. Notwithstanding the foregoing, if a plan is included in a Required or Permissive Aggregation Group that is not a Top-heavy Group, such plan shall not be a Top-heavy Plan.

A “True Up Matching Contribution” means any Matching Contribution made to the Plan for a Plan Year that when aggregated with the Matching Contributions made on a Participant's behalf for the Plan Year will provide Matching Contributions at the maximum rate specified in the Plan taking into account the Participant's Tax-Deferred Contributions and Compensation for the full Plan Year.

The “Trust” means the trust established under the direction of the Investment Committee including without limitation custodial accounts, annuity contracts, or insurance contracts maintained by the Trustee under the Trust Agreement.

The “Trust Agreement” means any agreement or agreements entered into between the Sponsor and the Trustee relating to the holding, investment, and reinvestment of the assets of the Plan, together with all amendments thereto and shall include any agreement establishing a custodial account, an annuity contract, or an insurance contract (other than a life, health or accident, property, casualty, or liability insurance contract) for the investment of assets if the custodial account or contract would, except for the fact that it is not a trust, constitute a qualified trust under Code Section 401.

The “Trustee” means the trustee or any successor trustee designated by the Investment Committee which at the time shall be designated, qualified, and acting under the Trust Agreement and shall include any insurance company that issues an annuity or insurance contract pursuant to the Trust Agreement or any person holding assets in a custodial account pursuant to the Trust Agreement. The Sponsor may designate a person or persons other than the Trustee to perform any responsibility of the Trustee under the Plan, other than trustee responsibilities as defined in ERISA Section 405(c)(3), and the Trustee shall not be liable for the performance of such person in carrying out such responsibility except as otherwise provided by ERISA. The term Trustee shall include any delegate of the Trustee as may be provided in the Trust Agreement.

A “Trust Fund” means any fund maintained under the Trust by the Trustee.

A “Valuation Date” means the date or dates the market is open designated by the Sponsor and communicated in writing to the Trustee for the purpose of valuing the General Fund and each Investment Fund and adjusting Accounts and Sub-Accounts hereunder,

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which dates need not be uniform with respect to the General Fund, each Investment Fund, Account, or Sub-Account; provided, however, that the General Fund and each Investment Fund shall be valued and each Account and Sub-Account shall be adjusted no less often than once quarterly. The “valuation date” with respect to any Determination Date as used in Article XXII means the most recent Valuation Date occurring within the 12-month period ending on the Determination Date.

The “Vesting Service” of an employee means the period or periods of service credited to him under the provisions of Article II for purposes of determining his vested interest in his Employer Contributions Sub-Account, if Employer Contributions are provided for under either Article VI or Article XXII.

1.2 Interpretation

Where required by the context, the noun, verb, adjective, and adverb forms of each defined term shall include any of its other forms. Wherever used herein, the masculine pronoun shall include the feminine, the singular shall include the plural, and the plural shall include the singular.

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ARTICLE II

SERVICE

2.1 Crediting of Hours of Service

An Employee shall be credited with an Hour of Service for each hour for which he is paid, or entitled to payment, for the performance of duties for an Employer, a Predecessor Employer, or any Related Company. Hours of Service shall not be credited for employment with a corporation or business prior to January 6, 1975.

2.2 Eligibility Service

Because there are no Eligibility Service requirements to participate in the Plan, there shall be no Eligibility Service credited under the Plan.

2.3 Vesting Service

Because contributions to the Plan are always 100 percent vested, there shall be no Vesting Service credited under the Plan.

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ARTICLE III

ELIGIBILITY

3.1 Eligibility

Each person who was a Participant on March 31, 2006 shall continue as such under this restatement and amendment, subject to the provisions of the Plan.

Each Employee who was an Eligible Employee immediately prior to January 1, 2007 shall continue to be an Eligible Employee on January 1, 2007. Each other Employee shall become an Eligible Employee as of the Enrollment Date coinciding with or next following the date on which he has attained age 18. A person who has already attained age 18 prior to becoming an Employee shall become an Eligible Employee as of the Enrollment Date coinciding with or next following the date he becomes an Employee.

3.2 Transfers of Employment

If a person is transferred directly from employment with an Employer or with a Related Company in a capacity other than as an Employee to employment as an Employee, he shall become an Eligible Employee as of the date he is so transferred if prior to an Enrollment Date coinciding with or preceding such transfer date he has met the eligibility requirements of Section 3.1. Otherwise, the eligibility of a person who is so transferred to participate in the Plan shall be determined in accordance with Section 3.1.

3.3 Reemployment

If a person who terminated employment with an Employer and all Related Companies is reemployed as an Employee and if he had been an Eligible Employee prior to his termination of employment, he shall again become an Eligible Employee on the date he is reemployed. Otherwise, the eligibility of a person who terminated employment with an Employer and all Related Companies and who is reemployed by an Employer or a Related Company to participate in the Plan shall be determined in accordance with Section 3.1 or 3.2.

3.4 Notification Concerning New Eligible Employees

Each Employer shall notify the Administrator as soon as practicable of Employees becoming Eligible Employees as of any date.

3.5 Persons from Acquired Employers

Persons who become Employees because they are employed by Acquired Employers will become Eligible Employees on the later of (a) the date indicated in the acquisition agreement or (b) the date designated by the Administrator.

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3.6 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 3.6 must be granted in writing and pursuant to the Employer’s established leave policy, which shall be administered in a uniform and nondiscriminatory manner to similarly situated employees.

3.7 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).

3.8 Effect and Duration

Upon becoming an Eligible Employee, an Employee shall be entitled to make Tax-Deferred Contributions to the Plan in accordance with the provisions of Article IV and receive allocations of Employer Contributions in accordance with the provisions of Article VI (provided he meets any applicable requirements thereunder) and shall be bound by all the terms and conditions of the Plan. A person shall continue as an Eligible Employee eligible to make Tax-Deferred Contributions to the Plan and to participate in allocations of Employer Contributions only so long as he continues employment as an Employee.

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ARTICLE IV

TAX-DEFERRED CONTRIBUTIONS

4.1 Tax-Deferred Contributions

Effective as of the date he becomes an Eligible Employee, each Eligible Employee may elect, in accordance with rules prescribed by the Administrator, to have Tax-Deferred Contributions made to the Plan on his behalf by his Employer as hereinafter provided on any Enrollment Date. An Eligible Employee's election shall include his authorization for his Employer to reduce his Compensation and to make Tax-Deferred Contributions on his behalf to such Eligible Employee’s Tax-Deferred Contributions Sub-Account. An Eligible Employee who elects to have Tax-Deferred Contributions made to the Plan may change his election by amending his reduction authorization as prescribed in Section 4.3 of this Article IV on any Enrollment Date. An Eligible Employee is responsible for verifying the Tax Deferred Contributions made (or not made) by the Employer are consistent with his contribution election.

Tax-Deferred Contributions on behalf of an Eligible Employee shall commence as soon as administratively practicable on or after the Enrollment Date on which his election is effective.

4.2 Amount of Tax-Deferred Contributions

The amount of Tax-Deferred Contributions to be made to the Plan on behalf of an Eligible Employee by his Employer shall be an integral percentage of his Compensation of not less than 1 percent nor more than 50 percent. In the event an Eligible Employee elects to have his Employer make Tax-Deferred Contributions on his behalf, his Compensation shall be reduced for each payroll period by the percentage he elects to have contributed on his behalf to the Plan in accordance with the terms of his currently effective reduction authorization until he meets the compensation limit in Code Sections 401(a)(17)(B) and 415(d) ($225,000 for the 2007 Plan Year); or dollar limitation in effect under Code Section 402(g) for such Plan Year ($15,500 for the 2007 Plan Year). If an Eligible Employee’s Tax-Deferred Contribution is stopped as a result of meeting such dollar limit, his Tax-Deferred Contributions will resume at the same elected percentage as of the first payroll period of the next Plan Year. In no event shall an Eligible Employee’s Tax-Deferred Contributions during any Plan Year exceed the dollar limitation in effect under the Section 402(g) for such Plan Year as established at the beginning of such Plan Year.

Contributions made under Section 1.1 (Qualified Military Service) shall be subject to such limitation for the year to which they relate instead of the year they are actually made

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4.3 Amendments to Reduction Authorization

An Eligible Employee may elect, in the manner prescribed by the Administrator, to change the amount of his future Compensation that his Employer contributes on his behalf as Tax-Deferred Contributions on any Enrollment Date. An Eligible Employee may amend his reduction authorization on any Enrollment Date. An Eligible Employee who amends his reduction authorization shall be limited to selecting an amount of his Compensation that is otherwise permitted under this Article IV. Tax-Deferred Contributions shall be made on behalf of such Eligible Employee by his Employer pursuant to his properly amended reduction authorization commencing with Compensation paid to the Eligible Employee as soon as administratively practicable after the date such amendment is received by Administrator, until otherwise altered or terminated in accordance with the Plan.

4.4 Suspension of Tax-Deferred Contributions

An Eligible Employee on whose behalf Tax-Deferred Contributions are being made may elect, in the manner prescribed by the Administrator, to have such contributions suspended at any time by submitting a reduction authorization changing his contribution election to zero on any Enrollment Date. Any such voluntary suspension shall take effect commencing with Compensation paid to such Eligible Employee as soon as administratively practicable after the Administrator’s receipt of such reduction authorization and shall remain in effect until Tax-Deferred Contributions are resumed as hereinafter set forth.

4.5 Resumption of Tax-Deferred Contributions

An Eligible Employee who has voluntarily suspended his Tax-Deferred Contributions may elect to have such contributions resumed by submitting a reduction authorization changing his contribution election. An Eligible Employee may make such election on any Enrollment Date. Any new election shall take effect commencing with Compensation paid to such Eligible Employee as soon as administratively practicable after the Administrator’s receipt of such reduction authorization.

4.6 Delivery of Tax-Deferred Contributions

As soon after the date an amount would otherwise be paid to an Eligible Employee as it can reasonably be separated from Employer assets, each Employer shall cause to be delivered to the Trustee in cash all Tax-Deferred Contributions attributable to such amounts to such Eligible Employee’s Tax-Deferred Contributions Sub-Account.

In no event shall an Employer deliver Tax-Deferred Contributions to the Trustee on behalf of an Eligible Employee prior to the date the Eligible Employee performs the services with respect to which the Tax-Deferred Contribution is being made, unless such pre-funding is to accommodate a bona fide administrative concern and is not for the principal purpose of accelerating deductions.

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4.7 Vesting of Tax-Deferred Contributions

A Participant's vested interest in his Tax-Deferred Contributions Sub-Account shall be at all times 100 percent.

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ARTICLE V

AFTER-TAX AND ROLLOVER CONTRIBUTIONS

5.1 After-Tax Contributions

Eligible Employees are not currently permitted to make After-Tax Contributions to the Plan. However, the Plan includes assets attributable to After-Tax Contributions made to the Plan prior to January 1, 1994. Such past After-Tax Contributions will be in an Eligible Employee’s After-Tax Contributions Sub-Account.

5.2 Rollover Contributions

An Employee who was a participant in a plan qualified under Code Section 401 and who receives (or is eligible to receive) a cash distribution from such plan that he elects to roll over immediately to a qualified retirement plan may elect to make a Rollover Contribution to the Plan if he is entitled under Code Section 402(c) or 408(d)(3)(A) to roll over such distribution to another qualified retirement plan. The Administrator may require an Employee to provide it with such information as it deems necessary or desirable to show that he is entitled to roll over such distribution to another qualified retirement plan. An Employee shall make a Rollover Contribution to the Plan by delivering, or causing to be delivered, to the Trustee the cash that constitutes the Rollover Contribution amount. If the Employee received a cash distribution that he is rolling over, such delivery must be made within 60 days of receipt of the distribution from the plan in the manner prescribed by the Administrator. Any Rollover permitted under the provisions of this Section will be held in an Eligible Employee’s Rollover Contributions Sub-Account. If the Administrator determines after a Rollover Contribution has been made that such Rollover Contribution did not in fact meet the requirements for a Rollover set forth in the Plan, the amount of such Rollover Contribution and any earnings thereon shall be returned to the Employee.

5.3 Vesting of After-Tax Contributions and Rollover Contributions

A Participant's vested interest in his After-Tax Contributions Sub-Account and his Rollover Contributions Sub-Account shall be at all times 100 percent.

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ARTICLE VI

EMPLOYER CONTRIBUTIONS

6.1 Employer Contributions

Subject to the right reserved to the Sponsor 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:

(a) The Tax-Deferred Contribution for each Eligible Employee who elects to defer;

(b) The Matching Contribution for each Eligible Employee who elects to defer;

(c) The Discretionary Contribution (if approved by the Board of Directors) and

(d) Qualified Nonelective Contributions (if necessary).

6.2 Contribution Period

The Contribution Periods for Employer Contributions shall be as follows:

(a) The Contribution Period for Matching Contributions is each payroll period.

(b) The Contribution Period for Qualified Nonelective Contributions under the Plan is each Plan Year.

(c) The Contribution Period for purposes of allocating Discretionary Contributions under the Plan is each Plan Year.

6.3 Discretionary Contributions

Each Plan Year an Employer may, in its discretion, make a Discretionary Contribution to the Plan for the Contribution Period in a percentage of Compensation determined by the Board of Directors of the Sponsor, if any.

6.4 Allocation of Discretionary Contributions

Any Discretionary Contribution made by an Employer for a Contribution Period shall be allocated among its Eligible Employees during the Contribution Period who have met the allocation requirements for Discretionary Contributions described in this Article. Each Eligible Employee shall receive the designated percentage of Compensation approved by the Sponsor’s Board of Directors.

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Notwithstanding any other provision of the Plan to the contrary, Compensation earned by an Eligible Employee during a Contribution Period, but prior to the date on which the Employee first became an Eligible Employee shall be excluded in determining the Eligible Employee's allocable share of any Discretionary Contribution made for the Contribution Period.

An Employer may designate any portion or all of its Discretionary Contributions as a Qualified Nonelective Contribution; provided, however, that in no event shall the amount designated as a Qualified Nonelective Contribution hereunder, when combined with any separate Qualified Nonelective Contribution made under the terms of the Plan, exceed the QNEC Limit defined in Section 1.1. Amounts that are designated as Qualified Nonelective Contributions shall be accounted for separately and may be withdrawn only as permitted under the Plan.

6.5 Qualified Nonelective Contributions

Each Employer may, in its discretion, make a Qualified Nonelective Contribution to the Plan for the Contribution Period in an amount determined by the Administrator.

6.6 Allocation of Qualified Nonelective Contributions

Any discretionary Qualified Nonelective Contribution made by an Employer for the Contribution Period shall be allocated among its Eligible Employees during the Contribution Period who have met the allocation requirements for Qualified Nonelective Contributions described below. The allocable share of each such Eligible Employee in the Qualified Nonelective Contribution shall be a percentage, which need not be uniform with respect to each such Eligible Employee, of his Test Compensation for the Contribution Period. The Employer may designate those Eligible Employees on whose behalf it will make a Qualified Nonelective Contribution. In no event shall the allocable share of an Eligible Employee in the Qualified Nonelective Contribution exceed the QNEC Limit described in Section 1.1.

An individual shall be eligible to receive an allocation of Qualified Nonelective Contributions hereunder if he is an Eligible Employee during the Plan Year and he is not a Highly Compensated Employee for the Plan Year.

6.7 Amount and Allocation of Matching Contributions

Each Employer shall make a Matching Contribution on behalf of each of its Eligible Employees during the Contribution Period who has made Tax-Deferred Contributions for such Contribution Period. The amount of the Matching Contribution shall be equal to 100 percent of the first 4 percent of the Eligible Employee's Compensation that he contributes to the Plan as Tax-Deferred Contributions.

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Notwithstanding any other provision of the Plan to the contrary, Compensation earned by an Eligible Employee during the Contribution Period, but prior to the date on which the Employee first became an Eligible Employee shall be excluded in determining the amount of the Matching Contribution made on behalf of such Eligible Employee.

Also, Matching Contributions shall be made with respect to an Eligible Employee's Catch-Up Contributions (as described in Code Section 414(v) and outlined in the separate EGTRRA Compliance Amendment) to the Plan provided that such Catch-Up Contributions do not exceed the Compensation limitation on Tax-Deferred Contributions matched under the formula.

6.8 True Up Matching Contributions

At the end of a Plan Year, an Employer shall make a True Up Matching Contribution on behalf of each of its Eligible Employees during such Plan Year who has met the allocation requirements for True Up Matching Contributions described in this Article. Such True Up Matching Contribution shall be in the amount which, when aggregated with the Matching Contributions made with respect to Contribution Periods within such Plan Year, will provide the maximum Matching Contribution specified above with respect to the Eligible Employee's Tax-Deferred Contributions and Compensation for the full Plan Year.

6.9 Verification of Amount of Employer Contributions by the Sponsor

The Administrator shall verify the amount of Employer Contributions to be made by each Employer in accordance with the provisions of the Plan. Notwithstanding any other provision of the Plan to the contrary, the Administrator shall determine the portion of the Employer Contribution to be made by each Employer with respect to an Employee who transfers from employment with one Employer as an Employee to employment with another Employer as an Employee.

