EMPLOYMENT AGREEMENT - PRESIDENT AND CHIEF EXECUTIVE OFFICER




EXHIBIT 10.2 




EMPLOYMENT AGREEMENT

(PRESIDENT AND CHIEF EXECUTIVE OFFICER) 



        THIS
AGREEMENT, made and entered into as of February 11, 2004, by and between Krish Prabhu (the
“Executive”) and Tellabs, Inc., a Delaware corporation (the
“Company”); 




WITNESSETH THAT: 



        WHEREAS,
the parties desire to enter into this Agreement pertaining to the employment of the
Executive by the Company; 



        NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is
hereby covenanted and agreed by the Executive and the Company as follows: 



          	1. 	  	
               Employment. Subject to the terms of this Agreement, the Company hereby
               agrees to employ the Executive as its President and Chief Executive Officer
               during the Agreement Term (as defined below), with the authority,
               responsibilities and duties customarily exercised by a person holding that
               position, with such additions or modifications thereto which are consistent with
               his authority, responsibilities and duties hereunder, as the Board of Directors
               of the Company (the “Board”) may, from time to time, in its discretion
               and after consultation with the Executive, adopt. The “Agreement Term”
               shall be the period beginning on February 11, 2004 (the “Effective
               Date”) and ending on the second anniversary of the Effective Date, subject
               to earlier termination as provided herein; provided, however, that
               Executive’s term as President and Chief Executive Officer shall commence on
               February 12, 2004; and provided, further, the Agreement Term will be
               automatically extended by twelve (12) months on the first anniversary of the
               Effective Date and on each anniversary thereof, unless one party to this
               Agreement provides written notice of non-renewal to the other party at least
               thirty (30) days prior to the date of such automatic extension. 



               



          	2. 	  	
               Performance of Duties. The Executive agrees that during his employment
               with the Company, he shall devote his full business time, energies and talents
               to serving as its President and Chief Executive Officer and that he shall
               perform his duties faithfully and efficiently subject to the directions of the
               Board. Notwithstanding the foregoing provisions of this Section 2, the
               Executive may (i) serve as a director, trustee or officer or otherwise
               participate in not-for-profit educational, welfare, social, religious and civic
               organizations; (ii) after consultation with, and approval by, the Board,
               serve as a director of not more than two for-profit businesses which do not
               compete with the Company or any of its subsidiaries or affiliates, and
               (iii) acquire passive investment interests in one or more entities;
               provided, that such activities described in clauses (i), (ii) and (iii) are not
               prohibited under the Company’s Integrity Policy and do not inhibit or
               interfere with the performance of the Executive’s duties under this
               Agreement. 



               



          	3. 	  	
               Initial Equity-Based Awards. 



               



          	 	(a) 	  	
               Promptly upon the Executive’s commencement of employment, the Executive
               shall be granted an option under the Company’s existing stock option plan
               to acquire 400,000 shares of the Company’s common stock (“Common
               Stock”) in accordance with the form of stock option agreement attached
               hereto as Exhibit A. 



               


 







          	 	(b) 	  	
               The Company has advised the Executive that the Board plans to establish a new
               incentive compensation plan to be submitted to the stockholders for approval at
               the 2004 Annual Meeting of Stockholders. Following approval by the Board, the
               Company shall grant 100,000 restricted stock units to Executive under such plan,
               which grant shall be subject to stockholder approval of the new plan and to
               terms and conditions as set forth in the form of restricted stock unit agreement
               attached hereto as Exhibit B. 



               



          	4. 	  	
               Compensation. Subject to the terms of this Agreement, during the
               Agreement Term, while the Executive is employed by the Company, the Company
               shall compensate him for his services as follows: 



               



          	 	(a) 	  	
               Base Salary. The Executive shall receive a Base Salary of not less than
               $800,000 per annum payable in 26 bi-weekly installments. The Executive’s
               Base Salary shall be reviewed and may be increased, but not decreased, annually
               by the Compensation Committee of the Board (the “Committee”), in its
               discretion, pursuant to its normal performance review policies for senior
               executives, with the first such review occurring in 2005. 



               



          	 	(b) 	  	
               Annual Bonus. For each calendar year, the Executive shall be eligible to
               receive an Annual Bonus payment in accordance with the Company’s annual
               bonus plans as in effect from time to time. The target level for each Annual
               Bonus shall not be less than 50% of the Executive’s Base Salary for the
               year, provided that the Company achieves the applicable financial and strategic
               objectives established for the year. Commencing with calendar year 2005, such
               objectives will be established by the Committee, in consultation with the
               Executive and other senior officers. The Executive shall be eligible to receive
               a bonus for calendar year 2004, based on the Company’s achievement of
               financial and strategic goals established for the year 2004. The amount of the
               bonus shall be prorated to reflect the Executive’s partial year of service
               from the Effective Date through the end of the calendar year. The actual Annual
               Bonus, if any, paid to the Executive shall be based on achievement of
               performance criteria, as determined by the Committee. 



               



          	 	(c) 	  	
               Annual Equity Awards. Commencing with 2005, the Executive shall be
               entitled to annual stock option grants and, to the extent applicable, other
               stock based compensation on a basis no less favorable than the awards granted to
               other senior executives of the Company. Such awards shall be in addition to the
               initial stock option and restricted stock unit awards under Section 3
               above. 



               



          	 	(d) 	  	
               Employee Benefits, Fringe Benefits and Perquisites. The Executive shall
               participate in all other incentive, compensation, employee benefit, fringe
               benefit and perquisite plans and programs on a basis no less favorable than such
               benefits and perquisites are generally provided by the Company from time to time
               to the Company’s other senior executives, including without limitation
               the Company’s relocation program. 



               



          	 	(e) 	  	
               Expense Reimbursement. The Company will reimburse the Executive for all
               reasonable expenses incurred by him in the performance of his duties in
               accordance with the Company’s policies applicable to senior executives. 



               


2







          	5. 	  	
               Indemnification. The Company agrees that if the Executive is made a
               party, or is threatened to be made a party, to any action, suit or proceeding,
               whether civil, criminal, administrative or investigative (a
               “Proceeding”), by reason of the fact that he is or was a director,
               officer or employee of the Company or is or was serving at the request of the
               Company as a director, officer, member, employee or agent of another
               corporation, partnership, joint venture, trust or other enterprise, including
               service with respect to employee benefit plans, whether or not the basis of such
               Proceeding is the Executive’s alleged action in an official capacity while
               serving as a director, officer, member, employee or agent, the Executive shall
               be indemnified and held harmless by the Company to the fullest extent legally
               permitted or authorized by the Company’s certificate of incorporation or
               bylaws or resolutions of the Company’s Board of Directors or, if greater,
               by the laws of the State of Delaware, against all cost, expense, liability and
               loss (including, without limitation, attorneys’ fees, judgments, fines,
               ERISA excise taxes or other liabilities or penalties and amounts paid or to be
               paid in settlement) reasonably incurred or suffered by the Executive in
               connection therewith, and such indemnification shall continue as to the
               Executive even if he has ceased to be a director, member, employee or agent of
               the Company or other entity, with respect to acts or omissions which occurred
               prior to his cessation of employment with the Company, and shall inure to the
               benefit of the Executive’s heirs, executors and administrators. The Company
               shall advance to the Executive all reasonable costs and expenses incurred by him
               in connection with a Proceeding within twenty (20) calendar days after receipt
               by the Company of a written request for such advance. Such request shall include
               an undertaking by the Executive to repay the amount of such advance if it shall
               ultimately be determined that he is not entitled to be indemnified against such
               costs and expenses. Nothing in this Section 5 shall operate to limit or
               extinguish any right to indemnification, advancement of expenses, or
               contribution that Executive might otherwise have (including, but not limited to,
               under insurance or by agreement with the Company or under applicable law). The
               Executive shall also be covered by the Company’s directors’ and
               officers’ insurance policies to the extent the Company maintains such
               policies for its directors and senior executive officers generally. 



