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Tellabs DEF 14A 2008 Documents found in this filing:Table of Contents
UNITED STATES SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities
TELLABS, INC. (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):
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Tellabs, Inc., 1415 West
Diehl Road, Naperville, Illinois
60563-2359
Date: Thursday, April 24, 2008
Time: 2:00 p.m., Central Daylight Time
Place: Northern Illinois University —
Naperville Campus
1120 East Diehl Road
Naperville, IL
60563-9347
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, Internet, or completing,
signing, dating and returning your proxy card in the enclosed
envelope.
The Board of Directors has fixed the close of business on
February 25, 2008, as the record date for the Annual
Meeting. Only stockholders as of the record date are entitled to
notice of, vote at and attend the Annual Meeting.
For a map and directions to the Annual Meeting, please refer to
the back page of this Proxy Statement.
By Order of the Board of Directors,
James M. Sheehan
Secretary
March 19, 2008
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 WEB SITE 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
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Tellabs, Inc.
One Tellabs Center
1415 West Diehl Road
Naperville, Illinois
60563-2359
The enclosed proxy is solicited by the Board of Directors (the
Board) of Tellabs, Inc., a Delaware corporation (the Company),
for use at the Company’s 2008 Annual Meeting of
Stockholders (the Annual Meeting) to be held at
2:00 p.m. Central Daylight Time on Thursday,
April 24, 2008.
Important Notice Regarding the Availability of Proxy
Materials for the Annual Meeting of Stockholders to be Held on
April 24, 2008: The proxy statement and the
Company’s 2007 Annual Report are available at:
www.tellabs.com/investors.
Voting Information
Only stockholders of record as of the close of business on
February 25, 2008, are entitled to notice of, to vote at
and to attend the Annual Meeting. At the close of business on
that date, the Company had 400,069,628 shares of Common
Stock outstanding.
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.
Stockholders are entitled to one vote for each share held.
Stockholders may revoke their proxy at any time before it is
voted by filing a written revocation notice with the Secretary
of the Company or by duly executing a proxy bearing a later
date. Proxies may also be revoked by any stockholder present at
the Annual Meeting who expresses a desire to vote his or her
shares in person. If you hold shares through a bank or brokerage
firm, you must contact that firm to revoke any prior voting
instructions. Subject to any such revocation, all shares
represented by properly executed proxies that are received prior
to the Annual Meeting will be voted in accordance with the
directions on the proxy. If no direction is made, the proxy will
be voted FOR the election of each of the three nominees for
director, FOR approval of the Amended and Restated 2004
Incentive Compensation Plan (the Amended Plan) and FOR the
ratification of the Company’s independent auditors. The
inspectors of election will tabulate votes cast in person or by
proxy at the Annual Meeting and will determine whether a quorum
(a majority of the shares entitled to be voted) is present at
the meeting.
The presence of the holders of a majority of the outstanding
shares of common stock entitled to vote at the Annual Meeting,
present in person or represented by proxy, is necessary to
constitute a quorum. Abstentions and “broker
non-votes” are counted as present and entitled to vote for
purposes of determining a quorum. A “broker non-vote”
occurs when a bank, broker or other holder of record holding
shares for a beneficial owner does not vote on a particular
proposal because that holder does not have discretionary voting
power for that particular item and has not received instructions
from the beneficial owner.
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Election of Directors. A majority of
the votes cast for a nominee for director is required for the
election of such nominee as director in an uncontested election.
A contested election means the number of nominees for director
exceeds the number of directors to be elected. A “majority
of the votes cast” means that the number of shares voted
“for” a director must exceed the number of votes cast
“against” the director, with abstentions and broker
non-votes not counted as a vote “for” or
“against.” The election of directors at the Annual
Meeting is expected to be an uncontested election.
Our Corporate Governance Guidelines, described later in this
Proxy Statement, set forth procedures we will follow if a
director-nominee does not receive a majority of the votes cast
in this uncontested election. In an uncontested election, any
nominee for director who does not receive a majority of the
votes cast is required to tender his or her resignation. The
Nominating and Governance Committee is then required to make a
recommendation to the Company’s Board with respect to
whether to accept any such letter of resignation. The Board is
required to take action with respect to this recommendation and
to disclose its decision-making process and final decision.
Approval of the Amended Plan. The
affirmative vote of the holders of a majority of the shares of
the Company’s Common Stock present or represented at the
Annual Meeting and entitled to vote thereon is required to
approve the Amended Plan. 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 the proposal. Broker non-votes will have no
effect on the outcome.
Ratification of Appointment of Independent
Auditors. The affirmative vote of the holders
of a majority of the shares of the Company’s 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. Broker non-votes will
have no effect on ratification of the independent auditors.
If you are a beneficial owner, your bank, broker or other holder
of record is permitted to vote your shares on the election of
Directors and the ratification of our independent auditors, even
if the record holder does not receive voting instructions from
you.
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.
A Notice of Annual Meeting of Stockholders, Proxy Statement and
form of proxy will be provided to each participant in the
Tellabs 401(k) Plan. Pursuant to the Tellabs 401(k) Plan, each
participant is entitled to direct the trustee of the Tellabs
401(k) Plan with respect to voting (i) the shares of Common
Stock allocated to the participant’s accounts; (ii) a
proportion of the shares allocated to accounts of participants
who do not return voting instructions to the trustee; and
(iii) a proportion of all unallocated shares. Subject to
its fiduciary duties, the trustee will vote allocated shares in
accordance with the instructions received and will vote shares
with respect to which no instructions are received and all
unallocated shares in the same proportion as the shares with
respect to which instructions are received. Tellabs 401(k) Plan
participants should return the proxy as provided therein.
Pursuant to the Tellabs 401(k) Plan, the trustee will not
disclose the directions set forth on any individual proxy to the
Company or its directors or officers, except as may otherwise be
required by law.
This proxy is solicited by the Board, and the cost of
solicitation will be paid by the Company. Additional
solicitation may be made by mail, personal interview, telephone
or facsimile by Company personnel, who will not be additionally
compensated for such effort. The cost of any such additional
solicitation will be borne by the Company.
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A copy of the Company’s 2007 Annual Report accompanies this
Proxy Statement.
More information about the Company, including electronic copies
of the Company’s 2007 Annual Report and this Proxy
Statement, is available on the Company’s Web site at
www.tellabs.com/investors.
The Company has three classes of directors with staggered terms.
Members of each class serve a three-year term. At the 2008
Annual Meeting, the terms of the Class I directors will
expire.
For your consideration and election, the Board has nominated the
following three individuals as Class I directors: Frank
Ianna, Stephanie Pace Marshall, Ph.D. and William F.
Souders. If elected, these nominees will serve a term that
expires at the Company’s 2011 Annual Meeting (or until
their successors are elected and qualified). Unless otherwise
instructed by you as a stockholder, it is intended that your
shares represented by the enclosed proxy will be voted for these
nominees, each of whom has been selected by the Board.
The Board appointed Robert W. Pullen as the CEO and President of
the Company effective March 1, 2008. Effective March 1,
2008, Mr. Pullen was also elected by the Board to replace
Krish A. Prabhu as a Class III director and serve the
remainder of his term. Other than Krish A. Prabhu, all other
Class II and Class III directors plan to continue in
office for the remainder of their terms.
The Company is not aware of any other proposed nominees for
directors. The Company 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, your proxy will be voted for a
substitute nominee nominated by the Nominating and Governance
Committee of the Board and approved for nomination by the Board.
THE BOARD RECOMMENDS A VOTE FOR FRANK IANNA, STEPHANIE PACE
MARSHALL, PH.D. AND WILLIAM F. SOUDERS AS CLASS I DIRECTORS
TO HOLD OFFICE UNTIL THE 2011 ANNUAL MEETING OR UNTIL THEIR
SUCCESSORS ARE ELECTED.
Class I Nominees for
Election Whose Terms Will Expire in 2011 if Elected
Frank Ianna,
58, chief executive
officer and director of Attila Technologies, LLC since 2007.
President of AT&T
Network Services
1998-2003.
Various executive and senior management positions
1990-1998;
various management and staff positions
1972-1998.
M.S.E.E., Massachusetts Institute of Technology; B.E.E.E.,
Stevens Institute of Technology.
Tellabs director since 2004. 
Stephanie Pace
Marshall, Ph.D.,
62, founding
president and president emerita of Illinois Mathematics and
Science Academy since 1986.
Ph.D., Loyola
University; M.A., University of Chicago; B.A., Queens College.
Tellabs director since 1996.
William F.
Souders, 79, chairman
and chief executive officer of Emery Air Freight Corporation
1988-1989.
Executive vice president
and director at Xerox Corporation
1974-1986.
B.A., Lake
Forest College.
Tellabs director
since 1990.
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Class II Directors
Continuing in Office Until 2009
Bo Hedfors,
64, founder and
president of Hedfone Consulting, Inc. (telecom and Internet
consulting) since 2002.
President, global
wireless infrastructure business at Motorola
1998-2002.
President and CEO of Ericsson, Inc.
1994-1998;
chief technology officer of LM Ericsson
1990-1993.
Director, Openwave Systems, Inc. since 2002. M.S.E.E., Chalmers
University of Technology. Tellabs director since 2003.
Michael E. Lavin,
62, Midwest area
managing partner KPMG LLP
1993- 2002. Partner 1977-2002. Director, Integrys Energy Group, Inc. and SPSS Inc. B.B.A., University of Wisconsin. Tellabs director since 2003. 
Jan H. Suwinski,
66, professor of
Business and Operations, Cornell University, Johnson Graduate
School of Management since 1997.
Chairman, Siecor
Corporation
1992-1996.
Executive vice president of OptoElectronics Group, Corning
Incorporated
1990-1996.
Director, Thor Industries, Inc. and ACI Worldwide, Inc. M.B.A.
and B.M.E., Cornell University. Tellabs director since 1997.
Class III Directors
Continuing in Office Until 2010
Michael J.
Birck, 70, chairman
and co-founder of Tellabs. Chairman since 2000, chief
executive officer
2002-2004,
chief executive officer and president
1975-2000.
Director, Molex Incorporated, Illinois Tool Works. M.S.E.E., New
York University; B.S.E.E., Purdue University. Tellabs director
since 1975.
Fred A.
Krehbiel, 66,
co-chairman of Molex Incorporated since 1999. Co-chairman
and chief executive officer
2004-2005;
chairman of the Board
1993-1999;
vice chairman and chief executive officer
1988-1993.
Director, DeVry, Inc. B.A., Lake Forest College. Tellabs
director since 1985.
Robert W.
Pullen, 45, president
and chief executive officer since March 2008. Vice president
and general manager of global services 2005-2008; senior vice
president of North American sales 2002-2005; various management,
engineering and sales positions 1985-2002. Chairman, executive
board of Telecommunications Industry Association. M.B.A.,
Northwestern University; B.S.E.E., University of Illinois.
Tellabs director since 2008.
Linda Beck,
44, president of New
Edge Networks, an EarthLink subsidiary, since 2007.
Executive vice president
and general manager of business solutions at EarthLink
2005-2007.
Executive vice president of operations
2000-2005;
vice president of engineering at MindSpring
1999-2000.
Various management positions at Netcom
1996-1999;
Sybase
1994-1996;
Amdahl
1992-1994;
GTE
1987-1992.
M.B.A., St. Mary’s College; B.S., Iowa State
University. Tellabs director since 2006.
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The Board has a standing Audit and Ethics Committee,
Compensation Committee, and Nominating and Governance Committee.
The current members of the committees are identified in the
following table.
The Audit and Ethics Committee assists the Board in its general
oversight of the Company’s financial reporting and
disclosure, internal controls and audit functions. The Committee
is directly responsible for reappointment, retention,
compensation and oversight of the work of the Company’s
independent auditors. The Board has also made the Committee
responsible for reviewing any related-person transactions
involving the Company’s officers or directors for potential
conflicts of interest. To monitor compliance with applicable
laws, rules and regulations, the Committee has adopted the
Tellabs Integrity Policy, a code of ethics applicable to all
directors, officers and employees. The Integrity Policy provides
for prompt and consistent enforcement of the code of conduct,
protection for persons reporting questionable behavior, clear
and objective standards for compliance and a fair process by
which to determine violations. A copy of the Tellabs Integrity
Policy is available on the Company’s Web site at
www.tellabs.com/investors. For additional discussion
regarding the Company’s policies and procedures concerning
related-person transactions, please see the section below
entitled Policies and Procedures for Review and Approval of
Related-Person Transactions.
The Board has determined that each member of the Committee,
including Ms. Beck who will replace Mr. Hedfors on the
Committee following the Annual Meeting, is independent as
defined by NASDAQ listing standards and has sufficient knowledge
in reading and understanding the Company’s 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 liabilities that are greater than those that are
generally imposed on them as Audit and Ethics Committee members
or members of the Board. The Committee’s report is included
later in this Proxy Statement. A copy of the Committee’s
current charter is available on the Company’s Web site at
www.tellabs.com/investors.
The Compensation Committee has responsibility for reviewing
performance and determining compensation for the executive
officers of the Company and for administering the Company’s
equity-based compensation plans. The Board has determined that
each member of the Committee is independent as defined by NASDAQ
listing standards. The Committee’s report on executive
compensation is included later in this Proxy Statement. A copy
of the Committee’s current charter is available on the
Company’s Web site at www.tellabs.com/investors.
To assist the Compensation Committee, the Company uses the
services of a compensation consultant, Pearl Meyer &
Partners, as an outside advisor (the Consultant). The
Consultant’s role is to provide independent, third-party
advice to assist the Compensation Committee in evaluation and
design of the
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Company’s policies and programs on executive compensation,
and with compensation decisions. While the Consultant reports
directly to the Compensation Committee, there is interaction
between the Consultant and Company management as part of the
process of providing market and Company data regarding executive
compensation to the Compensation Committee. In addition, the
Consultant and members of the Company’s management discuss
Company goals and objectives.
Compensation Committee meetings are held once per quarter and
teleconferences and ad-hoc meetings are held as needed. Agendas
are based on a pre-determined schedule of activities as set by
the Compensation Committee, and other agenda items are added on
an as-needed basis. The Compensation Committee’s charter
authorizes the Compensation Committee to delegate duties to
standing and ad-hoc sub-committees as it deems necessary or
advisable.
The Vice President, Human Resources, and the Director, Global
Compensation and Benefits, develop recommendations on executive
compensation matters prior to each meeting, in consultation with
the CEO, other members of the management team and the
Consultant. Management team members do not provide input on
their own compensation. Generally, the Vice President, Human
Resources, and the Director, Global Compensation and Benefits,
attend Compensation Committee meetings to present these
management views and recommendations. The Compensation Committee
requests that the CEO attend certain portions of the meetings to
discuss the performance of and present compensation
recommendations for his direct reports. Additionally, the
Committee requests the CEO’s perspective on the succession
planning process and the overall compensation philosophy.
The Nominating and Governance Committee is responsible for
evaluating Board composition, performance and compensation;
soliciting, evaluating and making recommendations for candidates
to the Board, including candidates recommended by stockholders;
making recommendations regarding corporate governance matters
and practices; and providing oversight of the Board’s
operational structure and accountability. The Committee also
conducts an annual review of the Board, each Board Committee and
the Chairman of the Board based on input received from the Board
and members of the Company’s management. The Board has
adopted a set of Corporate Governance Guidelines, which the
Nominating and Governance Committee is responsible for
overseeing. A copy of the Committee’s current charter and
the Company’s Corporate Governance Guidelines are available
on the Company’s Web site at
www.tellabs.com/investors.