6.10 Payment of Employer Contributions

Employer Contributions made for a Contribution Period shall be paid in cash to the Trustee within the period of time required under the Code in order for the contribution to be deductible by the Employer in determining its Federal income taxes for the Plan Year. In no event, however, shall the Matching Contribution with respect to Tax-Deferred Contributions made during a Plan Year quarter be contributed later than the last day of the immediately following Plan Year quarter.

In no event shall an Employer deliver Matching Contributions to the Trustee on behalf of an Eligible Employee prior to the date the Eligible Employee performs the services with respect to which the Matching Contribution is being made, unless such pre-funding is to accommodate a bona fide administrative concern and is not for the principal purpose of accelerating deductions.

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6.11 Allocation Requirements for Employer Contributions

A person who was an Eligible Employee during a Contribution Period shall be eligible to receive an allocation of Discretionary Contributions for such Contribution Period only if he is employed as an Employee on the last day of the Contribution Period.

A person who was an Eligible Employee at any time during a Contribution Period shall be eligible to receive an allocation of Qualified Nonelective Contributions for such Contribution Period.

A person who was an Eligible Employee at any time during a Contribution Period and elected to defer into the Plan shall be eligible to receive an allocation of Matching Contributions for such Contribution Period.

A person who was an Eligible Employee at any time during a Contribution Period and elected to defer into the Plan shall be eligible to receive an allocation of True Up Matching Contributions for such Contribution Period.

6.12 Exceptions to Allocation Requirements for Employer Contributions

Notwithstanding any other provision of the Plan to the contrary, the last day allocation requirement described above shall not apply to a person who terminates employment during the Contribution Period on or after his Normal Retirement Date or because of death or Disability.

6.13 Vesting of Employer Contributions

A Participant's vested interest in his Employer Contributions Sub-Account, including his Money Purchase Contributions, his Profit-Sharing Contributions, and his Prior Employer Contributions Sub-Accounts, if any, shall be at all times 100 percent.

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ARTICLE VII

LIMITATIONS ON CONTRIBUTIONS

7.1 Definitions

For purposes of this Article VII, the definitions of terms used in this Article are found in Section 1.1.

7.2 Code Section 402(g) Limit

In no event shall the amount of the Tax-Deferred Contributions made on behalf of an Eligible Employee for his taxable year, when aggregated with any Elective Contributions made on behalf of the Eligible Employee under any other plan of an Employer or a Related Company for his taxable year, exceed the dollar limit imposed under Code Section 402(g), as in effect on January 1 of the calendar year in which such taxable year begins. In the event that the Administrator determines that the reduction percentage elected by an Eligible Employee will result in his exceeding the Code Section 402(g) limit, the Administrator may adjust the reduction authorization of such Eligible Employee by reducing the percentage of his Tax-Deferred Contributions to such smaller percentage that will result in the Code Section 402(g) limit not being exceeded. If the Administrator determines that the Tax-Deferred Contributions made on behalf of an Eligible Employee would exceed the Code Section 402(g) limit for his taxable year, the Tax-Deferred Contributions for such Participant shall be automatically suspended for the remainder, if any, of such taxable year.

If an Employer notifies the Administrator that the Code Section 402(g) limit has nevertheless been exceeded by an Eligible Employee for his taxable year, the Tax-Deferred Contributions that, when aggregated with Elective Contributions made on behalf of the Eligible Employee under any other plan of an Employer or a Related Company, would exceed the Code Section 402(g) limit, plus any income and minus any losses attributable thereto, shall be distributed to the Eligible Employee no later than the April 15 immediately following such taxable year. Any Tax-Deferred Contributions that are distributed to an Eligible Employee in accordance with this Section shall not be taken into account in determining the Eligible Employee's Deferral Percentage for the Testing Year in which the Tax-Deferred Contributions were made, unless the Eligible Employee is a Highly Compensated Employee.

If an amount of Tax-Deferred Contributions is distributed to a Participant in accordance with this Section, Matching Contributions that are attributable solely to the distributed Tax-Deferred Contributions, plus any income and minus any losses attributable thereto, shall be forfeited by the Participant no earlier than the date on which distribution of Tax-Deferred Contributions pursuant to this Section occurs and no later than the last day of the Plan Year following the Plan Year for which the Matching Contributions were made.

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7.3 Distribution of Excess Deferrals

Notwithstanding any other provision of the Plan to the contrary, if a Participant notifies the Administrator in writing no later than the March 1 following the close of the Participant's taxable year that Excess Deferrals have been made on his behalf under the Plan for such taxable year, the Excess Deferrals, plus any income and minus any losses attributable thereto, shall be distributed to the Participant no later than the April 15 immediately following such taxable year. Any Tax-Deferred Contributions that are distributed to a Participant in accordance with this Section shall nevertheless be taken into account in determining the Participant's Deferral Percentage for the Testing Year in which the Tax-Deferred Contributions were made. If an amount of Tax-Deferred Contributions is distributed to a Participant in accordance with this Section, Matching Contributions that are attributable solely to the distributed Tax-Deferred Contributions, plus any income and minus any losses attributable thereto, shall be forfeited by the Participant no earlier than the date on which distribution of Tax-Deferred Contributions pursuant to this Section occurs and no later than the last day of the Plan Year following the Plan Year for which the Matching Contributions were made.

7.4 Limitation on Tax-Deferred Contributions of Highly Compensated Employees

Notwithstanding any other provision of the Plan to the contrary, the Tax-Deferred Contributions made with respect to a Plan Year on behalf of Eligible Employees who are Highly Compensated Employees may not result in an average Deferral Percentage for such Eligible Employees that exceeds the greater of:

(a) a percentage that is equal to 125 percent of the average Deferral Percentage for all other Eligible Employees for the Testing Year; or

(b) a percentage that is not more than 200 percent of the average Deferral Percentage for all other Eligible Employees for the Testing Year and that is not more than two percentage points higher than the average Deferral Percentage for all other Eligible Employees for the Testing Year, unless the Excess Contributions, determined as provided in Section 7.5, are distributed as provided in Section 7.6.

In order to assure that the limitation contained herein is not exceeded with respect to a Plan Year, the Administrator is authorized to suspend completely further Tax-Deferred Contributions on behalf of Highly Compensated Employees for any remaining portion of a Plan Year or to adjust the projected Deferral Percentages of Highly Compensated Employees by reducing the percentage of their deferral elections for any remaining portion of a Plan Year to such smaller percentage that will result in the limitation set forth above not being exceeded. In the event of any such suspension or reduction, Highly Compensated Employees affected thereby shall be notified of the reduction or suspension as soon as possible and shall be given an opportunity to make a new deferral election to be

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effective the first day of the next following Plan Year. In the absence of such an election, the election in effect immediately prior to the suspension or adjustment described above shall be reinstated as of the first day of the next following Plan Year.

In determining the Deferral Percentage for any Eligible Employee who is a Highly Compensated Employee for the Plan Year, Elective Contributions and Qualified Nonelective Contributions, (to the extent that Qualified Nonelective Contributions are taken into account in determining Deferral Percentages) made to his accounts under any plan of an Employer or a Related Company that is not mandatorily disaggregated pursuant to IRS regulations Section 1.410(b)-7(c), as modified by Section 1.401(k)-1(b)(4) (without regard to the prohibition on aggregating plans with inconsistent testing methods contained in Section 1.401(k)-1(b)(4)((iii)(B) and the prohibition on aggregating plans with different plan years contained in Section 1.410(b)-7(d)(5)), shall be treated as if all such contributions were made to the Plan; provided, however, that if such a plan has a plan year different from the Plan Year, any such contributions made to the Highly Compensated Employee's accounts under the other plan during the Plan Year shall be treated as if such contributions were made to the Plan.

If one or more plans of an Employer or Related Company are aggregated with the Plan for purposes of satisfying the requirements of Code Section 401(a)(4) or 410(b), then Deferral Percentages under the Plan shall be calculated as if the Plan and such one or more other plans were a single plan. Pursuant to Treasury regulations Section 1.401(k)-1(b)(4)(v), an Employer may elect to calculate Deferral Percentages aggregating ESOP and non-ESOP plans. In addition, an Employer may elect to calculate Deferral Percentages aggregating different bargaining units within a bargained plan, provided that such aggregation is done on a reasonable basis and is reasonably consistent from year to year. Plans may be aggregated under this paragraph only if they have the same plan year and utilize the same testing method to satisfy the requirements of Code Section 401(k).

The Administrator shall maintain records sufficient to show that the limitation contained in this Section was not exceeded with respect to any Plan Year and the amount of the Qualified Nonelective Contributions taken into account in determining Deferral Percentages for any Plan Year.

Since the Plan provides that Employees are eligible to make Tax-Deferred Contributions before they have satisfied the minimum age and service requirements under Code Section 410(a)(1) and applies Code Section 410(b)(4)(B) in determining whether the cash or deferred arrangement meets the requirements of Code Section 410(b)(1), the Administrator may apply the limitations on Tax-Deferred Contributions of Highly Compensated Employees described in this Article VII either:

(a) by comparing the average Deferral Percentage of all Eligible Employees who are Highly Compensated Employees for the Plan Year to the average Deferral Percentage for the Testing Year of those Eligible Employees who are not Highly Compensated Employees and who have satisfied the minimum age and service requirements under Code Section 410(a)(1); or

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(b) separately with respect to Eligible Employees who have not satisfied the minimum age and service requirements under Code Section 410(a)(1) and Eligible Employees who have satisfied such minimum age and service requirements.

The Plan documentation includes ADP testing provisions that are applicable for any Plan Year in which the notice requirements described in Code Section 401(k)(12)(D) are not satisfied. Under no circumstance do the ADP testing provisions relieve an Employer from its obligation to make Matching Contributions in accordance with the terms of the Plan. If ADP testing applies because an Employer did not satisfy the notice requirements, as described in (1) above, the Employer is still obligated to make Matching Contributions in accordance with the Plan provisions.

7.5 Determination and Allocation of Excess Tax-Deferred Contributions Among Highly Compensated Employees

Notwithstanding any other provision of the Plan to the contrary, in the event that the limitation on Tax-Deferred Contributions described in Section 7.4 is exceeded in any Plan Year, the Administrator shall determine the dollar amount of the excess by reducing the dollar amount of the contributions included in determining the Deferral Percentage of Highly Compensated Employees in order of their Deferral Percentages as follows:

(a) The highest Deferral Percentage(s) shall be reduced to the greater of (1) the maximum Deferral Percentage that satisfies the limitation on Tax-Deferred Contributions described in Section 7.4 or (2) the next highest Deferral Percentage.

(b) If the limitation on Tax-Deferred Contributions described in Section 7.4 would still be exceeded after application of the provisions of paragraph (a), the Administrator shall continue reducing Deferral Percentages of Highly Compensated Employees, continuing with the next highest Deferral Percentage, in the manner provided in paragraph (a) until the limitation on Tax-Deferred Contributions described in Section 7.4 is satisfied.

The determination of the amount of Excess Contributions hereunder shall be made after Tax-Deferred Contributions and Excess Deferrals have been distributed pursuant to Sections 7.2 and 7.3, if applicable.

After determining the dollar amount of the Excess Contributions that have been made to the Plan, the Administrator shall then allocate such excess among Highly Compensated Employees in order of the dollar amount of their Deferral Percentages as follows:

(c) The contributions included in the Deferral Percentage(s) of the Highly Compensated Employee(s) with the largest dollar amount of Deferral Percentage for the Plan Year shall be reduced by the dollar amount of the excess (with such dollar amount being allocated equally among all such Highly Compensated Employees), but not below the dollar amount of the Deferral Percentage of the Highly Compensated Employee(s) with the next highest dollar amount of Deferral Percentage for the Plan Year.

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(d) If the excess has not been fully allocated after application of the provisions of paragraph (c), the Administrator shall continue reducing the contributions made on behalf of Highly Compensated Employees, continuing with the Highly Compensated Employees with the largest remaining dollar amount of such contributions allocated to their Accounts for the Plan Year, in the manner provided in paragraph (c) until the entire excess determined above has been allocated.

7.6 Distribution of Excess Tax-Deferred Contributions

Excess Contributions allocated to a Highly Compensated Employee pursuant to the preceding Section, plus any income and minus any losses attributable thereto, shall be distributed to the Highly Compensated Employee prior to the end of the next succeeding Plan Year. If such excess amounts are distributed more than 2  ¹/2 months after the last day of the Plan Year for which the excess occurred, an excise tax may be imposed under Code Section 4979 on the Employer maintaining the Plan with respect to such amounts.

If an amount of Tax-Deferred Contributions is distributed to a Participant in accordance with this Section, Matching Contributions that are attributable solely to the distributed Tax-Deferred Contributions, plus any income and minus any losses attributable thereto, shall be forfeited by the Participant no earlier than the date on which distribution of Tax-Deferred Contributions pursuant to this Section occurs and no later than the last day of the Plan Year following the Plan Year for which the Matching Contributions were made.

7.7 Limitation on Matching Contributions of Highly Compensated Employees

Notwithstanding any other provision of the Plan to the contrary, the Matching Contributions made with respect to a Plan Year on behalf of Eligible Participants who are Highly Compensated Employees may not result in an average Contribution Percentage for such Eligible Participants that exceeds the greater of:

(a) a percentage that is equal to 125 percent of the average Contribution Percentage for all other Eligible Participants for the Testing Year; or

(b) a percentage that is not more than 200 percent of the average Contribution Percentage for all other Eligible Participants for the Testing Year and that is not more than two percentage points higher than the average Contribution Percentage for all other Eligible Participants for the Testing Year, unless the Excess Contributions, determined as provided in Section 7.8, are distributed as provided in Section 7.9.

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In determining the Contribution Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year, Matching Contributions, Employee Contributions, Qualified Nonelective Contributions, and Elective Contributions (to the extent that Qualified Nonelective Contributions and Elective Contributions are taken into account in determining Contribution Percentages) made to his accounts under any plan of an Employer or a Related Company that is not mandatorily disaggregated pursuant to IRS regulations Section 1.410(b)-7(c), as modified by Section 1.401(m)-1(b)(4) (without regard to the prohibition on aggregating plans with inconsistent testing methods contained in Section 1.401(m)-1(b)(4)((iii)(B) and the prohibition on aggregating plans with different plan years contained in Section 1.410(b)-7(d)(5)), shall be treated as if all such contributions were made to the Plan; provided, however, that if such a plan has a plan year different from the Plan Year, any such contributions made to the Highly Compensated Employee's accounts under the other plan during the Plan Year shall be treated as if such contributions were made to the Plan.

If one or more plans of an Employer or Related Company are aggregated with the Plan for purposes of satisfying the requirements of Code Section 401(a)(4) or 410(b), then Contribution Percentages under the Plan shall be calculated as if the Plan and such one or more other plans were a single plan. Pursuant to Treasury regulations Section 1.401(m)-1(b)(4)(v), an Employer may elect to calculate Contribution Percentages aggregating ESOP and non-ESOP plans. In addition, an Employer may elect to calculate Contribution Percentages aggregating different bargaining units within a bargained plan, provided that such aggregation is done on a reasonable basis and is reasonably consistent from year to year. Plans may be aggregated under this paragraph only if they have the same plan year and utilize the same testing method to satisfy the requirements of Code Section 401(m).

The Administrator shall maintain records sufficient to show that the limitation contained in this Section was not exceeded with respect to any Plan Year and the amount of the Elective Contributions and/or Qualified Nonelective Contributions taken into account in determining Contribution Percentages for any Plan Year.

Since the Plan provides for Matching Contributions, provides that Employees are eligible for Matching Contributions before they have satisfied the minimum age and service requirements under Code Section 410(a)(1), and applies Code Section 410(b)(4)(B) in determining whether the portion of the Plan subject to Code Section 401(m) meets the requirements of Code Section 410(b)(1), the Administrator may apply the limitations on After-Tax and Matching Contributions of Highly Compensated Employees described in this Article VII either:

(a) by comparing the average Contribution Percentage of all Eligible Participants who are Highly Compensated Employees for the Plan Year to the average Contribution Percentage for the Testing Year of those Eligible Participants who are not Highly Compensated Employees and who have satisfied the minimum age and service requirements under Code Section 410(a)(1); or

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(b) Separately with respect to Eligible Participants who have not satisfied the minimum age and service requirements under Code Section 410(a)(1) and Eligible Participants who have satisfied such minimum age and service requirements.

7.8 Determination and Allocation of Excess Matching Contributions Among Highly Compensated Employees

Notwithstanding any other provision of the Plan to the contrary, in the event that the limitation on Matching Contributions described in Section 7.7 is exceeded in any Plan Year, the Administrator shall determine the dollar amount of the excess by reducing the dollar amount of the contributions included in determining the Contribution Percentage of Highly Compensated Employees in order of their Contribution Percentages as follows:

(a) The highest Contribution Percentages shall be reduced to the greater of (1) the maximum Contribution Percentage that satisfies the limitation on Matching Contributions described in Section 7.7 or (2) the next highest Contribution Percentage.