               



          	6. 	  	
               Termination of Employment. Upon termination of the Executive’s
               employment for any reason, the Executive or, in the event of death, the
               Executive’s estate shall be entitled to the Executive’s Base Salary
               prorated through the date of termination. Any Annual Bonus awarded to the
               Executive for a prior award period, but not yet paid to the Executive, and any
               employee benefits to which the Executive is entitled by reason of his employment
               shall be paid to the Executive or his estate at such time as is provided by the
               terms of the applicable Company plan or policy. If the Executive’s
               employment is terminated during the Agreement Term, the Executive’s right
               to additional payments and benefits under this Agreement for periods after his
               date of termination shall be determined in accordance with the following
               provisions of this Section 6. 



               



          	 	(a) 	  	
               Death or Disability. If the Executive’s employment is terminated by
               reason of death or by reason of the Executive’s Disability, the Executive,
               or, in the event of his death, his estate, shall be entitled to a prompt cash
               payment of a prorated Annual Bonus for the year in which such termination
               occurs, based on the target Annual Bonus for such year. The Executive or the
               Company shall be entitled to terminate the Executive’s employment because
               of the Executive’s Disability during the Agreement Term.
               “Disability” means that the Executive is disabled within the meaning
               of the Company’s long-term disability policy or, if there is no such policy
               in effect, that (i) the Executive has been substantially unable, for 120
               business days within a period of 180 consecutive business days, to perform the
               Executive’s duties under this Agreement, as a result of physical or mental
               illness or injury, and (ii) a physician selected by the Company or its insurers,
               and reasonably acceptable to the Executive or the Executive’s legal
               representative, has determined that the Executive is disabled. A termination of
               the Executive’s employment by the Company for Disability shall be
               communicated to the Executive by written notice, and shall be effective on the
               30th day after receipt of such notice by the Executive (the “Disability
               Effective Time”), unless the Executive returns to full-time performance of
               the Executive’s duties before the Disability Effective Time. 



               


3







          	 	(b) 	  	
               Termination for Cause or Voluntary Resignation. If the Executive’s
               employment is terminated by the Company for Cause or if the Executive
               voluntarily resigns from the employ of the Company, other than pursuant to a
               Constructive Discharge, all payments and benefits to which the Executive would
               otherwise be entitled under this Agreement shall immediately cease, except as
               otherwise specifically provided above in this Section 6 with respect to his
               prorated Base Salary through the date of termination, his Annual Bonus, if any,
               awarded for a prior award period but not yet paid and his previously earned
               employee benefits. For purposes of this Agreement, the term “Cause”
               shall mean: 



               



          	 	 	(i) 	  	
               The Executive is convicted of a felony or of any crime involving moral
               turpitude, dishonesty, fraud, theft or financial impropriety; or 



               



          	 	 	(ii) 	  	
               A reasonable determination by a vote of directors comprising two-thirds of the
               entire Board, after giving the Executive notice and an opportunity to be heard,
               that, (A) the Executive has willfully and continuously failed to perform
               substantially his duties as contemplated by Section 2 above (other than such
               failure resulting from incapacity due to physical or mental illness), after a
               written demand for corrected performance is delivered to the Executive by the
               Board which specifically identifies the manners in which the Board believes the
               Executive has not substantially performed his duties, (B) the Executive has
               engaged in gross neglect or gross misconduct, or (C) the Executive has knowingly
               violated a material requirement of the Company’s Integrity Policy, code of
               conduct, the Sarbanes Oxley Act of 2002 or other material provision of federal
               securities law. 



               



          	 	(c) 	  	
               Termination Without Cause. If the Company terminates the Executive
               without Cause, the Executive shall be entitled to a prompt lump sum cash payment
               equal to the Base Salary and Annual Bonus to which he would otherwise would have
               been entitled if he had remained in the employ of the Company for a period of
               eighteen (18) months following such termination, subject to the Executive’s
               execution of a general release and waiver in form and substance acceptable to
               the Company. For purposes of the preceding sentence, the Annual Bonus component
               shall be equal to 1.5 times the Executive’s target bonus for the calendar
               year of termination plus a prorated target bonus for the partial calendar year
               ending on the date of termination. 



               



          	 	(d) 	  	
               Resignation for Constructive Discharge. The Executive’s voluntary
               resignation for Constructive Discharge shall be treated for all purposes of this
               Agreement as a termination by the Company without Cause. For purposes of this
               Agreement, “Constructive Discharge” shall mean the occurrence of any
               of the following circumstances: 



               


4







          	 	 	(i) 	  	
               A reduction by the Company in the Executive’s Base Salary or Annual Bonus
               target to an amount that is less than required under Section 4 above; 



               



          	 	 	(ii) 	  	
               The removal of the Executive from the position of President and Chief Executive
               Officer or the failure of the Executive to be nominated or reelected to the
               Company’s Board of Directors; 



               



          	 	 	(iii) 	  	
               Any action by the Company which results in significant diminution in the
               Executive’s authority, power, responsibilities or duties from those
               contemplated by Sections 1 and 2 above, or the assignment to the Executive
               without his written consent of any duties inconsistent with the Executive’s
               position and status as President and Chief Executive Officer of the Company as
               contemplated by Sections 1 and 2 above, which action or assignment continues
               after written notice thereof and a reasonable opportunity to cure of not less
               than fifteen (15) days has been given by the Executive to the Company; or 



               



          	 	 	(iv) 	  	
               Any other breach by the Company of any of its material obligations to the
               Executive under this Agreement, which breach continues after written notice
               thereof and a reasonable opportunity to cure of not less than thirty (30) days
               has been given by the Executive to the Company. 



               



          	 	(e) 	  	
               Change in Control. The term “Change in Control” of the Company
               means the first to occur of: 



               



          	 	 	(i) 	  	
               Any “person” (as defined in Section 13(d) and 14(d) of the Securities
               Exchange Act of 1934, as amended (the “Exchange Act”)), excluding for
               this purpose, 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%; 



               



          	 	 	(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; 



               


5







          	 	 	(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, 



               



          	 	 	 	(1) 	  	
               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; 



               



          	 	 	 	(2) 	  	
               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 



               



          	 	 	 	(3) 	  	
               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 Securities Exchange Act of 1934 and the
               corresponding SEC rules) is made for the stock of the Company, and then the
               first to occur of: 



               



          	 	 	 	(1) 	  	
               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 



               



          	(2) 	  	
               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. 



