-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RYr5AtbPwIBaz2PDpMjDnq4c8GZlBitv9ZzeT0OpwfpPFsRWwFSRi47VVqy6aCU2 F/r+AEjUe15pCu3QJGktDg== 0000891618-02-000548.txt : 20020414 0000891618-02-000548.hdr.sgml : 20020414 ACCESSION NUMBER: 0000891618-02-000548 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011229 FILED AS OF DATE: 20020211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JDS UNIPHASE CORP /CA/ CENTRAL INDEX KEY: 0000912093 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942579683 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22874 FILM NUMBER: 02534504 BUSINESS ADDRESS: STREET 1: 210 BAYPOINTE PKWY CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4084341800 MAIL ADDRESS: STREET 1: 210 BAYPOINTE PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95134 10-Q 1 f78765e10-q.txt FORM 10-Q FOR PERIOD ENDED 12-29-01 [JDS UNIPHASE LOGO] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 29, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission file number 0-22874 JDS Uniphase Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 94-2579683 - ---------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1768 Automation Parkway San Jose, CA 95131 - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) (408) 546-5000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Number of shares of Common Stock outstanding as of January 25, 2002 was 1,357,311,581, including 153,546,653 Exchangeable Shares of JDS Uniphase Canada Ltd. Each Exchangeable share is exchangeable at any time into Common Stock on a one-for-one basis, entitles a holder to dividend and other rights economically equivalent to those of the Common Stock, and through a voting trust, votes at meetings of stockholders of the Registrant. PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS JDS UNIPHASE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in millions)
December 31, June 30, 2001 2001 ------------ --------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 215.3 $ 762.8 Short-term investments 1,437.6 1,049.4 Accounts receivable, less allowance for doubtful accounts of $51.5 at December 31, 2001 and $40.3 at June 30, 2001 191.6 477.6 Inventories 181.0 287.6 Deferred income taxes 313.0 340.2 Refundable income taxes 77.1 31.2 Other current assets 39.4 87.5 ---------- ---------- Total current assets 2,455.0 3,036.3 Property, plant and equipment, net 957.6 1,173.0 Deferred income taxes 301.6 806.3 Goodwill and other intangible assets, net 5,142.6 7,045.6 Long-term investments 111.1 169.0 Other assets 10.8 15.2 ---------- ---------- Total assets $ 8,978.7 $ 12,245.4 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 92.7 $ 190.6 Accrued payroll and related expenses 93.8 133.0 Income taxes payable 39.3 30.6 Restructuring accrual 134.7 105.2 Deferred income taxes 57.3 63.0 Warranty accrual 83.8 49.7 Other current liabilities 200.7 276.4 ---------- ---------- Total current liabilities 702.3 848.5 Deferred income taxes 566.2 672.4 Other non-current liabilities 4.6 5.2 Long-term debt 5.7 12.8 Stockholders' equity: Preferred stock -- -- Common stock and additional paid-in capital 68,293.3 67,955.3 Accumulated deficit (60,579.3) (57,224.4) Accumulated other comprehensive loss (14.1) (24.4) ---------- ---------- Total stockholders' equity 7,699.9 10,706.5 ---------- ---------- Total liabilities and stockholders' equity $ 8,978.7 $ 12,245.4 ========== ==========
See accompanying notes to condensed consolidated financial statements 2 JDS UNIPHASE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data) (unaudited)
Three Months Ended Six Months Ended ---------------------------- ---------------------------- December 31, December 31, December 31, December 31, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net sales $ 286.1 $ 925.1 $ 614.7 $ 1,711.6 Cost of sales 335.6 449.8 678.9 886.4 --------- --------- --------- --------- Gross profit (loss) (49.5) 475.3 (64.2) 825.2 Operating expenses: Research and development 64.1 71.2 133.3 133.6 Selling, general and administrative 98.4 105.7 204.7 221.9 Amortization of purchased intangibles 441.3 1,104.1 884.6 2,211.6 Acquired in-process research and development 22.1 -- 22.1 8.9 Reduction of goodwill and other long-lived assets 1,267.6 -- 1,309.6 -- Restructuring charges -- -- 243.0 -- --------- --------- --------- --------- Total operating expenses 1,893.5 1,281.0 2,797.3 2,576.0 --------- --------- --------- --------- Loss from operations (1,943.0) (805.7) (2,861.5) (1,750.8) Interest and other income, net 9.7 12.2 24.8 25.8 Gain on sale of investments 6.4 -- 6.4 -- Activity related to equity method investments (25.8) (52.3) (45.1) (93.5) Reduction in fair value of investments -- -- (106.5) -- --------- --------- --------- --------- Loss before income taxes (1,952.7) (845.8) (2,981.9) (1,818.5) Income tax expense 177.8 49.6 373.0 93.5 --------- --------- --------- --------- Net loss $(2,130.5) $ (895.4) $(3,354.9) $(1,912.0) ========= ========= ========= ========= Basic and dilutive net loss per share $ (1.60) $ (0.93) $ (2.53) $ (2.00) ========= ========= ========= ========= Shares used in per share calculation: Basic and dilutive 1,330.1 963.3 1,326.8 953.7 ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements 3 JDS UNIPHASE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (unaudited)