(b) If the limitation on Matching Contributions described in Section 7.7 would still be exceeded after application of the provisions of paragraph (a), the Administrator shall continue reducing Contribution Percentages of Highly Compensated Employees, continuing with the next highest Contribution Percentage, in the manner provided in paragraph (a) until the limitation on Matching Contributions described in Section 7.7 is satisfied.

The determination of the amount of excess Matching Contributions shall be made after application of Sections 7.2, 7.3, and 7.6, if applicable.

After determining the dollar amount of the Excess Contributions that have been made to the Plan, the Administrator shall allocate such excess among Highly Compensated Employees in order of the dollar amount of the Matching, Tax-Deferred, and Qualified Nonelective Contributions (to the extent such contributions are included in determining Contribution Percentages) allocated to their Accounts as follows:

(c) The contributions made on behalf of the Highly Compensated Employee(s) with the largest dollar amount of Matching, Tax-Deferred, and Qualified Nonelective Contributions allocated to his Account for the Plan Year shall be reduced by the dollar amount of the excess (with such dollar amount being allocated equally among all such Highly Compensated

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Employees), but not below the dollar amount of such contributions made on behalf of the Highly Compensated Employee(s) with the next highest dollar amount of such contributions allocated to his Account for the Plan Year.

(d) If the excess has not been fully allocated after application of the provisions of paragraph (c), the Administrator shall continue reducing the contributions made on behalf of Highly Compensated Employees, continuing with the Highly Compensated Employees with the largest remaining dollar amount of such contributions allocated to their Accounts for the Plan Year, in the manner provided in paragraph (c) until the entire excess determined above has been allocated.

7.9 Distribution of Excess Contributions

Excess Contributions allocated to a Highly Compensated Employee pursuant to the preceding Section, plus any income and minus any losses attributable thereto, shall be distributed to the Participant prior to the end of the next succeeding Plan Year as hereinafter provided. If such excess amounts are distributed more than 2  ¹/2 months after the last day of the Plan Year for which the excess occurred, an excise tax may be imposed under Code Section 4979 on the Employer maintaining the Plan with respect to such amounts.

The distribution requirement of this Section shall be satisfied by reducing contributions made by or on behalf of the Highly Compensated Employee to the extent necessary in the following order:

(a) Matching Contributions included in determining the Highly Compensated Employee's Contribution Percentage shall be distributed.

(b) Tax-Deferred Contributions included in determining the Highly Compensated Employee's Contribution Percentage shall be distributed.

7.10 Treatment of Forfeited Matching Contributions

Any Matching Contributions that are forfeited pursuant to the provisions of the preceding Sections of this Article shall be applied against the Employer Contribution obligations for any subsequent Contribution Period of the Employer.

7.11 Determination of Income or Loss

The income or loss attributable to Excess Contributions that are distributed pursuant to this Article shall be determined for the preceding Plan Year and the Gap Period under the method otherwise used for allocating income or loss to Participants' Accounts.

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7.12 Deemed Satisfaction of the Limitations on Tax-Deferred Contributions and Matching Contributions of Highly Compensated Employees

Notwithstanding any other provision of this Article to the contrary, for Plan Years in which the Employers satisfy the safe harbor notice requirements described in the following Section, and make the Matching Contribution described in Article VI, the Plan shall be deemed to have satisfied the limitations on Tax-Deferred Contributions of Highly Compensated Employees described in Section 7.4. If the Plan also satisfies the requirements of Code Section 401(m)(11) and regulations issued thereunder, the Plan shall be deemed to have satisfied the limitations on Matching Contributions of Highly Compensated Employees described in Section 7.7. The Plan shall not be deemed to have satisfied the limitations on Matching Contributions of Highly Compensated Employees for any Plan Year if an Employer or a Related Company maintains a plan under which “matching contributions” on behalf of Highly Compensated Employees are made at a rate greater than the rate provided under the Plan and such “matching contributions” must be aggregated with Matching Contributions made on behalf of any Highly Compensated Employee under the Plan.

7.13 Notice Requirements for Matching Contributions

For each Plan Year in which an Employer makes a Matching Contribution designated to be a safe harbor matching contribution, as provided under IRS Regulations, on behalf of its Eligible Employees, the Employer shall provide such Eligible Employees a notice describing (i) the formula used for determining Matching Contributions; (ii) any other Employer Contributions available under the Plan and the requirements that must be satisfied to receive an allocation of such Employer Contributions; (iii) the type and amount of Compensation that may be deferred under the Plan as Tax-Deferred Contributions; (iv) how to make a cash or deferred election under the Plan and the periods in which such elections may be made or changed; and (v) the withdrawal and vesting provisions applicable to contributions under the Plan. The descriptions required in items (ii) through (v) may be provided by cross references to the relevant section(s) of an up to date summary plan description.

The notice shall be written in a manner calculated to be understood by the average Eligible Employee. The Employer shall provide such notice within one of the following periods, whichever is applicable:

(a) for an Employee who is an Eligible Employee 90 days before the beginning of the Plan Year, within the period beginning 90 days and ending 30 days before the beginning of the Plan Year, or

(b) for an Employee who becomes an Eligible Employee after that date, within the period beginning 90 days before the date he becomes an Eligible Employee and ending on the date such Employee becomes an Eligible Employee.

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Notwithstanding any other provision of the Plan to the contrary, an Eligible Employee shall have a reasonable period (not fewer than 30 days) following receipt of such notice in which to make or amend his election to have his Employer make Tax-Deferred Contributions to the Plan on his behalf.

7.14 Code Section 415 Limitations on Crediting of Contributions and Forfeitures

Notwithstanding any other provision of the Plan to the contrary, the Annual Addition with respect to a Participant for a Limitation Year shall in no event exceed the lesser of (i) $30,000 (adjusted as provided in Code Section 415(d)) or (ii) 25 percent of the Participant's compensation, as defined in Code Section 415(c)(3) and regulations issued thereunder, for the Limitation Year; provided, however, that the limit in clause (i) shall be pro-rated for any short Limitation Year. If the Annual Addition to the Account of a Participant in any Limitation Year would otherwise exceed the amount that may be applied for his benefit under the limitation contained in this Section, the limitation shall be satisfied by reducing contributions made to the Participant's Account to the extent necessary in the following order:

Tax-Deferred Contributions made on behalf of the Participant for the Limitation Year that have not been matched, if any, shall be reduced.

Tax-Deferred Contributions made on behalf of the Participant for the Limitation Year that have been matched, if any, and the Matching Contributions attributable thereto shall be reduced pro rata.

Discretionary Contributions otherwise allocable to the Participant's Account for the Limitation Year, if any, shall be reduced.

Qualified Nonelective Contributions otherwise allocable to the Participant's Account for the Limitation Year, if any, shall be reduced.

The amount of any reduction of Tax-Deferred Contributions (plus any income attributable thereto) shall be returned to the Participant. The amount of any reduction of Employer Contributions shall be deemed a forfeiture for the Limitation Year.

Amounts deemed to be forfeitures under this Section shall be held unallocated in a suspense account established for the Limitation Year and shall be applied against the Employer's contribution obligation for the next following Limitation Year (and succeeding Limitation Years, as necessary). If a suspense account is in existence at any time during a Limitation Year, all amounts in the suspense account must be applied against the Employer's contribution obligation before any further contributions that would constitute Annual Additions may be made to the Plan.

For purposes of this Article, excesses shall result only from the allocation of forfeitures, a reasonable error in estimating a Participant's annual compensation (as defined in Code Section 415(c)(3) and regulations issued thereunder), a reasonable error in

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determining the amount of Elective Contributions that may be made with respect to any Participant under the limits of Code Section 415, or other limited facts and circumstances that justify the availability of the provisions set forth above.

7.15 Application of Code Section 415 Limitations Where Participant is Covered Under Other Qualified Defined Contribution Plan

If a Participant is covered by any other qualified defined contribution plan (whether or not terminated) maintained by an Employer or a Related Company concurrently with the Plan, and if the Annual Addition for the Limitation Year would otherwise exceed the amount that may be applied for the Participant's benefit under the limitation contained in the preceding Section, such excess shall be reduced first by returning or forfeiting, as provided under the applicable defined contribution plan, the contributions last allocated to the Participant's accounts for the Limitation Year under all such defined contribution plans, and, to the extent such contributions are returned to the Participant, the income attributable thereto. If contributions are allocated to the defined contribution plans as of the same date, any excess shall be allocated pro rata among the defined contribution plans. For purposes of determining the order of reduction hereunder, contributions to a simplified employee pension plan described in Code Section 408(k) shall be deemed to have been allocated first and contributions to a welfare benefit fund or individual medical account shall be deemed to have been allocated next, regardless of the date such contributions were actually allocated.

7.16 Scope of Limitations

The Code Section 415 limitations contained in the preceding Sections shall be applicable only with respect to benefits provided pursuant to defined contribution plans described in Code Section 415(k). For purposes of applying the Code Section 415 limitations contained in the preceding Sections, the term “Related Company” shall be adjusted as provided in Code Section 415(h).

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ARTICLE VIII

TRUST FUNDS AND ACCOUNTS

8.1 General Fund

The Trustee shall maintain a General Fund as required to hold and administer any assets of the Trust that are not allocated among the Investment Funds as provided in the Plan or the Trust Agreement. The General Fund shall be held and administered as a separate common trust fund. The interest of each Participant or Beneficiary under the Plan in the General Fund shall be an undivided interest.

8.2 Investment Funds

The Investment Committee shall determine the number and type of Investment Funds and shall communicate the same and any changes therein in writing to the Administrator and the Trustee. Each Investment Fund shall be held and administered as a separate common trust fund. The interest of each Participant or Beneficiary under the Plan in any Investment Fund shall be an undivided interest.

The Investment Committee will offer an Investment Fund invested primarily in Company Stock that are publicly traded and are “qualifying employer securities” as defined in ERISA Section 407(d)(5). Any funds invested in Company Stock can be transferred into or out of Company Stock at any time consistent with the Sponsor’s insider trading policy. In no event shall any amounts from a Participant’s Money Purchase Contribution Sub-Account be invested in Company Stock.

8.3 Loan Investment Fund

If a loan from the Plan to a Participant is approved in accordance with the provisions of Article XII, the Sponsor shall direct the establishment and maintenance of a loan Investment Fund in the Participant's name. The assets of the loan Investment Fund shall be held as a separate trust fund. A Participant's loan Investment Fund shall be invested in the note(s) reflecting the loan(s) made to the Participant in accordance with the provisions of Article XII. Notwithstanding any other provision of the Plan to the contrary, income received with respect to a Participant's loan Investment Fund shall be allocated and the loan Investment Fund shall be administered as provided in Article XII.

8.4 Income on Trust

Any dividends, interest, distributions, or other income received by the Trustee with respect to any Trust Fund maintained hereunder shall be allocated by the Trustee to the Trust Fund for which the income was received.

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8.5 Accounts

As of the first date a contribution is made by or on behalf of an Employee there shall be established an Account in his name reflecting his interest in the Trust. Each Account shall be maintained and administered for each Participant and Beneficiary in accordance with the provisions of the Plan. The balance of each Account shall be the balance of the account after all credits and charges thereto, for and as of such date, have been made as provided herein and shall include all Sub-Accounts.

8.6 Sub-Accounts

A Participant's Account shall be divided into such separate, individual Sub-Accounts as are necessary or appropriate to reflect the Participant's interest in the Trust.

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ARTICLE IX

LIFE INSURANCE CONTRACTS

9.1 No Life Insurance Contracts

A Participant's Account may not be invested in life insurance contracts on the life of the Participant.

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ARTICLE X

DEPOSIT AND INVESTMENT OF CONTRIBUTIONS

10.1 Future Contribution Investment Elections

Each Eligible Employee shall make an investment election in the manner and form prescribed by the Administrator directing the manner in which the contributions made on his behalf shall be invested. An Eligible Employee's investment election shall specify the percentage in whole numbers, of such contributions that shall be allocated to one or more of the Investment Funds with the sum of such percentages equaling 100 percent. The investment election by a Participant shall remain in effect until his entire interest under the Plan is distributed or forfeited in accordance with the provisions of the Plan or until he records a change of investment election with the Administrator, in such form as the Administrator shall prescribe. If recorded in accordance with any rules prescribed by the Administrator, a Participant's change of investment election may be implemented as soon as administratively practicable and be effective any day the New York Stock Exchange is open, provided the election is received in a timely manner.

10.2 Deposit of Contributions

All contributions made on a Participant's behalf shall be deposited in the Trust and allocated among the Investment Funds in accordance with the Participant's currently effective investment election. If no investment election is recorded with the Administrator at the time contributions are to be deposited to a Participant's Account, his contributions shall be allocated among the Investment Funds as directed by the Administrator.

10.3 Election to Transfer Between Funds

A Participant may elect to transfer investments from any Investment Fund to any other Investment Fund. The Participant's transfer election shall specify either (i) a whole number percentage, of the amount eligible for transfer, which percentage may not exceed 100 percent, or (ii) a dollar amount that is to be transferred. Any transfer election must be recorded with the Administrator, in such form as the Administrator shall prescribe. Subject to any restrictions pertaining to a particular Investment Fund, if recorded in accordance with any rules prescribed by the Administrator, a Participant's transfer election may be implemented effective any day the New York Stock Exchange is open, provided the election is received in a timely manner.

Notwithstanding any other provision of this Section to the contrary, the following shall apply:

(a) No portion of a Participant's Money Purchase Contributions Sub-Account may be transferred to the Company stock Investment Fund.

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(b) Transfer elections to or from the Company stock Investment Fund (including in-service withdrawals in accordance with Article XIII or liquidation of amounts to fund loans in Accordance with Article XII) made by a Participant who is subject to the liability provisions of Section 16 of the Securities Exchange Act of 1934 (the “1934 Act”) or who is an “Insider” as designated under the Tellabs Insider Trading Policy shall not be effective except in accordance with the Tellabs Insider Trading Policy unless such transfer election is made at least 6 months following the date of the most recent transfer election made by such Participant under the Plan or any other plan maintained by an Employer that effected a “discretionary transaction” within the meaning of Rule 16b-3 promulgated under Section 16 of the 1934 Act that was an “opposite way” transaction. For this purpose, a transfer into the Company stock Investment Fund (or similar fund under another plan) is an “opposite way” transaction from a transfer or distribution out of the Company stock Investment Fund (or similar fund under another plan), and vice versa.

(c) The Administrator may prescribe rules required by the Investment Funds or as it otherwise deems appropriate restricting Participants' transfer elections to preclude excessive or abusive trading or market timing.

10.4 Voting and Tendering Company Stock

Each Participant who has an interest in the Company Stock Investment Fund shall have the right to direct the Trustee as to the manner in which voting and other rights will be exercised with respect to the number of shares of Company Stock credited to his Account. The Trustee, or the Company upon written notice to the Trustee, shall furnish to each Participant who has Company Stock credited to his or her Account under the Company Stock Investment Fund the date and purpose of each meeting of the stockholders of the Company at which Company Stock is entitled to be voted. The Trustee, or the Company if it has furnished the above information, shall request from each Participant instructions to be furnished to the Trustee (or to a tabulating agent appointed by the Trustee) as to the voting at that meeting of Company Stock credited to the Participant’s Account, which instructions shall be kept confidential by the Trustee or tabulating agent and, except as may be required by law, shall not be disclosed to the Sponsor, any subsidiary or any employee thereof. If the Participant furnishes such instructions to the Trustee or its agent within the time specified in the notification, the Trustee shall vote such Company Stock in accordance with the Participant’s instructions. All Company Stock credited to Participant Accounts as to which the Trustee or its agent do not receive instructions as specified above and all unallocated Company Stock held in the Company Stock Investment Fund shall be voted by the Trustee proportionately in the same manner as it votes Company Stock as to which the Trustee or its agents have received voting instructions as specified above. In the event of a tender offer for Company Stock, the Trustee shall not tender any shares of Company Stock in the Company Stock Investment Fund for which it does not receive timely directions to tender such shares from Participants, except in the case where the Trustee determines that to do so would be inconsistent with the provisions of Title I of ERISA.

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All materials provided to other shareholders, including proxy solicitation materials and all tender materials, shall be provided to each Participant with an interest in the Company stock Investment Fund.

A Participant's directions to the Trustee hereunder shall be communicated in confidence and shall not be divulged to the Employers or to any officer, director, or employee of the Employers. The Sponsor shall establish procedures to provide and maintain such confidentiality and shall appoint a fiduciary with the responsibility of overseeing such procedures. An independent fiduciary shall be appointed to the extent required under Department of Labor Regulations to maintain such confidentiality.

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ARTICLE XI

CREDITING AND VALUING ACCOUNTS

11.1 Crediting Accounts

All contributions made under the provisions of the Plan shall be credited to Accounts in the Trust Funds by the Trustee, in accordance with procedures established in writing by the Administrator, either when received or on the succeeding Valuation Date after valuation of the Trust Fund has been completed for such Valuation Date as provided in Section 11.2, as shall be determined by the Administrator.

11.2 Valuing Accounts

Accounts in the Trust Funds shall be valued by the Trustee on the Valuation Date, in accordance with procedures established in writing by the Administrator, either in the manner adopted by the Trustee and approved by the Administrator or in the manner set forth in Section 11.3 as Plan valuation procedures, as determined by the Administrator.