               


6







          	7. 	  	
               No Mitigation; No Offset. In the event of any termination of employment,
               the Executive shall be under no obligation to seek other employment and there
               shall be no offset against amounts due the Executive under this Agreement on
               account of any remuneration attributable to any subsequent employment that he
               may obtain. 



               



          	8. 	  	
               Change in Control Benefits. In lieu of coverage under the standard Change
               in Control Agreement provided by the Company to its senior executive officers,
               the Executive shall instead be entitled to the following upon the occurrence of
               a Change in Control (as defined below): 



               



          	 	(a) 	  	
               The Company hereby agrees to continue the Executive in its employ and the
               Executive hereby agrees to remain in the employ of the Company, for the period
               commencing on the date on which a Change in Control occurs, and this
               Section 8 shall not have any force and effect whatsoever prior to that
               date, and ending on the third anniversary of such date (the “employment
               period”), to exercise such authority and perform such executive duties as
               are commensurate with the authority being exercised and duties being performed
               by the Executive immediately prior to the effective date of this Section 8,
               which services shall be performed at a location within the metropolitan area in
               which the Executive was employed immediately prior to the effective date of this
               Section 8 or such other location as the Company may reasonably request. The
               Executive agrees that during the employment period he shall devote his full
               business time exclusively to his executive duties and shall perform such duties
               faithfully and efficiently. 



               



          	 	(b) 	  	
               During the employment period, the Executive shall be compensated as follows: 



               



          	 	 	(i) 	  	
               The Executive shall receive an annual salary at a rate which is not less than
               his rate of annual salary immediately prior to the effective date of this
               Section 8, with the opportunity for increases from time to time thereafter which
               are in accordance with the Company’s regular practices. 



               



          	 	 	(ii) 	  	
               The Executive shall be eligible to participate on a reasonable basis in the
               Company’s stock option plans, the annual incentive bonus program and any
               other bonus and incentive compensation plans (whether now or hereinafter in
               effect) in which senior executive officers of the Company are eligible to
               participate, which plans must provide opportunities to receive compensation
               which are at least as great as the opportunities under the plans in which the
               Executive was participating immediately prior to the effective date of this
               Section 8. 



               



          	 	 	(iii) 	  	
               The Executive shall be entitled to receive employee benefits and perquisites
               which are the greater of the employee benefits and perquisites provided by the
               Company to senior executive officers of the Company or the employee
               benefits and perquisites to which he was entitled immediately prior to the
               effective date of this Section 8. Such benefits and perquisites shall include,
               but not be limited to, the benefits and perquisites included under the Tellabs
               Advantage Program, and the Tellabs, Inc. Employee Welfare Benefits Plan. 



               


7







          	 	(c) 	  	
               Termination Following Change in Control. 



               



          	 	 	(i) 	  	
               For purposes of this Section 8, the term “termination” shall mean (i)
               termination by the Company of the employment of the Executive with the Company
               and all of its subsidiaries for any reason other than death, Disability or
               “cause” (as defined in Section 8(c)(iii) below), or (ii) resignation
               of the Executive for “good reason” (as defined in Section 8(c)(ii)
               below). 



               



          	 	 	(ii) 	  	
               For purposes of this Section 8, the term “good reason” shall mean: 



               



          	 	 	 	(1) 	  	
               the material reduction or material adverse modification of the Executive’s
               authority or duties, such as a substantial diminution or adverse modification in
               the Executive’s title, status, or responsibilities; 



               



          	 	 	 	(2) 	  	
               any reduction in the Executive’s Base Salary (other than as may be
               permitted under Section 8(b)(i)); 



               



          	 	 	 	(3) 	  	
               any failure to provide to the Executive the opportunities to receive
               compensation as required to be provided under Section 8(b)(ii); 



               



          	 	 	 	(4) 	  	
               any failure to pay or provide the benefits and perquisites required to be
               provided under Section 8(b)(iii); 



               



          	 	 	 	(5) 	  	
               any requirement that Executive relocate his principal place of employment by
               more than a 50-mile radius from its location immediately prior to the effective
               date of this Section 8; 



               



          	 	 	 	(6) 	  	
               any material breach of this Section 8 by the Company; or 



               



          	 	 	 	(7) 	  	
               a reasonable determination by the Executive that, as a result of a Change in
               Control and a change in circumstances thereafter significantly affecting his
               position, he is unable to exercise the authorities, powers, function or duties
               attached to his position and contemplated by Section 8(a). 



               



	  	
Notwithstanding
the foregoing, any of the circumstances described in this Section 8(c)(ii) may not
serve as a basis for resignation for “good reason” by the Executive unless the
Executive has provided written notice to the Company that such circumstance exists and the
Company has failed to cure such circumstance within fifteen (15) days following such
notice. 






     	 	 	(iii) 	
          For purposes of this Section 8, the term “cause” shall have the same
          meaning as “Cause” set forth in subsection 6(b). 



          



     	 	(d) 	
          Severance Allowance. 



          


8







     	 	 	(i) 	
          In the event of termination of the Executive during the employment period, the
          Executive shall not be entitled to any payments described in Sections 6(c) or
          (d) above but shall be entitled to receive a lump sum severance allowance within
          five (5) days of such termination, in an amount which is equal to the sum of the
          following: 



          



     	 	 	 	(1) 	
          The amount equivalent to salary payments for 36 calendar months, at the rate
          required by Section 8(b)(i) and in effect immediately prior to termination (or,
          if greater, at the highest rate in effect under Section 8(b)(i) at any time
          during the period commencing on the effective date of this Section 8 and ending
          on the termination date), plus a pro  rata share of the estimated
          amount of any bonus which would have been payable for the bonus period which
          includes the termination date (which amount shall be a pro rata
          share of the Executive’s target bonus or the actual bonus which would have
          been awarded to the Executive based on year-to-date performance, whichever is
          greater); and 



          



     	 	 	 	(2) 	
          The amount equivalent to 36 calendar months of bonus at the target rate for the
          year which includes his termination date. 



          



     	 	 	(ii) 	
          In addition to such amount under Section 8(d)(i) above, the Executive shall also
          receive in cash the value of the incentive compensation (including, but not
          limited to, employer contributions to the Tellabs Advantage Program and the
          right to receive stock awards and to exercise stock options and other bonus and
          similar incentive compensation benefits) to which he would have been entitled
          under all incentive compensation plans maintained by the Company if he had
          remained in the employ of the Company for 36 months after such termination. The
          amount of such payment shall be determined as of the date of termination and
          shall be paid as promptly as practicable and in no event later than thirty
          (30) days after such termination. 



          



     	 	 	(iii) 	
          The Company shall maintain in full force and effect for the Executive’s
          continued benefit (and, to the extent applicable, the continued benefit of his
          dependents) all of the employee benefits (including, but not limited to,
          coverage under any medical and insurance plans, programs or arrangements) to
          which he would have been entitled under all employee benefit plans, programs or
          arrangements maintained by the Company if he had remained in the employ of the
          Company for 36 calendar months after his termination, or if such continuation is
          not possible under the terms and provisions of such plans, programs or
          arrangements, the Company shall arrange to provide benefits substantially
          similar to those which the Executive (and, to the extent applicable, his
          dependents) would have been entitled to receive if the Executive had remained a
          participant in such plans, programs or arrangements for such 36-month period, as
          the case may be. 



