Tellabs DEF 14A 2006
Documents found in this filing:
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Filed by the Registrant [x]
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
1) Title of each class of securities to which transaction applies:
1. To elect three directors to serve until the 2009 Annual Meeting of Stockholders;
2. To vote on a proposal to ratify the appointment of Tellabs independent auditors; and
3. To transact such other business as may properly come before the Annual Meeting or any adjournment thereof.
Whether or not you plan to attend, you can be sure your shares are represented at the Annual Meeting by promptly voting and submitting your proxy by phone, by Internet, or by completing, signing, dating and returning your proxy card in the enclosed envelope.
The Board of Directors has fixed the close of business on February 27, 2006, as the record date for the Annual Meeting. Only stockholders as of the record date are entitled to notice of, to vote at and to attend the Annual Meeting.
For a map and directions to attend the Annual Meeting, please refer to the back page of this Proxy Statement.
By Order of the Board of Directors,
James M. Sheehan
This Proxy Statement and the accompanying form of proxy are first being sent to stockholders on March 20, 2006.
WE URGE YOU TO VOTE YOUR SHARES AS PROMPTLY AS POSSIBLE BY (1) CALLING THE TOLL-FREE NUMBER (1.800.690.6903), (2) ACCESSING THE INTERNET WEBSITE AT www.proxyvote.com OR (3) SIGNING, DATING AND MAILING THE ENCLOSED PROXY CARD.
Tellabs, Inc., One Tellabs Center, 1415 West Diehl Road, Naperville, Illinois 60563-2359
The enclosed proxy is solicited by the Board of Directors of Tellabs, Inc., a Delaware corporation (the Company), for use at the 2006 Annual Meeting of Stockholders (the Annual Meeting) to be held at 2:00 p.m. Central Time on Thursday, April 27, 2006.
Who can vote?
For 10 days prior to our Annual Meeting, a list of stockholders of record entitled to vote will be available for inspection at our principal executive offices, 1415 West Diehl Road, Naperville, Illinois 60563-2359. If you would like to view the stockholder of record list, please call our Investor Relations department at (630) 798-3602 to schedule an appointment.
How do I vote?
The inspectors of election will tabulate votes cast in person or by proxy at the Annual Meeting of Stockholders and will determine whether a quorum (a majority of the shares entitled to be voted) is present at the meeting. Abstentions will be treated as shares present and entitled to vote for purposes of determining whether a quorum is present, but not voted for purposes of the election of directors. If a proxy returned by a broker indicates that the broker does not have discretionary authority to vote some or all of the shares covered thereby with respect to the election of directors, and does not otherwise authorize the voting of such shares, such shares, or non-votes, will be considered to be present for the purpose of determining whether a quorum is present. However, such proxy will not be considered to be present and entitled to vote with respect to the election of directors. Assuming a quorum is present, the favorable vote of a plurality of the shares present and entitled to vote at the Annual Meeting is necessary for a nominee to be elected as a director; abstentions and non-votes will thus have no effect on the election of directors. Shares cannot be voted for more than three nominees; there is no right to cumulative voting.
The affirmative vote of a majority of the votes entitled to be cast by the holders of the Companys Common Stock present or represented at the Annual Meeting and entitled to vote thereon is required to ratify the independent auditors. Abstentions and shares not voted by stockholders of record present or represented at the Annual Meeting and entitled to vote will have the same effect as a vote cast against ratification of the independent auditors. Shares not voted by brokers and other entities holding shares on behalf of beneficial owners, and shares for which authority to vote is withheld, will have no effect on ratification of the independent auditors.
To ensure that your vote is recorded promptly, please vote as soon as possible, even if you plan to attend the Annual Meeting in person.
How do I vote if I am a Tellabs 401(k) Plan participant?
Who pays for this proxy solicitation?
Where can I obtain additional information?
More information about the Company is available on the Companys website at www.tellabs.com/investors/stockholder.shtml.