11.3 Plan Valuation Procedures

With respect to the Trust Funds, the Administrator may determine that the following valuation procedures shall be applied. As of each Valuation Date hereunder, the portion of any Accounts in a Trust Fund shall be adjusted to reflect any increase or decrease in the value of the Trust Fund for the period of time occurring since the immediately preceding Valuation Date for the Trust Fund (the “valuation period”) in the following manner:

(a) First, the value of the Trust Fund shall be determined by valuing all of the assets of the Trust Fund at fair market value.

(b) Next, the net increase or decrease in the value of the Trust Fund attributable to net income and all profits and losses, realized and unrealized, during the valuation period shall be determined on the basis of the valuation under paragraph (a) taking into account appropriate adjustments for contributions, loan payments, and transfers to and distributions, withdrawals, loans, and transfers from such Trust Fund during the valuation period.

(c) Finally, the net increase or decrease in the value of the Trust Fund shall be allocated among Accounts in the Trust Fund in the ratio of the balance of the portion of such Account in the Trust Fund as of the preceding Valuation Date less any distributions, withdrawals, loans, and transfers from such Account balance in the Trust Fund since the Valuation Date to the aggregate balances of the portions of all Accounts in the Trust Fund similarly adjusted, and each Account in the Trust Fund shall be credited or charged with the amount of its allocated share. Notwithstanding the foregoing, the Administrator may adopt such

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accounting procedures as it considers appropriate and equitable to establish a proportionate crediting of net increase or decrease in the value of the Trust Fund for contributions, loan payments, and transfers to and distributions, withdrawals, loans, and transfers from such Trust Fund made by or on behalf of a Participant during the valuation period.

(d) Expenses, charges and fees will be assessed against each fund as appropriate, as outlined in the prospectus of each fund and/or as outlined any agreement with any fund manager

11.4 Notification

Within a reasonable period of time after the end of each Plan Year, the Administrator or its designee shall notify each Participant and Beneficiary of the value of his Account and Sub-Accounts as of a Valuation Date during the Plan Year.

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ARTICLE XII

LOANS

12.1 Application for Loan

A Participant who is a party in interest as defined in ERISA Section 3(14) may make application to the Administrator for a loan from his Tax-Deferred, Rollover, After-Tax and Prior Employer Contribution Sub-Accounts to the extent he has such Sub-Accounts. He may not take a loan from his Money Purchase, Discretionary, Profit-Sharing and Matching Contributions Sub-Accounts. Loans shall be made to Participants in accordance with this Article XII which incorporates all loan guidelines and complies with the requirements of Code Section 72(p).

As collateral for any loan granted hereunder, the Participant shall grant to the Plan a security interest in his vested interest under the Plan equal to the amount of the loan; provided, however, that in no event may the security interest exceed 50 percent of his vested interest in his Tax-Deferred, Rollover, After-Tax and Prior Employer Contribution Sub-Accounts to the extent he has such Sub-Accounts determined as of the date as of which the loan is originated in accordance with Plan provisions. The Committee may in its discretion require additional security if deemed appropriate. The Participant also shall enter into an agreement to repay the loan by payroll withholding. No loan in excess of 50 percent of the Participant's vested interest of his vested interest in his Tax-Deferred, Rollover, After-Tax and Prior Employer Contribution Sub-Accounts to the extent he has such Sub-Accounts under the Plan shall be made from the Plan. Loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other employees. Loans shall bear the loan processing fee as the Administrator shall from time to time approve.

A loan shall not be granted unless the Participant consents to the charging of his Account for unpaid principal and interest amounts in the event the loan is declared to be in default.

12.2 Reduction of Account Upon Distribution

Notwithstanding any other provision of the Plan, the amount of a Participant's Account that is distributable to the Participant or his Beneficiary under Article XIII or XV shall be reduced by the portion of his vested interest that is held by the Plan as security for any loan outstanding to the Participant, provided that the reduction is used to repay the loan. If distribution is made because of the Participant's death prior to the commencement of distribution of his Account and the Participant's vested interest in his Account is payable to more than one individual as Beneficiary, then the balance of the Participant's vested interest in his Account shall be adjusted by reducing the vested account balance by the amount of the security used to repay the loan, as provided in the preceding sentence, prior to determining the amount of the benefit payable to each such individual.

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12.3 Requirements to Prevent a Taxable Distribution

Notwithstanding any other provision of the Plan to the contrary, the following terms and conditions shall apply to any loan made to a Participant under this Article:

(a) The interest rate on any loan to a Participant shall be a reasonable interest rate commensurate with current interest rates charged for loans made under similar circumstances by persons in the business of lending money.

Unless the Sponsor directs otherwise, the interest rate will be the bank prime rate plus 1% reported by the U.S. Federal Reserve on the last business day of a calendar quarter effective for loans made on and after the first business day of the subsequent quarter. The source for the interest rate will be www. federalreserve. gov or other websites that may provide the same information.

(i) The interest rate on Participant loans will be declared quarterly; however, the Sponsor reserves the right to change the basis for determining the interest rate prospectively with thirty (30) days notice.

(ii) These rights will only apply to a loan issued after the change(s) takes effect.

(b) The amount of any loan to a Participant (when added to the outstanding balance of all other loans to the Participant from the Plan or any other plan maintained by an Employer or a Related Company) shall not exceed the lesser of:

(i) $50,000, reduced by the excess, if any, of the highest outstanding balance of any other loan to the Participant from the Plan or any other plan maintained by an Employer or a Related Company during the preceding 12-month period over the outstanding balance of such loans on the date a loan is made hereunder; or

(ii) 50 percent of the vested portions of the Participant's of his Tax-Deferred, Rollover, After-Tax and Prior Employer Contribution Sub-Accounts to the extent he has such Sub-Accounts and his vested interest under all other plans maintained by an Employer or a Related Company.

(c) The term of any loan to a Participant shall be no greater than five years, except in the case of a loan used to acquire any dwelling unit which within a reasonable period of time is to be used (determined at the time the loan is made) as a principal residence (as defined under Code Section 121) of the Participant.

Loan repayments will be made by a deduction from each payroll following issuance of the loan. Repayment will begin as soon as is administratively practicable following issuance of the loan, but no more than 2 months from the date the loan is issued. The Plan Administrator intends to remit repayments by payroll deduction substantially on the 45th calendar day from the loan issuance date.

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Should loan repayments not be possible from payroll, payments will be due directly from the Participant by check or similar payment method. Should a Participant not be expected to be able to use payroll repayment or to return promptly to payroll payment, the Plan Administrator may authorize regular payment no less frequently than quarterly on a revised schedule of amount and payment dates calculated to repay the loan with interest in full in substantially equal payments over the remaining original period of the loan.

(d) Substantially level amortization shall be required over the term of the loan with payments made not less frequently than quarterly, except that the amortization schedule may be waived and payments suspended while a Participant is on a leave of absence from employment with an Employer or any Related Company (for periods in which the Participant does not perform military service as described in paragraph (e)), provided that all of the following requirements are met:

(i) Such leave is either without pay or at a reduced rate of pay that, after withholding for employment and income taxes, is less than the amount required to be paid under the amortization schedule;

(ii) Payments resume after the earlier of (a) the date such leave of absence ends or (b) the one-year anniversary of the date such leave began;

(iii) The period during which payments are suspended does not exceed one year;

(iv) Payments resume in an amount not less than the amount required under the original amortization schedule; and

(v) The waiver of the amortization schedule does not extend the period of the loan beyond the maximum period permitted under this Article.

(e) If a Participant is absent from employment with any Employer or any Related Company for a period during which he performs services in the uniformed services (as defined in chapter 45 of title 38 of the United States Code), whether or not such services constitute qualified military service, the suspension of payments shall not be taken into account for purposes of applying either paragraph (c) or paragraph (d) of this Section provided that all of the following requirements are met:

(i) Payments resume upon completion of such military service;

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(ii) Payments resume in an amount not less than the amount required under the original amortization schedule and continue in such amount until the loan is repaid in full;

(iii) Upon resumption, payments are made no less frequently than required under the original amortization schedule and continue under such schedule until the loan is repaid in full; and

(iv) The loan is repaid in full, including interest accrued during the period of such military service, no later than (1) for loans made prior to January 1, 2004, the last scheduled repayment date under the original amortization schedule extended by the period of such military service and (2) for loans made on or after January 1, 2004, the maximum period otherwise permitted under this Article extended by the period of such military service.

(f) The loan shall be evidenced by a legally enforceable agreement that demonstrates compliance with the provisions of this Section.

12.4 Administration of Loan Investment Fund

Upon approval of a loan to a Participant, the Administrator shall direct the Trustee to transfer an amount equal to the loan amount from the Investment Funds in which it is invested, as directed by the Administrator, to the loan Investment Fund established in the Participant's name. Any loan approved by the Administrator shall be made to the Participant out of the Participant's loan Investment Fund. All principal and interest paid by the Participant on a loan made under this Article shall be deposited to his Account and shall be allocated upon receipt among the Investment Funds in accordance with the Participant's currently effective investment election. The balance of the Participant's loan Investment Fund shall be decreased by the amount of principal payments and the loan Investment Fund shall be terminated when the loan has been repaid in full.

12.5 Default

If either (1) a Participant fails to make or cause to be made, any payment required under the terms of the loan by the end of the calendar quarter following the calendar quarter in which the missed payment was due and the Participant has been provided notice of that payments are late, unless payment is not made because the Participant is on a leave of absence and the amortization schedule is waived as provided in Section 12.3(d) or (e), or (2) there is an outstanding principal balance existing on a loan after the last scheduled repayment date (extended as provided in Section 12.3(e), if applicable), the Administrator shall direct the Trustee to declare the loan to be in default, and the entire unpaid balance of such loan, together with accrued interest, shall be immediately due and payable. In any such event, if such balance and interest thereon is not then paid, the Trustee shall charge the Account of the borrower with the amount of such balance and interest as of the earliest date a distribution may be made from the Plan to the borrower without adversely affecting the tax qualification of the Plan or of the cash or deferred arrangement.

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12.6 Deemed Distribution Under Code Section 72(p)

If a Participant's loan is in default, as provided in Section 12.5, the Participant shall be deemed to have received a taxable distribution in the amount of the outstanding loan balance as required under Code Section 72(p), whether or not distribution may actually be made from the Plan without adversely affecting the tax qualification of the Plan; provided, however, that the taxable portion of such deemed distribution shall be reduced in accordance with the provisions of Code Section 72(e) to the extent the deemed distribution is attributable to the Participant's After-Tax Contributions.

If a Participant is deemed to have received distribution of an outstanding loan balance hereunder, no further loans may be made to such Participant from his Account unless there is a legally enforceable arrangement among the Participant, the Plan, and the Participant's employer that repayment of such loan shall be made by payroll withholding.

12.7 Treatment of Outstanding Balance of Loan Deemed Distributed Under Code Section 72(p)

With respect to any loan made on or after January 1, 2002, the balance of such loan that is deemed to have been distributed to a Participant hereunder shall cease to be an outstanding loan for purposes of Code Section 72(p) and a Participant shall not be treated as having received a taxable distribution when his Account is offset by such outstanding loan balance as provided in Section 12.5. Any interest that accrues on a loan after it is deemed to have been distributed shall not be treated as an additional loan to the Participant and shall not be included in the Participant's taxable income as a deemed distribution. Notwithstanding the foregoing, however, unless a Participant repays such loan, with interest, the amount of such loan, with interest thereon calculated as provided in the original loan note, shall continue to be considered an outstanding loan for purposes of determining the maximum permissible amount of any subsequent loan under Section 12.3(b).

If allowed by the Plan Administrator and if a Participant elects to make payments on a loan after it is deemed to have been distributed hereunder, such payments shall be treated as After-Tax Contributions to the Plan solely for purposes of determining the taxable portion of the Participant's Account and shall not be treated as After-Tax Contributions for any other Plan purpose, including application of the limitations on contributions applicable under Code Sections 401(m) and 415.

The provisions of this Section shall apply with respect to any loan made prior to January 1, 2002, to the extent provided in IRS Regulations Section 1.72(p)-1, Q&A 22.

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12.8 Special Rules Applicable to Loans

Any loan made hereunder shall be subject to the following rules:

(a) Minimum Loan Amount: A Participant may not request a loan for less than $1,000, unless the Administrator determines to permit a lesser loan amount due to the Participant's financial hardship.

(b) Maximum Number of Outstanding Loans: A Participant may not have more than 3 outstanding loans at any time. A Participant with 3 outstanding loans may not apply for another loan until one of the existing loans is repaid and may not refinance an existing loan.

(c) Maximum Period for Principal Residence Loan: The term of any loan to a Participant that is used to acquire any dwelling unit which within a reasonable period of time is to be used (determined at the time the loan is made) as a principal residence (as defined under Code Section 121) of the Participant shall be no greater than 15 years.

(d) Pre-Payment Without Penalty: A Participant may pre-pay the balance of any loan hereunder prior to the date it is due without penalty.

(e) Effect of Termination of Employment: Upon a Participant's termination of employment, the balance of any outstanding loan hereunder shall immediately become due and owing.

(f) An Employee is not eligible for a loan until he is eligible to participate in the Plan.

(g) The Plan will not accept, a Direct Rollover of a loan from the plan of a Participant’s former employer. A Participant may not request a Direct Rollover of the loan note.

(h) Refinancing is not permitted under the Plan.

12.9 Loans Granted Prior to Amendment

Notwithstanding any other provision of this Article to the contrary, any loan made under the provisions of the Plan as in effect prior to this amendment and restatement shall remain outstanding until repaid in accordance with its terms or the otherwise applicable Plan provisions.

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ARTICLE XIII

WITHDRAWALS WHILE EMPLOYED

13.1 Age 59  ¹/2 Withdrawals

A Participant who is employed by an Employer or a Related Company and who has attained age 59  ¹/2 may elect, subject to the limitations and conditions prescribed in this Article, to make a cash withdrawal from his vested interest in any of the following Sub-Accounts:

(a) his Tax-Deferred Contributions Sub-Account.

(b) his After-Tax Contributions Sub-Account.

(c) his Rollover Contributions Sub-Account.

(d) his Prior Employer Contributions Sub-Account.

13.2 Overall Limitations on In-Service Withdrawals

In-Service withdrawals, which are not 59  ¹/2 withdrawals or hardship withdrawals, made pursuant to this Article, shall be subject to the following conditions and limitations:

(a) Only one In-Service withdrawal may be made a Plan Year.

(b) In-Service withdrawals may be made from the following Sub-Accounts:

(i) his After-Tax Contributions Sub-Account.

(ii) his Rollover Contributions Sub-Account.

(iii) his Prior Employer Contributions Sub-Account.

(c) A Participant must apply for an In-Service withdrawal on the form the Administrator may prescribe.

(d) Withdrawals may be made effective as soon as administratively practicable after the Administrator’s receipt of a withdrawal application which meets the criteria of this Section.

13.3 Hardship Withdrawals

A Participant who is employed by an Employer or a Related Company and who is determined by the Administrator to have incurred a hardship in accordance with the provisions of this Article may elect, subject to the limitations and conditions prescribed in this Article, to make a cash withdrawal from his vested interest in any of the following Sub-Accounts:

(a) his Tax-Deferred Contributions Sub-Account, excluding any income credited to such Sub-Account.

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(b) his After-Tax Contributions Sub-Account.

(c) his Rollover Contributions Sub-Account.

(d) his Prior Employer Contributions Sub-Account.

13.4 Hardship Determination

The Administrator shall grant a hardship withdrawal only if it determines that the withdrawal is necessary to meet an immediate and heavy financial need of the Participant. An immediate and heavy financial need of the Participant means a financial need on account of:

(a) expenses previously incurred by or necessary to obtain for the Participant, the Participant's spouse, or any dependent of the Participant (as defined in Code Section 152, without regard to subsections (b)(1), (b)(2) and (d)(1)(B) thereof) medical care deductible under Code Section 213(d), determined without regard to whether the expenses exceed any applicable income limit

(b) costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant

(c) payment of tuition, related educational fees, and room and board expenses for the next 12 months of post secondary education for the Participant, or the Participant's spouse, child, or other dependent (as defined in Code Section 152, without regard to subsections (b)(1), (b)(2) and (d)(1)(B) thereof)

(d) payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage on the Participant's principal residence

(e) payment of funeral or burial expenses for the Participant's deceased parent, spouse, child, or dependent (as defined in Code Section 152, without regard to subsection (d)(1)(B) thereof)

(f) expenses for the repair of damage to the Participant's principal residence that would qualify for a casualty loss deduction under Code Section 165 (determined without regard to whether the loss exceeds any applicable income limit)

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(g) other similar events or expenses determined to be an immediate and heavy financial needs by the Administrator, which could include for example, payments for emergency travel expenses; payments for child custody or dependent sponsorship fees and expenses; expenses for repairs of damage to Participant’s principal residence; or payments necessary to prevent utility shut-off or similar immediate housing needs.