The Board has determined that each member of the Nominating and
Governance Committee is 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 technical knowledge, and other related experience
and knowledge. The Committee is authorized to hire third parties
to assist with director nominations.
The Nominating and Governance Committee’s process for
identifying and evaluating potential nominees to the Board
typically consists of an exhaustive search and extensive
internal deliberations using the services of a third-party
executive search firm. The Committee uses a prescribed
methodology for targeting potential director candidates.
Specifically, the Committee develops a matrix of the skill sets
of each then-serving Board member and compares those skills with
the Company’s 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,
the Committee believes that it is able to identify, evaluate and
ultimately nominate individuals with the skills and experiences
that would most appropriately benefit the Company and its
stockholders, and enhance the strength and depth of the Board.
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As noted above, the Company has adopted Corporate Governance
Guidelines. The primary purpose of these guidelines is to
document the role of the Board, its composition, leadership,
operations and committees. Each director and the Board are
expected to promote the best interests of the stockholders in
terms of corporate governance; fiduciary responsibilities;
compliance with applicable laws and regulations; and maintenance
of accounting, financial and other controls. The Board’s
responsibility is to provide effective guidance of the affairs
of the Company for the benefit of its stockholders and other
constituencies. This guidance includes overseeing the conduct of
the Company’s business and, where appropriate, approval of
the Company’s financial objectives, major corporate plans,
strategies and tactics. In addition, the Board selects the
Company’s CEO and delegates to the CEO the authority and
responsibility to manage the Company’s operations; acts as
an advisor and counselor to the CEO and senior management; and
evaluates the CEO’s performance.
As announced on November 8, 2007, Krish A. Prabhu, the
Company’s former President, Chief Executive Officer and
member of the Board, informed the Board of his decision to
resign from these positions by March 1, 2008. A
subcommittee of Tellabs directors, led by William F. Souders,
conducted the search process for a replacement, assisted by
recruitment firm Spencer Stuart. The Tellabs Board of Directors
unanimously appointed Robert W. Pullen the Company’s
President, Chief Executive Officer and elected him a member of
the Board.
In February 2008, the Board amended the Company’s bylaws
and made conforming changes to the Corporate Governance
Guidelines to require a nominee for director in an uncontested
election to be elected by the majority of the votes cast. These
changes build on the previous changes to the Company’s
Corporate Governance Guidelines relating to the election of
directors. An uncontested nominee who does not receive a
majority vote and who is an incumbent director must tender his
or her resignation to the Company. In such cases, the Nominating
and Governance Committee is required to evaluate the resignation
and make a recommendation to the Company’s full Board
(excluding the director nominee who tenders a resignation) as to
whether the Board should accept the resignation. The Board will
reach a decision that it believes is in the best interests of
the Company and its stockholders, and will publicly disclose its
decision and rationale within 90 days after the
certification of the related stockholder vote. These changes are
reflected in the Company’s amended and restated By-Laws and
the revised Corporate Governance Guidelines, which can be found
on the Company’s Web site at
www.tellabs.com/investors.
The Company offers industry, market, corporate governance and
financial education opportunities for its 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 company or any
private company in a related business. Additionally, Board
members are required to offer not to run for re-election for a
term that will begin after their 72nd birthday.
Each of the Company’s directors, other than
Messrs. Birck and Pullen, 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 that,
in the opinion of the Board, would interfere with the exercise
of independent judgment in carrying out the responsibilities of
a director.
During 2007, ten meetings of the Board of Directors, eleven
meetings of the Audit and Ethics Committee, six meetings of the
Compensation Committee and five meetings of the Nominating and
Governance Committee were held. Each director attended at least
75% of the total number of Board meetings and the
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meetings of the committees on which such director served during
2007. All of the directors who were then serving attended the
2007 Annual Meeting of Stockholders. Each Board member is
expected to attend the Annual Meeting of Stockholders unless
extraordinary circumstances prevent him or her from doing so.
Following the regular Board meetings, the independent directors
conduct separate meetings of only the independent directors. The
Board has a lead director role that rotates among the
chairpersons of the Board committees, who is responsible for
leading the independent director meetings. The Board and each
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.
During 2007, the following Board members served on the
Company’s Compensation Committee: Frank Ianna, Stephanie
Pace Marshall, William F. Souders and Jan H. Suwinski. All
decisions regarding the compensation of the executive officers
were made by the Compensation Committee of the Board of
Directors, which is composed entirely of non-employee,
independent members of the Board of Directors. Although
Messrs. Birck and Prabhu made recommendations to the
Committee with regard to the compensation of the other executive
officers, including the other named executive officers (or
NEOs), they did not participate in the Committee’s
deliberations with respect to their own compensation.
In May 2007, as part of its review of the compensation of our
independent directors, the Nominating and Governance Committee
consulted with the management of the Company and with the
Consultant, Pearl Meyers & Partners, regarding
independent director compensation. The Consultant followed a
process substantially similar to the benchmarking process,
including the same peer groups, used for determining the
Company’s executive Compensation and made recommendations
to the Committee. As a result of this review the Committee
recommended and the Board approved a number of changes to
director compensation effective for 2007. The changes included
increased annual retainers for the independent directors and the
committee chairpersons as well as a different equity
compensation package.
For 2007, each independent director earned an annual retainer of
$40,000 and a fee of $1,500 for each Board meeting attended in
person and $1,000 for each substantive telephonic Board meeting.
Additionally, each independent director earned a committee
meeting fee of $1,000 for each committee meeting attended in
person and $500 for each substantive telephonic meeting. The
chairperson of the Compensation Committee earned an annual
retainer of $8,000. The chairperson of the Nominating and
Governance Committee earned an annual retainer of $6,000. The
chairperson of the Audit and Ethics Committee earned an annual
retainer of $12,000. No other additional retainers for committee
members were earned during 2007. The directors are given the
opportunity to allocate their annual retainer and meeting fees
into the Company’s deferred income plan, although no
director elected to do so in 2007. Such allocation can be in the
form of cash or stock units (each of which represents the right
to receive a share of Company Common Stock) as requested by the
director making the deferral. Directors who also serve as
officers of the Company do not receive the director compensation
outlined in this section.
Beginning in May 2007, each independent director received 15,000
non-qualified stock options and 5,000 restricted stock units
(RSUs) from the Plan, vesting one year from the grant date. This
annual grant is made on the last day of the month of the initial
grant received by each independent director. Because certain
directors had received an annual grant prior to the May 2007
change in the number of RSUs awarded, these directors received a
one time 3,000 RSU grant on May 31, 2007.
For 2008, each independent director not previously serving as a
director shall receive an initial non-qualified stock option
grant to purchase 10,000 shares of the Company’s stock
and a 5,000 RSU award
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under the Plan on the last day of the month such person is
elected as an independent director. One-third of the initial
stock option and RSU awards become 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 10,000 additional shares as well as an RSU
award of 5,000 shares each year thereafter on the last
trading day of April. The annual stock options and RSU awards
become fully exercisable one year from the date of grant.
In addition, the Company reimburses its directors for reasonable
expenses in connection with attendance at Board and committee
meetings and the Company’s annual stockholder meetings.
If a director ceases to be a director of the Company for any
reason other than death or disability, stock options held by
such director may be exercised, subject to the expiration date
of the stock options, for three months after such termination,
but only to the extent such stock options were exercisable on
the date of termination. If a directorship is terminated because
of disability, the stock option may be exercised, subject to the
expiration date of the stock option, for up to three years
(depending on the plan and award agreement governing that
option) after such termination, but only to the extent the stock
option was exercisable on the date of disability. In the event a
directorship is terminated due to the death of a director, the
stock option may be exercised, subject to the expiration date of
the stock option, for up to one year after such termination, and
such director’s unvested stock options shall fully vest.
Stock 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
directors. 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 director’s initial
election to the Board if initially elected after October 2005.
As of year-end 2007, each director is on target to meet the
ownership guidelines within the initial five-year compliance
window.
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Director
Compensation Table for 2007
The following table summarizes the total compensation earned by
each member of the Company’s Board for service during the
fiscal year ended December 28, 2007. Since
Messrs. Birck and Prabhu were compensated as officers of
the Company, they were not entitled to additional compensation
as directors.
This section contains information about the compensation
programs and policies for executive officers of the Company. We
have also presented a series of tables and narrative information
about the compensation earned and paid in 2007 to the following
individuals, who are our named executive officers (NEOs):
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The discussion in this section explains how and why we have
arrived at the material compensation decisions for our NEOs. It
also provides context for understanding the detailed information
provided in the tables and narrative information below.
Our executive compensation philosophy links rewards with
(a) financial performance of the Company,
(b) achievement of strategic corporate objectives and
(c) individual performance. It is our belief that this
linkage focuses our executive officers on meeting financial and
non-financial corporate goals that, in turn, will enhance
stockholder value over the long-term.
Specific objectives of our executive compensation program
include:
To support these objectives, we designed a compensation program
for 2007 that:
The Committee considers external competitiveness in establishing
compensation opportunities for the NEOs. The Compensation
Committee retained the Consultant, Pearl Meyer &
Partners, to serve as compensation advisor to the Committee. The
Committee worked with the Consultant to develop two
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custom peer groups of firms. In addition to referencing data
collected from proxy and
10-K filings
for the peer group companies, the Committee also considered data
that the Consultant gathered from its published survey library.
This peer group included nine publicly traded firms similar to
the Company in terms of industry, revenue size, and market
capitalization. In addition to referencing data from this peer
group for understanding executive pay competitive norms and
trends, the Committee with the Consultant compared the
Company’s financial performance and aggregate equity
compensation to that of peer group firms. The peer group firms
are:
This peer group included the nine Communications Equipment Peer
Group firms plus nine firms from related high technology
industries for a total of eighteen firms. These nine firms were
similar to the Company in terms of revenue size and market
capitalization. The Committee with the Consultant referenced
data from these firms in order to understand a broader industry
perspective on competitive executive pay norms and trends. The
Committee with the Consultant also compared the Company’s
financial performance and aggregate equity compensation to this
eighteen firm peer group. The nine additional firms are:
The compensation program for our executive officers relies on
three primary elements: base salary, bonus and long-term equity
incentives. The Company also provides standard benefits and
certain supplemental benefits to its executive officers,
including the NEOs.
Base salaries provide compensation for core positional
responsibilities and provide executive officers a level of
predictability and security with regard to one element of pay.
We have designed our compensation mix such that base salaries
will approximate market 50th percentiles and, as stated
above, account for approximately 30% of total compensation (the
sum of base salary, bonus, and long-term equity incentives) at
“targeted” levels of performance.
Base salary increases in 2007 included:
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Base salary increases were awarded in recognition of changes in
responsibilities related to organizational changes for these two
NEOs. Mr. DeWilde assumed responsibility for global sales,
services and strategy, while Mr. Kelly assumed
responsibility for the global product development organization.
Analysis from the Consultant, including benchmarking data, and
recommendations from Mr. Prabhu were considered in the
formulation of these increases.
No other NEOs received base salary increases in 2007, based on
relative position to market and the recommendation of
Mr. Prabhu. Based on company financial performance,
Mr. Prabhu made the recommendation to not increase the
salaries of his direct reports or himself. The resulting base
salary amounts approximate the 45th percentile level.
At the beginning of each year, the executive team develops,
reviews with the Board and publishes internally a business
framework that identifies the roadmap for the given year to
promote and implement the Company’s strategic goals. The
annual incentive program rewards achievement of these goals,
specifically corporate financial goals (in 2007, operating
income), as well as achievement of individual goals and
strategic objectives. The Company references benchmarking data
to develop a recommended target level of incentive for each
executive officer payable upon achievement of target level
performance. These recommended annual incentive targets are then
reviewed and approved by the Committee. For Mr. Prabhu, the
target was 75% of base salary. Targets for the other NEOs were
either 50% or 60% of base salary.
Payment of the annual incentive is at the discretion of the
Committee, and is determined based on an assessment of
performance relative to goals. In 2007, we failed to achieve our
financial performance goals as our 2007 operating income was
significantly below our target. In light of this significant
shortfall, management recommended that no bonus payments be
awarded for 2007, although individual goals and strategic
objectives may have been met. The Committee agreed, and no bonus
payments were made to Mr. Prabhu or the other NEOs for 2007.
Bonus targets for the NEOs remain constant as a percentage of
base salary, with the exception of Mr. Sheehan.
Mr. Sheehan’s bonus target for 2008 has been increased
to 60%, in line with the other Executive Vice Presidents. Annual
incentive program goals for 2008 are aligned with the 2008
business framework that has been developed by the executive team
and reviewed with the Board. Specific targets include net income
and revenue financial goals, and attainment of corporate-wide
strategic objectives. The Committee has discretion over the size
of the payout, and may exercise this discretion to increase or
decrease annual incentive payouts.
Long-term equity incentive awards are made under our
stockholder-approved 2004 Incentive Compensation Plan. Our
executive compensation program is designed to align
executives’ interests with those of stockholders, and is
intended to provide strong incentives to achieve sustained stock
price appreciation. Long-term equity incentive awards also
reward continued employment with the Company (via multiple-year
vesting periods) and, in the case of PSUs, achievement relative
to pre-determined financial targets. Our mix of long-term
incentive vehicles may, from year to year, change based on
considerations of desired performance focus, retention needs and
the balance of unvested equity held by our executives. In 2007,
we selected PSUs as the primary long-term incentive vehicle. In
2008, we will include stock options as another component of our
performance-based long-term incentive vehicle mix.
For both 2006 and 2007, PSU targets represented significant
increases in revenue and operating income compared to previous
fiscal year performance.
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In 2006, the Committee granted PSUs to our NEOs. The PSUs
entitled the recipients to receive shares of the Company’s
Common Stock in March 2008, contingent upon continued employment
and the achievement of cumulative Company operating income
(weighted 70%) and revenue (weighted 30%) targets for the 2006
and 2007 fiscal years. These targets were based on the
Company’s internal business goals.
In order for shares of the Company’s stock to be issued
under these PSUs, the Company’s operating income and
revenue for 2006 and 2007 had to meet specified minimum target
amounts. The number of shares of stock earned varied depending
on the target amounts achieved. If the target amounts were
achieved, then one share of stock was to be issued for each PSU
granted. At minimum target performance,
one-half
share was to be issued for each PSU granted and at maximum
target performance three shares were to be issued for each PSU
granted.
Based on cumulative actual performance in 2006 and 2007, the
Committee approved issuance of twenty percent of the total PSUs
based on attainment tied to the revenue objective. No PSUs were
issued based on operating income performance.
During 2007, we used awards of PSUs and restricted stock units
(or RSUs) as long-term incentives for our executive officers.
On July 24, 2007, we granted PSUs to each of our NEOs. The
PSUs entitled the recipients to receive shares of the
Company’s Common Stock commencing in March 2008, contingent
on the achievement of Company operating income and revenue-based
targets for the 2007 fiscal year that was set earlier in the
year. Upon achievement of these financial measures and subject
to continued employment, one-third of the shares earned would be
issued in annual installments in March 2008, March 2009, and
March 2010. This combination of performance hurdles and
staggered payouts was intended to both motivate and reward
recipients for superior short-term financial results and provide
additional incentive for them to remain with the Company and
achieve sustained financial performance through the payout
period. At minimum target performance, one-half share would be
earned for each PSU granted and at maximum target performance,
two shares would be earned for each PSU granted. Since 2007
performance fell below threshold performance, none of the PSUs
were earned and no amounts will be paid out with respect to them.