          



     	 	(e) 	
          Interest, Indemnification. 



          



     	 	 	(i) 	
          In the event any payment to the Executive under this Section 8 is not paid
          within five (5) business days after it is due, such payment shall thereafter
          bear interest at the prime rate from time to time as published in The Wall
          Street Journal, Midwest Edition. 



          


9







     	 	 	(ii) 	
          The Company hereby indemnifies the Executive for all legal fees and expenses
          incurred by the Executive in contesting any action of the Company with respect
          to this Section 8, including the termination of the Executive’s employment
          hereunder, or incurred by the Executive in seeking to obtain or enforce any
          right or benefit provided by this Section 8. The final two sentences of Section
          19 shall not apply to any contest or other action described in this paragraph. 



          



     	9. 	
          Adjustments in Case of “Excess Parachute Payments”. If any
          payments or benefits received or to be received by the Executive in connection
          with the Executive’s employment (whether pursuant to the terms of this
          Agreement or any other plan, arrangement or agreement with the Company, or any
          person affiliated with the Company) (the “Payments”), will be subject
          to the tax (the “Excise Tax”) imposed by Section 4999 of the Internal
          Revenue Code of 1986, as amended (the “Code”) (or any similar tax that
          may hereafter be imposed), the Company shall pay to the Executive prior to the
          time any such Excise Tax is payable, an additional amount (the “Gross-Up
          Payment”) such that the net amount retained by the Executive, after
          deduction of any Excise Tax on the Payments and any federal, state and local
          income or other applicable tax and Excise Tax upon the payment provided for by
          this paragraph, shall be equal to the Payments. For purposes of determining the
          amount of the Gross-Up Payment, the Executive shall be deemed to pay federal
          income taxes at the Executive’s highest marginal rate of federal income
          taxation in the calendar year in which the Gross-Up Payment is to be made and
          state and local income taxes at the Executive’s highest marginal rate of
          taxation in the state and locality of the Executive’s residence on the date
          on which the Excise Tax is determined, net of the maximum reduction in federal
          income taxes which could be obtained from deduction of such state and local
          taxes. The determination of whether the Payments are subject to the Excise Tax
          and, if so, the Gross Up Payment to be provided to Executive and the time of
          payment pursuant to this Section 9, shall be made by the independent public
          accountants not then regularly retained by the Company, in consultation with tax
          counsel selected by them and acceptable to the Executive. The Company shall
          provide the Executive with sufficient tax and compensation data to enable the
          Executive or his tax advisor to verify such computations and shall reimburse the
          Executive for reasonable fees and expenses incurred with respect thereto. In the
          event that the Excise Tax is subsequently determined to be less than the amount
          taken into account hereunder, the Executive shall repay to the Company at the
          time that the amount of such reduction in Excise Tax is finally determined the
          portion of the Gross-Up Payment attributable to such reduction (plus the portion
          of the Gross-Up Payment attributable to the Excise Tax and federal and state and
          local income tax imposed on the Gross-Up Payment being repaid by the Executive)
          plus interest on the amount of such repayment from the date the Gross-Up Payment
          was initially made to the date of repayment at the rate provided in Section
          1274(b)(2)(B) of the Code (the “Applicable Rate”). In the event that
          the Excise Tax is determined by the Internal Revenue Service or by such
          independent public accountants to exceed the amount taken into account hereunder
          (including by reason of any payment the existence or amount of which cannot be
          determined at the time of the Gross-Up Payment), the Company shall make an
          additional Gross-Up Payment in respect of such excess (plus any interest,
          penalties, fines or additions to tax payable with respect to such excess) at the
          time that the amount of such excess if finally determined. Any payment to be
          made under this Section 9 shall be payable within five (5) days of the
          determination that such a payment is required hereunder. 



          


10







     	10. 	
          Confidential Information. The Executive agrees that, during his
          employment by the Company and at all times thereafter, he shall hold in a
          fiduciary capacity for the benefit of the Company all secret or confidential
          information, knowledge or data relating to the Company or any of its
          subsidiaries or affiliates, and their respective businesses, which shall have
          been obtained by the Executive during the Executive’s employment by the
          Company or during his consultation with the Company after his termination of
          employment, and which shall not be or become public knowledge (other than by
          acts by the Executive or representatives of the Executive in violation of this
          Agreement). Except in the good faith performance of his duties for the Company,
          the Executive shall not, without the prior written consent of the Company or as
          may otherwise be required by law or legal process, communicate or divulge any
          such information, knowledge or data to anyone other than the Company and those
          designated by it. 



          



     	11. 	
          Protective Covenants. During his employment by the Company and for a
          period of two years following the termination of Executive’s employment for
          any reason (the “Restricted Period”), the Executive shall not, without
          the written consent of the Board, directly or indirectly: 



          



     	 	(a) 	
          engage or be interested in (as owner, partner, stockholder, employee, director,
          officer, agent, consultant or otherwise), with or without compensation, any
          business which is in direct competition with the Company or of any of its
          subsidiaries in providing data, voice or video transport, switching/routing,
          network access system and/or voice quality enhancement solutions to service
          providers or end users; 



          



     	 	(b) 	
          hire any person who was employed by the Company or any of its subsidiaries or
          affiliates (other than persons employed in a clerical or other non-professional
          position) within the six-month period preceding the date of such hiring; or 



          



     	 	(c) 	
          solicit, entice, persuade or induce any person or entity doing business with the
          Company and its subsidiaries or affiliates, to terminate such relationship or to
          refrain from extending or renewing the same. 



          



        The
Executive is prohibited from engaging in the above activities in any state of the United
States and in any country outside the United States in which the Company does business.
Nothing in subparagraph (a) above will prohibit the Executive from acquiring or holding
not more than one percent of any class of publicly traded securities of any such business;
provided that such securities entitle the Executive to no more than one percent of the
total outstanding votes entitled to be cast by security holders of such business in
matters on which such security holders are entitled to vote. 



     12.    
          Remedies. 


11







     	 	(a) 	
          The Executive acknowledges that the restraints and agreements herein provided
          are fair and reasonable, that enforcement of the provisions of Sections 10 and
          11 will not cause the Executive undue hardship and that said provisions are
          reasonably necessary and commensurate with the need to protect the Company and
          its subsidiaries and affiliates and their legitimate and proprietary business
          interests and property from irreparable harm. The Executive acknowledges and
          agrees that (i) a threatened or actual breach of any of the covenants and
          provisions contained in Sections 10 or 11 above, will result in irreparable harm
          to the business of the Company or its subsidiaries and affiliates, (ii) a
          remedy at law in the form of monetary damages for any threatened or actual
          breach by the Executive of any of the covenants and provisions contained in
          Sections 10 and 11 is inadequate, (iii) in addition to any remedy at law or
          equity for such breach, the Company shall be entitled to institute and maintain
          appropriate proceedings in equity, including a suit for injunction to enforce
          the specific performance by the Executive of the obligations hereunder and to
          enjoin the Executive from engaging in any activity in violation hereof and
          (iv) the covenants on the Executive’s part contained in Sections 10
          and 11, shall be construed as agreements independent of any other provisions in
          this Agreement, and the existence of any claim, setoff or cause of action by the
          Executive against the Company, whether predicated on this Agreement or
          otherwise, shall not constitute a defense or bar to the specific enforcement by
          the Company of said covenants. In the event of a breach or a violation by the
          Executive of any of the covenants and provisions of this Agreement, the running
          of the Restricted Period (but not of Executive’s obligation thereunder)
          shall be tolled during the period of the continuance of any actual breach or
          violation. 