13.5 Satisfaction of Necessity Requirement for Hardship Withdrawals

A withdrawal shall be deemed to be necessary to satisfy an immediate and heavy financial need of a Participant only if the Participant satisfies all of the following requirements:

(a) The withdrawal is not in excess of the amount of the immediate and heavy financial need of the Participant.

(b) The Participant has obtained all distributions, other than hardship distributions, and one non-taxable loan currently available under all plans maintained by an Employer or any Related Company.

(c) The Participant's Tax-Deferred Contributions and the Participant's Elective Contributions and Employee Contributions, as defined in Article I, under this plan shall be suspended for at least 6 months after his receipt of the withdrawal.

A Participant shall not fail to be treated as an Eligible Employee for purposes of applying the limitations contained in Article VII of the Plan merely because his Tax-Deferred Contributions are suspended in accordance with this Section.

13.6 Conditions and Limitations on Hardship Withdrawals

Hardship withdrawals made pursuant to this Article shall be subject to the following conditions and limitations:

(a) A Participant must apply for a hardship withdrawal such number of days prior to the date as of which it is to be effective as the Administrator may prescribe.

(b) Any Hardship withdrawal application based on Section 13.4 (g) above must be approved by the Administrator. The determination of whether approval of a Hardship withdrawal application is necessary to satisfy an immediate and heavy need of the Participant shall be made by the Administrator on the basis of all relevant facts and circumstances.

(c) Hardship withdrawals may be made effective as soon as administratively practicable after the Administrator's approval of the Participant's withdrawal application for withdrawals based on Section 13.4(g) or as soon as administratively practicable after the receipt of the Hardship withdrawal application for all other hardship requests.

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(d) The amount of a hardship withdrawal may include any amounts necessary to pay any Federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution.

13.7 Order of Withdrawal from a Participant's Sub-Accounts

Distribution of a withdrawal amount shall be made from a Participant's Sub-Accounts, to the extent necessary, in the order prescribed by the Administrator, which order shall be uniform with respect to all Participants and non-discriminatory. If the Sub-Account from which a Participant is receiving a withdrawal is invested in more than one Investment Fund, the withdrawal shall be charged pro rata against the Investment Funds in that Sub-Account.

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ARTICLE XIV

TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE

14.1 Termination of Employment and Settlement Date

A Participant's Settlement Date shall occur on the date he terminates employment with the Employers and all Related Companies because of death, disability, retirement, or other termination of employment. Written notice of a Participant's Settlement Date shall be given by the Administrator to the record-keeper.

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ARTICLE XV

DISTRIBUTIONS

15.1 Distributions to Participants

A Participant whose Settlement Date occurs is entitled to receive a distribution of his vested interest in his Account, in the form provided under Article XVI or the Addendum as appropriate, beginning as soon as reasonably practicable following his Settlement Date or the date his application for distribution is filed with the Administrator, if later, unless the Participant elects to defer such distribution.

A distribution of a Participant's Money Purchase Contributions Sub-Account must commence by the later of his Normal Retirement Date or Settlement Date. In all events, distribution to a Participant during his lifetime must commence no later than his Required Beginning Date in accordance with Section 15.4.

15.2 Distributions to Beneficiaries

If a Participant dies prior to his Benefit Payment Date, his Beneficiary shall receive distribution of the Participant's vested interest in his Account in the form provided under Article XVI beginning as soon as reasonably practicable following the date the Beneficiary's application for distribution is filed with the Administrator. Unless distribution is to be made over the life or over a period certain not greater than the life expectancy of the Beneficiary, distribution of the Participant's entire vested interest shall be made to the Beneficiary no later than the end of the calendar year beginning after the Participant's death. If distribution is to be made over the life or over a period certain no greater than the life expectancy of the Beneficiary, distribution shall commence no later than:

(a) If the Beneficiary is not the Participant's spouse, the end of the first calendar year beginning after the Participant's death; or

(b) If the Beneficiary is the Participant's spouse, the later of (i) the end of the first calendar year beginning after the Participant's death or (ii) the end of the calendar year in which the Participant would have attained age 70  ¹/2.

If distribution is to be made to a Participant's spouse, it shall be made available within a reasonable period of time after the Participant's death that is no less favorable than the period of time applicable to other distributions. If a Participant dies after the date distribution of his vested interest in his Account begins under this Article, but before his entire vested interest in his Account is distributed, his Beneficiary shall receive distribution of the remainder of the Participant's vested interest in his Account beginning as soon as reasonably practicable following the Participant's date of death in a form that provides for distribution at least as rapidly as under the form in which the Participant was receiving distribution.

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15.3 Cash Outs and Participant Consent

Except as allowed in Article XIII, a Participant whose Settlement Date has not occurred will not be able to request a Cash Out until his Settlement Date, unless required under Section 15.4.

Notwithstanding any other provision of the Plan to the contrary, if a Participant's vested interest in his Account does not exceed $1,000, distribution of such vested interest shall be made to the Participant in a single sum payment or through a direct rollover if Participant elects to have this paid as a direct rollover, as described in Article XVI, as soon as reasonably practicable following his Settlement Date. If a Participant has no vested interest in his Account on his Settlement Date, he shall be deemed to have received distribution of such vested interest on his Settlement Date.

If a Participant's vested interest in his Account exceeds $1,000 and his Settlement Date has occurred, distribution shall not commence to such Participant prior to the later of his Normal Retirement Date or the date he attains age 62 without the Participant's written consent and, if the Participant is married and his Account is subject to the “automatic annuity” provisions of the Addendum, the written consent of his spouse. Notwithstanding the foregoing, spousal consent shall not be required if distribution is made through the purchase of a Qualified Joint and Survivor Annuity or the spouse cannot be located or spousal consent cannot be obtained for other reasons set forth in Code Section 401(a)(11) and regulations issued thereunder.

If a Participant's Account is subject to the “automatic annuity” provisions specified in the Addendum, the Participant's vested interest in his Account shall be deemed to exceed $1,000 if the Participant's Benefit Payment Date has occurred with respect to amounts currently held in his Account and as of such Benefit Payment Date his vested interest in his Account exceeded $1,000.

15.4 Required Commencement of Distribution

Notwithstanding any other provision of the Plan to the contrary, distribution of a Participant's vested interest in his Account shall commence to the Participant no later than his Required Beginning Date.

Distributions required to commence under this Section shall be made in the form provided under Article XVI and in accordance with Code Section 401(a)(9) and regulations issued thereunder, including the minimum distribution incidental benefit requirements.

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15.5 Reemployment of a Participant

If a Participant whose Settlement Date has occurred is reemployed by an Employer or a Related Company, he shall lose his right to any distribution or further distributions from the Trust arising from his prior Settlement Date and his interest in the Trust shall thereafter be treated in the same manner as that of any other Participant whose Settlement Date has not occurred.

15.6 Restrictions on Alienation

Except as provided in Code Section 401(a)(13) (relating to qualified domestic relations orders), Code Section 401(a)(13)(C) and (D) (relating to offsets ordered or required under a criminal conviction involving the Plan, a civil judgment in connection with a violation or alleged violation of fiduciary responsibilities under ERISA, or a settlement agreement between the Participant and the Department of Labor in connection with a violation or alleged violation of fiduciary responsibilities under ERISA), Section 1.401(a)-13(b)(2) of Treasury regulations (relating to Federal tax levies and judgments), or as otherwise required by law, no benefit under the Plan at any time shall be subject in any manner to anticipation, alienation, assignment (either at law or in equity), encumbrance, garnishment, levy, execution, or other legal or equitable process; and no person shall have power in any manner to anticipate, transfer, assign (either at law or in equity), alienate or subject to attachment, garnishment, levy, execution, or other legal or equitable process, or in any way encumber his benefits under the Plan, or any part thereof, and any attempt to do so shall be void.

15.7 Facility of Payment

If the Administrator finds that any individual to whom an amount is payable hereunder is incapable of attending to his financial affairs because of any legal, mental or physical condition, including the infirmities of advanced age, such amount (unless prior claim therefor shall have been made by a duly qualified guardian or other legal representative) may, in the discretion of the Administrator, be paid to another person for the use or benefit of the individual found incapable of attending to his financial affairs or in satisfaction of legal obligations incurred by or on behalf of such individual. The Trustee shall make such payment only upon receipt of written instructions to such effect from the Administrator. Any such payment shall be charged to the Account from which any such payment would otherwise have been paid to the individual found incapable of attending to his financial affairs and shall be a complete discharge of any liability therefor under the Plan.

15.8 Inability to Locate Payee

If any benefit becomes payable to any person, or to the executor or administrator of any deceased person, and if that person or his executor or administrator does not present himself to the Administrator within two years after the Administrator has received a

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request for distribution and the Administrator either (i) can not locate the Participant or, (ii) if applicable can not locate a Beneficiary that benefit, in the discretion of the Administrator, can be forfeited. However, if the payee later files a claim for that benefit, the benefit will be restored.

Any amount forfeited under this Section shall reduce the Discretionary Contribution or reinstate the benefits of Eligible Employees who are entitled to have previous Service bridged in accordance with Section 1.1.

15.9 Distribution Pursuant to Qualified Domestic Relations Orders

Notwithstanding any other provision of the Plan to the contrary, if a qualified domestic relations order so provides, distribution may be made to an Alternate Payee pursuant to a qualified domestic relations order, as defined in Code Section 414(p), regardless of whether the Participant's Settlement Date has occurred or whether the Participant is otherwise entitled to receive a distribution under the Plan.

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ARTICLE XVI

FORM OF PAYMENT

16.1 Applicability

Subject to the provisions of the Addendum regarding prior protected forms of payment, the provisions of this Article shall apply to all Participants and Beneficiaries eligible to receive a distribution under the Plan.

16.2 Form of Payment

Subject to the requirements of Addendum 1, distribution of all Sub-Accounts other than a Participant’s Money Purchase Contribution Sub-Account, shall be made to a Participant, or his Beneficiary, if the Participant has died, in a single sum cash payment.

16.3 Direct Rollover

Notwithstanding any other provision of the Plan to the contrary, in lieu of receiving distribution in the form of payment provided under this Article, a “qualified distributee” may elect in writing, in accordance with rules prescribed by the Administrator, to have a portion or all of any “eligible rollover distribution” paid directly by the Plan to the “eligible retirement plan” designated by the “qualified distributee”. Any such payment by the Plan to another “eligible retirement plan” shall be a direct rollover.

For purposes of this Section, the following terms have the following meanings:

(a) An “eligible retirement plan” means an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a) that accepts rollovers; provided, however, that, in the case of a direct rollover by a surviving spouse, an eligible retirement plan does not include a qualified trust described in Code Section 401(a). Also, with respect to any non-spouse “qualified distributee”, such “eligible retirement plan” shall mean an individual retirement account treated as an inherited individual retirement account.

(b) An “eligible rollover distribution” means any distribution of all or any portion of the balance of a Participant's Account; provided, however, that an eligible rollover distribution does not include the following:

(i) any distribution to the extent such distribution is required under Code Section 401(a)(9).

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(ii) the portion of any distribution that consists of the Participant's After-Tax Contributions.

(iii) any distribution that is one of a series of substantially equal periodic payment made not less frequently than annually for the life or life expectancy of the “qualified distributee” or the joint lives or life expectancies of the “qualified distributee” and the “qualified distributee's” designated beneficiary, or for a specified period of ten years or more.

(iv) any hardship withdrawal of Tax-Deferred Contributions made in accordance with the provisions of Article XIII.

(v) outstanding loan balances.

(c) A “qualified distributee” means a Participant, Beneficiary, his surviving spouse, or his spouse or former spouse who is an Alternate Payee under a qualified domestic relations order, as defined in Code Section 414(p).

16.4 Notice Regarding Form of Payment

Within the 60-day period ending 30 days before a Participant's Benefit Payment Date, the Administrator shall provide the Participant with a written explanation of his right to a distribution, his right to make a direct rollover, and the form of payment provided under the Plan. Distribution of the Participant's Account may commence within a reasonable period after receiving a proper distribution request if the Participant, after receiving the notice, affirmatively elects an early distribution.

16.5 Distribution in the Form of Company Stock

Notwithstanding any other provision of the Plan to the contrary, to the extent that his Account is invested in Company stock on the date distribution is to be made to a Participant, the Participant may elect to receive distribution of such Account in the form of Company stock.

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ARTICLE XVII

BENEFICIARIES

17.1 Designation of Beneficiary

An unmarried Participant's Beneficiary shall be the person or persons designated by such Participant in accordance with rules prescribed by the Administrator. A married Participant's Beneficiary shall be his spouse, unless the Participant designates a person or persons other than his spouse as Beneficiary with his spouse's written consent. For purposes of this Section, a Participant shall be treated as unmarried and spousal consent shall not be required if the Participant is not married on his Benefit Payment Date.

A married Participant's designation of a Beneficiary shall be subject to the Qualified Pre-retirement Survivor Annuity provisions described in the Addendum.

If no Beneficiary has been designated pursuant to the provisions of this Section, or if no Beneficiary survives the Participant and he has no surviving spouse, then the Beneficiary under the Plan shall be the Participant's estate. If a Beneficiary dies after becoming entitled to receive a distribution under the Plan but before distribution is made to him in full, and if the Participant has not designated another Beneficiary to receive the balance of the distribution in that event, the estate of the deceased Beneficiary shall be the Beneficiary as to the balance of the distribution.

17.2 Spousal Consent Requirements

Any written spousal consent given pursuant to this Article must acknowledge the effect of the action taken and must be witnessed by a notary public. In addition, the spouse's written consent must either (i) specify any non-spouse Beneficiary designated by the Participant and that such Beneficiary may not be changed without written spousal consent or (ii) acknowledge that the spouse has the right to limit consent to a specific Beneficiary, but permit the Participant to change the designated Beneficiary without the spouse's further consent. A Participant's spouse will be deemed to have given written consent to the Participant's designation of Beneficiary if the Participant establishes to the satisfaction of a Plan representative that such consent cannot be obtained because the spouse cannot be located or because of other circumstances set forth in Section 401(a)(11) of the Code and regulations issued thereunder. Any written consent given or deemed to have been given by a Participant's spouse hereunder shall be valid only with respect to the spouse who signs the consent.

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ARTICLE XVIII

ADMINISTRATION

18.1 Powers and Duties of Administrative Committee

Except as otherwise provided in this Article XVIII, 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, the Administrative Committee shall have the following discretionary authorities:

(a) To construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder.

(b) To prescribe procedures and regulations to be followed by Participants or beneficiaries with respect to the filing of elections, requests, applications for benefits, consents and waivers, which procedures and regulations may include the utilization of telephone voice response, internet or intranet systems or other electronic media as an equivalent means for filing written paper documents.

(c) To prepare and distribute, in such manner as the Administrative Committee determines to be appropriate, information explaining the Plan and a Participant’s or beneficiary’s rights hereunder, which manner may include utilization of a telephone voice response, internet or intranet system, or other electronic media as an equivalent means for filing written paper documents.

(d) To request and receive from each Employer, Participants and others such information as shall be necessary for the proper administration of the Plan.

(e) To furnish the Sponsor upon request such annual and other reports with respect to the administration of the Plan as are reasonable and appropriate.

(f) To receive, review and maintain on file reports of the financial condition and of the receipts and disbursements of the Trust Fund from the Trustee.

(g) To fix and determine the respective amounts payable by the Employers pursuant to Article VI (Employer Contributions).

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(h) To take such action not included within responsibilities allocated to the Board of Directors, the Investment Committee, or the Trustee under the provisions of the Plan as may be needed to carry out the orderly administration of the Plan.

(i) To determine all questions relating to the eligibility, benefits and other rights of employees, Participants and beneficiaries under the Plan.

(j) To allocate fiduciary responsibilities (other than Trustee responsibilities) among its members and to designate other persons to carry out nonfiduciary and fiduciary responsibilities (other than Trustee responsibilities).

(k) To take such action as it deems appropriate to correct any errors or omissions with respect to the administration of the Plan, including but not limited to causing to be allocated from future Contributions to the Trust Fund or causing distributions from the Trust Fund to be withheld, accelerated or adjusted in order to accord to a Participant or beneficiary the allocations to his Accounts or distributions therefrom to which he is entitled under the Plan.

18.2 Powers and Duties of the Investment Committee

(a) Except for responsibilities retained by the Board of Directors of the Sponsor, the Investment Committee shall have the responsibility to (i) review investment performance of the Trust Fund; (ii) establish investment Funds pursuant to Section 8.2; (iii) direct the Trustee with regard to the investment of assets; and (iv) such other responsibilities as may be delegated to it by the Board of Directors or pursuant to the Plan or trust agreement.

(b) In connection with these responsibilities, the Investment Committee shall have the following powers and duties:

(i) to establish investment guidelines and objectives for the investment of the Trust Fund and each investment Fund as a part thereof, including, but not by way of limitation, the establishment of additional investment funds or the consolidation of one or more of the existing funds;

(ii) to review the performance of and appoint and dismiss the Trustee;

(iii) to receive, review and retain (as it deems convenient or proper) reports of the investments and the receipts and disbursements of the Trust Fund from the Trustee and/or any Investment Managers; and

(iv) to manage the investment of any assets for which the Investment Committee serves as investment advisor.