Six Months Ended ---------------------------- December 31, December 31, 2001 2000 ------------ ------------- OPERATING ACTIVITIES Net loss ....................................................................... $(3,354.9) $(1,912.0) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation expense ........................................................ 174.2 69.8 Amortization expense ........................................................ 884.6 2,211.6 Acquired in-process research and development ................................ 22.1 8.9 Amortization of deferred compensation ....................................... 53.4 -- Reduction of goodwill and other long-lived assets ........................... 1,309.6 -- Non-cash restructuring costs ................................................ 141.3 -- Activity related to equity method investments ............................... 45.1 93.5 Gain on sale of investments ................................................. (6.4) -- Reduction in fair value of investments ...................................... 106.5 -- Change in deferred income taxes, net ........................................ 403.8 (24.7) Loss on disposal of fixed assets ............................................ 22.2 -- Changes in operating assets and liabilities: Accounts receivable ...................................................... 286.0 (248.7) Inventories .............................................................. 122.2 (111.8) Other current assets ..................................................... (31.8) (21.3) Income taxes payable ..................................................... 8.7 (20.3) Accounts payable, accrued liabilities, warranty accrual and other current liabilities ............................................. (124.4) 111.0 --------- --------- Net cash provided by operating activities ........................................ 62.2 156.0 --------- --------- INVESTING ACTIVITIES Sale (purchase) of available-for-sale investments, net ......................... (429.7) 86.8 Acquisitions of businesses, net of cash acquired ............................... (114.7) (68.4) Purchase of property, plant and equipment ...................................... (86.7) (347.7) Sale of non-marketable investments ............................................. 29.8 -- Purchase of non-marketable investments ......................................... (30.7) (8.8) Other assets, net .............................................................. 4.4 (10.5) --------- --------- Net cash used in investing activities ............................................ (627.6) (348.6) --------- --------- FINANCING ACTIVITIES Repayment of debt .............................................................. (27.5) (16.8) Proceeds from issuance of common stock ......................................... 46.0 319.7 --------- --------- Net cash provided by financing activities ........................................ 18.5 302.9 --------- --------- Effect of exchange rate changes on cash and cash equivalents ..................... (0.6) 0.8 --------- --------- Increase (decrease) in cash and cash equivalents ................................. (547.5) 111.1 Cash and cash equivalents at beginning of period ................................. 762.8 319.0 --------- --------- Cash and cash equivalents at end of period ....................................... $ 215.3 $ 430.1 ========= =========
See accompanying notes to condensed consolidated financial statements 4 JDS UNIPHASE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION The financial information at December 31, 2001 and for the three and six months ended December 31, 2001 and 2000 is unaudited, but includes all adjustments (consisting only of normal recurring adjustments) that JDS Uniphase Corporation ("JDS Uniphase" or the "Company") considers necessary for a fair presentation of the financial information set forth herein, in accordance with generally accepted accounting principles ("GAAP") for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such information does not include all of the information and footnotes required by GAAP for annual financial statements. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2001. The balance sheet at June 30, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. The results for the three and six months ended December 31, 2001 may not be indicative of results for the year ending June 30, 2002 or any future periods. The Company operates and reports financial results on a fiscal year ending on the Saturday closest to June 30. The second quarters of fiscal 2002 and 2001 ended on December 29, 2001 and December 30, 2000, respectively. For ease of discussion and presentation, all accompanying financial statements have been shown as ending on the last day of the calendar month. Certain amounts in the comparative financial statements for prior periods and notes thereto have been reclassified to conform to current quarter presentation. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. In addition, SFAS 141 further clarifies the criteria to recognize intangible assets separately from goodwill. Specifically, SFAS 141 requires that an intangible asset may be separately recognized only if such an asset meets the contractual-legal criterion or the separability criterion. The requirements of SFAS 141 are effective for any business combinations accounted for by the purchase method that is completed after June 30, 2001. The Company is currently evaluating the impact of SFAS 141 and has not yet determined the impact that adopting SFAS 141 will have on its financial statements. On adoption, the Company will be required to reassess the goodwill and intangible assets previously recorded in acquisitions prior to July 1, 2001 to determine if the new recognition criteria for an intangible asset to be recognized apart from goodwill are met. As of December 31, 2001, the Company has approximately $39.1 million of separately recognized intangible assets that do not meet the new recognition criteria for an intangible asset to be recognized apart from goodwill and the unamortized balance as of June 30, 2002 will be reclassified to goodwill. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." Under SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. For intangible assets with indefinite useful lives, the impairment review will involve a comparison of fair value to carrying value, with any excess of carrying value over fair value being recorded as an impairment loss. For goodwill, the impairment test shall be a two-step process, consisting of a comparison of the fair value of a reporting unit with its carrying amount, including the goodwill allocated to each reporting unit. If the carrying amount is in excess of the fair value, the implied fair value of the reporting unit goodwill is compared to the carrying amount of the reporting unit goodwill. Any excess of the carrying value of the reporting unit goodwill over the implied fair value of the reporting unit goodwill will be recorded as an impairment loss. Separable intangible assets that are deemed to have a finite life will continue to be amortized over their useful lives (but with no maximum life). Intangible assets with finite useful lives will continue to be reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company will apply the new accounting rules beginning July 1, 2002 and will reassess the useful lives of its separately recognized intangible assets in the first quarter of 5 fiscal 2003. The Company will review for impairment previously recognized intangible assets that are deemed to have indefinite lives upon the completion of this analysis in the first quarter of fiscal 2003. Additionally, upon the adoption of SFAS 142, the Company will perform a transitional impairment review related to the carrying value of goodwill as of July 1, 2002 by the end of the second quarter of fiscal 2003. Because of the different transition dates for goodwill and intangible assets acquired on or before June 30, 2001 and those acquired after that date, pre-existing goodwill and intangibles will be amortized during this transition period until adoption whereas new goodwill and indefinite lived intangible assets acquired after June 30, 2001 will not. The Company is currently in the process of determining its reporting units for the purpose of applying the impairment test, analyzing how fair value will be determined for purposes of applying SFAS 142 and quantifying the anticipated impact of adopting the provisions of SFAS 142. The adoption of SFAS 142 is expected to have a material impact on the Company's results of operations primarily because goodwill will no longer be amortized subsequent to the adoption of SFAS 142. Amortization of goodwill was $331.6 million and $664.3 million for the three and six months ended December 31, 2001, respectively. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which supercedes SFAS 121 and the provisions of Accounting Principles Board Opinion No. 30 ("APB 30"), "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," with regard to reporting the effects of a disposal of a segment of a business. SFAS 144 retains many of the provisions of SFAS 121, but significantly changes the criteria that would have to be met to classify an asset as held for disposal such that long-lived assets to be disposed of other than by sale are considered held and used until disposed of. In addition, SFAS 144 retains the basic provisions of APB 30 for presentation of discontinued operations in the statement of operations but broadens that presentation to a component of an entity. The Company will apply SFAS 144 beginning July 1, 2002. The Company is currently evaluating the potential impact, if any, the adoption of SFAS 144 will have on its financial position and results of operations. NOTE 2. COMPREHENSIVE LOSS Accumulated other comprehensive loss presented in the accompanying consolidated balance sheets consists of the accumulated net unrealized gains or losses on available-for-sale investments and foreign currency translation adjustments, net of the related tax effect for all periods presented. The tax effect was $16.3 million for the three months ended December 31, 2001 and immaterial for all other periods presented. At December 31, 2001 and June 30, 2001, the Company had a balance of unrealized gains on available-for-sale investments of $34.4 million and $5.8 million, respectively. Additionally, at December 31, 2001 and June 30, 2001, the Company had $48.5 million and $30.2 million, respectively, of foreign currency translation losses. The components of comprehensive loss are as follows (in millions):