The three nominees for Class II director are Bo Hedfors, Michael Lavin and Jan Suwinski. The Board of Directors intends to nominate each of these individuals for new terms that will expire at the 2009 Annual Meeting or until their successors are elected and qualified. Unless otherwise instructed by the stockholder, it is intended that the shares represented by the enclosed proxy will be voted for the nominees named below, each of whom has been selected by the Board of Directors. Class I and Class III directors will continue in office for the remainder of their terms.
Management is not aware of any other proposed nominees for directors. Management anticipates that all of the nominees will be able to serve. However, if any nominee is unable to serve at the time of the Annual Meeting, the proxy will be voted for a substitute nominee nominated by the Nominating and Governance Committee of the Board of Directors and selected by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR BO HEDFORS, MICHAEL LAVIN AND JAN SUWINSKI AS CLASS II DIRECTORS TO HOLD OFFICE UNTIL THE 2009 ANNUAL MEETING OR UNTIL THEIR SUCCESSORS ARE ELECTED.
Each of the Companys directors other than Messrs. Birck and Prabhu qualifies as independent in accordance with the applicable NASDAQ listing standards. In addition, as further required by the NASDAQ rules, the Board has made a subjective determination as to each independent director that no relationships exists, which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
The Company offers industry, market, corporate governance and financial education opportunities for Board members. Each independent Board member is required to participate in educational programs (both internal and external), as deemed appropriate by the Board member. The Board has adopted guidelines that require a director to offer to resign if the director changes employment, retires or has a significant change in his or her roles/responsibilities outside the Company. A director also must receive approval from the Board prior to accepting a director position at any public or private company in a related business. Additionally, Board members are required to offer not to run for re-election for a term which will begin after their 72nd birthday.
Audit and Ethics Committee
The Audit and Ethics Committee receives reports from the Companys compliance officer on any related-party transactions, code of ethics issues or other conflict-of-interest situations. The Board has determined that each member of the Committee is independent and has sufficient knowledge in reading and understanding the Companys financial statements to serve on the Audit and Ethics Committee. The Board has determined that Messrs. Lavin and Souders meet the qualifications of an audit committee financial expert, as defined by SEC guidelines and as required by the applicable NASDAQ listing standards. Stockholders should understand that the designation is a disclosure requirement of the SEC, and does not impose on Messrs. Lavin and Souders any duties, obligations or liability that are greater than those that are
generally imposed on them as Audit and Ethics Committee members or members of the Board. The Committees report is included later in this document. A current copy of the Committees charter, which was amended in 2005, is attached to this Proxy Statement as Exhibit A and is available on the Companys website at www.tellabs.com/investors.
Nominating and Governance Committee
All members of the Nominating and Governance Committee are independent as defined by NASDAQ listing standards. Stockholders who wish to communicate with this Committee concerning potential director candidates may do so by corresponding with the Secretary of the Company. These communications should include the name, biographical data and any other relevant information about the individual who is the subject of the communication. In evaluating director candidates, the Committee considers a variety of factors including independence, diversity of business experience and expertise, industry and technology knowledge, and other related experience and knowledge. The Committee is authorized to hire a third party to assist with director nominations.
In January 2006, based on the recommendation of the Nominating and Governance Committee, the Board elected Linda Beck as a member of the Board. The process for Ms. Becks election consisted of an exhaustive search and extensive internal deliberations. The Committee conducted its search through the services of a third-party executive search firm. The Committee utilized the Companys prescribed methodology for targeting potential director candidates that is, the Board developed a matrix of the skill sets of each Board member and compared those skills with the Companys needs. The goal of such exercise is to determine whether any particular skills would benefit the Company, in addition to the minimum standard of being a qualified and distinguished individual. Through this process, it was determined that Ms. Becks skills and experiences would benefit the Company and enhance the strength and depth of the Board.
Meetings Held in 2005
Committee are authorized to directly engage outside consultants and legal counsel to assist and advise the Board and each Committee as each believes useful or necessary.