(c) The Investment Committee may, subject to periodic review, (i) allocate or delegate among its members certain powers, (ii) authorize one or more of its members or an agent to execute or deliver any instruments or make payment on the Investment Committee’s behalf, and (iii) utilize the services of agents and employ persons to perform ministerial, clerical, record-keeping, consulting or legal services to assist the Investment Committee in the performance of its duties.

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(d) The Investment Committee shall maintain records and accounts showing the fiscal transactions and performance evaluations of the Trust Fund. At least annually, the Investment Committee shall submit to the Board a report regarding the operation of the Trust during the past year and shall also submit such other reports as the Board shall request.

18.3 Discretionary Authority

In carrying out its duties under the Plan, including making benefit determinations, interpreting or construing the provisions of the Plan, and resolving disputes, the Sponsor (or any individual to whom authority has been delegated in accordance with Section 18.1) shall have absolute discretionary authority.

18.4 Action of the Sponsor

Any act authorized, permitted, or required to be taken under the Plan by the Sponsor and which has not been delegated in accordance with Section 18.1, may be taken by a majority of the members of the board of directors of the Sponsor, either by vote at a meeting, or in writing without a meeting, or by the employee or employees of the Sponsor designated by the board of directors to carry out such acts on behalf of the Sponsor. All notices, advice, directions, certifications, approvals, and instructions required or authorized to be given by the Sponsor under the Plan shall be in writing and signed by either (i) a majority of the members of the Sponsor's board of directors or by such member or members as may be designated by an instrument in writing, signed by all the members thereof, as having authority to execute such documents on its behalf, or (ii) the employee or employees authorized to act for the Sponsor in accordance with the provisions of this Section.

18.5 Claims Review Procedure

(a) Any person who believes that he is then entitled to receive a benefit under the Plan, including one greater than that initially determined by the Administrative Committee, may file a claim in writing with the Administrative Committee.

(b) The Administrative Committee shall within 90 days of the receipt of a claim either allow or deny the claim in writing. A denial of a claim shall be written in a manner calculated to be understood by the claimant and shall include:

(i) the specific reason or reasons for the denial;

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(ii) specific references to pertinent Plan provisions on which the denial is based;

(iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(iv) an explanation of the Plan’s claim review procedure.

(c) A claimant whose claim is denied (or his duly authorized representative) may, within 60 days after receipt of denial of his claim:

(i) submit a written request for review to the Administrative Committee;

(ii) review pertinent documents; and

(iii) submit issues and comments in writing.

(d) The Administrative Committee shall notify the claimant of its decision on review within 60 days of receipt of a request for review. The decision on review shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based.

(e) The 90-day and 60-day periods described in subsections (b) and (d) above, respectively, may be extended at the discretion of the Administrative Committee for a second 90- or 60-day period, as the case may be, provided that written notice of the extension is furnished to the claimant prior to the termination of the initial period, indicating the special circumstances requiring such extension of time and the date by which a final decision is expected.

(f) Participants and beneficiaries shall not be entitled to challenge the Administrative Committee’s determinations in judicial or administrative proceedings without first complying with the procedures in this Article. The Administrative Committee’s decisions made pursuant to this Section are intended to be final and binding on Participants, beneficiaries and others. Further, no legal actions may be commenced with respect to a request by Participant or Participant’s beneficiary for benefits later than two (2) years after the Participant or Participant’s beneficiary originally filed his claim for benefits.

18.6 Qualified Domestic Relations Orders

The Sponsor shall establish reasonable procedures to determine the status of domestic relations orders and to administer distributions under domestic relations orders which are deemed to be qualified orders. Such procedures shall be in writing and shall comply with the provisions of Code Section 414(p) and regulations issued thereunder.

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18.7 Indemnification

In addition to whatever rights of indemnification the members of the Sponsor's board of directors or any employee or employees of the Sponsor to whom any power, authority, or responsibility is delegated pursuant to Section 18.4, may be entitled under the articles of incorporation or regulations of the Sponsor, under any provision of law, or under any other agreement, the Sponsor shall satisfy any liability actually and reasonably incurred by any such person or persons, including expenses, attorneys' fees, judgments, fines, and amounts paid in settlement (other than amounts paid in settlement not approved by the Sponsor), in connection with any threatened, pending or completed action, suit, or proceeding which is related to the exercising or failure to exercise by such person or persons of any of the powers, authority, responsibilities, or discretion as provided under the Plan, or reasonably believed by such person or persons to be provided hereunder, and any action taken by such person or persons in connection therewith, unless the same is judicially determined to be the result of such person or persons' gross negligence or willful misconduct.

18.8 Actions Binding

Subject to the provisions of Section 18.5, any action taken by the Sponsor which is authorized, permitted, or required under the Plan shall be final and binding upon the Employers, the Trustee, all persons who have or who claim an interest under the Plan, and all third parties dealing with the Employers or the Trustee.

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ARTICLE XIX

AMENDMENT AND TERMINATION

19.1 Amendment

Subject to the provisions of Section 19.2, the Sponsor may at any time and from time to time, by action of its board of directors, or such officers of the Sponsor as are authorized by its board of directors, amend the Plan, either prospectively or retroactively. Any such amendment shall be by written instrument executed by the Sponsor.

19.2 Limitation on Amendment

The Sponsor shall make no amendment to the Plan which shall decrease the accrued benefit of any Participant or Beneficiary, except that nothing contained herein shall restrict the right to amend the provisions of the Plan relating to the administration of the Plan and Trust. Moreover, no such amendment shall be made hereunder which shall permit any part of the Trust to revert to an Employer or any Related Company or be used or be diverted to purposes other than the exclusive benefit of Participants and Beneficiaries, unless all distribution obligations Participants and Beneficiaries have been met. The Sponsor shall make no retroactive amendment to the Plan unless such amendment satisfies the requirements of Code Section 401(b) and/or Section 1.401(a)(4)-11(g) of the Treasury regulations, as applicable.

19.3 Termination

The Sponsor reserves the right, by action of its board of directors, to terminate the Plan as to all Employers at any time (the effective date of such termination being hereinafter referred to as the “termination date”). Upon any such termination of the Plan, the following actions shall be taken for the benefit of Participants and Beneficiaries:

(a) As of the termination date, each Investment Fund shall be valued and all Accounts and Sub-Accounts shall be adjusted in the manner provided in Article XI, with any unallocated contributions or forfeitures being allocated as of the termination date in the manner otherwise provided in the Plan. The termination date shall become a Valuation Date for purposes of Article XI. In determining the net worth of the Trust, there shall be included as a liability such amounts as shall be necessary to pay all expenses in connection with the termination of the Trust and the liquidation and distribution of the property of the Trust, as well as other expenses, whether or not accrued, and shall include as an asset all accrued income.

(b) All Accounts shall then be disposed of to or for the benefit of each Participant or Beneficiary in accordance with the provisions of Article XV as if the termination date were his Settlement Date; provided, however, that notwithstanding the

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provisions of Article XV, if the Plan does not offer an annuity option and if neither his Employer nor a Related Company establishes or maintains another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)), the Participant's written consent to the commencement of distribution shall not be required regardless of the value of the vested portions of his Account.

(c) Notwithstanding the provisions of paragraph (b) of this Section, no distribution shall be made to a Participant of any portion of the balance of his Tax-Deferred Contributions Sub-Account on account of Plan termination (other than a distribution made in accordance with Article XIII or required in accordance with Code Section 401(a)(9)) unless (i) neither his Employer nor a Related Company establishes or maintains another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7), a tax credit employee stock ownership plan as defined in Code Section 409, a simplified employee pension as defined in Code Section 408(k), a SIMPLE IRA plan as defined in Code Section 408(p), a plan or contract that meets the requirements of Code Section 403(b), or a plan that is described in Code Section 457(b) or (f)) either at the time the Plan is terminated or at any time during the period ending 12 months after distribution of all assets from the Plan; provided, however, that this provision shall not apply if fewer than 2% of the Eligible Employees under the Plan were eligible to participate at any time in such other defined contribution plan during the 24 month period beginning 12 months before the Plan termination, and (ii) the distribution the Participant receives is a “lump sum distribution” as defined in Code Section 402(e)(4), without regard to clauses (I), (II), (III), and (IV) of sub-paragraph (D)(i) thereof.

Notwithstanding anything to the contrary contained in the Plan, upon any such Plan termination, the vested interest of each Participant and Beneficiary in his Employer Contributions Sub-Account shall be 100 percent; and, if there is a partial termination of the Plan, the vested interest of each Participant and Beneficiary who is affected by the partial termination in his Employer Contributions Sub-Account shall be 100 percent. For purposes of the preceding sentence only, the Plan shall be deemed to terminate automatically if there shall be a complete discontinuance of contributions hereunder by all Employers.

19.4 Reorganization

The merger, consolidation, or liquidation of any Employer with or into any other Employer or a Related Company shall not constitute a termination of the Plan as to such Employer. If an Employer disposes of substantially all of the assets used by the Employer in a trade or business or disposes of a subsidiary and in connection therewith one or more Participants terminates employment but continues in employment with the purchaser of the assets or with such subsidiary, no distribution from the Plan shall be made to any such Participant from his Tax-Deferred Contributions Sub-Account prior to his separation from service (other than a distribution

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made in accordance with Article XIII or required in accordance with Code Section 401(a)(9)), except that a distribution shall be permitted to be made in such a case, subject to the Participant's consent (to the extent required by law), if (i) the distribution would constitute a “lump sum distribution” as defined in Code Section 402(e)(4), without regard to clauses (I), (II), (III), or (IV) of sub-paragraph (D)(i) thereof, (ii) the Employer continues to maintain the Plan after the disposition, (iii) the purchaser does not maintain the Plan after the disposition, and (iv) the distribution is made by the end of the second calendar year after the calendar year in which the disposition occurred.

19.5 Withdrawal of an Employer

An Employer other than the Sponsor may withdraw from the Plan at any time upon notice in writing to the Administrator (the effective date of such withdrawal being hereinafter referred to as the “withdrawal date”), and shall thereupon cease to be an Employer for all purposes of the Plan. An Employer shall be deemed automatically to withdraw from the Plan in the event of its complete discontinuance of contributions, or, subject to Section 19.4 and unless the Sponsor otherwise directs, it ceases to be a Related Company of the Sponsor or any other Employer. Upon the withdrawal of an Employer, the withdrawing Employer shall determine whether a partial termination has occurred with respect to its Employees. In the event that the withdrawing Employer determines a partial termination has occurred, the action specified in Section 19.3 shall be taken as of the withdrawal date, as on a termination of the Plan, but with respect only to Participants who are employed solely by the withdrawing Employer, and who, upon such withdrawal, are neither transferred to nor continued in employment with any other Employer or a Related Company. The interest of any Participant employed by the withdrawing Employer who is transferred to or continues in employment with any other Employer or a Related Company, and the interest of any Participant employed solely by an Employer or a Related Company other than the withdrawing Employer, shall remain unaffected by such withdrawal; no adjustment to his Accounts shall be made by reason of the withdrawal; and he shall continue as a Participant hereunder subject to the remaining provisions of the Plan.

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ARTICLE XX

ADOPTION BY OTHER ENTITIES

20.1 Adoption by Related Companies

A Related Company that is not an Employer may, with the consent of the Sponsor, adopt the Plan and become an Employer hereunder by causing an appropriate written instrument evidencing such adoption to be executed in accordance with the requirements of its organizational authority. Any such instrument shall specify the effective date of the adoption.

20.2 Effective Plan Provisions

An Employer who adopts the Plan shall be bound by the provisions of the Plan in effect at the time of the adoption and as subsequently in effect because of any amendment to the Plan.

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ARTICLE XXI

MISCELLANEOUS PROVISIONS

21.1 No Commitment as to Employment

Nothing contained herein shall be construed as a commitment or agreement upon the part of any person to continue his employment with an Employer or Related Company, or as a commitment on the part of any Employer or Related Company to continue the employment, compensation, or benefits of any person for any period.

21.2 Benefits

Nothing in the Plan nor the Trust Agreement shall be construed to confer any right or claim upon any person, firm, or corporation other than the Employers, the Trustee, Participants, and Beneficiaries.

21.3 No Guarantees

The Employers, the Administrator, and the Trustee do not guarantee the Trust from loss or depreciation, nor do they guarantee the payment of any amount which may become due to any person hereunder.

21.4 Expenses

The expenses of operation and administration of the Plan, including the expenses of the Administrator and fees of the Trustee, shall be paid from the Trust, unless the Sponsor elects to make payment. To the extent paid from the Trust, administrative expenses shall be allocated among Participants' Accounts.

Notwithstanding the foregoing, administrative expenses that are incurred directly with respect to an individual Participant's Account will be allocated to that Account.

21.5 Precedent

Except as otherwise specifically provided, no action taken in accordance with the Plan shall be construed or relied upon as a precedent for similar action under similar circumstances.

21.6 Duty to Furnish Information

The Employers, the Administrator, and the Trustee shall furnish to any of the others any documents, reports, returns, statements, or other information that the other reasonably deems necessary to perform its duties hereunder or otherwise imposed by law.

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21.7 Merger, Consolidation, or Transfer of Plan Assets

The Plan shall not be merged or consolidated with any other plan, nor shall any of its assets or liabilities be transferred to another plan, unless, immediately after such merger, consolidation, or transfer of assets or liabilities, each Participant in the Plan would receive a benefit under the Plan which is at least equal to the benefit he would have received immediately prior to such merger, consolidation, or transfer of assets or liabilities (assuming in each instance that the Plan had then terminated).

21.8 Back Pay Awards

The provisions of this Section shall apply only to an Employee or former Employee who becomes entitled to back pay by an award or agreement of an Employer without regard to mitigation of damages. If a person to whom this Section applies was or would have become an Eligible Employee after such back pay award or agreement has been effected, and if any such person who had not previously elected to make Tax-Deferred Contributions pursuant to Section 4.1 shall within 30 days of the date he receives notice of the provisions of this Section make an election to make Tax-Deferred Contributions in accordance with such Section 4.1 (retroactive to any Enrollment Date as of which he was or has become eligible to do so), then such Participant may elect that any Tax-Deferred Contributions not previously made on his behalf but which, after application of the foregoing provisions of this Section, would have been made under the provisions of Article IV shall be made out of the proceeds of such back pay award or agreement. In addition, if any such Employee or former Employee would have been eligible to participate in the allocation of Employer Contributions under the provisions of Article VI or XXII for any prior Plan Year after such back pay award or agreement has been effected, his Employer shall make an Employer Contribution equal to the amount of the Employer Contribution which would have been allocated to such Participant under the provisions of Article VI or XXII as in effect during each such Plan Year. The amounts of such additional contributions shall be credited to the Account of such Participant. Any additional contributions made pursuant to this Section shall be made in accordance with, and subject to the limitations of the applicable provisions of the Plan.

21.9 Condition on Employer Contributions

Notwithstanding anything to the contrary contained in the Plan or the Trust Agreement, any contribution of an Employer hereunder is conditioned upon the continued qualification of the Plan under Code Section 401(a), the exempt status of the Trust under Code Section 501(a), and the deductibility of the contribution under Code Section 404. Except as otherwise provided in this Section and Section 21.10, however, in no event shall any portion of the property of the Trust ever revert to or otherwise inure to the benefit of an Employer or any Related Company.

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21.10 Return of Contributions to an Employer

Notwithstanding any other provision of the Plan or the Trust Agreement to the contrary, in the event any contribution of an Employer made hereunder:

(a) is made under a mistake of fact, or

(b) is disallowed as a deduction under Code Section 404,

such contribution may be returned to the Employer within one year after the payment of the contribution or the disallowance of the deduction to the extent disallowed, whichever is applicable. In the event the Plan does not initially qualify under Code Section 401(a), any contribution of an Employer made hereunder may be returned to the Employer within one year of the date of denial of the initial qualification of the Plan, but only if an application for determination was made within the period of time prescribed under ERISA Section 403(c)(2)(B).

21.11 Validity of Plan

The validity of the Plan shall be determined and the Plan shall be construed and interpreted in accordance with the laws of the state of Illinois, except as preempted by applicable Federal law. The invalidity or illegality of any provision of the Plan shall not affect the legality or validity of any other part thereof.

21.12 Trust Agreement

A Trust has been established by the execution of the Trust Agreement 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.

21.13 Parties Bound

The Plan shall be binding upon the Employers, all Participants and Beneficiaries hereunder, and, as the case may be, the heirs, executors, administrators, successors, and assigns of each of them.

21.14 Application of Certain Plan Provisions

For purposes of the general administrative provisions and limitations of the Plan, a Participant's Beneficiary or alternate payee under a qualified domestic relations order shall be treated as any other person entitled to receive benefits under the Plan. Upon any termination of the Plan, any such Beneficiary or alternate payee under a qualified domestic relations order who has an interest under the Plan at the time of such termination, which does not cease by reason thereof, shall be deemed to be a Participant for all purposes of the Plan. A Participant's Beneficiary, if the Participant has died, or alternate payee under a qualified domestic relations order shall be treated as a Participant for purposes of directing investments as provided in Article X.