On August 6, 2007, we granted RSUs to each of our NEOs.
Subject to continued employment, these RSUs entitled the
recipients to receive shares of the Company’s Common Stock.
The RSUs vest in two equal installments of 50% on each of the
first and second anniversaries of the grant date. The
awards are intended to further reinforce our goal of retention
of the recipients during what has proven to be a difficult
financial period.
The award sizes of these July and August grants were determined
based on consideration of benchmarking data and the economic
value of prior awards. The Committee also reviewed each
NEO’s total compensation opportunity as well as the
cumulative value of past awards as part of its long-term
compensation review. Award sizes approximated the
25th percentile of benchmarking data for the CEO, and the
50th percentile of benchmarking data for other NEOs. The
mix of RSUs and PSUs was intended to provide approximately 25%
of total long-term incentive value via RSUs and approximately
75% of long-term incentive value via PSUs.
The form and level of these July and August grants were
considered at the Committee’s meeting in April, and the
awards were approved for all eligible employees, including the
NEOs, on July 24, 2007. PSU grants were granted on the day
of approval by the Committee. RSUs were granted on the same date
in August as equity awards for the broader employee base. We aim
to award grants on the first trading day during an open window
of the fiscal month following approval by the Committee.
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Subsequent to the July and August grants we determined that
minimum operating income and revenue-based targets for the PSUs
would not likely be met, so shares would likely not be issued
from the 2007 PSU grant. A review of the stock options and other
equity grants held by our NEOs as of October 2007 indicated that
the total
in-the-money
value of unvested past equity grants provided little retention
incentive in light of our stock price at that time. An
additional analysis was completed of equity holdings of the
broader employee population, with the same findings. The
Committee determined that to provide a retention vehicle to the
executive team and key employees, the Committee granted
additional RSUs to each of our executive officers, including the
NEOs and 12% of employees on October 29, 2007.
Mr. Prabhu did not accept his award and therefore did not
receive an award.
Subject to continued employment, these RSUs entitle the
recipients to receive shares of the Company’s Common Stock.
These RSUs vest in three equal installments on each of the
anniversaries of the grant date.
The October grant was sized to provide two times the number of
RSUs from the August grant. Following the grant, the total
in-the-money
value of unvested equity grants for each NEO approximated 1.5
times their base salary at the time of the October grant.
For additional information, please see the sections below
entitled Grants of Plan Based Awards Table for 2007 and
Outstanding Equity Awards at Fiscal Year-End Table for
2007.
The Company does not maintain a defined benefit pension plan.
The Company does provide a retirement savings plan, the
Company’s 401(k) Plan, with a Company match to all eligible
participants, including NEOs. A discretionary retirement
contribution may also be approved by the Compensation Committee
during their annual review of the 401(k) Plan.
The Company maintains a nonqualified deferred income plan for
employees at or above senior manager level, including NEOs. This
plan offers eligible participants a vehicle for additional
retirement savings on a tax-deferred basis. Employees may defer
up to 75% of annual salary, 100% of bonus and 100% of RSUs.
Employees select investments in the deferred income plan from
tracking funds that are a subset of those in the Company’s
401(k) Plan. Amounts deferred fully vest and are payable
following termination of employment in accordance with the
NEO’s election, and subject to a six month distribution
delay in accordance with Internal Revenue Code section 409A.
Under a previous deferred income plan, participants did not
select investments but instead were entitled to a fixed
percentage return. In 2001, the Company changed the plan
structure and this fixed percentage return fund was converted to
a separate fund for those with existing balances but was closed
to new deferrals. At the end of December 2007, the plan was
transitioned to a new Code Section 409A compliant plan and
the separate fixed-interest fund was discontinued.
Messrs. Sheehan, McCarthy and Kelly participated in this
fund (as noted in the Summary Compensation Table below).
We believe that these plans and programs assist the Company in
attracting and retaining qualified executives.
The Company does not offer perquisites, although executives do
participate in programs that are available to all employees. All
employees, including NEOs, are eligible for a full menu of
general benefit programs, including health insurance (medical,
dental, vision), long-term disability and Company-provided term
life insurance. In addition, NEOs are eligible for an executive
whole life policy, which is provided for Company employees at or
above the director level.
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Messrs. Birck and Prabhu entered into employment agreements
with the Company in February 2004. Both 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, and on February 11, 2006,
those employment agreements expired by their terms. As a result,
neither executive has any contractual right to severance or
other pay upon termination of employment, other than as provided
under the equity awards or general benefit programs, nor is
either executive bound to any non-compete or restrictive
covenant obligation.
On November 8, 2007, we announced Mr. Prabhu’s
intent to resign as the CEO on or prior to March 1, 2008.
No severance or other incremental amounts have been or will be
paid to Mr. Prabhu in connection with his resignation.
In 2005, the Company implemented an Executive Continuity and
Protection Program to assist the Company in attracting and
retaining well-qualified individuals to serve as executives and
key personnel of the Company and to obtain from them certain
restrictive covenants. The Executive Continuity and Protection
Program was intended to replace the Company’s separate
Change in Control Employment Agreements as those separate Change
in Control Employment Agreements expired.
Messrs. McCarthy, Sheehan and Wiggins were parties to
separate Change in Control Employment Agreements that expired on
February 11, 2007. The Company entered into these
agreements in 2004 for retention purposes in response to the
then-uncertainty associated with our recruitment of a new CEO.
Messrs. DeWilde, Kelly, Sheehan and Wiggins are currently
subject to the terms and conditions of the Executive Continuity
and Protection Program. None of Messrs. DeWilde, Kelly,
Sheehan and Wiggins otherwise have an employment agreement with
the Company.
On August 22, 2007, Mr. McCarthy resigned as an
executive officer of the Company. In connection with his
agreement to remain with the Company through year end 2007 to
assist with the transition of his duties, we entered into an
agreement with Mr. McCarthy under which his compensation
continued through his retirement at year end, at which time the
Company paid Mr. McCarthy a lump sum payment of $344,500,
accelerated the vesting of 50% of his equity awards and
determined him to be eligible for retiree medical benefits.
For a detailed discussion relating to our Executive Continuity
and Protection Program, please see the section below entitled
Potential Payments Upon Termination or Change in Control.
The Company has stock ownership guidelines that apply to the
executive officers, including the NEOs. These guidelines are in
place to align the financial interests of the executives with
those of the Company and its stockholders.
In July 2005, the Committee adopted revised stock ownership
guidelines requiring the CEO to own the lesser of
200,000 shares or four times his or her salary and the
other executive officers, including the NEOs, to own the lesser
of 50,000 shares or three times the respective
officer’s individual salary within five years of the July
2005 date, or, if later, the date he or she is appointed as an
executive officer.
If an executive fails to comply with the guidelines, the
Committee reserves the right to (i) limit future equity
awards, (ii) require retention of portions of future equity
exercises or shares that have vested or (iii) pay future
bonus amounts in stock.
Stock directly owned, time-vested RSUs, options exercised and
held, vested shares held in the Company’s 401(k) and
deferred income plans and stock acquired under the
Company’s employee stock
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purchase plan are counted toward fulfilling the ownership
guidelines. Outstanding stock options (vested and unvested) as
well as unearned PSUs do not count toward the ownership
guidelines.
The Committee reviews guidelines compliance annually and as of
year-end 2007, each NEO is on target to meet the ownership
guidelines within the initial five-year compliance window.
The Compensation Committee believes that the compensation
arrangements that it approves for its executive officers will
generally not exceed the $1 million deductibility
limitation imposed by the provisions of Internal Revenue Code
Section 162(m). For example, the Committee annually
establishes a contingent maximum bonus amount for each NEO under
the Company’s 2004 Incentive Compensation Plan in order to
qualify the awarded annual incentive as deductible performance
based compensation. In 2007, the Company established a range
between one-half percent and one percent of EBITDA (earnings
before interest, taxes, depreciation and amortization),
depending on the NEO, as the maximum bonus amount. In certain
situations and for certain executive officers, however, the
Compensation Committee may approve compensation arrangements
that exceed the deductible amount permitted under
Section 162(m). No NEO payments in 2007 exceeded the 162(m)
cap.
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).
We have also structured our executive compensation programs and
policies with the intention that they comply with
Section 409A of the Code which imposes additional taxes on
executive officers for certain types of deferred compensation
that are not in compliance with Section 409A.
Accounting considerations also play an important role in the
design of our executive compensation programs and policies.
SFAS 123(R) requires us to expense the cost of stock-based
compensation awards. We consider the relative impact in terms of
accounting cost in addition to other factors such as shareholder
dilution, retentive impact and motivational impact when
selecting long-term equity incentive instruments.
To assist the Compensation Committee, the Company uses the
services of a compensation consultant, Pearl Meyer &
Partners. The Consultant’s role is to provide independent,
third-party advice to assist the Compensation Committee in the
evaluation and design of our executive and independent director
compensation policies and programs, and with compensation
decisions. The Consultant also advised the Nominating and
Governance Committee with respect to director compensation. A
more detailed discussion of the Compensation Committee’s
use of the Consultant is contained in the section above entitled
Committees of the Board — Compensation
Committee.
The Compensation Committee of the Company has reviewed and
discussed the Compensation Discussion and Analysis
required by Item 402(b) of
Regulation S-K
with management and, based on such review and discussions, the
Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this
Proxy Statement.
March 19, 2008
William F. Souders (chairperson)
Frank Ianna
Stephanie Pace Marshall, Ph.D.
Jan H. Suwinski
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Summary
Compensation Table
The following table summarizes the total compensation paid or
earned by each NEO for the fiscal year ended December 28,
2007 and the fiscal year ended December 29, 2006. Our
Compensation Committee considers a number of factors, including
equity and non-equity based compensation, to assess, determine
and set total compensation for each of the NEOs (see the
discussion in the section above entitled Compensation
Discussion and Analysis).
The Company uses a number of factors and benchmarks to determine
each element of compensation. Those elements are then considered
in the aggregate in an effort to balance market factors,
individual performance and Company needs and performance. The
Company targets a specific ratio of fixed compensation and
variable pay when evaluating and awarding total compensation.
For additional information see the section above entitled
Compensation Discussion and Analysis.
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Grants of
Plan-Based Awards Table for 2007
The following table reflects each plan-based award granted to
each NEO for the fiscal year ended December 28, 2007. All
awards identified in the following table were awarded under the
Company’s 2004 Incentive Compensation Plan. All equity
awards granted in 2007 were a part of the Company’s overall
compensation program and no separate consideration was paid by
any NEO for such equity awards (see the section above entitled
Compensation Discussion and Analysis).
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Outstanding
Equity Awards at Fiscal Year-End Table for 2007
The table below reflects all outstanding equity awards for each
NEO for the fiscal year ended December 28, 2007.
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The following table reflects option exercises and stock vested
for each NEO during the fiscal year ended December 28, 2007.
The following table reflects information related to each
NEO’s deferral of compensation during the fiscal year ended
December 28, 2007, under the Company’s nonqualified
Deferred Income Plan. A more detailed discussion related to the
Company’s Deferred Income Plan is contained in the section
above entitled Compensation Discussion and Analysis.
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Potential
Payments Upon Termination or Change in Control
The narrative and tables below provide information regarding the
incremental amount of compensation, if any, that would be paid
to each of the NEOs of the Company in the event of
(a) termination without cause or constructive termination,
(b) voluntary termination or discharge for cause,
(c) death or disability, (d) retirement, (e) a
change in control (without termination) and (f) termination
following a change in control. Unless otherwise noted, the
amounts shown in this section assume that such termination or
change in control was effective as of December 28, 2007.
The actual amounts to be paid out can only be determined at the
time of such executive’s separation from the Company, which
amount may vary depending on facts and circumstances surrounding
such termination.
We maintain an Executive Continuity and Protection Program
covering our NEOs that requires the Company to provide
incremental compensation in the event of certain terminations of
employment or a change in control (see the section above
entitled Compensation Discussion and Analysis). All the
NEOs are participants in the Executive Continuity and Protection
Program.
Information with respect to the equity awards noted in this
discussion can be found in the section above entitled
Outstanding Equity Awards at Fiscal Year End Table for
2007.
Severance For Messrs. DeWilde, Kelly, Prabhu, Sheehan
and Wiggins. Except as discussed below regarding certain
outstanding PSUs, none of the NEOs was covered by any written
employment agreement that would contractually entitle them to
severance benefits in the event that one of them was terminated
without cause or constructively terminated on December 28,
2007.
Outstanding Equity Awards Held by Messrs. DeWilde,
Kelly, Prabhu, Sheehan and Wiggins. All shares underlying
outstanding PSUs, which otherwise become issuable in March 2008,
subject to certain Company performance measures (as discussed
above), will be issued on a pro-rated basis (based on the
performance metrics achieved to date) if employment terminates
without cause or constructively prior to the March 2008
issuance. There is no similar right in the case of option or
stock awards.
Severance For and Equity Awards Held by Messrs. DeWilde,
Kelly, Prabhu, Sheehan and Wiggins. We are not obligated to
pay any amounts over and above vested benefits if an executive
officer’s employment terminates because of a voluntary
termination or discharge for cause. In general, a discharge will
be for cause if the executive has intentionally failed to
perform his duties, engaged in illegal or gross misconduct that
harms the Company, or been convicted of a felony involving moral
wrongdoing. Further, violation of the Company’s Integrity
Policy may be grounds for a discharge for cause.
Benefits For Messrs. DeWilde, Kelly, Prabhu, Sheehan and
Wiggins. We provide our employees, including our NEOs, with
group life and disability insurance coverage. The standard group
life insurance benefit is equal to 150% of the executive’s
annual base salary up to a maximum coverage of $600,000. In
addition,
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the Company provides each NEO an executive life policy with a
death benefit in the amount of $500,000 as well as an accidental
death and dismemberment policy with a benefit of $450,000. The
Company-provided disability benefit is equal to 50% of the
executive’s base salary up to a maximum monthly benefit of
$10,000, paid until age 65. These benefits would be paid to
the NEO or his beneficiary, in addition to the vested benefits,
in the event of the NEO’s death or disability. Had any of
the NEOs become disabled on December 28, 2007, he would
have been entitled to the $10,000 maximum monthly benefit. The
benefits payable under these policies (and the amounts disclosed
in the table below) are provided by the Company to its NEOs and
do not include any supplemental amounts that an executive may
elect to individually obtain through the Company at his expense.
PSU Awards For Messrs. DeWilde, Kelly, Prabhu, Sheehan
and Wiggins. We have provided that all shares underlying
outstanding PSUs, which otherwise become issuable in March 2008,
subject to certain Company performance measures, as discussed
above, will be issued on a pro-rated basis (based on the
performance metrics achieved to date) if employment terminates
prior to the March 2008 issuance due to death or disability.
RSU and Stock Option Awards For Messrs. DeWilde, Kelly,
Prabhu, Sheehan and Wiggins. In the case of a termination
due to a disability, all outstanding stock options may be
exercised, subject to the expiration date of such stock options,
for up to three years (depending on the plan and award agreement
governing that stock option) after such termination, but only to
the extent the stock option was exercisable on the date of the
disability. In the case of a termination due to death, unvested
stock options awards fully vest and all outstanding stock option
awards may be exercised, subject to the expiration date of such
awards, for up to one year after such termination. RSU awards do
not automatically vest in the event an NEO becomes disabled or
dies.