Each non-employee director not previously serving as a director is granted a stock option to purchase 10,000 shares of the Companys stock under the Companys 2004 Incentive Compensation Plan on the date such person is elected as a non-employee director. One-third of the initial option grant becomes exercisable in cumulative annual installments. If such person is still serving as a non-employee director, such person will be granted a stock option to purchase 15,000 additional shares as well as a restricted stock unit award of 2,000 shares each year thereafter on the anniversary of the last day of the month in which the initial option was granted. The annual stock options and restricted stock unit awards granted on such anniversaries become fully exercisable one year from the date of grant. During 2005, only non-employee directors previously serving as directors were elected to the Board of Directors. As discussed above, Linda Beck (a non-employee director) was elected to the Board of Directors in January 2006.
If a director ceases to be a director of the Company for any reason other than death or disability, options held by such director may be exercised, subject to the expiration date of the options, for three months after such termination, but only to the extent such options were exercisable on the date of termination. If a directorship is terminated because of death or disability, the option may be exercised, subject to the expiration date of the option, for up to one year (three years for terminations due to a disability) after such termination, but only to the extent the option was exercisable on the date of death or disability. In the event a directorship is terminated due to the death of a director, such directors unvested options shall vest 100%. Options granted to non-employee directors under the 2004 Incentive Compensation Plan are not transferable.
The Nominating and Governance Committee is responsible for establishing stock ownership guidelines for the independent Board members. In October 2005, the Committee adopted guidelines that require each independent Board member to own stock valued at four times the annual retainer paid to the independent directors. The stock ownership guideline is to be met within five years after October 2005 or a directors initial election to the Board if initially elected after October 2005.
Summary Compensation Table
The Compensation Committee of the Board of Directors has furnished the following report on executive compensation:
The Compensation Committee follows a compensation philosophy that utilizes, as a significant determinant, the financial performance of the Company, along with the achievement of strategic corporate objectives and the individual performance of the executive officers. By doing so, the Committee believes that the Companys management will focus on meeting both financial and non-financial corporate goals that, in turn, should enhance stockholder value. The Companys compensation package for executive officers is a combination of base annual compensation, in the form of salary and other benefits, incentives in the form of payments under the global bonus programs, and long-term compensation through grants of options and restricted stock units under the Companys 2004 Incentive Compensation Plan.
For 2005, the Compensation Committee evaluated the performance of the executive team, including the Named Executive Officers and Mr. Prabhu. To perform the evaluation, the Committee discussed with Mr. Prabhu the overall performance of the Company and the executive team. Mr. Prabhu discussed with the Committee the combination of executive team goals and individual goals that each of the executives would be focusing on in 2005. The team goals and objectives were focused on three areas: energizing the Companys transport business, enlarging the Companys presence in data and expanding into adjacent markets.
In determining base salaries for the executive officers, including the Named Executive Officers, the Compensation Committee considered the performance of each executive officer and the Company during the preceding fiscal year as described above, such executive officers salary history and the terms of any applicable employment agreement. The Committee also retained and received a review and analysis by an independent compensation consultant of the salaries of the executive officers, including the Named Executive Officers. Based on those results, the Committee determined to increase the salaries of each of the Named Executive Officers, including Mr. Prabhu. The Committee also used third-party market analysis and a compensation consultant to review Mr. Bircks compensation package. With such input and input from Mr. Birck, the Committee determined to maintain Mr. Bircks base salary at the same level as 2004.
The compensation and benefits package for 2005 also included a bonus program. All employees, including the Named Executive Officers and Mr. Prabhu, were eligible to participate in any payouts under the bonus program. Pay out of the bonus was contingent on the achievement of certain financial criteria, including operating income and revenue targets. For 2005, individual payouts under the bonus program for the Named Executive Officers, excluding Messrs. Birck and Prabhu, were targeted at 60% of annual salary. The target for Mr. Birck was 50% and for Mr. Prabhu was 75%.