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21.15 Merged Plans

In the event another defined contribution plan (the “merged plan”) is merged into and made a part of the Plan, each Employee who was eligible to participate in the “merged plan” immediately prior to the merger shall become an Eligible Employee on the date of the merger. In no event shall a Participant's vested interest in his Sub-Account attributable to amounts transferred to the Plan from the “merged plan” (his “transferee Sub-Account”) on and after the merger be less than his vested interest in his account under the “merged plan” immediately prior to the merger. Notwithstanding any other provision of the Plan to the contrary, a Participant's service credited for eligibility and vesting purposes under the “merged plan” as of the merger, if any, shall be included as Eligibility and Vesting Service under the Plan to the extent Eligibility and Vesting Service are credited under the Plan. Special provisions applicable to a Participant's “transferee Sub-Account”, if any, shall be specifically reflected in the Plan or in an Addendum to the Plan.

21.16 Transferred Funds

If funds from another qualified plan are transferred or merged into the Plan, such funds shall be held and administered in accordance with any restrictions applicable to them under such other plan to the extent required by law and shall be accounted for separately to the extent necessary to accomplish the foregoing.

21.17 Veterans Reemployment Rights

Notwithstanding any other provision of the Plan to the contrary, contributions, benefits, and service credit with respect to qualified military service shall be provided in accordance with Code Section 414(u). The Administrator shall notify the Trustee of any Participant with respect to whom additional contributions are made because of qualified military service.

21.18 Delivery of Cash Amounts

To the extent that the Plan requires the Employers to deliver cash amounts to the Trustee, such delivery may be made through any means acceptable to the Trustee, including wire transfer.

21.19 Written Communications

Any communication among the Employers, the Administrator, and the Trustee that is stipulated under the Plan to be made in writing may be made in any medium that is acceptable to the receiving party and permitted under applicable law. In addition, any

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communication or disclosure to or from Participants and/or Beneficiaries that is required under the terms of the Plan to be made in writing may be provided in any other medium (electronic, telephonic, or otherwise) that is acceptable to the Administrator and permitted under applicable law.

21.20 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 Employer’s records, will be binding on the Participant and his beneficiary for all purposes of this Plan and neither the Administrative Committee nor the Employer shall be obliged to search for or ascertain the whereabouts of any Participant or beneficiary, nor shall any Employer, Committee, director, officer, employee or agent of any of them be liable for any loss, cost or expense associated with any Participant’s or beneficiary’s failure to so file such Participant’s or beneficiary’s address with the Administrative Committee.

21.21 Instructions and Elections

Any instructions or elections required to be made by a Participant in writing under this Plan shall be made in such form and manner (which may include electronic format) as prescribed by the Committee. The Committee shall not be obligated to act with respect to any instructions or elections until receipt thereof in the prescribed form and manner. The Committee shall take or cause to be taken appropriate action with respect to such instructions or elections as soon as administratively feasible after receipt thereof in the prescribed form and manner.

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ARTICLE XXII

TOP-HEAVY PROVISIONS

22.1 Definitions

For purposes of this Article XXII, the definitions of terms used in this Article are found in Section 1.1.

22.2 Applicability

Notwithstanding any other provision of the Plan to the contrary, the provisions of this Article shall be applicable during any Plan Year in which the Plan is determined to be a Top-Heavy Plan as hereinafter defined.

22.3 Minimum Employer Contribution

If the Plan is determined to be a Top-Heavy Plan for a Plan Year, the Employer Contributions, other than Matching Contributions, allocated to the Account of each Non-key Employee who is an Eligible Employee and who is employed by an Employer or a Related Company on the last day of such Top-heavy Plan Year shall be no less than the lesser of (i) three percent of his Top Heavy Compensation or (ii) the largest percentage of Top Heavy Compensation that is allocated as an Employer Contribution and/or Tax-Deferred Contribution for such Plan Year to the Account of any Key Employee; except that, in the event the Plan is part of a Required Aggregation Group, and the Plan enables a defined benefit plan included in such group to meet the requirements of Code Section 401(a)(4) or 410, the minimum allocation of Employer Contributions to each such Non-key Employee shall be three percent of the Top Heavy compensation of such Non-key Employee. Any minimum allocation to a Non-key Employee required by this Section shall be made without regard to any social security contribution made on behalf of the non-key employee, his number of hours of service, his level of Top Heavy Compensation, or whether he declined to make elective or mandatory contributions.

Employer Contributions allocated to a Participant's Account in accordance with this Section shall be considered Annual Additions under Article VII for the Limitation Year for which they are made and shall be separately accounted for. Employer Contributions allocated to a Participant's Account shall be allocated upon receipt among the Investment Funds in accordance with the Participant's currently effective investment election.

*            *            *

EXECUTED AT TELLABS, this 29th day of August, 2007.

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TELLABS OPERATIONS, INC.
By:	/s/ Kyle Matthews
Title:	Vice President, Human Resources

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ADDENDUM

TELLABS 401(K) PLAN

Re: Protected Prior Annuity Form of Payment

A.1 Applicability

Notwithstanding any other provision of the Plan to the contrary, the following provisions apply with respect to Participants who have accounts attributable to amounts transferred to the Plan from the Tellabs Retirement Plan (the “Spin-off Plan”) to the Plan. The term “Participant” when used in this Addendum refers only to a Participant who satisfies the requirements described herein. The provisions of this Addendum apply only to that portion of a Participant's Account that is attributable to the Participant's Money Purchase Contributions. The term “Account” when used in this Addendum refers only to that portion of a Participant's Account described in the preceding sentence.

A.2 Definitions

For purposes of this Article, the following terms have the following meanings:

The “automatic annuity form” means the form of annuity that will be purchased on behalf of a Participant.

A “qualified election” means an election that is made during the “qualified election period”. A “qualified election” of a form of payment other than a Qualified Joint and Survivor Annuity or designating a Beneficiary other than the Participant's spouse to receive amounts otherwise payable as a Qualified Preretirement Survivor Annuity must include the notarized written consent of the Participant's spouse, if any. A Participant's spouse will be deemed to have given written consent to the Participant's election if the Participant establishes to the satisfaction of a Plan representative that spousal consent cannot be obtained because the spouse cannot be located or because of other circumstances set forth in Code Section 401(a)(11) and regulations issued thereunder. The spouse's written consent must acknowledge the effect of the Participant's election and must be witnessed by a notary public. In addition, the spouse's written consent must either (i) specify the form of payment selected instead of a Qualified Joint and Survivor Annuity, if applicable, and that such form may not be changed (except to a Qualified Joint and Survivor Annuity) without written spousal consent and specify any non-spouse Beneficiary designated by the Participant, if applicable, and that such Beneficiary may not be changed without written spousal consent or (ii) acknowledge that the spouse has the right to limit consent as provided in clause (i), but permit the Participant to change the form of payment selected or the designated Beneficiary without the spouse's further consent. Any written consent given or deemed to have been given by a Participant's spouse hereunder shall be irrevocable and shall be effective only with respect to such spouse and not with respect to any subsequent spouse.

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Notwithstanding the above, the consent of a Participant’s spouse to the waiver of a Qualified Joint and Survivor Annuity shall not be required if the Participant was not married throughout the one-year period ending on his Benefit Payment Date. A Participant who marries within one year before his Benefit Payment Date and is married to such spouse for a one-year period ending prior to his death shall be deemed to have been married throughout the one-year period ending on his Benefit Payment Date.

The “qualified election period” with respect to the “automatic annuity form” means the 90-day period ending on a Participant's Benefit Payment Date. The “qualified election period” with respect to a Qualified Preretirement Survivor Annuity means the period beginning on the first day of the Plan Year in which the Participant attains age 35 or, if he terminates employment prior to such date, the day he terminates employment with his Employer and all Related Companies. A Participant whose employment has not terminated may make a “qualified election” designating a Beneficiary other than his spouse prior to the Plan Year in which he attains age 35; provided, however, that such election shall cease to be effective as of the first day of the Plan Year in which the Participant attains age 35.

A.3 Normal Form of Payment

Subject to A.5, unless a Participant, or his Beneficiary, if the Participant has died, elects the form of payment provided under Article XVI, distribution shall be made to the Participant, or his Beneficiary, as the case may be, through the purchase of a single premium, nontransferable annuity contract for such term as the Participant, or his Beneficiary, as the case may be, shall select, subject to the automatic annuity and Qualified Preretirement Survivor Annuity requirements described in this Article; provided, however, that a Participant's Beneficiary may not elect to receive distribution of an annuity payable over the joint lives of the Beneficiary and any other individual. The terms of any annuity contract purchased hereunder and distributed to a Participant or his Beneficiary shall comply with the requirements of the Plan.

A.4 Change of Election

Subject to the automatic annuity requirements of this Addendum, a Participant or Beneficiary who has elected a form of payment provided under Article XVI may revoke or change his election at any time prior to his Benefit Payment Date by filing his election with the Administrator in the form prescribed by the Administrator.

A.5 Automatic Annuity Requirements

Distribution shall be made to a Participant through the purchase of an annuity contract that provides for payment in one of the following “automatic annuity forms”, unless the Participant elects the optional form of payment provided in Article XVI.

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(a) The “automatic annuity form” for a Participant who is married on his Benefit Payment Date is the 50 percent Qualified Joint and Survivor Annuity.

(b) The “automatic annuity form” for a Participant who is not married on his Benefit Payment Date is the Single Life Annuity.

A Participant's election of an annuity other than the “automatic annuity form” or of the optional form of payment shall not be effective unless it is a “qualified election”; provided, however, that spousal consent shall not be required if the form of payment elected by the Participant is a Qualified Joint and Survivor Annuity. A Participant may only change his election of a form of payment pursuant to a “qualified election”; provided, however, that spousal consent shall not be required if the form of payment elected by the Participant is a Qualified Joint and Survivor Annuity.

A.6 Qualified Preretirement Survivor Annuity Requirements

If a married Participant dies before his Benefit Payment Date, his spouse shall receive distribution of the value of the Participant's vested interest in his Account through the purchase of an annuity contract that provides for payment over the life of the Participant's spouse. A Participant's spouse may elect to receive distribution under any one of the other forms of payment available under this Article instead of in the Qualified Preretirement Survivor Annuity form. A married Participant may only designate a non-spouse Beneficiary to receive distribution of his Account pursuant to a “qualified election”.

A.7 Notice Regarding Forms of Payment

The explanation provided to a Participant pursuant to Article XVI, shall include a description of the annuity form of payment available under the Addendum, including a written explanation of (i) the terms and conditions of the “automatic annuity form”, (ii) the Participant's right to choose a form of payment other than the “automatic annuity form” or to revoke such choice, and (iii) the rights of the Participant's spouse.

The Administrator shall provide such explanation within the 60-day period ending 30 days before the Participant's Benefit Payment Date. Notwithstanding the foregoing, distribution of the Participant's Account may commence fewer than 30 days after such explanation is provided to the Participant if (i) the Administrator clearly informs the Participant of his right to consider his election of whether or not to make a direct rollover or to receive a distribution prior to his Normal Retirement Date and his election of a form of payment for a period of at least 30 days following his receipt of the explanation, (ii) the Participant, after receiving the explanation, affirmatively elects an early distribution with his spouse's written consent, if necessary, (iii) the Participant may revoke his election at any time prior to the later of his Benefit Payment Date or the expiration of the seven-day period beginning the day after the date the explanation is provided to him, and (iv) distribution does not commence to the Participant before such revocation period ends.

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In addition, the Administrator shall provide a Participant with a written explanation of (i) the terms and conditions of the Qualified Preretirement Survivor Annuity, (ii) the Participant's right to designate a non-spouse Beneficiary to receive distribution of his Account otherwise payable as a Qualified Preretirement Survivor Annuity or to revoke such designation, and (iii) the rights of the Participant's spouse. The Administrator shall provide such explanation within one of the following periods, whichever ends last:

(a) the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending on the last day of the Plan Year preceding the Plan Year in which the Participant attains age 35; or

(b) if an individual becomes a Participant after attaining age 32, no later than the end of the second Plan Year following the date such individual becomes a Participant;

provided, however, that in the case of a Participant who separates from service prior to attaining age 35, the explanation shall be provided to such Participant within the period beginning 12 calendar months before the Participant's separation from service and ending 12 calendar months after his separation from service.

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APPENDIX TO

TELLABS 401(K) PLAN

Re: Minimum Distribution Requirements

SECTION I

DEFINITIONS

1.1 Definitions

For purposes of this Appendix the following terms have the following meanings. Except as otherwise specifically provided herein, any term defined in Section 1.1 of the Plan has the meaning given such term in such Section.

A Participant's “designated beneficiary” means the individual who is designated as the Participant's Beneficiary under Article XVII of the Plan and is the designated beneficiary under Code Section 401(a)(9) and Section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations.

A “distribution calendar year” means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first “distribution calendar year” is the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. For distributions beginning after the Participant's death, the first “distribution calendar year” is the calendar year in which distributions are required to begin under Section 3.2 of this Appendix. The required minimum distribution for the Participant's first “distribution calendar year” will be made on or before the Participant's Required Beginning Date. The required minimum distribution for other “distribution calendar years”, including the required minimum distribution for the “distribution calendar year” in which the Participant's Required Beginning Date occurs, will be made on or before December 31 of that “distribution calendar year”.

A Participant's or Beneficiary's “life expectancy” means his life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury regulations.

A “Participant's account balance” means the Account balance as of the last Valuation Date in the calendar year immediately preceding the “distribution calendar year” (the “valuation calendar year”) increased by the amount of any contributions made and allocated or forfeitures allocated to the Account balance as of dates in the “valuation calendar year” after the Valuation Date and decreased by distributions made in the “valuation calendar year” after the Valuation Date. The Account balance for the “valuation calendar year” includes any amounts rolled over or transferred to the Plan either in the “valuation calendar year” or in the “distribution calendar year” if distributed or transferred in the “valuation calendar year”.

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SECTION II

GENERAL RULES

2.1 Effective Date

The provisions of this Appendix will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.

2.2 Precedence

The requirements of this Appendix will take precedence over any inconsistent provisions of the Plan.

2.3 Requirements of Treasury Regulations Incorporated

All distributions required under this Appendix will be determined and made in accordance with the Treasury regulations under Code Section 401(a)(9).

SECTION III

TIME AND MANNER OF DISTRIBUTION

3.1 Required Beginning Date

A Participant's entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant's Required Beginning Date.

3.2 Death of Participant Before Distributions Begin

If a Participant dies before distributions begin, the Participant's entire interest will be distributed, or begin to be distributed, no later than as follows:

(a) If the Participant's surviving spouse is the Participant's sole “designated beneficiary”, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70  ¹/2, if later.

(b) If the Participant's surviving spouse is not the Participant's sole “designated beneficiary”, then distributions to the “designated beneficiary” will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

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(c) If there is no “designated beneficiary” as of September 30 of the year following the year of the Participant's death, the Participant's entire interest will be distributed by December 31 of the calendar year following the calendar year of containing the first anniversary of the Participant's death.

(d) If the Participant's surviving spouse is the Participant's sole “designated beneficiary” and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 3.2, other than Section 3.2(a), will apply as if the surviving spouse were the Participant.

For purposes of this Section 3.2 and Section V, unless Section 3.2(d) applies, distributions are considered to begin on the Participant's Required Beginning Date. If Section 3.2(d) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 3.2(a). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant's Required Beginning Date (or to the Participant's surviving spouse before the date distributions are required to begin to the surviving spouse under Section 3.2(a)), the date distributions are considered to begin is the date distributions actually commence.

3.3 Forms of Distribution

Unless the Participant's interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Required Beginning Date, as of the first “distribution calendar year”, distributions will be made in accordance with Sections IV and V of this Appendix. If the Participant's interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code Section 401(a)(9) and the Treasury regulations.

SECTION IV

REQUIRED MINIMUM DISTRIBUTIONS

DURING PARTICIPANT'S LIFETIME

4.1 Amount of Required Minimum Distribution For Each Distribution Calendar Year

During the Participant's lifetime, the minimum amount that will be distributed for each “distribution calendar year” is the lesser of:

(a) the quotient obtained by dividing the “Participant's account balance” by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant's age as of the Participant's birthday in the “distribution calendar year”; or

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(b) if the Participant's sole “designated beneficiary” for the “distribution calendar year” is the Participant's spouse, the quotient obtained by dividing the “Participant's account balance” by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant's and spouse's attained ages as of the Participant's and spouse's birthdays in the “distribution calendar year”.

4.2 Lifetime Required Minimum Distributions Continue Through Year of Participant's Death

Required minimum distributions will be determined under this Section IV beginning with the first “distribution calendar year” and up to and including the “distribution calendar year” that includes the Participant's date of death.

SECTION V

REQUIRED MINIMUM DISTRIBUTIONS

AFTER PARTICIPANT'S DEATH

5.1 Death On or After Date Distributions Begin

If a Participant dies on or after the date distributions begin, the following rules shall apply.