Severance For Messrs. DeWilde, Kelly, Prabhu, Sheehan
and Wiggins. We are not obligated to pay any amounts over
and above vested benefits if a NEO’s employment terminates
because of retirement by a NEO.
Retirement of Stephen M. McCarthy. On August 22,
2007, Stephen M. McCarthy, Executive Vice President, Global
Sales and Service, announced his resignation as an officer of
the Company and his intent to retire from the Company at the end
of 2007. Pursuant to an agreement with the Company and upon his
retirement, Mr. McCarthy was paid $344,500 and is eligible
for retiree medical benefits. Additionally, 50% of
Mr. McCarthy’s outstanding equity awards (restricted
stock units and stock options) will accelerate (but not PSUs).
Equity Awards For Messrs. DeWilde, Kelly, Prabhu,
Sheehan and Wiggins. In the event of a termination due to
retirement on or after attaining the age of 55 years, all
or a portion of each option award held, to the extent not then
exercisable, shall become exercisable in accordance with the
schedule below based on one point for the NEO’s attained
age and one point for each year of continuous service with the
Company as of the date of retirement (including continuous
service with an entity prior to the date such entity was
acquired by the Company or an affiliate of the Company, but
excluding any service prior to January 1, 1975), and all
option awards held by the NEO to the extent then exercisable may
be exercised at any time prior to the expiration date of the
option award or within three years after the date of the
NEO’s retirement, whichever period is shorter. There is no
similar right in the case of RSU and PSU awards.
At least 70 but less than 80 points, 50% of each unvested award
shall vest
At least 80 but less than 90 points, 75% of each unvested award
shall vest
At least 90 points, 100% of each unvested award shall vest
As of December 28, 2007, Messrs. DeWilde, Kelly,
Prabhu, Sheehan and Wiggins were not eligible for any
accelerated vesting under the point system described above.
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Equity Awards For Messrs. DeWilde, Kelly, Prabhu,
Sheehan and Wiggins. In the event that there is a change in
control of the Company, the Company’s 2004 Incentive
Compensation Plan and each individual award agreement (other
than the 10/29/07 grant which only accelerate with termination)
provide that all option, SSAR, RSU and PSU awards will become
immediately vested and exercisable (as applicable) until they
terminate pursuant to the terms of the award agreement or 2004
Incentive Compensation Plan terms. In such a situation, the PSUs
will vest on a pro-rated basis (based on the performance metrics
achieved to date), but in no event less than the target rate of
one share for each PSU.
A change in control generally is any of the following events:
(a) 20% or more of the Company’s securities are
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) during any two consecutive year
period, the directors of the Company’s Board cease to
constitute at least a majority of the Company’s 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 that 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 Company’s
securities and (iii) a majority of the directors before
such transaction continue to serve on the Company’s Board
after such transaction; or (d) the stockholders of the
Company approve a complete liquidation or dissolution of the
Company.
Severance For Messrs. DeWilde, Kelly, Sheehan and
Wiggins. Under our Executive Continuity and Protection
Program, a participant will become entitled to severance
benefits in the event of a qualifying termination of employment,
which occurs within 24 months after a change in control of
the Company (as described below). In such cases, that NEO would
receive severance benefits equal to two times that
participant’s base salary and bonus target, a pro-rated
bonus based on the number of months the participant had served
in the year of termination, and approximately 20% of such
participant’s base salary in lieu of benefits. In addition,
the Company would be obligated to pay the amount of any excise
taxes, together with the additional income tax related to such
excess amounts, imposed on the payments and benefits provided
under this program. In exchange for the right to be covered by
the Executive Continuity and Protection Program, the participant
is required to (a) maintain the confidential information of
the Company, (b) assign all intellectual property rights to
the Company (to the extent not previously assigned),
(c) for a 24 month restriction period, not compete
with the Company (as an employee, stockholder (with limited
exceptions), director, consultant and the like), not solicit for
employment or employ any person who was employed by the Company
within the six month period preceding the date of such hiring,
and not induce any third party to terminate or not renew any
relationship with the Company and (d) to execute a full
release of all claims that the participant may have against the
Company.
Table
Quantifying Potential Termination Payments
The following table quantifies the amounts that each NEO would
be entitled to receive following certain types of terminations
or change in control. Each column in the following table is
described in the above discussion. The amounts shown in the
following tables are approximate and reflect certain assumptions
that we have made in accordance with the SEC’s rules. These
assumptions are that the termination of employment or change in
control occurred on December 28, 2007, the last day of our
2007 fiscal year, and that the value of a share of our stock on
that day was $6.70, the closing price.
In addition, in keeping with the SEC’s rules, the following
discussion and amounts do not include payments and benefits that
are not enhanced by the termination of employment or change in
control. These payments and benefits include: benefits accrued
under the Company’s qualified profit sharing and savings
plan in which all employees participate; accrued vacation pay,
health plan continuation and other similar amounts payable when
employment terminates under programs applicable to the
Company’s salaried employees generally; amounts accumulated
under the non-qualified deferred
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income plan and stock options that have vested and become
exercisable prior to the employment termination or change in
control.
The following amounts for stock options do not include the
exercise amounts that the named executive would be required to
pay in order to exercise such stock option(s), only the enhanced
benefit or value exceeding such aggregate exercise price. Thus,
stock option awards with exercise prices of $6.70 or more per
share are not included as such stock options would have had no
enhanced value on December 28, 2007. The following table
does not include columns for voluntary termination or retirement
since we are not obligated to pay any amounts over and above
vested benefits in either termination scenario.
The table below illustrates what would have been paid on
December 28, 2007 upon termination or change in control for
all NEOs other than Mr. McCarthy who retired as an
executive officer prior to year-end.
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The table below sets forth certain information with respect to
each person known by the Company (other than Mr. Birck, the
Company’s Chairman), pursuant to a review of the filings
with the SEC reporting holdings as of December 31, 2007, to
be the beneficial owner of more than 5% of the outstanding
shares of the Common Stock of the Company.
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The table below sets forth certain information as of
February 25, 2008, with respect to the beneficial ownership
of the Company’s outstanding shares of Common Stock by each
current director of the Company, each nominee to become a
director, each current NEO and all current executive officers
and directors as a group.
* Less than 1%
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Proposal to Approve the Amended
and Restated 2004 Incentive Compensation Plan
In April 2004 the stockholders approved the adoption of the
Tellabs, Inc. 2004 Incentive Compensation Plan (Plan). On
January 24, 2008, subject to stockholder approval, the
Company’s Board of Directors approved amending the Plan,
based on the recommendation of the Compensation Committee. At
the meeting, stockholders will be asked to approve an amended
and restated 2004 Incentive Compensation Plan reflecting
amendments approved by the Board.
The following description sets forth the material terms of the
amended and restated Plan. It does not purport to be complete
and is qualified in its entirety by reference to the provisions
of the Plan. A copy of the Plan, blacklined to show the amended
provisions is attached as Exhibit A. References to the
“Amended Plan” mean the proposed amended and restated
Plan. All capitalized terms which are not defined herein are
defined in the Amended Plan.
At this time, stockholders are being asked to approve the
Amended Plan which authorizes an additional fourteen million
seven hundred and fifty thousand (14,750,000) shares for
issuance in connection with future awards made to eligible
participants under the Plan. The Company believes additional
shares are required maintain the ability to provide incentives
with the appropriate mix of stock options, stock appreciation
rights, and full value awards, such as performance shares and
restricted stock awards. For information regarding shares
currently available for issuance under the Amended Plan, please
see Shares Available for Future Awards and Awards
Outstanding below. In addition, the Amended Plan removes
certain provisions relating to share recycling, establishes
limitations on the number of shares which may be the subject to
full value awards (awards other than options and stock
appreciation rights), and requirements relating to minimum
vesting requirements for a certain number of full value awards.
The Company believes these changes are in keeping with good
corporate governance practices. The Amended Plan also extends to
2018 the period during which awards may be made under the Plan.
The Amended Plan does not affect the nature or amount of awards
made under the Plan or alter the provisions relating to
performance goals and performance-based awards. All other Plan
terms and conditions will remain unchanged.
The Amended Plan is intended to promote the success of the
Company and its subsidiaries by providing incentives to
employees, directors and consultants of the Company and
subsidiaries that will link their personal interests to the
financial success of the Company and its subsidiaries with
growth in stockholder value. The Amended Plan is designed to
provide flexibility to the Company and its subsidiaries in their
ability to attract and retain the services of employees,
directors and consultants upon whose judgment, interest and
special effort the successful conduct of their operations is
largely dependent.
Plan
Highlights
The Amended Plan will enable the Company to maintain strict
corporate governance practices in granting equity to employees
that the Company believes are consistent with the interests of
stockholders, including:
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The following table presents additional information with regard
to the Company’s equity plans as of December 28, 2007
Administration
The Compensation Committee of the Board of Directors will
administer the Amended Plan. Under the Amended Plan, the
Committee has broad discretion and authority to, among other
things, select the officers, employees, directors and
consultants to whom awards may be granted, to determine the
terms, conditions, form and amount of the awards, to establish,
where deemed applicable, performance goals with respect to
awards and to measure and certify the achievement thereof, and
to establish guidelines and procedures relating to awards. The
Committee has full power to administer and interpret the Plan
and to adopt or establish, and to modify or waive, rules,
regulations, agreements, guidelines, procedures and instruments
which it deems necessary or advisable for the administration and
operation of the
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Amended Plan. The Committee may delegate its authority to the
Chief Executive Officer or to other officers, provided that such
delegation will not extend to action with respect to awards made
to “covered employees,” as defined in Code
Section 162(m), or to “officers” for purposes of
Rule 16b-3
under the Exchange Act.
Eligibility
Any officer, employee, director or consultant of the Company or
any of its subsidiaries or affiliates is eligible to receive an
award under the Amended Plan. As of December 28, 2007 there
were approximately 3,716 employees and 8 independent
directors of the Company and its subsidiaries. The selection of
participants and the nature and size of the awards is subject to
the discretion of the Committee.
Shares
Available for Future Awards and Awards Outstanding
The Amended Plan increases the number of shares available for
issuance under the Plan by 14,750,000. As of January 24,
2008, a total of 20,638,723 shares remained available for
grant under the Plan. Therefore, if the Amended Plan is
approved, a total of approximately 35,388,723 shares will
be available for grant under the Amended Plan, representing
approximately 8.46% of the Company’s outstanding Common
Stock as of January 24, 2008. In addition, as of
January 24, 2008, a total of 11,310,818 previously granted
options with an average exercise price of $9.94 are outstanding
and unexercised under the Plan and 3,751,580 performance share
and restricted share units (PSUs/RSUs) are outstanding and
unvested under the Plan as of that date. These outstanding
awards and shares eligible for grant as of January 24, 2008
are shown in the table.
2004 Incentive Compensation Plan
To the extent that shares subject to an award under the Plan are
not issued or are canceled by reason of the failure to earn the
shares issuable under, or the forfeiture, termination,
surrender, cancellation, or expiration of such award, then such
shares shall, to the extent of such forfeiture or cancellation,
again be available for awards under the Plan. Under the Amended
Plan, shares subject to an award will not again be available if
such shares are surrendered or withheld as payment of either the
exercise price of an award or of withholding taxes in respect of
an award, or are not issued as a result of the net settlement of
a stock option, stock appreciation right or other award. Awards
settled solely in cash shall not reduce the number of shares
available for awards under the Amended Plan.
Shares of Common Stock issued in connection with awards that are
assumed, converted or substituted pursuant to a merger,
acquisition or similar transaction entered into by the Company
or any of its subsidiaries shall not reduce the number of shares
available to be issued under the Amended Plan.
Of the shares available for future awards under the Amended
Plan, no more than 20,862,762 shares of Common Stock may be
issued in the aggregate in respect of awards other than stock
appreciation rights or stock options; provided, however, that to
the extent more than 20,862,762 shares are issued in
respect of awards other than stock appreciation rights or
options, the aggregate number of shares available for issuance
under the Amended Plan shall be reduced on the basis of
1.85 shares for each share issued. No more than
6,258,828 shares of Common Stock may be issued with respect
to awards, other than stock appreciation rights or options,
which at the date of grant are scheduled to fully vest prior to
three years (or one year, in the case of performance based
awards) from the date of grant. In addition, to comply with Code
Section 162(m), the Amended Plan includes a limit of
1,000,000 shares of Common Stock as the maximum number of
shares that may be subject to awards made to any one individual
in any one calendar year.
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The source of Common Stock issued with respect to awards may be
authorized but unissued shares or treasury shares. In the event
there is a change in the capital structure of the Company as a
result of any stock dividend or split, recapitalization, merger,
consolidation or spin-off or other corporate change affecting
the Common Stock, the number of shares of Common Stock
authorized for issuance, available for issuance or covered by
any outstanding award and the price per share of any such award,
and the various limitations described above, will be
proportionately adjusted. Fractional shares will not be issued
under the Amended Plan.
Awards
A participant in the Amended Plan is permitted to receive
multiple grants of awards. The terms and provisions of a type of
award with respect to any recipient need not be the same with
respect to any other recipient of such award.
The following types of awards may be granted under the Amended
Plan:
Stock Options. Stock Options may be
nonqualified stock options or incentive stock options that
comply with Code Section 422. The exercise period for any
stock option will be determined by the Committee at the time of
grant. The exercise price per share for all shares of Common
Stock issued pursuant to stock options under the Amended Plan
may not be less than 100% of the Fair Market Value (as defined
in the Amended Plan) of a share of Common Stock on the grant
date. Each stock option may be exercised in whole, at any time,
or in part, from time to time, after the grant becomes
exercisable. Up to 24,750,000 shares may be issued pursuant
to incentive stock options. The Amended Plan limits the term of
any stock option to 10 years and prohibits repricing of
options.
Stock Appreciation Rights
(“SARs”). SARs entitle a participant to
receive an amount equal to the excess of the Fair Market Value
of a share of Common Stock on the date the SAR is exercised over
the Fair Market Value of a share of Common Stock on the date the
SAR is granted. The payment may be made in shares of Common
Stock having a Fair Market Value on the date of exercise equal
to the amount due upon the exercise of the SAR, may be paid in
cash, or in a combination of both. Upon exercise of a SAR
granted in conjunction with a stock option, the option may be
required to be surrendered. The Amended Plan limits the term of
any stock appreciation right to 10 years and prohibits
repricing of stock appreciation rights.
Restricted Stock and Restricted Stock
Units. An award of Restricted Stock is an award
of shares of Common Stock that may not be sold or otherwise
disposed of during a restricted period determined by the
Committee. An award of Restricted Stock Units is an award of the
right to receive a share of Common Stock after the expiration of
a restricted period determined by the Committee, and any other
terms or conditions as the Committee may prescribe.
Performance Shares and Performance
Units. Performance Shares and Performance Units
are awards of a fixed or variable number of shares or of
dollar-denominated units that are earned by achievement of
performance goals established by the Committee. Amounts earned
under Performance Share and Performance Unit Awards may be paid
in Common Stock, cash or a combination of both.
Awards under Deferred Compensation or Similar
Plans. Participants may receive the right to
receive Common Stock or a fixed or variable share denominated
unit granted under the Amended Plan or any deferred compensation
or similar plan established from time to time by the Company.