During 2005, the financial objectives were partially met and a portion of the targeted amounts for payout were made under the 2005 bonus program to the employees and the executive officers, including the Named Executive Officers and Mr. Prabhu. Mr. Prabhu discussed with the Compensation Committee the Companys overall performance in 2005 and recommended payouts for each of the executive officers, including the Named Executive Officers, based on the Company performance and their individual performance in 2005. The Committee considered those recommendations and authorized bonus payments to each of the executive officers, including the Named Executive Officers. The Committee also reviewed the proposed payout for Mr. Prabhu and determined to increase his bonus in recognition of his performance and the Companys performance in 2005. Mr. Birck discussed his proposed payout under the bonus program with the Committee, and Mr. Birck made a recommendation to the Committee to lower his bonus payment for 2005. The Committee agreed with his recommendation and authorized an adjusted bonus payment for 2005.
The final piece of the compensation package for executive officers is awards under the Companys equity incentive compensation plans. In general, the Company has used equity awards as an integral part of its compensation program for executive officers and for employees, with a view toward giving the executive officers and employees a stake in the Companys future and compensation opportunities directly aligned with the creation of stockholder value. Stock options and restricted stock unit awards were made to the executive officers, including the Named Executive Officers and Mr. Prabhu, during 2005. Mr. Birck did not receive an equity award based on the market analysis and in recognition of his already substantial holdings of Company stock.
The Compensation Committee is also responsible for establishing stock ownership guidelines for the executive officers, including the Named Executive Officers. In July 2005, the Committee adopted revised
stock ownership guidelines that require the CEO to own the lesser of 200,000 shares or four times his or her salary and the other executive officers, including the Named Executive Officers, to own the lesser of 50,000 shares or three times their individual salary within five years of the July 2005 date, the date of their promotion or the date of their appointment as an executive officer.
The Committee reserves the right to (i) limit future equity grants, (ii) require retention of portions of future equity exercises or shares that have vested and (iii) pay future bonus amounts in stock for failure to comply with the guidelines.
The Compensation Committee does not believe that the provisions of Internal Revenue Code Section 162(m) relating to the deductibility of compensation paid to the Named Executive Officers will limit the deductibility of such compensation expected to be paid by the Company. The Committee will continue to evaluate the impact of such provisions and take such actions as it deems appropriate including the payment of compensation under circumstances where the deductibility of such compensation may be limited by Internal Revenue Code Section 162(m).
March 20, 2006
Under the terms of now expired employment agreements, for a period of two years following termination of employment for any reason, Messrs. Prabhu and Birck are each restricted from becoming associated with a direct competitor of the Company, or from hiring any employees of the Company or soliciting any person or entity to terminate their relationship with the Company. Mr. Prabhus base salary under his employment agreement for 2005 was $850,000, and Mr. Bircks base salary under his employment agreement for 2005 was $500,000. Both Messrs. Prabhus and Bircks employment agreements had initial terms of two years, and unless earlier terminated or not renewed, would have renewed for additional one-year periods. Both Messrs. Prabhu and Birck elected not to renew their respective employment agreements. Thus, on February 11, 2006, those employment agreements expired by their terms.
On May 6, 2005, the Company implemented an Executive Continuity and Protection Program. The Executive Continuity and Protection Program is intended to attract and retain well-qualified individuals to serve as executives and key personnel of the Company. The Compensation Committee has delegated its authority to the Companys CEO, Mr. Prabhu, to determine the participants of the Executive Continuity and Protection Program. Under the Executive Continuity and Protection Program, a participant will become entitled to severance benefits in the event of a qualifying termination of employment that occurs within 24 months after a change of control of the Company (as described below). In such cases, that participant would receive severance benefits equal to two times that participants base salary and bonus target, a prorated bonus based on the number of months the participant had served in the year of termination and approximately 20% of such participants base salary in lieu of benefits. In exchange for the right to be covered by the Executive Continuity and Protection Program, the participant is required to maintain the confidential information of the Company, assign all intellectual property rights to the Company (to the
extent not previously assigned), not compete with the Company for a period of 24 months (as an employee, a stockholder (with limited exceptions), a director, a consultant and the like), not solicit for employment any employee of the Company for six months prior to employment of that person, and not induce any third party to terminate or not renew any relationship with the Company for a period of 24 months. Such obligation and restrictive covenants apply regardless of whether a change of control of the Company occurs.