          



     	 	(b) 	
          The parties hereto agree that the covenants set forth in Sections 10 and 11 are
          reasonable with respect to their duration, geographical area and scope. If the
          final judgment of a court of competent jurisdiction declares that any term or
          provision of Section 10 or 11 is invalid or unenforceable, the parties agree
          that the court making the determination of invalidity or unenforceability shall
          have the power to reduce the scope, duration, or area of the term or provision,
          to delete specific words or phrases, or to replace any invalid or unenforceable
          term or provision with a term or provision that is valid and enforceable and
          that comes closest to expressing the intention of the invalid or unenforceable
          term or provision, and this Agreement shall be enforceable as so modified after
          the expiration of the time within which the judgment may be appealed.



          



     	13.     	
          Assignability, Binding Nature. This Agreement shall be binding upon and
          inure to the benefit of the Parties and their respective successors, heirs (in
          the case of the Executive) and assigns. No rights or obligations of the Company
          under this Agreement may be assigned or transferred by the Company except that
          such rights or obligations may be assigned or transferred pursuant to a merger
          or consolidation in which the Company is not the continuing entity, or the sale
          or liquidation of all or substantially all of the assets of the Company,
          provided that the assignee or transferee is the successor to all or
          substantially all of the assets of the Company and such assignee or transferee
          assumes the liabilities, obligations and duties of the Company, as contained in
          this Agreement, either contractually or as a matter of law. The Company further
          agrees that, in the event of a sale of assets or liquidation as described in the
          preceding sentence, it shall take whatever action it legally can in order to
          cause such assignee or transferee to expressly assume the liabilities,
          obligations and duties of the Company hereunder. No rights or obligations of the
          Executive under this Agreement may be assigned or transferred by the Executive
          other than his rights to compensation and benefits, which may be transferred
          only by will or operation of law. 



          


12







     	14.     	
          Amendment. This Agreement may be amended or canceled only by mutual
          agreement of the parties in writing without the consent of any other person. So
          long as the Executive lives, no person, other than the parties hereto, shall
          have any rights under or interest in this Agreement or the subject matter hereof
          except that in the event of the Executive’s Disability so as to render him
          incapable of such action, his legal representative may be substituted for
          purposes of such amendment.



          



     	15.     	
          Applicable Law. The provisions of this Agreement shall be construed in
          accordance with the internal laws of the State of Illinois, without regard to
          the conflict of law provisions of any state.



          



     	16.     	
          Severability. The invalidity or unenforceability of any provision of this
          Agreement will not affect the validity or enforceability of any other provision
          of this Agreement, and this Agreement will be construed as if such invalid or
          unenforceable provision were omitted (but only to the extent that such provision
          cannot be appropriately reformed or modified). 



          



     	17.     	
          Waiver of Breach. No waiver by any party hereto of a breach of any
          provision of this Agreement by any other party, or of compliance with any
          condition or provision of this Agreement to be performed by such other party,
          will operate or be construed as a waiver of any subsequent breach by such other
          party of any similar or dissimilar provisions and conditions at the same or any
          prior or subsequent time. The failure of any party hereto to take any action by
          reason of such breach will not deprive such party of the right to take action at
          any time while such breach continues. 



          



     	18.     	
          Notices. Notices and all other communications provided for in this
          Agreement shall be in writing and shall be delivered personally or sent by
          registered or certified mail, return receipt requested, postage prepaid, or
          prepaid overnight courier to the parties at the addresses set forth below (or
          such other addresses as shall be specified by the parties by like notice):



          




      to
the Company:




          Tellabs,
Inc.
          One Tellabs Center 

          1415 W. Diehl Center

          Naperville, IL 60563

          Attn:General Counsel



        or
to the Executive: 




          
Krish Prabhu
          One Tellabs Center

          1415 W. Diehl Road

          Naperville, IL 60563



        Each
party, by written notice furnished to the other party, may modify the applicable delivery
address, except that notice of change of address shall be effective only upon receipt.
Such notices, demands, claims and other communications shall be deemed given in the case
of delivery by overnight service with guaranteed next day delivery, the next day or the
day designated for delivery; or in the case of certified or registered U.S. mail, five (5)
days after deposit in the U.S. mail; provided, however, that in no event shall any such
communications be deemed to be given later than the date they are actually received. 


13







     	19.     	
          Arbitration of Disputes and Reimbursement of Legal Costs. In the event of
          any dispute between the Company and the Executive, whether arising out of or
          relating to this Agreement, the breach of this Agreement, or otherwise, the
          Executive and the Company hereby agree that such dispute shall be resolved by
          binding arbitration administered by the American Arbitration Association
          (“AAA”) in accordance with its Commercial Arbitration Rules then in
          effect, and judgment on the award rendered by the arbitrator may be entered in
          any court having jurisdiction thereof. Any arbitration shall be held before a
          single arbitrator who shall be selected by the mutual agreement of the Company
          and the Executive, unless the parties are unable to agree to an arbitrator, in
          which case, the arbitrator will be selected under the procedures of the AAA. The
          arbitrator shall be experienced in the resolution of disputes under employment
          agreements for CEOs of major corporations and shall have the authority to award
          any remedy or relief that a court of competent jurisdiction could order or
          grant, including, without limitation, the issuance of an injunction, and the
          parties hereby agree to the emergency procedures of the AAA. However, either
          party may, without inconsistency with this arbitration provision, apply to any
          court having jurisdiction over such dispute or controversy and seek interim
          provisional, injunctive or other equitable relief until the arbitration award is
          rendered or the controversy is otherwise resolved. Except as necessary in court
          proceedings to enforce this arbitration provision or an award rendered
          hereunder, or to obtain interim relief, neither a party nor an arbitrator may
          disclose the existence, content or results of any arbitration hereunder without
          the prior written consent of the Company and the Executive. The arbitration
          proceeding shall be conducted in the Chicago, Illinois metropolitan area. In the
          event of any such proceeding, the losing party shall reimburse the prevailing
          party upon entry of a final award resolving the subject of the dispute for all
          reasonable legal expenses incurred, unless the arbitrator determines that to do
          so would be unjust. Otherwise, each party shall be responsible for its own
          expenses relating to the conduct of the arbitration (including reasonable
          attorneys’ fees and expenses) and shall share the fees of the AAA equally.



          



     	20.     	
          Survivorship. Upon the expiration or other termination of this Agreement,
          the respective rights and obligations of the parties hereto shall survive such
          expiration or other termination to the extent necessary to carry out the
          intentions of the parties under this Agreement. 



          



     	21.     	
          Entire Agreement. Except as otherwise noted herein, this Agreement
          constitutes the entire agreement between the parties concerning the subject
          matter hereof and supersedes all prior and contemporaneous agreements, if any,
          between the parties relating to the subject matter hereof. 



          



     	22.     	
          Counterparts. This Agreement may be executed in separate counterparts,
          each of which is deemed to be an original and all of which taken together
          constitute one and the same agreement. 