Annual Incentive Awards. Participants in the
Amended Plan may receive Annual Incentive Awards. Under an
Annual Incentive Award, the participant may receive an amount
based on the achievement of performance goals established by the
Committee. To comply with Code Section 162(m), the Plan
contains an annual limit of $3,000,000 on the amount a single
participant may earn under an Annual Incentive Award for any
calendar year.
Other Incentive Awards. The Committee may
grant other types of awards which may be based in whole or in
part by reference to Common Stock or upon the achievement of
performance goals or such other
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terms and conditions as the Committee may prescribe. In
addition, the Committee may award dividends or dividend
equivalent rights as part or independently of other awards. To
comply with Code Section 162(m), the Plan contains an
annual limit of $3,000,000 on the amount a single participant
may earn under any such Other Incentive Award. For purposes of
this limitation, any award earned over a period greater than one
year is deemed to have been earned ratably over the full and
partial calendar years in such period.
Performance
Goals
Section 162(m) of the Code disallows federal income tax
deductions for certain compensation in excess of $1,000,000 per
year paid to each of the Company’s Chief Executive Officer
and its other named executive officers (collectively, the
“Covered Employees”). Under Section 162(m),
compensation that qualifies as “performance-based
compensation” is not subject to the $1,000,000 deduction
limit. In addition to the annual limitations on awards described
above, another condition necessary to qualify certain incentive
awards (other than stock options and SARs, which are treated as
“performance-based compensation”) as
“performance-based compensation” is that the material
criteria relating to the performance goals under which the award
is made must be disclosed to, and approved by, the stockholders
of the Company before the incentive compensation is paid. Under
Code Section 162(m), such material criteria must be
reapproved by the stockholders every five years. Approval by the
stockholders of the Amended Plan will serve as such reapproval.
For those types of awards under the Amended Plan intended to
meet the definition of “performance-based
compensation” the Committee will establish performance
goals with respect to an award based upon one or more of the
following performance criteria: total stockholder return,
earnings, earnings per share, net income, gross margin, earnings
before interest, taxes, depreciation
and/or
amortization, revenues, expenses, cash flow, indebtedness,
market share, return on assets, return on equity, economic value
added, assets, fair market value of the common stock, value of
assets, regulatory compliance, satisfactory internal or external
audits, improvement of financial ratings, achievement of balance
sheet or income statement objectives or other financial,
accounting or quantitative objectives established by the
Committee. These performance goals may be measured for
achievement or satisfaction during the period the Committee
permits the participant to satisfy or achieve the performance
goals and may be in absolute terms or measured against, or in
relationship to, other companies comparably, similarly or
otherwise situated or other external or internal measure and may
be based on, or adjusted for, other objective goals, events, or
occurrences established by the Committee for a performance
period. Performance goals may be particular to a line of
business, subsidiary or other unit or the Company generally, and
may, but need not be, based upon a change or an increase or
positive result. Performance goals may include or exclude
extraordinary charges, losses from discontinued operations,
restatements and accounting changes and other unplanned special
charges such as restructuring expenses, acquisitions,
acquisition expenses, including expenses related to goodwill and
other intangible assets, stock offerings, stock repurchases and
loan loss provisions.
At the end of each performance period for an award to covered
employees, the Committee will determine and certify the extent
to which the performance goal established for the performance
period has been achieved and determine the amount to be paid,
vested or delivered as a result thereof, provided the Committee
may, in its sole discretion, reduce or eliminate such amount to
the extent permitted under the Amended Plan and applicable law.
Termination
of Employment or Services
The disposition of each award held by a participant at
termination of employment or service as a director or consultant
will be as determined by the Committee and set forth in the
agreement applicable to such award or in any amendment or
modification thereof. To the extent the award agreement does not
expressly provide for such disposition, then the disposition of
the award shall be determined as set forth in the Amended Plan.
Change in
Control
Unless otherwise provided by the Committee in the agreement
applicable to an award (including any amendment or modification
thereof), upon a Change in Control of the Company, all awards
based on
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the Common Stock will immediately vest 100% and all
performance-based awards will be immediately payable based upon
the extent, as determined by the Committee, to which the
performance goals for the performance period then in progress
have been met up through the date of the Change in Control or
based on 100% of the value on the date of grant of the
performance based award, if such amount is higher.
Other
Provisions
In general, except to the extent provided by the Committee in
the specific terms of an award, no award will be assignable or
transferable except by will, the laws of descent and
distribution.
The Committee may impose such restrictions and limitations on
any awards granted under the Amended Plan as it may deem
advisable, including, but not limited to limitations under
applicable securities laws, share ownership or holding period
requirements, and requirements to enter into or to comply with
confidentiality,
non-competition
and other restrictive or similar covenants.
The Committee may provide that the receipt of payment of cash or
the delivery of shares that would otherwise be due to a
participant under an award may be deferred at the election of
the participant pursuant to an applicable deferral plan
established by the Company or a subsidiary.
The Committee may make awards on terms and conditions other than
those described above or in the Amended Plan to comply with the
laws and regulations of any foreign jurisdiction or to make the
award more effective under such laws or regulations.
Effective
Date, Amendment and Termination
If approved by the stockholders, the Amended Plan will become
effective April 24, 2008, the date of the annual meeting of
stockholders and will remain in effect until all shares subject
to the Amended Plan have been purchased
and/or
acquired according to the provisions of the Amended Plan,
provided, however, that no awards may be granted on or after
April 24, 2018. The Board of Directors may terminate the
Amended Plan at any time and may amend or modify the Amended
Plan from time to time provided that no such action will
materially adversely alter or impair any outstanding award
without the consent of the participant affected thereby. In
addition, unless approved by the Company’s stockholders, no
amendment or modification may increase the number of shares of
Common Stock which may be issued under the Amended Plan (except
pursuant to an adjustment related to a corporate change
affecting the Common Stock), expand the types of awards
available to participants under the Amended Plan, materially
expand the class of persons eligible to participate in the
Amended Plan, delete or limit the provisions prohibiting the
repricing of stock options or stock appreciation rights or
reduce the price at which shares may be offered under stock
options or, extend the termination date for making awards under
the Amended Plan, or become effective if such amendment or
modification is required under the rules and regulations of the
Nasdaq Stock Market or another national exchange on which the
Common Stock is then listed, or other applicable law, rules or
regulations, to be approved by the stockholders.
The Committee may amend or modify any outstanding awards in any
manner to the extent that the Committee would have had the
authority under the Amended Plan initially to make such award as
so amended or modified, provided that no amendment or
modification shall materially adversely alter or impair an
outstanding award without the consent of the participant
affected thereby.
Federal
Income Tax Considerations
The following discussion is a summary of certain federal income
tax consequences to participants who may receive grants of
awards under the Amended Plan. This discussion does not purport
to be complete, and does not cover, among other things, foreign,
state and local tax treatment.
Nonqualified Stock Options. For federal income
tax purposes, no income is recognized by a participant upon the
grant of a nonqualified stock option. Upon exercise, the
participant will realize ordinary income in an amount equal to
the excess of the fair market value of a share of Common Stock
on the date of exercise over the exercise price multiplied by
the number of shares received pursuant to the
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exercise of such stock options. A subsequent sale or exchange of
such shares will result in gain or loss measured by the
difference between (a) the exercise price, increased by any
compensation reported upon the participant’s exercise of
the option and (b) the amount realized on such sale or
exchange. Any gain or loss will be capital in nature if the
shares were held as a capital asset and will be long-term if
such shares were held for more than one year. Generally, the
Company will be entitled to a deduction for compensation paid to
a participant at the same time and in the same amount as the
participant realizes compensation upon exercise of the stock
option.
Incentive Stock Options. No taxable income is
recognized by a participant upon the grant of an incentive stock
option under the Amended Plan. No taxable income is realized by
the participant upon exercise of an incentive stock option
granted under the Amended Plan, and if no disposition of those
shares is made by such participant within two years after the
date of grant or within one year after the transfer of those
shares to the participant, then (a) upon the sale of the
shares, any amount realized in excess of the exercise price will
be taxed as a long-term capital gain and any loss sustained will
be taxed as a long-term capital loss, and (b) no deduction
will be allowed to the Company for federal income tax purposes.
Upon exercise of an incentive stock option, the participant may
be subject to alternative minimum tax on certain items of tax
preference.
If the shares of Common Stock acquired upon the exercise of an
incentive stock option are disposed of prior to the expiration
of the
two-years-from-grant/one-year-from-transfer
holding period, generally (a) the participant will realize
ordinary income in the year of disposition in an amount equal to
the excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized upon disposition of
the shares) over the exercise price, and (b) generally, the
Company will be entitled to deduct such amount. Any additional
gain or loss realized will be taxed as short-term or long-term
capital gain or loss, as the case may be, and may not be
deducted by the Company. If an incentive stock option is
exercised at a time when it no longer qualifies as an incentive
stock option, the option will be treated as a nonqualified stock
option.
Stock Appreciation Rights (SAR). No taxable
income is recognized by a participant upon the grant of an SAR
under the Amended Plan. Upon the exercise of an SAR, the
participant will realize ordinary income in an amount equal to
the fair market value of the shares of Common Stock received and
the amount of cash received. Shares of Common Stock received
upon the exercise of an SAR will, upon subsequent sale, be
eligible for capital gain or loss treatment, with the capital
gain holding period commencing on the date of exercise of the
SAR. Generally, the Company will be entitled to a deduction for
compensation paid to a participant at the same time and in the
same amount as the participant realizes ordinary income upon
exercise of the SAR.
Stock Awards. A recipient of Restricted Stock,
Performance Shares or any other awards of shares of Common Stock
generally will be subject to tax at ordinary income rates on the
Fair Market Value of the Common Stock at the time the shares
have been delivered and are no longer subject to forfeiture. A
participant may elect under Section 83(b) of the Code
within 30 days of the date of the grant of shares of Common
Stock to recognize ordinary taxable income on the date of the
grant equal to the Fair Market Value of the shares. Upon sale of
the Restricted Stock or Performance Shares after the forfeiture
period has expired, the holding period to determine whether the
recipient has long-term or short-term capital gain or loss
begins when the restriction period expires, or if the recipient
timely elects to be taxed as of the date of the grant, the
holding period commences on the date of the grant. The tax basis
will be equal to the Fair Market Value recognized by the
participant as ordinary income. Generally, the Company is
entitled to a deduction for compensation paid to a participant
in the amount of ordinary income recognized by the participant.
Restricted Stock Units and Performance
Units. A recipient of units will generally be
subject to tax at ordinary income rates on the Fair Market Value
of any Common Stock issued or cash paid pursuant to such an
award, and the Company will generally be entitled to a deduction
equal to the amount of the ordinary income realized by the
recipient. The capital gain or loss holding period for any
common stock distributed under an award will begin when the
recipient recognizes ordinary income in respect of that
distribution.
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Annual Incentive Award and Other Incentive
Awards. A participant will recognize ordinary
income upon receipt of cash pursuant to a cash award and the
Company will generally be entitled to a deduction equal to the
amount of the ordinary income realized by the recipient.
Other incentive awards. The federal income tax
consequences of other incentive awards will depend on how the
awards are structured. Generally, the Company will be entitled
to a deduction with respect to other incentive awards only to
the extent that the recipient realizes compensation income in
connection with such awards.
New Plan
Benefits
Except for stock options and RSU grants made to directors as
compensation in accordance with our director compensation
policy, no determination has yet been made as to the amount or
terms of any stock-based incentives or any future cash awards
under the Amended Plan. Future grants of stock-based incentives
or any future cash awards under the Amended Plan will be made to
the Named Executive Officers and the other participants as
determined by the Committee. Information concerning director
compensation may be found in the section Director
Compensation and concerning equity awards to the NEOs in the
Compensation Discussion and Analysis, Grants of Plan Based
Awards Table for 2007 and Outstanding Equity Awards at
FYE for 2007.
Vote Required
The affirmative vote of a majority of the votes entitled to be
cast by the holders of the Company’s Common Stock present
or represented at the Meeting and entitled to vote thereon is
required to approve the Amended Plan. Abstentions, and shares
not voted by stockholders of record present or represented at
the Meeting and entitled to vote, will have the same effect as a
vote cast against the proposal.
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 the outcome. Proxies
received by the Company and not revoked prior to or at the
Annual Meeting will be voted for this proposal and the adoption
of the Amended Plan unless otherwise instructed by the
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE
TELLABS, INC. AMENDED AND RESTATED 2004 INCENTIVE COMPENSATION
PLAN.
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company’s officers and directors and
persons who own more than 10% of a registered class of the
Company’s equity securities to file reports of ownership
and changes in ownership with the SEC.
Based on a review of documents in the Company’s possession,
and on written representations from reporting persons, we
believe that during fiscal year 2007, all of the Company’s
officers and directors filed on a timely basis all reports
required by Section 16(a) of the Securities Exchange Act of
1934, except for Thomas P. Minichiello, VP Finance &
Chief Accounting Officer, an officer of the Company who filed a
late Form 3. You can obtain a copy of such reports by
visiting the Company’s Web site at
www.tellabs.com/investors.
Kevin Birck, the son of Michael J. Birck, Chairman of the Board
of the Company, is employed by the Company as director in the
Company’s global operations group. During fiscal year 2007,
Kevin Birck earned an aggregate salary of approximately $155,157
and participated in the Company’s other broad-based
benefits plans. Michael J. Birck was not involved in determining
the compensation of Kevin Birck.
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Fred A. Krehbiel, a member of the Company’s Board of
Directors and Nominating and Governance Committee, is also the
Co-Chairman of the Board and former Chief Executive Officer of
Molex Incorporated, and based on information made available to
the Company, beneficially owns, including with members of his
family, more than 10% of the outstanding stock of Molex.
Mr. Krehbiel’s brother is also a director, officer and
stockholder of Molex. Further, Michael J. Birck, Chairman of the
Board of the Company and a beneficial owner of greater than 5%
of the Company’s outstanding stock, serves on the board of
directors of Molex, and owns less than 1% of the outstanding
stock of Molex. During the Company’s fiscal year ended
December 28, 2007, the Company purchased product components
from Molex. The aggregate amount of these purchases in 2007 was
approximately $7.8 million. Neither Mr. Krehbiel nor
Michael J. Birck was involved in the sales of these components
to the Company by Molex nor negotiated any term or condition
related to such sales.
During the past fiscal year, the Company is not aware of any
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 Company believes that it has built a reputation for the
highest levels of integrity in every aspect of its business. The
Company prohibits transactions (regardless of amount, duration
or subject matter) that involve an executive officer or Board
member (or Board nominee) of the Company that might result in an
actual or perceived conflict of interest with the Company. This
policy includes executive officer’s and director’s
family members as well as any entity or third party in which
such person is employed, serves as an officer or director, or
owns more than 10% of the Company’s outstanding stock. This
policy requires that exceptions to this general prohibition be
identified to the Company’s Audit and Ethics Committee by
such person prior to consummation of any such transaction and
the review, and where appropriate, approval, of such transaction
by the Company’s Audit and Ethics Committee. The general
parameters of this policy are contained in the Company’s
Integrity Policy as well as the Company’s Corporate
Governance Guidelines. Both documents can be found on the
Company’s Web site at www.tellabs.com/investors.