Under the Executive Continuity and Protection Program, a change of control is any of the following events: (a) 20% or more of the Companys securities is acquired by a single person (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended); (b) over a two-year period, a majority of the directors of the Companys Board cease to be directors of the Companys Board; (c) the Company is acquired by or sells its assets to a third party, unless (i) the stockholders before such transaction continue to own more than 50% of the Company after such transaction; (ii) no single person (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) owns 20% or more of the Companys securities; (iii) a majority of the directors before such transaction continue to serve on the Companys Board after such transaction; or (d) the stockholders of the Company approve a complete liquidation or dissolution of the Company.
Mr. DeWilde (the Companys Executive Vice President Broadband Products) is currently subject to the terms and conditions of the Executive Continuity and Protection Program.
Messrs. Wiggins (the Companys Chief Financial Officer) and McCarthy (the Companys Executive Vice President Sales and Services) are parties to separate Change in Control Employment Agreements.
The Change in Control Employment Agreements address certain rights that become effective upon the occurrence of a change in control of the Company (as defined in the Change in Control Employment Agreements). The Change in Control Employment Agreements were revised prior to Mr. Bircks resignation as Chief Executive Officer to include a change in management provision whereby such change would occur in the event that (a) Michael J. Birck is not for any reason the Chief Executive Officer of the Company or (b) if a business combination that is not a change in control shall occur and Michael J. Birck is not for any reason the Chief Executive Officer of the resulting corporation. Mr. Bircks resignation from his position as Chief Executive Officer on February 12, 2004, triggered these rights under the Change in Control Employment Agreements.
The Change in Control Employment Agreements further provide for (i) an employment term of three years, commencing on the date of the change in management; and (ii) compensation, including annual salary, incentive bonuses and employee benefits, no less favorable than those in effect on such date. In addition, if an individuals employment is terminated within such employment term, other than due to death, disability or cause (as defined in the Change in Control Employment Agreements) or the individual resigns for good reason (as defined in the Change in Control Employment Agreements), then he will be entitled to receive (i) a lump-sum cash payment equal to the sum of salary payments for 36 months (24 months for a change in management) plus a pro rata share of the estimated amount of any target bonus that would have been payable for the bonus period that includes the termination date; (ii) the value of the incentive compensation, if any, to which he would have been entitled had he remained in the employ of the Company for 36 calendar months (24 months for a change in management); and (iii) if the triggering event was a change in control, an amount equal to 36 months of bonus at the target rate.
In addition, the Company will be obligated to continue to maintain the individuals employee benefits for such 36-month period (24 months for a change in management) and to pay to the individual the amount of any excise taxes, together with the additional income tax related to such excess amounts, imposed upon the payments and benefits provided under the Agreements. Unless otherwise paid out or terminated, the Change of Control Employment Agreements with Messrs. Wiggins and McCarthy will expire on their terms in February 2007.
than Mr. Birck, the Companys Chairman), pursuant to a review of the filings with the SEC as of December 31, 2005, to be the beneficial owner of more than 5% of the outstanding shares of the Common Stock of the Company.
(1) Based on information filed with the SEC and provided to the Company by AXA Financial, Inc. (AXF), AXF is a wholly owned subsidiary of AXA Framlington, a French holding company, which is controlled by three French mutual insurance companies, the Mutuelles AXA, as a group. As of December 31, 2005, AXA Framlington, an affiliate of AXF, has sole power to vote with respect to 110,000 shares and sole power to dispose with respect to 110,000 shares. AXA Rosenberg Investment Management LLC, an affiliate of AXF, has sole power to vote with respect to 62,300 shares and sole power to dispose with respect to 65,200 shares. Alliance Capital Management L.P., (Alliance), a subsidiary of AXF, has sole power to vote with respect to 19,903,787 shares, shared power to vote with respect to 3,844,078 shares and sole power to dispose with respect to 36,807,044 shares. AXA Equitable Life Insurance Company, a subsidiary of AXF, has sole power to dispose with respect to 7,824 shares. Alliances shares are held by unaffiliated third-party client accounts and managed by Alliance, as investment advisor.