          


14







        IN
WITNESS THEREOF, the Executive has hereunto set his hand, and the Company has caused this
Agreement to be executed in its name and on its behalf, and its corporate seal to be
hereunto affixed, all as of the day and year first above written. 



	 	 	 
	 	EXECUTIVE:	 
	 	

     
                    
                    
                    	 
	 	Krish Prabhu	 
	 	 

COMPANY:	 
	 	
TELLABS, INC., a Delaware corporation	 
		

     
                    
                    
                    	 
		Name: Michael J. Birck	 
		Its:      Chairman of the Board	 
	ATTEST:	 	 
	

     
                    
                    
                    	 	 
	James M. Sheehan, Secretary	 	 

























15








Exhibit A to Employment
Agreement 




NONQUALIFIED STOCK
OPTION AGREEMENT 



     1.    
          Tellabs, Inc. (the “Company”) hereby grants to Krish Prabhu
          (“Participant”), effective February 11, 2004 (the “Grant
          Date”), an option to purchase 400,000 shares of the Company’s Common
          Stock (the “Options”) at a price of $10.20 per share (the
          “Exercise Price”) (such price being the closing price on the date
          hereof for sales of shares as reported by the Nasdaq Stock Market), purchasable
          as set forth herein. The Options shall be governed by the terms and conditions
          in this Stock Option Agreement and the Company’s 2001 Stock Option Plan
          (the “Plan”). Unless otherwise indicated, all capitalized terms not
          defined in this Stock Option Agreement shall have the meanings ascribed to such
          terms in the Employment Agreement between Participant and the Company dated as
          of February 11, 2004 (the “Employment Agreement”). 



     2.    
          The Options shall not be exercisable until vested. The Options shall be
          exercisable during the period February 11, 2005, through February 10, 2014 (the
          “Exercise Period”), subject to the vesting schedule described in the
          next sentence and the provisions regarding termination set forth in paragraphs 3
          and 4 below and, to the extent not inconsistent with the terms and conditions of
          this Stock Option Agreement, in the Plan. Twenty percent (20%) of the total
          Options granted to Participant on the Grant Date (the “Total Grant”)
          will become vested on the first anniversary of the Grant Date; an additional
          twenty percent (20%) of the Total Grant will become vested on the second
          anniversary of the Grant Date; and the remaining sixty percent (60%) of the
          Total Grant will become vested on the third anniversary of the Grant Date.
          During the Exercise Period, vested Options may be exercised in whole or in part,
          on one or more than one occasion, provided that the Options must be exercised
          for a minimum of 100 shares on any one occasion, or for the remaining
          number of shares covered by the Options if less than such minimum. The Options
          may be exercised in accordance with any method applicable to options granted
          under the Plan and the purchase price of any shares as to which the Options
          shall be exercised shall be paid in full at the time of such exercise in the
          manner provided in the Plan. 



     3.    
          In the event Participant’s employment with the Company is terminated (the
          date upon which such termination occurs is the “Date of Termination”)
          for any reason other than the occurrence of an event described in paragraph 4
          below, whether voluntarily or involuntarily, the Options to the extent not
          vested under paragraph 2 above on or before the Date of Termination shall
          terminate immediately upon the Date of Termination and may not be exercised
          after such date, and to the extent vested as of the Date of Termination shall
          terminate three months after the Date of Termination and may not be exercised
          after such date; provided, however, that if termination is by the Company for
          Cause, then the vested Options shall terminate immediately upon the Date of
          Termination and may not be exercised after such date. 



     4.    
          In the event of a Change in Control (as defined in the Employment Agreement) any
          unvested Options shall be fully vested and exercisable immediately prior to such
          Change in Control. Upon the occurrence of Participant’s death, Disability,
          or termination of Participant’s employment by the Company without Cause or
          by Participant due to Constructive Discharge, any unvested Options shall be
          fully vested and exercisable as of the Date of Termination and remain
          exercisable for one (1) year following the Date of Termination, three years if
          termination was due to Disability. In no event, however, shall any
          post-termination exercise period extend beyond February 10, 2014. 


A-1







     5.    
          The Options may not be assigned, transferred, pledged or hypothecated in any way
          whether by operation of law or otherwise by Participant and the Options shall
          not be subject to execution, attachment or similar process; provided, however
          that the Participant is authorized to transfer the Options in the manner
          described in Section 6.9 of the Plan. Other than as permitted by this paragraph
          5, any attempted assignment, transfer, pledge, hypothecation or other
          disposition of the Options or the rights or benefits, under this Stock Option
          Agreement, and the levy of any execution, attachment or similar process upon
          such Options, or such rights and benefits shall be null and void and without
          effect. 



     6.    
          Any dispute or disagreement arising out of or relating to this Stock Option
          Agreement shall be resolved by binding arbitration in accordance with Section 19
          of the Employment Agreement. Notwithstanding the foregoing, any dispute or
          disagreement which shall arise under, as a result of, or in any way relate to
          the interpretation, construction or administration of the Plan shall be
          determined in all cases and for all purposes by the Committee, or any successor
          committee, and any such determination shall be final, binding and conclusive for
          all purposes. 



     7.    
          The Options shall be subject to adjustment (including, without limitation, as to
          the number of shares of Common Stock covered by the Options) pursuant to Section
          4.3 of the Plan in connection with the occurrence of any of the events described
          in Section 4.3 of the Plan following the Date of Grant. 



     8.    
          All notices and other communications relating to this Stock Option Agreement
          shall be given as provided in Section 18 of the Employment Agreement. 



     9.    
          (a)     This Stock Option Agreement is personal to Participant and, except as
          otherwise provided in paragraph 5 above, shall not be assignable by Participant
          otherwise than by will or the laws of descent and distribution, without the
          prior written consent of the Company. This Stock Option Agreement shall inure to
          the benefit of and be enforceable by Participant’s legal representatives. 



            (b)    
          This Stock Option shall inure to the benefit of and be binding upon the Company
          and its successors. It shall not be assignable except in connection with the
          sale or other disposition of all or substantially all of the assets or business
          of the Company. 



     10.    
          Together with the Plan, this Stock Option Agreement contains the entire
          agreement between the parties with respect to the subject matter hereof and may
          be amended, modified or changed only be a written instrument executed by
          Participant and the Company. No provision of this Stock Option Agreement may be
          waived except by a writing executed and delivered by the party sought to be
          charged. Any such written waiver will be effective only with respect to the
          event or circumstance described therein and not with respect to any other event
          or circumstance, unless such waiver expressly provides to the contrary. 


A-2







     11.    
          The grant of Options and all terms and conditions related thereto, including
          those of the Plan, shall be governed by the laws of the State of Illinois,
          without reference to principles of conflict of laws. In the event there is a
          conflict between the Plan as from time to time in effect and the terms and
          conditions in this Stock Option Agreement, this Stock Option Agreement shall
          govern. 



     12.    
          This Stock Option Agreement may be executed in one or more counterparts, each of
          which shall be deemed to be an original but all of which together shall
          constitute one and the same instrument. Signatures delivered by facsimile shall
          be effective for all purposes. 