Three Months Ended Six Months Ended ----------------------------- ----------------------------- December 31, December 31, December 31, December 31, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net loss $ (2,130.5) $ (895.4) $ (3,354.9) $ (1,912.0) Change in unrealized gain or loss on available-for-sale investments, net 23.3 2.1 28.6 0.5 Change in foreign currency translation (0.3) (3.2) (18.3) (18.5) ---------- ---------- ---------- ---------- Comprehensive loss $ (2,107.5) $ (896.5) $ (3,344.6) $ (1,930.0) ========== ========== ========== ==========
NOTE 3. FINANCIAL INSTRUMENTS Investments: At December 31, 2001, the Company had 24.7 million shares of Nortel Networks Corporation ("Nortel") common stock with a fair value of $179.3 million. During the three months ended September 30, 2001, the Company recognized a reduction in market value of $84.5 million associated with the 24.7 million shares held by the Company, as the Company has determined the decline in the market value of the shares of Nortel common stock to be other-than-temporary. The reduction in the market value of $84.5 million has been included in the line item "Reduction in fair value of investments" in the Statements of Operations. No reduction was recognized for the three months ended December 31, 2001. The Company recorded an 6 unrealized gain of $24.5 million, net of tax, for the three months ended December 31, 2001 and included it in the line item "Accumulated other comprehensive loss" in the Balance Sheets. During the three months ended September 30, 2001, the Company recorded a charge of $9.6 million related to a decline in the market value of other available-for-sale investments that was deemed to be other-than-temporary. The reduction in market value has been included in the line item "Reduction in fair value of investments" in the Statements of Operations. No reduction was recognized for the three months ended December 31, 2001. Additionally, during the three months ended September 30, 2001, the Company recorded a charge of $12.4 million related to a decline in the fair value of the Company's non-marketable equity securities accounted for under the cost method that was deemed to be other-than-temporary. The reduction in fair value has been included in the line item "Reduction in fair value of investments" in the Statements of Operations. No reduction was recognized for the three months ended December 31, 2001. On October 29, 2001, the Company entered into an automation development alliance agreement with Adept Technology ("Adept") for optical component and module manufacturing. In connection with this alliance, the Company invested $25.0 million in Adept convertible preferred stock. Equity Method Investments: ADVA: At December 31, 2001, the Company had a 28 percent ownership stake in ADVA. For the three and six months ended December 31, 2001, the Company recorded $0 and $0.7 million, respectively, in amortization expense related to the difference between the cost of the investment and the underlying equity in the net assets of ADVA. The significant decline in the market value of ADVA, as of September 30, 2001, which the Company determined was other-than-temporary, required that its carrying value be written down to market value and the amount of the write-down was included in the Statements of Operations. As a result, the Company recognized a $13.9 million charge to write down the basis of its investment in ADVA for the three months ended September 30, 2001. No reduction in the fair value of ADVA was recognized for the three months ended December 31, 2001. For the three months ended September 30, 2001, under the equity method, the Company recorded a net loss of $4.4 million as its pro rata share of ADVA's net loss. For the three months ended December 31, 2001, the Company's pro rata share of ADVA's net loss exceeded the carrying amount of its investment in ADVA at December 31, 2001. Of its pro rata share of ADVA's net loss of $23.4 million, the Company recorded $22.1 million to reduce its investment in ADVA to $0. As the Company has no future commitment to fund ADVA, no further pro rata share of ADVA's net loss will be recorded in subsequent quarters. Should ADVA report net income in future periods, the Company will resume applying the equity method after its pro rata share of ADVA's net income exceeds the pro rata share of ADVA's net losses not recognized during the periods the equity method is suspended. The Photonics Fund, LLP: At December 31, 2001, the Company had a 40 percent stake in The Photonics Fund, LLP, a California limited liability partnership (the "Partnership"), which emphasizes privately negotiated venture capital equity investments. For the three and six months ended December 31, 2001, under the equity method, the Company recorded a net loss of $3.1 million and $2.7 million, respectively, as its pro rata share of the Partnership's net loss. For the three and six months ended December 31, 2001, the Company's other equity method investments resulted in an aggregate net loss of $0.6 million and $1.3 million, respectively. NOTE 4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company's objectives and strategies for holding and issuing derivatives are to minimize the transaction and translation risks associated with non-functional currency transactions. The Company conducts its business in a number of foreign countries and sells its products directly to customers in Australia, Canada, China, France, Germany, Hong Kong, Japan, Netherlands, Taiwan, Singapore and the United Kingdom through its foreign subsidiaries. These sales are often