(2) Based on information filed with the SEC and provided to the Company by Columbia Wanger Asset Management, L.P. (WAM) and WAM Acquisition GP, Inc. (the general partner of WAM (WAM GP)), WAM has sole power to vote and sole power to dispose with respect to 25,700,000 shares, and WAM GP has shared power to vote and shared power to dispose with respect to 25,700,000 shares.
(3) Based on the total number of shares outstanding on February 27, 2006, the Companys record date.
A FIVE-YEAR CUMULATIVE TOTAL RETURN COMPARISON*
Based on a review of documents in the Companys possession, and on written representations from reporting persons, we believe that during fiscal year 2005, all of the Companys officers and directors filed on a timely basis all reports required by Section 16(a) of the Securities Exchange Act of 1934. You can obtain a copy of such reports by visiting the Companys website at www.tellabs.com/investors.
During the past fiscal year, the Company and its subsidiaries had no other transactions in which any other director or other executive officer, or any other member of their immediate family of any director or executive officer, had a material direct or indirect interest reportable under applicable Securities and Exchange Commission rules.
The Audit and Ethics Committee of the Board of Directors has furnished the following report:
The Audit and Ethics Committees primary duties and responsibilities fall into four broad categories:
During the course of each fiscal year, the Audit and Ethics Committee devotes the attention that it deems necessary and appropriate to each of the matters assigned to it under the Committees charter, which was revised during fiscal year 2005. A current copy of the charter is attached to this Proxy Statement as Exhibit A, and can also be found on the Companys website at www.tellabs.com/investors/governance.shtml. The Committee believes that it has satisfied its Committee charter responsibilities for fiscal year 2005.
In overseeing the preparation of the Companys financial statements, the Audit and Ethics Committee met with management and the Companys internal and independent auditors to review and discuss all financial statements (including the Companys audited financial statements), earnings releases and related SEC filings prior to their issuance and to discuss significant accounting issues. Management advised the Committee that all financial statements were prepared in accordance with generally accepted accounting principles. The Committees review included discussion with the independent auditors of matters required to be discussed pursuant to Statement on Auditing Standards No. 61, as amended, Communication with Audit Committees.
The Audit and Ethics Committee, among other things, has received the written disclosures and the letter from Ernst & Young LLP (the Companys independent auditors) required by the Independence Standards Board Standard No. 1 Independence Discussions with Audit Committees and has discussed with Ernst & Young LLP matters relating to its independence, including disclosures made to the Committee and whether the provision of non-audit services by the auditors was compatible with the auditors independence. The Committee approves all non-audit services to be performed by the auditors as set forth in the Audit and Non-Audit Services Pre-Approval Policy. A copy of the policy is available on the Companys website at www.tellabs.com/investors/governance.shtml.
The Audit and Ethics Committee continued to monitor the scope and adequacy of the Companys internal audit program, including proposals for adequate staffing and to strengthen internal procedures and controls, where and when appropriate.
The Companys management is responsible for preparing the Companys financial statements. The Companys independent auditors are responsible for auditing the financial statements. The activities of the Audit and Ethics Committee are in no way designed to supersede or alter those responsibilities. The Committees role does not provide any particular assurances with regard to the Companys financial statements, nor does it involve a professional evaluation of the quality of the audits performed by the independent auditors.
Based upon its reviews and discussions and subject to the limitations on the roles and responsibilities of the Audit and Ethics Committee as described herein and in its charter, the Committee recommended to the Board of Directors that the Board of Directors approve the inclusion of the Companys audited financial statements in the Companys Annual Report on Form 10-K for the fiscal year ended December 30, 2005, for filing with the Securities and Exchange Commission.