(a) If there is a “designated beneficiary”, the minimum amount that will be distributed for each “distribution calendar year” after the year of the Participant's death is the quotient obtained by dividing the “Participant's account balance” by the longer of the remaining “life expectancy” of the Participant or the remaining “life expectancy” of the Participant's “designated beneficiary”, determined as follows:

(i) The Participant's remaining “life expectancy” is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(ii) If the Participant's surviving spouse is the Participant's sole “designated beneficiary”, the remaining “life expectancy” of the surviving spouse is calculated for each “distribution calendar year” after the year of the Participant's death using the surviving spouse's age as of the spouse's birthday in that year. For “distribution calendar years” after the year of the surviving spouse's death, the remaining “life expectancy” of the surviving spouse is calculated using the age of the surviving spouse as of the spouse's birthday in the calendar year of the spouse's death, reduced by one for each subsequent calendar year.

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(iii) If the Participant's surviving spouse is not the Participant's sole “designated beneficiary”, the “designated beneficiary's” remaining “life expectancy” is calculated using the age of the beneficiary in the year following the year of the Participant's death, reduced by one for each subsequent year.

(b) If there is no “designated beneficiary” as of September 30 of the year after the year of the Participant's death, the minimum amount that will be distributed for each “distribution calendar year” after the year of the Participant's death is the quotient obtained by dividing the “Participant's account balance” by the Participant's remaining “life expectancy” calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

5.2 Death Before Date Distributions Begin

If the Participant dies before the date distributions begin, the following rules shall apply:

(a) If there is a “designated beneficiary”, the minimum amount that will be distributed for each “distribution calendar year” after the year of the Participant's death is the quotient obtained by dividing the “Participant's account balance” by the remaining “life expectancy” of the Participant's “designated beneficiary”, determined as provided in Section 5.1 of this Appendix.

(b) If there is no “designated beneficiary” as of September 30 of the year following the year of the Participant's death, distribution of the Participant's entire interest will be completed by December 31 of the calendar year containing the first anniversary of the Participant's death.

(c) If the Participant dies before the date distributions begin, the Participant's surviving spouse is the Participant's sole “designated beneficiary”, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 3.2(a) of this Appendix, this Section 5.2 will apply as if the surviving spouse were the Participant.

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TELLABS 401(K) PLAN

AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2007

Pursuant to resolutions made by the Board of Directors of Tellabs Operations, Inc. on April 3, 2006, the attached restatement of the Tellabs 401(k) Plan, is hereby adopted in accordance with the authorizations and directions of such resolutions.

TELLABS OPERATIONS, INC.
By:	/s/ Kyle Matthews
Kyle Matthews Its: VP, Human Resources

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EX-10.42

Exhibit 10.42

ADDENDUM INCORPORATING

EGTRRA COMPLIANCE AMENDMENT

TO

TELLABS 401(K) PLAN (THE “PLAN”)

This Amendment to the Plan is adopted to reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). This Amendment is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder. Except as otherwise provided, this Amendment shall be effective as of the first day of the first Plan Year beginning after December 31, 2001.

This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment.

References to provisions by Plan Section or Article numbers in this Amendment are to the provisions associated with these Section or Article numbers in the approved volume submitter specimen plan from which the Plan is generated. If the Section or Article numbers have been changed in generating the Plan, references are to the provisions in the Plan that are associated with the Section or Article numbers in the approved volume submitter specimen plan.

AMENDMENT SECTION 1: PLAN LOANS FOR OWNER-EMPLOYEES AND SHAREHOLDER EMPLOYEES

[X] Select this Amendment Section 1 if the Plan provides for loans. (Do not select if the Plan does not provide for loans.)

Effective for plan loans made after December 31, 2001, the provisions of Section 12.1 prohibiting loans to any owner-employee or shareholder-employee shall cease to apply.

AMENDMENT SECTION 2: LIMITATIONS ON CONTRIBUTIONS

[X] All Plans must select this Amendment Section 2.

Effective for “limitation years” beginning after December 31, 2001, the first sentence of the Section in Article VII entitled “Code Section 415 Limitations on Crediting of Contributions and Forfeitures” is amended to provide as follows:

Except to the extent permitted under Amendment Section 11 and Code Section 414(v), if applicable, the “annual addition” that may be contributed or allocated to a Participant’s Account under the Plan for any “limitation year” shall not exceed the lesser of:

(a) $40,000, as adjusted for increases in the cost-of-living under Code Section 415(d), or

1

(b) 100 percent of the Participant’s compensation, within the meaning of Code Section 415(c)(3), for the “limitation year”. The compensation limit referred to in this paragraph (b) shall not apply to any contribution for medical benefits after separation from service (within the meaning of Code Section 401(h) or 419A(f)(2)) which is otherwise treated as an “annual addition”.

AMENDMENT SECTION 3: INCREASE IN COMPENSATION LIMIT

[X] Select this Amendment Section 3 to increase the Compensation limit applicable under Code Section 401(a)(17) to the new $200,000 limit. (If you do not wish to increase to the new Compensation limit, do not select this Amendment Section 3.)

The annual Compensation of each Participant taken into account in determining allocations for any Plan Year beginning after December 31, 2001, shall not exceed $200,000, as adjusted for cost-of-living increases in accordance with Code Section 401(a)(17)(B). Annual Compensation means Compensation during the Plan Year or such other consecutive 12-month period over which Compensation is otherwise determined under the Plan (the determination period). The cost-of-living adjustment in effect for a calendar year applies to annual Compensation for the determination period that begins with or within such calendar year.

AMENDMENT SECTION 4: MODIFICATION OF TOP-HEAVY RULES

[X] Select this Amendment Section 4 if the Plan covers non-collectively bargained employees. (If the Plan covers collectively bargained employees only, do not select this Amendment Section 4.)

This Section shall apply for purposes of determining whether the Plan is a top-heavy plan under Code Section 416(g) for Plan Years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefits requirements of Code Section 416(c) for such years. This Section amends Article XXII of the Plan

A. The definition of “key employee” in Section 22.1 is amended to provide as follows:

A “key employee” means any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year that includes the “determination date” was an officer of an Employer or a Related Company 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 an Employer or a Related Company, or a 1-percent owner of an Employer or a Related Company having annual compensation of more than $150,000.

2

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 applicable regulations and other guidance of general applicability issued thereunder.

B. The definition of “top heavy plan” in Section 22.1 is modified for purposes of determining the present values of accrued benefits and the amounts of account balances of employees as of a “determination date” as follows:

The present values of accrued benefits and the amounts of account balances of an Employee as of the “determination date” shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under Code Section 416(g)(2) during the one-year period ending on the “determination date”. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Code Section 416(g)(2)(A)(i). In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting “five-year period” for “one-year period”. The accrued benefits and accounts of any individual who has not performed services for an Employer or any Related Company during the one-year period ending on the “determination date” shall not be taken into account.

C. The Section in Article XXII entitled “Minimum Employer Contributions” is modified in the following respect:

Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Code Section 416(c)(2) of the Plan. The preceding sentence shall apply with respect to Matching Contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Code Section 401(m).

3

AMENDMENT SECTION 5: DIRECT ROLLOVERS OF PLAN DISTRIBUTIONS

[X] All Plans must select this Amendment Section 5.

Effective with respect to distribution made after December 31, 2001, the Section in Article XVI entitled “Direct Rollovers” is amended in the following respects:

A. The definition of “eligible retirement plan” in paragraph (a) is modified by the addition of a new sentence at the end thereof to provide as follows:

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).

B. If the Plan provides for hardship withdrawals, the definition of “eligible rollover distribution” in paragraph (b) is modified to exclude ALL hardship distributions. Any amount that is distributed on account of hardship shall not be an “eligible rollover distribution” and the distributee may not elect to have any portion of such a distribution paid directly to an “eligible retirement plan”.

C. If the Plan includes assets attributable to After-Tax Contributions, the definition of “eligible rollover distribution” in paragraph (b) is modified to eliminate the exclusion of After-Tax Contributions. A portion of a distribution shall not fail to be an “eligible rollover distribution” merely because the portion consists of After-Tax Contributions that are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in Code Section 408(a) or (b), or to a qualified defined contribution plan described in Code Section 401(a) or 403(a) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

AMENDMENT SECTION 6: ROLLOVERS FROM OTHER PLANS

[X] Select this Amendment Section 6 and complete the selections below only if the Plan accepts Rollover Contributions.

Effective with respect to distributions made after December 31, 2001, the Section of Article V entitled “Rollover Contributions” is amended to provide the following:

A. The Plan will accept as a Rollover Contribution a direct rollover (the rollover is made directly from the other qualified plan or annuity contract) of an “eligible rollover distribution” from (select all that apply):

[X] a qualified plan described in Code Section 401(a) or 403(a), excluding after-tax employee contributions.

4

[   ] a qualified plan described in Code Section 401(a) or 403(a), including after-tax employee contributions. (Do not select if the preceding selection is marked.)

[X] an annuity contract described in Code Section 403(b), excluding after-tax employee contributions.

[X] 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.

[   ] none of the above.

B. The Plan will accept as a Rollover Contribution a participant rollover (the rollover amount is first distributed to the participant who then rolls it over into the Plan) of an “eligible rollover distribution” from (select all that apply):

[X] a qualified plan described in Code Section 401(a) or 403(a).

[X] an annuity contract described in Code Section 403(b).

[X] 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.

[   ] none of the above.

C. Select one of the following:

[   ] The Plan will accept as a Rollover Contribution a direct or participant rollover of the portion of a distribution from an individual retirement account or annuity described in Code Section 408(a) or 408(b) that is eligible to be rolled over and would otherwise be includible in gross income.

or

[X] The Plan will not accept as a Rollover Contribution a direct or participant rollover of the portion of a distribution from an individual retirement account or annuity described in Code Section 408(a) or 408(b) that is eligible to be rolled over and would otherwise be includible in gross income.

5

AMENDMENT SECTION 7: ROLLOVERS DISREGARDED IN INVOLUNTARY CASH-OUTS

[   ] This Amendment Section 7 may be selected if the Plan provides for involuntary cash-outs. If this Amendment Section 7 is selected complete the fill-ins below. Note that this Amendment will result in the involuntary distribution of a separated Participant’s Account over $5,000 if the portion of the Account that is not attributable to Rollover Contributions is $5,000 or less.

For purposes of the Section in Article XV entitled “Cash Outs and Participant Consent”, the value of a Participant’s vested interest in his Account shall be determined without regard to that portion of the account balance that is attributable to Rollover Contributions (and earnings allocable thereto) within the meaning of Code Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16). If the value of the Participant’s vested interest in his Account as so determined is $5,000 or less, the Plan shall immediately distribute the Participant’s entire vested interest in his Account.

AMENDMENT SECTION 8: REPEAL OF MULTIPLE USE TEST

If applicable, the Section of Article VII entitled “Multiple Use Limitation” shall not apply for Plan Years beginning after December 31, 2001.

AMENDMENT SECTION 9. MODIFICATION OF TOP-HEAVY RULES FOR SAFE HARBOR PLANS

[X] Select this Amendment Section 9 if the Plan consists solely of a cash or deferred arrangement which is intended to meet the safe harbor requirements of Code Section 401(k)(12) and Matching Contributions with respect to which the safe harbor requirements of Code Section 401(m)(11) are intended to be met.

The top-heavy requirements of Code Section 416 and Article XXII of the Plan shall not apply in any year beginning after December 31, 2001, in which the Plan consists solely of a cash or deferred arrangement which meets the requirements of Code Section 401(k)(12) and Matching Contributions with respect to which the requirements of Code Section 401(m)(11) are met.

AMENDMENT SECTION 10: CATCH-UP CONTRIBUTIONS

[X] Select this Amendment Section 10 and complete the fill-in below only if the Plan provides for Tax-Deferred Contributions.

All Eligible Employees who have attained age 50 before the close of the Plan Year shall be eligible to make “catch-up contributions” in accordance with, and subject to the limitations of, Code Section 414(v). Such “catch-up contributions” shall

6

not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Code Sections 402(g) and 415. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Code Section 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416, as applicable, by reason of the making of such “catch-up contributions”.

[   ] Tax-Deferred Contributions that are treated as “catch-up contributions” are excluded from eligibility for Matching Contributions under the Plan.

AMENDMENT SECTION 11: SUSPENSION PERIOD FOLLOWING HARDSHIP DISTRIBUTION

[X] Selection of this Amendment Section 11 is optional for 401(k) plans, other than plans described in Code Section 401(k)(12) or 401(m)(11) (i.e., plans that provide for safe harbor contributions to satisfy the discrimination testing rules), that use the safe harbor (deemed) standards for hardship withdrawals of Tax-Deferred Contributions set forth in Treas. Reg. Section 1.401(k)-1(d)(2)(iv). This Amendment Section 11 is required for a plan described in Code Section 401(k)(12) or 401(m)(11) (i.e., plans that provide for safe harbor contributions to satisfy the discrimination testing rules) and that provide for hardship withdrawals. Also see Notice 2001-56 for guidance regarding the effective date of the change made by EGTRRA Section 636(a).

If you select this Amendment Section 11 the automatic suspension of elective contributions following a hardship withdrawal will be reduced from 12 months to 6 months.

A Participant who makes a hardship withdrawal of Tax-Deferred Contributions on or after the effective date specified below, shall be prohibited from making “elective contributions” and “employee contributions”, as defined in Section 7.1, under the Plan and all other plans maintained by an Employer or a Related Company for six months after receipt of the withdrawal.

This provision is effective January 1, 2004.

AMENDMENT SECTION 12: ELIMINATION OF REDUCTION IN 402(g) LIMIT FOR YEAR FOLLOWING YEAR IN WHICH HARDSHIP DISTRIBUTION MADE

[X] Selection of this Amendment Section 12 is optional for 401(k) plans, other than plans described in Code Section 401(k)(12) or 401(m)(11) (i.e., plans that provide for safe harbor contributions to satisfy the discrimination testing rules), that use the safe harbor (deemed) standards for hardship withdrawals of Tax-Deferred Contributions set forth in Treas. Reg. Section 1.401(k)-1(d)(2)(iv). This Amendment Section 12 is required for a plan described in Code Section 401(k)(12) or 401(m)(11) (i.e., plans that provide for safe harbor contributions to satisfy the discrimination testing rules) and that provide for hardship withdrawals. Also, see Notice 2001-56 for guidance regarding the effective date of the change made by EGTRRA Section 636(a).

7

If you select this Amendment Section 12 the reduction in the maximum Tax-Deferred Contributions that a participant may make under Code Section 402(g) in the year following a hardship distribution for contributions made in the year of the distribution will be eliminated.

A Participant who makes a hardship withdrawal of Tax-Deferred Contributions on or after the effective date specified below, shall not have his maximum Tax-Deferred Contributions and “elective contributions” for the taxable year following the taxable year of the withdrawal reduced under Code Section 402(g) by the amount of his Tax-Deferred Contributions and “elective contributions” for the taxable year of the withdrawal.

This provision is effective January 1, 2004.

AMENDMENT SECTION 13: DISTRIBUTION UPON SEVERANCE FROM EMPLOYMENT

[X] This Amendment Section 13 should be selected and the selections and fill-ins below completed if your Plan provides for tax-deferred contributions and you want deferrals and related costs to be distributable in the event you sell off assets and want employees who continue employment with the buyer to be paid out of the Plan.

A Participant’s Tax-Deferred Contributions Sub-Account, Qualified Nonelective Contributions Sub-Account, and Qualified Matching Contributions Sub-Account shall be distributed on account of the Participant’s severance from employment. However, such a distribution shall be subject to the other provisions of the Plan regarding distributions, other than provisions that require a separation from service before such amounts may be distributed.

*            *            *

EXECUTED AT TELLABS, this 29th day of August, 2007.

By:	/s/ Kyle Matthews
Title:	VP, Human Resources

8

EX-11

EXHIBIT 11

TELLABS, INC.

COMPUTATION OF PER SHARE EARNINGS

In millions, except per share amounts

	Third Quarter				Nine Months
	09/28/07		09/29/06		09/28/07		09/29/06
Numerator:
Net earnings	$	3.6	$	59.1	$	58.7	$	165.0
Denominator:
Denominator for basic earnings per share -
Weighted average shares outstanding		439.2		445.5		438.5		447.7
Effect of dilutive securities:
Stock options and awards		5.3		5.7		5.3		9.2
Denominator for diluted earnings per share -
Adjusted weighted average shares outstanding and assumed conversions		444.5		451.2		443.8		456.9
Net earnings per share – basic	$	0.01	$	0.13	$	0.13	$	0.37
Net earnings per share – diluted	$	0.01	$	0.13	$	0.13	$	0.36

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Krish A. Prabhu, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tellabs, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 5, 2007

/s/ Krish A. Prabhu

Krish A. Prabhu

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy J. Wiggins, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tellabs, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 5, 2007

/s/ Timothy J. Wiggins

Timothy J. Wiggins

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tellabs, Inc. (the “Company”) on Form 10-Q for the quarter ended September 28, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Krish A. Prabhu, the Chief Executive Officer of the Company, certify, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Krish A. Prabhu

Krish A. Prabhu

Chief Executive Officer

Date: November 5, 2007

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tellabs, Inc. (the “Company”) on Form 10-Q for the quarter ended September 28, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy J. Wiggins, the Chief Financial Officer of the Company, certify, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Timothy J. Wiggins

Timothy J. Wiggins

Chief Financial Officer

Date: November 5, 2007

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.