At least annually and upon the appointment or election of any
new officer or director, the Company’s General Counsel
reviews this policy with the executive management team as well
as the Board of Directors. It is the responsibility of the Audit
and Ethics Committee, with substantial assistance of the
Company’s General Counsel, to implement and apply this
policy. The Company enforces this policy by requiring each
officer and director annually to respond to a comprehensive
questionnaire that is designed to identify any proposed or
existing transaction or relationship that may be in conflict
with the Company’s Integrity Policy or Corporate Governance
Guidelines.
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The following Audit and Ethics Committee Report does not
constitute soliciting material and should not be deemed filed or
incorporated by reference into any other Company filing under
the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent the Company specifically incorporates
this report by reference therein.
The Audit and Ethics Committee of the Board of Directors has
furnished the following report:
The Audit and Ethics Committee’s 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
Committee’s charter. A current copy of the charter can be
found on the Company’s Web site at
www.tellabs.com/investors. The Committee believes that it
has satisfied its Committee charter responsibilities for fiscal
year 2007.
In overseeing the preparation of the Company’s financial
statements, the Audit and Ethics Committee met with management
and the Company’s internal and independent auditors to
review and discuss all financial statements (including the
Company’s 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 Committee’s
review included discussion with the independent auditors of
matters required to be discussed pursuant to Auditing Standards
No. 61, as amended (AICPA, Professional Standards,
Vol. 1. AU section 380), as adopted by the Public Company
Accounting Oversight Board in Rule 3200T.
The Audit and Ethics Committee, among other things, has received
the written disclosures and the letter from Ernst &
Young LLP (the Company’s independent auditors) required by
the Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) as
adopted by the Public Company Accounting Oversight Board in
Rule 3600T 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 auditor’s
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 Company’s Web site at
www.tellabs.com/investors.
The Audit and Ethics Committee continued to monitor the scope
and adequacy of the Company’s internal audit program,
including proposals for adequate staffing and to strengthen
internal procedures and controls, where and when appropriate.
The Company’s management is responsible for preparing the
Company’s financial statements. The Company’s
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 Committee’s role does not provide any particular
assurances with regard to the Company’s financial
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statements, nor does it involve a professional evaluation of the
quality of the audits performed by the independent auditors.
Based on 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 Company’s audited
financial statements in the Company’s Annual Report on
Form 10-K
for the fiscal year ended December 28, 2007, for filing
with the Securities and Exchange Commission.
March 19, 2008
Michael E. Lavin (chairperson)
Bo Hedfors
William F. Souders
Jan Suwinski
In connection with the audit of the Company’s 2007
financial statements, the Company entered into an engagement
agreement with Ernst & Young LLP. The engagement
agreement sets forth the terms by which Ernst & Young
LLP will perform audit services for the Company, and includes
alternative dispute resolution procedures and an exclusion of
punitive damages.
The Company paid Ernst & Young LLP certain fees for
services provided during fiscal years 2006 and 2007. 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 auditor’s 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 Company’s Audit and Non-Audit
Services Pre-Approval Policy is available on the Company’s
Web site at www.tellabs.com/investors.
The Audit and Ethics Committee has selected Ernst &
Young LLP, independent auditors, as the Company’s
independent auditors in 2007, as it has done since 1997.
Although action by the stockholders in this matter is not
required, the Audit and Ethics Committee believes that it is
appropriate to seek stockholder ratification of this appointment
in light of the critical role played by independent auditors in
maintaining the integrity of Company financial controls and
reporting, and it will seriously consider stockholder input on
this issue. A representative of Ernst & Young LLP is
expected to be present at the Annual Meeting to answer
appropriate questions and, if the representative so desires, to
make a statement.
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The following proposal will be presented for action at the
Annual Meeting by direction of the Board:
RESOLVED, that action by the Audit and Ethics Committee
appointing Ernst & Young LLP as the Company’s
independent auditors to conduct the annual audit of the
Company’s consolidated financial statements and
management’s assessment of internal controls over financial
reporting for the current fiscal year is hereby ratified,
confirmed and approved.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY’S
INDEPENDENT AUDITORS.
For inclusion in the Company’s Proxy Statement and form of
proxy with respect to the 2009 Annual Meeting of Stockholders,
any proposals of stockholders must be received by the Secretary
of the Company no later than November 17, 2008.
To nominate one or more directors for consideration at the 2009
Annual Meeting of Stockholders, a stockholder must provide
notice, containing the information required by the
Company’s 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 17, 2008. 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 used 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
2009 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 17, 2008, (or by an
earlier or a later date, if such date is hereafter established
by amendment to the Company’s 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. 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 Company’s Web site at
www.tellabs.com/investors.
Management knows of no other matters that will be brought before
the Annual Meeting, but if such matters are properly presented,
the proxies solicited hereby will be voted in accordance with
the judgment of the persons holding such proxies.
By Order of the Board of Directors,
James M. Sheehan
Secretary
March 19, 2008
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EXHIBIT A
AMENDED
AND
RESTATED
2004 INCENTIVE COMPENSATION PLAN
(As adopted
January 24, 2008, subject to stockholder approval)
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TABLE OF
CONTENTS
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TABLE OF
CONTENTS
(continued)
ii
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1.1 Establishment of the Plan. On
January 24, 2008, the Board of Directors of Tellabs, Inc.
(the “Company”) adopted, subject to the approval of
stockholders, this
amended
and restated incentive compensation plan
to
be known as the “Tellabs, Inc.
Amended
and Restated 2004 Incentive Compensation Plan”
(hereinafter referred to as the “Plan”), which permits
the grant of short-term and long-term incentive and other stock
and cash awards.
1.2 Purpose of the Plan. The
purpose of the Plan is to promote the success of the Company and
its Subsidiaries by providing incentives to Employees, Directors
and Consultants of the Company and its Subsidiaries that will
link their personal interests to the financial success of the
Company and its Subsidiaries and to growth in stockholder value.
The Plan is designed to provide flexibility to the Company and
its Subsidiaries in their ability to motivate, attract, and
retain the services of Employees, Directors and Consultants upon
whose judgment, interest, and special effort the successful
conduct of their operations is largely dependent.
1.3 Duration of the
Plan.
The
Plan was initially approved by the Board on February 20,
2004 and became effective upon approval by the stockholders in
April 2004. The Plan
as
amended and restated herein was approved by the Board
on January 24, 2008, shall become effective on the date it
is approved by the Company’s stockholders (the
“Effective Date”), and shall remain in effect, subject
to the right of the Board of Directors to terminate the Plan at
any time pursuant to Article 15 herein, until all Shares
subject to it shall have been purchased or acquired according to
the provisions herein. However, in no event may an Award be
granted under the Plan on or after the tenth (10th) anniversary
of the Effective Date of the Plan.
Article 2.
Definitions and Construction
2.1 Definitions. Whenever used in
the Plan, the following terms shall have the meanings set forth
below and, when the meaning is intended, the initial letter of
the word is capitalized:
(a) “Award” includes, without limitation,
Options, Stock Appreciation Rights, Performance Share or Unit
Awards, Dividend or Dividend Equivalent Rights, Stock Awards,
Restricted Stock or Unit Awards, Cash Awards, Annual Incentive
Awards or Other Incentive Awards as described in or granted
under this Plan.
(b) “Award Agreement” means the agreement or
other writing (which may be framed as a plan or program) that
sets forth the terms and conditions of each Award under the
Plan, including any amendment or modification thereof.
(c) “Change in Control” shall be deemed to have
occurred the first to occur of:
(i) Any “person” (as defined in
Section 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)), excluding for
this purpose, the Company or any subsidiary of the Company, or
any employee benefit plan of the Company or any subsidiary of
the Company, or any person or entity organized, appointed or
established by the Company for or pursuant to the terms of any
such plan which acquires beneficial ownership of voting
securities of the Company, is or becomes the “beneficial
owner” (as defined in
Rule 13d-3
under the Exchange Act), directly or indirectly of securities of
the Company representing 20% or more of the combined voting
power of the Company’s then outstanding securities;
provided, however, that no Change in Control will be deemed to
have occurred as a result of a change in ownership percentage
resulting solely from an acquisition of securities by the
Company; and provided further that no Change in Control will be
deemed to have occurred if a person inadvertently acquires an
ownership interest of 20% or more but then promptly reduces that
ownership interest below 20%;
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(ii) During any two consecutive years, individuals who at
the beginning of such two-year period constitute the Board and
any new director (except for a director designated by a person
who has entered into an agreement with the Company to effect a
transaction described elsewhere in this definition of Change in
Control) whose election by the Board or nomination for election
by the Company’s stockholders was approved by a vote of at
least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved
(such individuals and any such new director, the “Incumbent
Board”) cease for any reason to constitute at least a
majority of the Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a “Business
Combination”), in each case, unless, following such
Business Combination,
(A) all or substantially all of the individuals and
entities who were the beneficial owners of outstanding voting
securities of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than
50% of the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the
Company or all or substantially all of the Company’s assets
either directly or through one or more subsidiaries) (the
“Resulting Company”) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the outstanding voting securities of the
Company;
(B) no person (as defined in Section 13(d) and 14(d)
of the Exchange Act)(other than the Company, the Resulting
Company or any employee benefit plan (or related trust) of the
Company or such Resulting Company) beneficially owns, directly
or indirectly, 20% or more of, respectively, the then combined
voting power of the then outstanding voting securities of the
Resulting Company, except to the extent that such ownership
resulted solely from ownership of securities of the Company
prior to the Business Combination; and
(C) at least a majority of the members of the board of
directors of the Resulting Company were members of the Incumbent
Board at the time of the execution of the initial agreement, or
of the action of the Board, providing for such Business
Combination;
(iv) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company; or
(v) A tender offer (for which a filing has been made with
the Securities and Exchange Commission “SEC”) which
purports to comply with the requirements of Section 14(d)
of the Exchange Act and the corresponding SEC rules) is made for
voting securities of the Company, and then the first to occur of:
(A) Any time during the offer when the person making the
offer owns or has accepted for payment stock of the Company with
25% or more of the total voting power of the Company’s
securities, or
(B) Three (3) business days before the offer is to
terminate unless the offer is withdrawn first if the person
making the offer could own, by the terms of the offer plus any
shares owned by the person, stock with 50% or more of total
voting power of the Company’s securities when the offer
terminates.
(d) “Code” means the Internal Revenue Code of
1986, as amended from time to time.
(e) “Committee” means the Tellabs, Inc.
Compensation Committee, or such other committee designated by
the Board of Directors to administer this Plan. The Committee
shall be appointed by the
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Board, shall consist of three or more outside, independent
members of the Board, and in the judgment of the Board, shall be
qualified to administer the Plan as contemplated by
(i) Rule 16b-3
of the Securities Exchange Act of 1934 (or any successor rule),
(ii) Section 162(m) of the Code, as amended, and the
regulations thereunder (or any successor Section and
regulations), and (iii) any rules and regulations of the
Nasdaq Stock Market (or such other stock exchange on which the
Common Stock is traded). Any member of the Committee who does
not satisfy the qualifications set out in the preceding sentence
may recuse himself or herself from any vote or other action
taken by the Committee. The Board may, at any time and in its
complete discretion, remove any member of the Committee and may
fill any vacancy in the Committee.
(f) “Common Stock,” “Shares” or
“Stock” means the common stock, par value $.01 per
share, of the Company.
(g) “Company” means Tellabs, Inc., a Delaware
corporation, or any successor thereto as provided in
Article 15 herein.
(h) “Consultant” means any person, including an
advisor (other than a person who is an Employee or a Director),
or any entity that renders services to the Company
and/or a
Subsidiary.
(i) “Covered Employee” means any Participant who
is or may be a “covered employee” within the meaning
of Section 162(m)(3) of the Code in the year in which an
Award becomes taxable to such Participant.
(j) “Director” means a director of the Company or
a Subsidiary.
(k) Effective Date” means the date this Plan is
approved by the Company’s stockholders.
(l) “Employee” means an employee of the Company
or any of its Subsidiaries, including an employee who is an
officer or a Director.
(m) “Exchange Act” means the Securities Exchange
Act of 1934, as amended from time to time.
(n) As used in this Plan (unless a different method of
calculation is required by applicable law) “Fair Market
Value” on or as of any date shall mean (i) the closing
price of the Stock as reported by the Nasdaq Stock Market (or,
if the Stock is not listed for trading on the Nasdaq Stock
Market, then on such other national exchange upon which the
Stock is then listed) for such date, or if there are no sales on
such date, on the next preceding day on which there were sales,
or (ii) in the event that the Stock is no longer listed for
trading on a national exchange, an amount determined in
accordance with standards adopted by the Committee.
(o) “Participant” means an Employee, a Director
or a Consultant who has been granted an Award under the Plan.
(p) “Plan” means this Tellabs, Inc. 2004
Incentive Compensation Plan, as herein described and as
hereafter from time to time amended.
(q) “Predecessor Plans” means the 1984 Incentive
Stock Option Plan, as amended and restated, 1986 Non-Qualified
Stock Option Plan, as amended and restated, 1987 Stock Option
Plan for Non-Employee Corporate Directors, as amended and
restated, 1989 Stock Option Plan, as amended and restated, 1991
Stock Option Plan, as amended and restated, 1994 Stock Option
Plan, Tellabs, Inc. 1997 Stock Option Plan, Tellabs, Inc. 1998
Stock Option Plan, 1999 Tellabs, Inc., Stock Bonus Plan, and the
Tellabs, Inc. 2001 Stock Option Plan.
(r) “Previously-Acquired Shares” means shares of
Stock acquired by the Participant or any beneficiary of a
Participant, which Shares have been held for a period of not
less than six months, or such longer or shorter period as the
Committee may require or permit.
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(s) “Subsidiary” shall mean any corporation which
is a subsidiary corporation of the Company, as that term is
defined in Section 424(f) of the Code.
(t) “Annual
Incentive Award” has the meaning specified in
Section 10.1.
(u)“Cash
Award” has the meaning specified in
Section 10.2(d).
(v) “Dividend
or Dividend Equivalent Rights” has the meaning specified in
Section 10.2(a).
(w) “Option”
means an Incentive Stock Option or a Nonqualified Stock Option.
“Incentive Stock Option” or “ISO” means an
option to purchase Stock, granted under Article 6 herein,
which is designated as an incentive stock option and is intended
to meet the requirements of Section 422 of the Code (or any
successor Section). “Nonqualified Stock Option” or
“NQSO” means an option to purchase Stock, granted
under Article 6 herein, which is not intended to be an
Incentive Stock Option.
(x) “Other
Incentive Award” has the meaning specified in
Section 10.2(e).
(y) “Performance
Share” means an Award representing the right to receive a
payment equal to the value of a performance share, granted to a
Participant pursuant to Article 9 herein.
(z) “Performance
Unit” means an Award representing the right to receive a
payment based on the value of a performance unit, granted to a
Participant pursuant to Article 9 herein.
(aa) “Restricted
Stock” means an Award of Stock granted to a Participant
pursuant to Article 8 herein.
(bb) “Restricted
Stock Unit” means an award representing a right to receive
a payment equal to the value of a Share, granted to a
Participant pursuant to Article 8 herein.
(cc) “Stock
Appreciation Right” or “SAR” means an Award,
granted to a Participant pursuant to Article 7 herein.
(dd) “Stock
Award” has the meaning specified in
Section 10.2(b).
2.2 Gender and Number. Except
where otherwise indicated by the context, any masculine term
used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
2.3 Severability. In the event any
provision of the Plan shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been
included.