March 20, 2006
The Company paid Ernst & Young LLP certain fees for services provided during fiscal years 2004 and 2005. Such fees were approximately as follows:
As set forth in the Audit and Ethics Committee Report, the Committee has considered and determined that the provisions of the non-audit services described above were compatible with maintaining the auditors independence. The Committee pre-approves all audit and non-audit services provided by Ernst & Young LLP to the Company and its subsidiaries and approves the overall scope and plans for their audit activities, including the adequacy of staffing and compensation. A current copy of the Companys Audit and Non-Audit Services Pre-Approval Policy is available on the Companys website at www.tellabs.com/investors/governance.shtml.
The following proposal will be presented for action at the Annual Meeting by direction of the Board of Directors:
RESOLVED, that action by the Audit and Ethics Committee appointing Ernst & Young LLP as the Companys independent auditors to conduct the annual audit of the Companys consolidated financial statements and managements assessment of internal controls over financial reporting for the current fiscal year is hereby ratified, confirmed and approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANYS INDEPENDENT AUDITORS.
To nominate one or more directors for consideration at the 2007 Annual Meeting of Stockholders, a stockholder must provide notice, containing the information required by the Companys by-laws, of the intent to make such nomination(s) by personal delivery or by mail to the Secretary of the Company, no later than November 20, 2006. Copies of those requirements will be sent to any stockholder upon written request. The Nominating and Governance Committee will evaluate any proposed nominees using similar criteria as utilized for other nominees and will consider such nominees in comparison to all other nominees. The Committee has no obligation to nominate any such individuals for election.
Additionally, if a proponent of a stockholder proposal at the 2007 Annual Meeting fails to provide notice of the intent to make such proposal by personal delivery or mail to the Secretary of the Company on or before November 20, 2006, (or by an earlier or a later date, if such date is hereafter established by amendment to the Companys by-laws), then any proxy solicited by management may confer discretionary authority to vote on such proposal.
The Company welcomes communications from stockholders to the Board of Directors. Such communications should be addressed to the Secretary of the Company, who will review the communication and determine the appropriate handling of the communication. Alternatively, you may make contact through the Companys website at www.tellabs.com/investors.
By Order of the Board of Directors,
James M. Sheehan
In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company and has the authority to engage independent counsel and other advisors as it determines necessary to carry out its duties and as permitted by law.
The Committee does not plan or conduct audits or determine that the Companys financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Management and the independent auditor, are responsible for these activities.
The Committee shall review at least annually and update this charter as deemed appropriate.
The members of the Committee shall be elected by the Board of Directors at the annual organizational meeting of the Board of Directors or until their successors shall be duly elected and qualified. Unless a chairman is elected by the full Board of Directors, the members of the Committee may designate a chairman by majority vote of the full Committee membership.
The Committee, in conjunction with the Nominating and Governance Committee, shall perform an evaluation of the Committees performance at least annually, and the Nominating and Governance Committee shall recommend to the Board of Directors proposed Committee members.
2. Discuss with management, the internal auditors and the independent auditor the adequacy and effectiveness of the accounting and financial controls; the policies and procedures to assess, monitor and manage risk; the investment policies, practices and programs; and the legal and ethical compliance programs.
4. Review and concur in the appointment, replacement or dismissal of the internal audit director.
6. Pre-approve all audit and non-audit services provided by the independent auditor. The Committee may delegate pre-approval authority to a member of the Committee. The approved non-audit services shall not include any services prohibited by law or regulation.
7. Oversee the work of the independent auditor, including resolution of any disagreements between management and the independent auditor regarding financial reporting.
8. Actively discuss with the independent auditor any relationships or services that may impact the objectivity and independence of the independent auditor. Ensure that the independent auditor submit annually a formal written statement, including the written disclosures required by Independence Standards Board Standard No. 1, delineating all relationships between the independent auditor and the Company.
9. Discuss with the independent auditor the nature of the independent auditors internal quality control procedures, including any material issues raised by (a) the most recent internal quality control or peer review of the independent auditor or (b) any inquiry or investigation by governmental or professional authorities, within the preceding five years, with respect to one or more independent audits carried out by the independent auditor, and any steps taken to deal with any such material issues such as those that would impact the independent auditors ability to maintain its license to operate and function.
10. Set clear hiring policies for employees or former employees of the independent auditor that meet the SEC regulations and NASDAQ listing standards.