	 	 	 
	PARTICIPANT	 	TELLABS, INC.:
	

     
                    
                    
                    	 	

     
                    
                    
                    
	Krish Prabhu	 	Name: Michael J. Birck
	 	 	Its:      Chairman of the Board











A-3








Exhibit B To Employment
Agreement 




TELLABS RESTRICTED
STOCK UNIT AWARD AGREEMENT 



        This
Restricted Stock Unit Award Agreement (herein called the “Agreement”) is made
and entered into as of           
               ,
2004, by and between Tellabs, Inc., a Delaware corporation (the “Company”), and
Krish Prabhu (“Employee”). The Restricted Stock Unit Award (as defined below) is
governed by this Agreement. 



     1.    
          Award of Restricted Stock Unit Award. In order to encourage
          Employee’s contribution to the successful performance of the Company, and
          in consideration of the covenants and promises of Employee herein contained, the
          Company hereby awards to Employee as of the date first written above (the
          “Date of Grant”), 100,000 Restricted Stock Units representing the
          right to receive 100,000 shares of Common Stock, subject to the conditions,
          restrictions and limitations set forth below (the “Restricted Stock Unit
          Award”). Employee hereby acknowledges and accepts such grant of Restricted
          Stock Units and agrees that he shall receive the shares of Common Stock covered
          thereby upon such terms and subject to such conditions, restrictions and
          limitations as set forth below. Employee also acknowledges and agrees that the
          grant of Restricted Stock Units has been made under the Company’s 2004
          Incentive Compensation Plan and is subject to such Plan and to approval thereof
          by the Company’s stockholders at the 2004 Annual Meeting of Stockholders. 



     2.    
          Vesting. 



            (a)    
          Subject to the termination of the Restricted Stock Unit Award pursuant to
          Paragraph 3, below, or the acceleration of the vesting of the Units covered
          pursuant to Paragraph 2(b), below, on the first, second and third Annual
          Vesting Dates (as hereinafter defined) following the Date of Grant, Employee
          shall become vested in twenty percent (20%), twenty percent (20%) and sixty
          percent (60%), respectively, of the total number of Units covered by this
          Restricted Stock Unit Award, and such Units shall become Vested Units (as
          hereinafter defined). 



            (b)    
          Subject to the termination of the Restricted Stock Unit Award pursuant to the
          first sentence of Paragraph 3, below, in all other events, Employee shall
          become vested in all Units not yet vested under this Agreement, and such Units
          shall become Vested Units, no later than the earliest of (i) the third
          Annual Vesting Date following the Date of Grant, (ii) the Date of
          Termination (as hereinafter defined) upon Employee’s Disability (as
          hereinafter defined), death, termination of Employee’s employment by the
          Company without Cause (as hereinafter defined) or by Employee for Good Reason
          (as hereinafter defined) or (iii) upon the occurrence of a Change in
          Control. 


B-1







     3.    
          Effect of Certain Events. In the event the 2004 Incentive Compensation
          Plan is not approved by the stockholders of the Company at the 2004 Annual
          Meeting of Stockholders (including any adjournment or continuation thereof),
          this Restricted Stock Unit Award and Employee’s right to receive shares
          hereunder shall terminate without payment of consideration by the Company to the
          Executive. If Employee’s employment with the Company is terminated by the
          Company for Cause or by Employee without Good Reason prior to the first date
          upon which all shares covered by the Restricted Stock Unit Award shall have
          become Vested Units pursuant to Paragraph 2, above, then the Restricted
          Stock Unit Award and Employee’s right to receive shares hereunder (other
          than as to Units which are Vested Units at the Date of Termination) shall
          terminate, without any payment of consideration by the Company to Employee,
          unless expressly determined otherwise by the Committee, in its sole discretion. 





     4.    
          Restrictions on Transfer. The Restricted Stock Unit Award granted
          hereunder to Employee may not be sold, assigned, transferred, pledged or
          otherwise encumbered, whether voluntarily or involuntarily, by operation of law
          or otherwise. No right or benefit under this Agreement shall be subject to
          transfer, anticipation, alienation, sale, assignment, pledge, encumbrance or
          charge, whether voluntary, involuntary, by operation of law or otherwise, and
          any attempt to transfer, anticipate, alienate, sell, assign, pledge, encumber or
          charge the same shall be void. 



     5.    
          Delivery of Shares. 



            (a)    
          Except to the extent delivery has been deferred under an applicable deferred
          compensation plan of the Company, not less than thirty (30) days and not more
          than forty (40) days after each of the Annual Vesting Dates, the Company shall
          deliver to Employee one (1) share of Common Stock for each Unit which became a
          Vested Unit on the immediately preceding Annual Vesting Date. 



            (b)    
          Within ten (10) days after the Units shall become Vested Units pursuant to
          Paragraph 2(b)(ii) or (iii), above, the Company shall deliver to Employee
          one (1) share of Common Stock for each Unit covered by the Restricted Stock Unit
          Award which has become a Vested Unit but only with respect to which a share of
          Common Stock has not yet been delivered. 



            (c)    
          In the event shares of the Company’s Common Stock are uncertificated, such
          delivery may be evidenced by the appropriate book-entry by the transfer agent
          for the shares. 



     6.    
          Withholding Tax Requirements. Except to the extent delivery has been
          deferred under an applicable deferred compensation plan of the Company, prior to
          the date on which shares of Common Stock are to be delivered pursuant to
          Paragraph 5, above, the Company shall deliver to Employee a notice
          specifying such amounts as Employee is required to pay to satisfy applicable tax
          withholding requirements. In the event that the Company does not exercise its
          right to withhold shares of stock at the time of vesting to cover such tax
          withholding requirements, Employee hereby agrees that Employee shall either:
          (i) deliver to the Company by the due date specified in such notice a check
          equal to the amount set forth in such notice, or (ii) direct the Company to
          withhold, at the time of delivery of shares pursuant to Paragraph 5, above,
          an appropriate number of shares to satisfy the applicable tax withholding
          requirements (with such shares valued based on their Fair Market Value on the
          day the Company delivers the shares pursuant to Paragraph 5, above), or
          (iii) make other appropriate arrangements acceptable to or required by the
          Company to satisfy such tax withholding requirements. Failure by Employee to
          comply with the foregoing shall entitle the Committee, in its sole discretion,
          to authorize the retention of sufficient number of shares of Common Stock owned
          by Employee in order to satisfy such withholding requirements. Upon the payment
          of any dividend equivalents payable pursuant to Paragraph 10 hereof,
          Employee agrees that the Company shall be entitled to deduct therefrom such
          amounts as are necessary to satisfy applicable tax withholding requirements. 


B-2







     7.    
          Sale and Issuance of Common Stock. Employee agrees that Employee shall
          not sell Award shares, and that the Company shall not be obligated to deliver
          any shares of Common Stock if counsel to the Company reasonably determines that
          such sale or delivery would violate any applicable law rule or regulation of any
          governmental authority or any applicable rule or regulation of, or agreement of
          the Company with, any securities exchange or association upon which the Common
          Stock is listed or quoted. In the event of any such restriction (other than one
          due to insider trading issues), the Company shall take all such action as may be
          necessary or appropriate to eliminate such restriction at the earliest
          practicable date. All Award Shares, when issued, shall be duly authorized and
          shall be (a) validly issued, fully paid and nonassessable,
          (b) registered for sale, and for resale, by Employee under federal and
          state securities laws and shall remain registered so long as the shares may not
          be freely sold in the absence of such registration and (c) listed, or
          otherwise qualified, for trading in the United States on each national
          securities exchange or national securities market system on which the Common
          Stock is listed or qualified. 