3.1 Authority of the Committee.
(a) The Plan shall be administered by the Committee.
Subject to the provisions of the Plan, the Committee shall have
all powers vested in it by the terms of the Plan, such powers to
include the authority to:
(i) Select the persons to be granted Awards under the Plan;
(ii) Determine the terms, conditions, form and amount of
Awards to be made to each person selected;
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(iii) Determine the time when Awards are to be made and any
conditions which must be satisfied before an Award is made;
(iv) To establish objectives and conditions for earning
Awards;
(v) To determine the terms of each Award Agreement and any
amendments or modifications thereof (which shall not be
inconsistent with the Plan);
(vi) To determine whether the conditions for earning an
Award have been met and whether an Award will be paid at the end
of the Performance Period;
(vii) To determine if and when an Award may be deferred;
(viii) To determine whether the amount or payment of an
Award should be reduced or eliminated; and
(ix) To determine the guidelines
and/or
procedures for the payment or exercise of Awards; and
(x) Make such other determinations and take such other
actions relating to Awards as the Committee deems necessary or
appropriate.
Notwithstanding the foregoing, no action of the Committee (other
than pursuant to Sections 4.2 8.3, 10.1 or
Article 11) may, without the consent of the person or
persons entitled to exercise any outstanding Option or Stock
Appreciation Right or to receive payment of any other
outstanding Award, adversely affect the rights of such person or
persons with respect to such Awards.
3.2 Decisions Binding. The
Committee shall have full power and authority to administer and
interpret the Plan and to adopt or establish such rules,
regulations, agreements, guidelines, procedures and instruments,
which are not contrary to the terms of the Plan and which, in
its opinion, may be necessary or advisable for the
administration and operation of the Plan. All determinations and
decisions made by the Committee pursuant to the provisions of
the Plan and all related orders or resolutions of the Board of
Directors shall be final, conclusive and binding on all persons,
including the Company and its Subsidiaries, its stockholders,
employees, and Participants and their estates and beneficiaries,
and such determinations and decisions shall not be reviewable.
3.3 Delegation of Certain
Responsibilities. The Committee may, subject
to the terms of the Plan and applicable law, appoint such agents
as it deems necessary or advisable for the proper administration
of the Plan under this Article 3; provided, however, that
except as provided below the Committee may not delegate its
authority to grant Awards under the Plan or to correct errors,
omissions or inconsistencies in the Plan. The Committee may
delegate to the Company’s Chief Executive Officer
and/or to
other officers of the Company its authority under this
Article 3, provided that such delegation shall not extend
to the grant of Awards or the exercise of discretion with
respect to Awards to Employees who, at the time of such action,
are (a) Covered Employees or (b) officers of the
Company or its Subsidiaries who are subject to the reporting
requirements of Section 16(a) of the Exchange Act. All
authority delegated by the Committee under this Section 3.3
shall be exercised in accordance with the provisions of the Plan
and any guidelines for the exercise of such authority that may
from time to time be established by the Committee.
3.4 Procedures of the
Committee. Except as may otherwise be
provided in the charter or similar governing document applicable
to the Committee, (a) all determinations of the Committee
shall be made by not less than a majority of its members present
at the meeting (in person or otherwise) at which a quorum is
present; (b) a majority of the entire Committee shall
constitute a quorum for the transaction of business; and
(c) any action required or permitted to be taken at a
meeting of the Committee may be taken without a meeting if a
unanimous written consent, which sets forth the action, is
signed by each member of the Committee and filed with the
minutes for proceedings of the Committee.
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3.5 Award Agreements. Each Award
under the Plan shall be evidenced by an Award Agreement which
shall be signed by an authorized officer of the Company and, if
required, by the Participant, and shall contain such terms and
conditions as may be authorized or approved by the Committee.
Such terms and conditions need not be the same in all cases.
4.1 Number of Shares.
(a) Subject to adjustment as provided in Section 4.2
herein, the aggregate number
of
shares of Common Stock that may be delivered under the
Plan at any time
with
respect to Awards outstanding as of January 24 , 2008
and Awards made after that date shall not exceed
the
sum of (i) 14,750,000 Shares, plus (ii) the
number
of Shares
subject
to such outstanding Awards and Shares that remain available for
issuance under the Plan as of January 24,
2008 available under the Plan. Shares of Stock
delivered under the Plan may consist, in whole or in part, of
authorized and unissued Shares or Shares
that
shall have been or may be reacquired by the Company in the open
market, in private transactions or otherwise. To the
extent
Shares
of
Common
Stock subject to an outstanding Award are not issued
or
are cancelled by reason of
the
failure to earn the Shares issuable under, or the
forfeiture, termination, surrender, cancellation or expiration
of,
such Award, then such Shares shall again be available for Awards
under the Plan. Shares subject to an Award shall not again be
available if such Shares are surrendered or withheld as payment
of either the exercise price of an Award or of withholding taxes
in respect of an Award, or are not issued due to the net
settlement of Options, Stock Appreciation Rights, or other
Awards. Awards settled solely in cash shall not reduce the
number of Shares of Common Stock available for Awards.
(b) Shares of Common Stock issued in connection with awards
that are assumed, converted or substituted pursuant to a merger,
acquisition or similar transaction entered into by the Company
or any of its Subsidiaries shall not reduce the number of Shares
available for issuance under this Plan.
(c) Subject to
adjustment
as provided in Section 4.2, the following limitations
shall apply to Awards under the Plan:
(i) All of the Shares that may be issued under this Plan
may be issued pursuant to Options or
Stock
Appreciation Rights granted hereunder, provided that the
number of shares of Stock that may be issued under this Plan
pursuant to Options which are Incentive Stock Options shall be
limited to
24,750,000 .
(ii) No
more than 20,862,762 Shares of Common Stock may be issued
in the aggregate in respect of Awards outstanding as of January
24, 2008 or made after such date, other than SARs and Options;
provided, however, that to the extent more than
20,862,762 Shares are issued in respect of such Awards
other than SARs and Options (“Excess Shares”), the
aggregate number of Shares available for issuance under this
Plan shall be reduced on the basis of 1.85 shares for each
Excess Share issued. No more than 6,258,828 Shares may be
issued with respect to Awards, other than SARs and Options,
which at the date of grant are scheduled to fully vest prior to
three years (or one year, in the case of Performance-Based
Awards) from the date of grant (although such Awards may provide
scheduled vesting earlier with respect some of such
shares) .
(iii) The
maximum number of Shares that may be covered by Awards granted
under this Plan to any single Participant shall be
1,000,000 Shares during any one calendar year. For purposes
of applying the limitations set forth in this paragraph
(iii ),
if an Award, including, but not limited to Options, SARs,
Restricted Stock, Restricted Stock Units and Performance Shares,
is denominated in Shares or the amount of the payment to be made
thereunder shall be determined by reference to the value of
Shares, then such Award shall be counted in the year the Award
is granted as covering the number of Shares set forth in the
Award. If an Award is granted in tandem with a Stock
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Appreciation Right, such that the exercise of the Award right or
Stock Appreciation Right with respect to a share of Common Stock
cancels the tandem Stock Appreciation Right or Award right,
respectively, with respect to such share, the tandem Award right
and Stock Appreciation Right with respect to each share of Stock
shall be counted as covering but one share of Stock for purposes
of applying the limitations of this paragraph (iii).
4.2 Adjustments in Authorized Shares
and
Limitations. In the event of any
corporate
event or transaction (including, but not limited to, a change in
the Shares of the Company or the capitalization of the Company)
after January 24, 2008, such as a merger, consolidation,
reorganization, recapitalization, separation, stock
dividend,
stock split,
reverse
stock split, split up, spin-off, or other distribution of stock
or property of the Company, combination of Shares, exchange of
Shares, dividend in kind , or other
like
change-in-capital
structure or distribution (other than normal cash dividends) to
shareholders of the Company, or any similar corporate event or
transaction, the Committee, in order to prevent dilution or
enlargement of Participants’ rights under the Plan, shall
substitute or adjust, as applicable, the number and kind of
Shares that may be issued under the Plan or under particular
forms of Awards, the number and kind of Shares subject to
outstanding Awards, the purchase price or grant date value
applicable to outstanding Options or SARs or grant price
applicable other Awards, the number of Shares provided in the
limitations set forth in Section 4.1 above, and
other
value determinations applicable to outstanding
Awards.
The Committee, in its sole discretion,
may
also make appropriate adjustments in the terms of any Awards
under the Plan to reflect or related to such changes or
distributions and to modify any other terms of outstanding
Awards, including modifications of performance goals and changes
in the length of performance periods. Any adjustment of any
Options or SARs under this
Section 4.2 shall
be made in a manner so as not to constitute a modification
within the meaning of
Section 424(h)(3)
of the Code and regulations promulgated under Section 409A
of the Code. The determination of the Committee as to the
foregoing adjustments, if any, shall be conclusive and binding
on Participants under the Plan. Subject to the provisions of
Article 15, without affecting the number of Shares reserved
or available hereunder, the Committee may authorize the issuance
or assumption of benefits under this Plan in connection with any
merger, consolidation, acquisition of property or stock, or
reorganization upon such terms and conditions as it may deem
appropriate, subject to compliance with the rules under
Section 424 and 409A of the Code, where applicable.
5.1 Eligibility. Persons eligible
to participate in this Plan include all Employees Directors and
Consultants.
5.2 Actual Participation. Subject
to the provisions of the Plan, the Committee may from time to
time select those Employees, Directors and Consultants to whom
Awards shall be granted and determine the nature and amount of
each Award.
6.1 Grant of Options. Subject to
the terms and provisions of the Plan, Options may be granted to
Employees, Directors,
and/or
Consultants at any time and from time to time as shall be
determined by the Committee. The Committee may grant any type of
Option to purchase Stock that is permitted by law at the time of
grant including, but not limited to Incentive Stock Options
(“ISOs”) or Nonqualified Stock Option
(“NQSOs”). However, only Employees may receive an
Award of Incentive Stock Option. Unless the Award Agreement
shall specify that the Option is intended to be an Incentive
Stock Option within the meaning of Section 422 of the Code,
the Option shall be a Nonqualified Stock Option whose grant is
not intended to be subject to the provisions of Code
Section 422. Each Option shall expire at such time as the
Committee shall determine in the Award Agreement, however, no
Option shall be exercisable later than the tenth (10th)
anniversary date of its grant.
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6.2 Option Price. The purchase
price per share of Stock covered by an Option shall be
determined by the Committee but shall not be less than 100% of
the Fair Market Value of such Stock on the date the Option is
granted. Notwithstanding the authority granted to the Committee
pursuant to Section 3.1 of the Plan, once an Option is
granted, the Committee shall have no authority to reduce the
Option price
except
as permitted by Sections 4.2 and 15.2.
6.3 Payment. Options shall be
exercised by the delivery of a written notice to the Company
setting forth the number of Shares with respect to which the
Option is to be exercised, accompanied by full payment for the
Shares. The Option price of any Option shall be payable to the
Company in full either (a) in cash or its equivalent,
including, but not limited to, delivery of a properly completed
exercise notice, together with irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale
proceeds from the sale of the Shares subject to the Option
exercise or to deliver loan proceeds from such broker to pay the
exercise price and any withholding taxes due, (b) by
delivery or deemed delivery through attestation of
Previously-Acquired Shares having a Fair Market Value at the
time of exercise equal to the total Option price, (c) by a
combination of (a) or (b), or (d) such other methods
as the Committee may permit.
6.4 Special Provisions Applicable to Incentive Stock
Options. To the extent provided or required
under Section 422 of the Code or regulations thereunder (or
any successor section or regulations) the Award of Incentive
Stock Options shall be subject to the following:
(a) In the event that the aggregate Fair Market Value of
the Common Stock (determined at the time the Options are
granted) subject to ISOs held by a Participant that first
becomes exercisable during any calendar year exceeds $100,000
then the portion of such ISOs equal to such excess shall be
NQSOs.
(b) An Incentive Stock Option granted to an employee who,
at the time of grant, owns (within the meaning of
Section 424(d) of the Code) stock possessing more than 10%
of the total combined voting power of all classes of Stock of
the Company, shall have an exercise price which is at least 110%
of the Fair Market Value of the Common Stock subject to the
Option, and shall be exercisable later than the fifth (5th)
anniversary date of its grant.
7.1 Grant of Stock Appreciation
Rights. Subject to the terms and conditions
of the Plan, stock appreciation rights (“SARs”) may be
granted to Employees, Directors
and/or
Consultants at any time and from time to time, at the discretion
of the Committee. Each SAR shall expire at such time as the
Committee shall determine in the Award Agreement, however, no
SAR shall be exercisable later than the tenth (10th) anniversary
of the date of its grant.
7.2 Payment of SAR Amount. Upon
exercise of the SAR, the holder shall be entitled to receive
payment of an amount determined by multiplying:
(a) The difference between the Fair Market Value of a Share
on the date of exercise over the price fixed by the Committee at
the date of grant (which price shall not be less than 100% of
the Fair Market Value of a Share on the date of grant); by
(b) The number of Shares with respect to which the SAR is
exercised.
7.3 Form of Payment. Payment to a
Participant of the amount due upon SAR exercise will be made in
Shares having a Fair Market Value as of the date of exercise
equal to the amount determined under Section 6.2 above,
except as the Committee may otherwise provide for the payment in
cash in the applicable Award Agreement or any amendment or
modification thereof.
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8.1 Grant of Restricted Stock and Restricted Stock
Units. Subject to the terms and conditions of
the Plan, the Committee, at any time and from time to time, may
grant restricted Stock and Restricted Stock Units under the Plan
to such Employees, Directors
and/or
Consultants and in such amounts and on such terms and conditions
as it shall determine.
8.2 End of Period of
Restriction. Restricted Stock and Restricted
Stock Units shall be subject to such restrictions as the
Committee determines, including, without limitation, prohibition
against sale, transfer, assignment or encumbrance for a
specified period, and a requirement to forfeit or return
Restricted Stock or Restricted Stock Units in the vent of
termination of employment or service during the specified
period. After the last day of the period of restriction,
(a) Shares of Restricted Stock covered by each Restricted
Stock grant made under the Plan shall become freely transferable
by the Participant, and (b) the Participant shall be
entitled to receive one Share of Common Stock with respect to
each Restricted Stock Unit.
9.1 Grant of Performance Units or Performance
Shares. Subject to the terms and conditions
of the Plan, Performance Units or Performance Shares may be
granted to Employees, Directors
and/or
Consultants at any time and from time to time as shall be
determined by the Committee.
9.2 Value of Performance Units and Performance
Shares. With respect to each grant of
Performance Units or Performance Shares, the Committee shall
establish an initial value for each Performance Unit and an
initial number of Shares for each Performance Share granted to
each Participant, the performance goals that will be used to
determine the extent to which the Participant receives a payment
of the value of the Performance Units or number of Shares for
the Performance Shares awarded, and the period over which such
performance will be measured (“Performance Period”).
These goals will be based on the attainment, by the Company or
its Subsidiaries, of one or more certain performance criteria
and objectives described in Article 11 herein. With respect
to each such performance measure utilized during a Performance
Period, the Committee shall assign percentages to various levels
of performance which shall be applied to determine the extent to
which the Participant shall receive a payout of the values of
Performance Units and number of Performance Shares awarded.
Subject to limitations applicable to payments to Covered
Employees, the Committee shall have the authority to modify,
amend or adjust the terms and conditions of any Performance Unit
award or Performance Share award, at any time or from time to
time, including but not limited to the performance goals.