12. Review the Companys annual financial statements and any reports, including Form 10-K, or other financial information submitted to any governmental body, or the public, including any certification, report, opinion or review rendered by the independent auditor.
13. Review with management and the independent auditor the Companys quarterly financial statements prior to the release of earnings and prior to the filing of the Form 10-Q and the results of the independent auditors review of the quarterly financial statements as required by Statement on Auditing Standards No. 71, Interim Financial Information.
14. Review earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies.
15. Review the charter and activities of the Companys Disclosure Committee and managements processes and resources to execute the responsibilities outlined in the Disclosure Committee charter.
16. Review with management and the independent auditor critical accounting and reporting principles, practices and procedures selected and applied by the Company in preparing its financial statements. Discuss with the independent auditor those matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees. Consider the independent auditors judgments about the quality and appropriateness of the Companys accounting principles.
17. Review major changes to the Companys accounting principles and practices as suggested by the independent auditor or management. Review all material alternative treatments of financial information within generally accepted accounting principles that have been discussed between the independent auditor and management, including the ramifications of the use of such alternative treatments and disclosures and the treatment preferred by the independent auditor, and any other material written communications between the independent auditor and management.
18. Review and discuss with management and the independent auditor any material financial or non-financial arrangements of the Company, which do not appear in the financial statements.
19. Review and approve all related-party transactions for potential conflict-of-interest situations. Related- party transactions refers to the transactions required to be disclosed pursuant to SEC regulations.
20. Discuss with management and the independent auditor any significant judgments made in managements preparation of the financial statements and the view of each as to appropriateness of such judgments.
21. Review separately with each of management, the independent auditor and the internal audit department any significant difficulties or disagreements encountered during the course of the annual audit, including any restrictions on the scope of work or access to required information.
Ethical and Legal Compliance
23. Review managements monitoring of the Companys compliance with its Integrity Policy, including any changes to or waivers of the Integrity Policy.
24. Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by Company employees of concerns regarding accounting or auditing matters.
25. Review with the Companys counsel legal compliance matters including violations of securities laws or breaches of fiduciary duty.
26. Review with the Companys counsel any legal matter that could have a significant impact on the Companys financial statements.
27. Review the charter and activities of the Companys Business Conduct and Ethics Committee.
28. Perform any other activities consistent with this charter, the Companys by-laws and governing law, as the Committee or the Board of Directors deems necessary or appropriate.
DIRECTIONS TO THE 2006 ANNUAL MEETING OF STOCKHOLDERS:
Hilton Lisle/Naperville, 3003 Corporate West Dr., Lisle, Illinois 60532
The following trademarks and service marks are owned by Tellabs Operations, Inc., or its affiliates in the United States and/or other countries:
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on April 26, 2006, the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER
If you would like to reduce the costs incurred by Tellabs, Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time April 26, 2006, the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it as soon as possible in the postage-paid envelope we have provided or return it as soon as possible to Tellabs, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.
The undersigned stockholder(s) of Tellabs, Inc., a Delaware corporation, does (do) hereby constitute and appoint James M. Sheehan and Timothy J. Wiggins, and each of them, the true and lawful attorney(s) of the undersigned with full power of substitution, to appear and act as the proxy or proxies of the undersigned at the Annual Meeting of Stockholders of said corporation to be held at the Hilton Lisle/Naperville, 3003 Corporate West Drive, Lisle, Illinois 60532, on Thursday, April 27, 2006 at 2:00 p.m., and at any adjournment thereof, and to vote all the shares of said corporation standing in the name of the undersigned, or which the undersigned may be entitled to vote, as fully as the undersigned might or could do if personally present, as set forth herein.
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder(s). If no direction is made, this proxy will be voted FOR the election of directors and FOR the ratification of the Companys independent auditors for 2006.
(If you noted any Comments above, please mark corresponding box on the reverse side.)
(Please mark this proxy, date and sign it on the reverse side hereof and return it in the enclosed envelope.)
(Continued and to be signed on the reverse side)