     8.    
          Limitation of Rights. Nothing contained in this Agreement, and no action
          of the Company with respect hereto, shall confer or be construed to confer on
          Employee any right to continue in the employment or service of the Company, or
          affect the right of the Company to terminate the employment or service of
          Employee at any time for any reason. 



     9.    
          Prerequisites to Benefits. Neither Employee nor any person claiming
          through Employee shall have any right or interest in the Units awarded
          hereunder, unless and until all of the terms, conditions and provisions of this
          Agreement which affect Employee or such other person shall have been complied
          with as specified herein. 



     10.    
          No Rights as a Stockholder Prior to Delivery; Payment of Dividend
          Equivalents; Adjustment. Employee shall not have any right, title or
          interest in, or be entitled to vote or receive distributions in respect of, or
          otherwise be considered the owner of, any of the shares of Common Stock covered
          by the Restricted Stock Unit Award, except to the extent that such shares are
          Award Shares. Notwithstanding the foregoing, upon the Units becoming Vested
          Units pursuant to Paragraph 2, above, Employee shall be entitled to receive a
          cash payment in an amount equal to each cash dividend the Company would have
          paid to Employee during the term of the Units as if Employee had been the owner
          of record of the shares of Common Stock covered by such Units on the record date
          for the payment of such dividend. In lieu of receiving such payment at the time
          of such Units becoming Vested Units, all or any portion of such payment may be
          deferred by Employee pursuant to an applicable deferred compensation plan with
          the approval of the Committee. The Restricted Stock Unit Award shall be subject
          to adjustment (including, without limitation, as to the number of shares of
          Common Stock covered by the Award) in accordance with the Plan. 



     11.    
          Certain Definitions. For purposes of this Agreement, the following
          definitions shall be applicable: 


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        “Annual
Vesting Date” shall mean February 11, 2005, February 11, 2006 and February 11, 2007. 



        “Award
Shares” shall mean shares of Common Stock covered by the Restricted Stock Unit Award
which have been delivered pursuant to Paragraph 5, above. 



        “Cause”
shall have the same meaning as in the Employment Agreement. 



        “Change
in Control” shall have the same meaning as in the Employment Agreement. 



        “Committee”
means the Compensation Committee of the Board of Directors of the Company (or any
successor or similar committee). 



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



        “Date
of Termination” means the date upon which Employee’s employment with the Company
is terminated pursuant to Section 6 of the Employment Agreement. 



        “Disability”
shall have the same meaning as in the Employment Agreement. 



        “Employment
Agreement” shall mean the Employment Agreement dated as of February 11, 2004,
between the Company and Employee. 



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



        “Good
Reason” shall have the same meaning as ascribed to the term “Constructive
Discharge” in the Employment Agreement. 



        “Plan”
shall mean the Company’s 2004 Incentive Compensation Plan. 



        A
“Unit” covered by the Restricted Stock Unit Award shall mean the right to
receive, pursuant to the terms of this Agreement, a share of Common Stock, and any other
amount or property payable with respect thereto, covered by the Restricted Stock Unit
Award. 



        “Vested
Units” shall mean units corresponding to shares of Common Stock covered by the
Restricted Stock Unit Award which at the time in question have become Vested Units
pursuant to Paragraph 2 hereof. 



     	12. 	
          Miscellaneous Provisions. For purposes of this Agreement, the following
          miscellaneous provisions shall be applicable: 



          



     	 	(a) 	
          Successors. 



          


B-4







     	 	 	(i) 	
          This Agreement is personal to Employee and, except as otherwise provided in
          Paragraph 4 above, shall not be assignable by Employee otherwise than by
          will or the laws of descent and distribution, without the written consent of the
          Company. This Agreement shall inure to the benefit of and be enforceable by
          Employee’s legal representatives. 



          



     	 	 	(ii) 	
          This Agreement shall inure to the benefit of and be binding upon Company and its
          successors. It shall not be assignable except in connection with the sale or
          other disposition of all or substantially all the assets or business of the
          Company. 



          



     	 	(b) 	
          Notice. All notices and other communications relating to this Agreement
          shall be given as provided in Section 18 of the Employment Agreement. 



          



     	 	(c) 	
          Severability. If any provision of this Agreement for any reason should be
          found by any court of competent jurisdiction to be invalid, illegal or
          unenforceable, in whole or in part, such declaration shall not affect the
          validity, legality or enforceability of any remaining provision or portion
          thereof, which remaining provision or portion thereof shall remain in full force
          and effect as if this Agreement had been adopted with the invalid, illegal or
          unenforceable provision or portion thereof eliminated. 



          



     	 	(d) 	
          Headings. The headings, captions and arrangements utilized in this
          Agreement shall not be construed to limit or modify the terms or meaning of this
          Agreement. 



          



     	 	(e) 	
          Arbitration; Equitable Relief. Any dispute or disagreement arising out of
          or relating to this Agreement shall be resolved by binding arbitration in
          accordance with Section 19 of the Employment Agreement. Notwithstanding the
          foregoing, either party shall be entitled to enforce the terms and provisions of
          this Agreement by an action for injunction and/or specific performance, and any
          such action may be brought in any federal or state court located in the county
          where the Company has its principal business headquarters. 



          



     	 	(f) 	
          Governing Law; Jurisdiction. This Agreement shall be governed by and
          construed and enforced in accordance with the laws of the State of Illinois
          without reference to conflict of laws principles. Subject to
          Paragraph 12(e), above, any action, suit or proceeding arising out of any
          claim against the Company pursuant to this Agreement shall be brought
          exclusively in the federal or state courts located in the state in which the
          Company has its principal business headquarters. 



          



     	 	(g) 	
          Determinations by Committee. All references in this Agreement to
          determinations to be made by the Committee shall be deemed to include
          determinations by any person or persons to whom the Committee may delegate such
          authority in accordance with the rules adopted thereby. 



          



     	 	(h) 	
          Entire Agreement; Amendment or Waiver. This Agreement contains the entire
          agreement between the parties with respect to the subject matter hereof and may
          be amended, modified or changed only by a written instrument executed by
          Employee and the Company. No provision of this Agreement may be waived except by
          a writing executed and delivered by the party sought to be charged. Any such
          written waiver will be effective only with respect to the event or circumstance
          described therein and not with respect to any other event or circumstance,
          unless such waiver expressly provides to the contrary. 



          


B-5







     	 	 	(i) 	
          Counterparts. This Agreement may be executed in one or more counterparts,
          each of which shall be deemed to be an original but all of which together shall
          constitute one and the same instrument. Signatures delivered by facsimile shall
          be effective for all purposes. 



          



        IN
WITNESS WHEREOF, this Agreement has been executed as of the date first above written by an
officer of the Company and by Employee. 


	 	 	 
	EMPLOYEE:	 	TELLABS, INC.:
	

     
                    
                    
                    	 	

     
                    
                    
                    
	Krish Prabhu	 	Name: Michael J. Birck
	 	 	Its:      Chairman of the Board











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