9.3 Payment of Performance Units and Performance
Shares. After a Performance Period has ended,
the holder of a Performance Unit or Performance Share shall be
entitled to receive the value thereof as determined by the
Committee. The Committee shall make this determination by first
determining the extent to which the performance goals set
pursuant to
Section
9.2 have
been met. It will then determine the applicable percentage to be
applied to, and will apply such percentage to, the value of
Performance Units or number of Performance Shares to determine
the payout to be received by the Participant. In addition, with
respect to Performance Units and Performance Shares granted to
any Covered Employee, no payout shall be made hereunder except
upon written certification by the Committee that the applicable
performance goal or goals have been satisfied to a particular
extent. The payment described in this
Section 9.3 herein
shall be made in cash, Common Stock, or a combination thereof as
determined by the Committee.
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10.1 Annual Incentive Awards. The
Committee may from time to time, subject to the provisions of
the Plan and such other terms and conditions as the Committee
may determine, grant Annual Incentive Awards to Employees,
including, but not limited to, Covered Employees. Each such
Award shall be subject to the following provisions.
(a) Amounts earned by and paid to Participants under Annual
Incentive Awards will be based upon achievement of performance
goals established pursuant to Article 11 above over a
one-year Performance Period, subject to the Committee’s
authority to reduce, but not increase, such amount;
(b) The maximum amount any Participant may earn under an
Annual Incentive Award for any calendar year shall not exceed
$3,000,000.
(c) Annual Incentive Awards shall be paid in cash, subject
to the Committee providing that all or a portion of any such
amount may be paid in Shares.
10.2 Grant of Other Incentive
Awards. In addition to Awards under
Sections 6 through 9, and Section 10.1 above, the
Committee may grant Other Incentives Awards payable in cash or
in Common Stock under the Plan as it determines in its sole
discretion. Other Incentive Awards may be granted to Employees,
Directors
and/or
Consultants at any time and from time to time as shall be
determined by the Committee. Such Awards may include, but are
not limited to:
(a) Dividend or Dividend Equivalent Right. A right to
receive dividends or their equivalent in value in Stock, cash or
in a combination of both with respect to any new or previously
existing Award.
(b) Stock Award. An unrestricted transfer of ownership of
Stock.
(c) Awards under Deferred Compensation or Similar Plans.
The right to receive Stock or a fixed or variable share
denominated unit granted under this Plan or any deferred
compensation or similar plan established from time to time by
the Company.
(d) Cash Award. An award denominated in cash, subject to
the achievement of performance goals set forth in
Section 8.8 during a Performance Period determined by the
Committee, or that may be earned under a Company or Subsidiary
bonus or incentive plan or program.
(e) Other Incentive Awards. Other Incentive Awards which
are related to or serve a similar function to those Awards set
forth in this Section 10.2.
10.3 Limitations. The number of
Shares covered by Other Incentive Awards granted to a
Participant during a calendar year shall be taken into account
for purposes of the annual limitation set forth in
Section 4.1(c)(iii) above. The maximum amount that may be
earned under the Plan during any calendar year with respect to
any Cash Award or Other Incentive Award described in
Section 10.2, shall be $3,000,000. Any amount earned with
respect to which performance is measured over a period greater
than one year shall be deemed to have been earned ratably over
the full and partial calendar years in such period.
11.1 Performance Goals. For
purposes of this Plan, including, but not limited to, Awards of
Performance Shares and Performance Units under Article 8,
and of Annual Incentive Awards or other performance-based Awards
under Article 10, “performance goals” shall mean
the criteria and objectives, determined by the Committee, which
shall be satisfied or met during the applicable period of
restriction or Performance Period, as the case may be, as a
condition to the Participant’s receipt, of Shares or cash
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with respect to such Award. The criteria or objectives for an
Award shall be determined by the Committee in writing, shall be
measured for achievement or satisfaction during the Performance
Period or period of restriction in which the Committee
established for such Participant to satisfy or achieve such
criteria and objectives and may be absolute in their terms or
measured against or in relationship to other companies
comparably, similarly or otherwise situated or other external or
internal measure and may be based on or adjusted for any other
objective goals, events, or occurrences established by the
Committee, provided that such criteria and objectives relate to
one or more of the following: total stockholder return,
earnings, earnings per share, net income, gross margin, earnings
before interest, taxes, depreciation
and/or
amortization, revenues, expenses, cash flow, indebtedness,
market share, return on assets, return on equity, economic value
added, assets, Fair Market Value of the Common Stock, value of
assets, regulatory compliance, satisfactory internal or external
audits, improvement of financial ratings, achievement of balance
sheet or income statement objectives, or other financial,
accounting or quantitative objective established by the
Committee. Performance criteria and objectives may include or
exclude extraordinary charges, losses from discontinued
operations, restatements and accounting changes and other
unplanned special charges such as restructuring expenses,
acquisitions, acquisition expenses, including expenses related
to goodwill and other intangible assets, stock offerings, and
stock repurchases. Such performance criteria and objectives may
be particular to a line of business, Subsidiary or other unit or
the Company generally, and may, but need not be, based upon a
change or an increase or positive result. In interpreting Plan
provisions applicable to performance criteria and objectives and
to performance-based Awards to Participants who are Covered
Employees, it is the intent of the Plan to conform with the
standards of Section 162(m) of the Code and the regulations
thereunder. The Committee in establishing performance criteria
and objectives applicable to such performance-based Awards, and
in interpreting the Plan, shall be guided by such standards,
including, but not limited to providing that the
performance-based Award shall be paid, vested or otherwise
delivered solely as a function of attainment of objective
performance criteria and objectives based on one or more of the
specific criteria and objectives set forth in this
Article 11 established by the Committee not later than
90 days after the Performance Period or Period of
Restriction applicable to the Award has commenced (or, if such
period of service is less than one year, not later than the date
on which 25% of such period has elapsed). Prior to the payment
of any compensation based on achievement of performance criteria
and objectives to any such Covered Employee, the Committee must
certify in writing the extent to which the applicable
performance criteria and objectives were, in fact, achieved and
the amounts to be paid, vested or delivered as a result thereof,
provided the Committee may reduce, but not increase, such amount.
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or
successively and who may include a trustee under a will or
living trust) to whom any benefit under the Plan is to be paid
in case of his death before he receives any or all of such
benefit. Each designation will revoke all prior designations by
the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the
Participant in writing with the Committee during his lifetime.
In the absence of any such designation or if all designated
beneficiaries predecease the Participant, benefits remaining
unpaid at the Participant’s death shall be paid to the
Participant’s estate.
13.1 Employment or
Service. Nothing in the Plan shall interfere
with or limit in any way the right of the Company or any of its
Subsidiaries to terminate any Participant’s employment or
service as a Director or Consultant at any time, nor confer upon
any Participant any right to continue in the employ or to so
serve as a Director or Consultant of the Company or any of its
Subsidiaries.
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13.2 Participation. No Employee,
Director or Consultant shall have a right to be selected as a
Participant, or, having been so selected, to be selected again
as a Participant.
13.3 No Right to Company
Assets. Neither the Participant nor any other
person shall acquire, by reason of the Plan, any right in or
title to any assets, funds or property of the Company or any of
its Subsidiaries whatsoever including, without limiting the
generality of the foregoing, any specific funds, assets, or
other property which the Company or any of its Subsidiaries, in
its sole discretion, may set aside in anticipation of a
liability hereunder. Any benefits which become payable hereunder
shall be paid from the general assets of the Company or the
applicable Subsidiary.
13.4 Rights as Stockholder; Fractional
Shares. Except as otherwise provided under
the Plan, a Participant or Beneficiary shall have no rights as a
holder of Shares with respect to Awards hereunder, unless and
until Shares are issued (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer
agent of the Company). Fractional Shares shall not be issued or
transferred under an Award, but the Committee may authorize
payment of cash in lieu of a fraction, or round the fraction
down. To the extent the Common Stock is uncertificated,
references in this Plan to certificates shall be deemed to
include references to any book-entry evidencing such Shares.
13.5 Nontransferability of
Awards. The Committee may permit the transfer
of Awards, and may impose such restrictions on transferability,
and establish such operational procedures regarding
transferability, as it may deem appropriate, necessary, or
advisable. Except as the Committee may permit, no Award granted
under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, otherwise than by will or
by the laws of descent and distribution. Further, all Awards
granted to a Participant under the Plan shall be exercisable
during his lifetime only by such Participant.
13.6 Election to Defer. The
receipt of payment of cash or delivery of Shares that would
otherwise be due to a Participant pursuant to an Award hereunder
may be deferred at the election of the Participant pursuant to
an applicable deferral plan established by the Company or a
Subsidiary. Such deferrals shall be made in accordance with such
rules and procedures as the Committee may establish under this
Plan or the applicable deferral plan.
13.7 Other Restrictions and
Limitations. The Committee may impose such
restrictions and limitations on any Awards
and/or any
amounts payable thereunder as it may deem advisable, including,
without limitation, restrictions intended to comply with
applicable Federal or state securities laws, Share ownership or
holding period requirements, or requirements to enter into or to
comply with confidentiality, non-competition
and/or other
restrictive or similar covenants (including provisions relating
to forfeiture of awards for violation of such covenants, and may
legend the certificates issued in connection with an Award to
give appropriate notice of any such restrictions.
13.8 Awards to Participants Outside the United
States. In the event any Award under this
Plan is granted to a Participant who is employed or providing
services outside the United States and who is not compensated
from a payroll maintained in the United States, the Committee
may, in its discretion, modify the provisions of this Plan as
they pertain to such individuals to comply with applicable law,
regulation or accounting rules.
14.1 Stock Based
Awards. Notwithstanding any other provisions
of the Plan, and except as otherwise provided in the Award
Agreement, in the event of a Change in Control, all Stock-based
Awards granted under this Plan shall immediately vest 100% in
each Participant, including Options, SARs, Restricted Stock and
Restricted Stock Units.
14.2 Performance Based
Awards. Notwithstanding any other provisions
of the Plan, and except as otherwise provided in the Award
Agreement, in the event of a Change in Control, all Awards
granted
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under this Plan which are subject to performance goals shall be
immediately paid out, including Performance Units and
Performance Shares. The amount of the payout shall be based on
the higher of: (i) the extent, as determined by the
Committee, to which performance goals, established for the
Performance Period then in progress have been met up through and
including the effective date of the Change in Control, or
(ii) 100% of the value on the date of grant of the
Performance Units or number of Performance Shares.
15.1 Amendment, Modification and Termination of
Plan. The Board may terminate the Plan or any
portion thereof at any time, and may amend or modify the Plan
from time to time in such respects as the Board may deem
advisable in order that any Awards thereunder shall conform to
any change in applicable laws or regulations or in any other
respect the Board may deem to be in the best interests of the
Company; provided, however, that no such amendment or
modification shall, without stockholder approval,
(i) except as provided in Section 4.2, increase the
number of shares of Stock which may be issued under the Plan,
(ii) expand the types of Awards available to Participants
under the Plan, (iii) materially expand the class of
persons eligible to participate in the Plan; (iv) delete or
limit the provisions in Section 6.2 prohibiting the
repricing of Options or reduce the price at which Shares may be
offered under Options; or (v) extend the termination date
for making Awards under the Plan. In addition, the Plan shall
not be amended without approval of such amendment by the
Company’s stockholders if such amendment is required under
(1) the rules and regulations of the Nasdaq Stock Market or
an other national exchange on which the Stock is then listed, or
(2) other applicable law, rules or regulations.
15.2 Amendment or Modification of
Awards. The Committee may amend or modify any
outstanding Awards in any manner to the extent that the
Committee would have had the authority under the Plan initially
to make such Award as so modified or amended, including without
limitation, to change the date or dates as of which Awards may
be exercised, to remove the restrictions on Awards, or to modify
the manner in which Awards are determined and
paid
.
The Committee may make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of
unusual or nonrecurring events (including, without limitation,
the events described in Section 4.2 hereof) affecting the
Company or the financial statements of the Company or of changes
in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are
appropriate in order to prevent unintended dilution or
enlargement of the benefits or potential benefits intended to be
made available under the Plan. The determination of the
Committee as to the foregoing adjustments, if any, shall be
conclusive and binding on Participants under the Plan.
Notwithstanding the foregoing or any other provision of this
Plan, except in connection with a corporate transaction
involving the Company (including, without limitation,
circumstances described in Section 4.2), the terms of
outstanding Awards may not be amended to reduce the exercise
price of outstanding Options or SARs, or exchange for cash,
other Awards or Options or SARs with an exercise price that is
less than the exercise price of the original Options or SARs,
without stockholder approval.
15.3 Effect on Outstanding
Awards. No such amendment, modification or
termination of the Plan pursuant to Section 15.1 above, or
amendment or modification of an Award pursuant to
Section 15.2 above, shall materially adversely alter or
impair any outstanding Awards without the consent of the
Participant affected thereby.
16.1 Tax Withholding. The Company
and any of its Subsidiaries shall have the power and the right
to deduct or withhold, or require a Participant to remit to the
Company or any of its Subsidiaries, an amount sufficient to
satisfy Federal, state and local taxes (including the
Participant’s FICA obligation)
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required by law to be withheld with respect to any grant,
exercise, or payment made under or as a result of this Plan.
16.2 Stock Delivery or
Withholding. With respect to withholding
required upon the exercise of Options or SARs, upon the lapse of
restrictions on Restricted Stock or Restricted Stock Units, or
upon any other taxable event arising as a result of Awards
granted hereunder, Participants may elect to satisfy the
withholding requirement, in whole or in part, by having the
Company withhold shares of Common Stock having a Fair Market
Value on the date the tax is to be determined equal to the
minimum (or such greater amount as the Committee may permit)
statutory total tax which would be imposed on the transaction.
All such elections shall be subject to any procedures,
restrictions or limitations that the Committee, in its sole
discretion, deems appropriate.
All obligations of the Company under the Plan, with respect to
Awards granted hereunder, shall be binding on any successor to
the Company, whether the existence of such successor is the
result of a direct or indirect purchase, merger, consolidation
or otherwise, of all or substantially all of the business
and/or
assets of the Company.
18.1 Requirements of Law. The
granting of Awards and the issuance of Shares of Stock under
this Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies
or national securities exchanges as may be required.
18.2 Governing Law. The Plan, and
all agreements hereunder, shall be construed in accordance with
and governed by the laws of the State of Delaware.
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Directions
to the 2008 Annual Meeting of Stockholders
Thursday, April 24, 2008
Report printed entirely on recycled
paper.
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 ATTN: JAMES SHEEHAN 1415 W. DIEHL ROAD NAPERVILLE, IL 60563 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 23, 2008, 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 COMMUNICATIONS
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 stockholder 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 23, 2008, 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 Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
PROXY
One Tellabs Center, 1415 W. Diehl Road, Naperville, IL 60563
This Proxy is Solicited By the Board of Directors
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 Northern Illinois University, Naperville Campus, 1120 East Diehl Road Naperville, IL
60563-9347 on Thursday, April 24, 2008 at 2:00 p.m. Central Daylight Time, 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 each director, FOR the approval of the Tellabs, Inc.
Amended and Restated 2004 Incentive Compensation Plan and FOR the ratification of the Company’s
independent auditors for 2008 and at their discretion on any other matter that may properly come
before the meeting.
(If you noted any Address Changes/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)
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