denominated in the local country's currency. Therefore, in the normal course of business, the Company's financial position is routinely subjected to market risk associated with foreign currency rate fluctuations. The Company's policy is to ensure that business exposures to foreign exchange risks are identified, measured 7 and minimized using the most effective and efficient methods to eliminate or reduce such exposures. The Company has entered into a number of foreign currency forward contracts, but has not designated such contracts as hedges for accounting purposes. The foreign currency forward contracts generally expire within 30 to 90 days. The change in fair value of these foreign currency forward contracts is recorded as income (loss) in the Company's Statements of Operations as a component of "Interest income and other, net." The notional amount associated with these foreign currency forward contracts at December 31, 2001 was approximately $70.0 million and the fair value of such contracts is not material to the Company's financial statements. The Company does not use derivatives for trading purposes. NOTE 5. INVENTORIES The components of inventories consist of the following (in millions):
December 31, June 30, 2001 2001 ------------ -------- Raw materials and purchased parts $ 73.5 $ 56.1 Work in process 44.3 99.2 Finished goods 63.2 132.3 ------- ------- $ 181.0 $ 287.6 ======= =======
During the three and six months ended December 31, 2001, the Company recorded inventory write-downs of $79.8 million and $142.2 million, respectively, primarily as a result of reduced sales forecasts and the Company's new product introductions rendering certain products obsolete. These charges were partially offset by the sale during the three and six months ended December 31, 2001 of inventory with an original cost of approximately $29.0 million that had previously been written down. NOTE 6. INTANGIBLE ASSETS, INCLUDING GOODWILL The components of intangible assets are as follows (in millions):
December 31, June 30, 2001 2001 ----------- ---------- Goodwill $ 9,909.6 $ 10,985.6 Purchased intangibles 2,409.1 2,353.6 Licenses and other intellectual property 4.5 4.5 ---------- ---------- 12,323.2 13,343.7 Less: accumulated amortization (7,180.6) (6,298.1) ---------- ---------- $ 5,142.6 $ 7,045.6 ========== ==========
The Company recorded a reduction of goodwill and other intangible assets of $1,267.6 million and $1,309.6 million during the three and six months ended December 31, 2001, respectively (see Note 10). NOTE 7. LOSS PER SHARE As the Company incurred a loss for the three and six months ended December 31, 2001, the effect of dilutive securities totaling 21.4 million and 24.0 million equivalent shares, respectively, has been excluded from the computation of loss per share as their impact would be anti-dilutive. As the Company incurred a loss for the three and six months ended December 31, 2000, the effect of dilutive securities totaling 48.9 million and 57.6 million equivalent shares, respectively, has been excluded from the computation of loss per share as their impact would be anti-dilutive. The following table sets forth the computation of basic and diluted loss per share (in millions, except per share data):
Three Months Ended Six Months Ended ------------------------------ ------------------------------ December 31, December 31, December 31, December 31, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Denominator for basic and dilutive loss per share -- weighted average shares 1,330.1 963.3 1,326.8 953.7 Net loss $ (2,130.5) $ (895.4) $ (3,354.9) $ (1,912.0) =========== =========== =========== =========== Basic and dilutive loss per share $ (1.60) $ (0.93) $ (2.53) $ (2.00) =========== =========== =========== ===========
8 NOTE 8. INCOME TAX EXPENSE The Company recorded a tax provision of $177.8 million for the three months ended December 31, 2001, as compared to $49.6 million for the same period of the prior year. For the six months ended December 31, 2001, the Company recorded a tax provision of $373.0 million as compared to $93.5 million for same period of the prior year. The tax provision recorded for the three and six months ended December 31, 2001 differs from the expected tax benefit that would be calculated by applying the federal statutory rate to the loss before income taxes primarily because of non-deductible acquisition-related charges, write-offs of deferred tax assets recorded in prior business combinations relating to assumed employee stock options that either expired unexercised or were exercised during the quarter when the market value of the underlying stock was less than the previously recorded value at the business combination date, and increases in the valuation allowance for deferred tax assets recorded in prior periods due to reductions in the Company's forecasts of future domestic taxable income. Although realization of the Company's net domestic deferred tax assets of $90.0 million as of December 31, 2001 is not assured, management believes it is more likely than not that these deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term resulting in additional income tax expense if forecasts of future domestic taxable income are reduced. The Company's tax provision or (benefit) for income taxes recorded in subsequent quarters of fiscal 2002 may be adversely affected by write-offs of deferred tax assets recorded for employee stock options assumed in prior business combinations that either expire unexercised or are exercised in subsequent quarters when the market value of the underlying stock is less than the previously recorded value at the business combination date. NOTE 9. OPERATING SEGMENTS During the first quarter of 2002, the Company changed the structure of its internal organization. Segment information for the prior years has been restated to conform to the current year's presentation. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information." The Chief Executive Officer allocates resources to each segment based on their business prospects, competitive factors, net sales and operating profits before interest, taxes, and certain purchase accounting related costs. JDS Uniphase designs, develops, manufactures and markets optical components and modules at various levels of integration. The reportable segments are each managed separately because they manufacture and distribute distinct products with different production processes. The Company views its business as having two principal operating segments: (i) Transmission and Network Components Group, and (ii) Thin Film Filters and Instrumentation Group. The Transmission and Network Components Group consists primarily of source lasers, pump lasers, pump modules, external modulators, transmitters, transceivers, optical photodetectors and receivers, isolators, wavelength division multiplexing (WDM) couplers, monitor tap couplers, gratings, circulators, optical switches, tunable filters, micro-electro-mechanical-systems, waveguides, switches, and optical amplifier products used in telecommunications and cable television ("CATV") applications. The Thin Film Filters and Instrumentation Group includes thin film filters, instruments, industrial lasers, and optical display and projection products. The Company's other operating segments, which are below the quantitative threshold defined by SFAS 131, are disclosed in the "all other" category and consist of certain unallocated corporate-level operating expenses. All of the Company's products are sold directly to original equipment manufacturers and industrial distributors throughout the world. Where practicable, the Company allocates corporate sales, marketing, finance and administration expenses to operating segments, primarily as a percentage of net sales. Certain corporate-level operating expenses (primarily charges originating from purchased intangibles, activity related to equity method investments, loss on sale of investments, other expenses and acquired-in process research and development expenses) are not allocated to operating segments. In addition, the Company does not allocate income taxes, non-operating income and expenses or specifically identifiable assets to its operating segments. Intersegment sales are recorded at fair market value less an agreed upon discount on intersegment sales. Information on reportable segments is as follows (in millions): 9
Three Months Ended Six Months Ended ----------------------------- ----------------------------- December 31, December 31, December 31, December 31, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Transmission and Network Components: Net sales $ 212.8 $ 770.7 $ 455.6 $ 1,468.7 Intersegment sales -- -- -- -- ---------- ---------- ---------- ---------- Net sales to external customers 212.8 770.7 455.6 1,468.7 Operating income (loss) (216.0) 250.3 (539.8) 465.3 Thin Film Products and Instrumentation: Net sales 73.6 202.2 162.5 330.4 Intersegment sales (3.1) (47.8) (8.2) (87.5) ---------- ---------- ---------- ---------- Net sales to external customers 70.5 154.4 154.3 242.9 Operating income (loss) (3.8) 78.4 (21.8) 137.1 Net sales by reportable segments 283.3 925.1 609.9 1,711.6 All other net sales 2.8 -- 4.8 -- ---------- ---------- ---------- ---------- 286.1 925.1 614.7 1,711.6 ---------- ---------- ---------- ---------- Operating income (loss) by reportable segment (219.8) 328.7 (561.6) 602.4 All other operating income (loss) 37.7 (26.3) (29.4) (45.2) Unallocated amounts: Acquisition related charges & payroll taxes on stock option exercises (1,760.9) (1,108.1) (2,270.5) (2,308.0) Interest and other income, net 9.7 12.2 24.8 25.8 Gain on sale of investments 6.4 -- 6.4 -- Activity related to equity method (25.8) (52.3) (45.1) (93.5) investments Reduction in fair value of investments -- -- (106.5) -- ---------- ---------- ---------- ---------- Loss before income taxes $ (1,952.7) $ (845.8) $ (2,981.9) $ (1,818.5) ========== ========== ========== ==========
10 NOTE 10. SPECIAL CHARGES Since the beginning of calendar 2001, the Company and its industry have experienced a dramatic downturn, the primary direct cause of which has been a precipitous decrease in network deployment and capital spending by telecommunications carriers. This decrease can be attributable to, among other things: (a) network overcapacity, as bandwidth demand, while continuing to grow, did not reach levels sufficient to sustain the pace of network deployment; (b) constrained capital markets; and (c) other factors, including the general inability of the competitive local exchange carriers ("CLECs") to obtain sufficient access to established telecommunications infrastructures and consolidation among the telecommunications carriers. The result was a decrease in the overall demand for new fiber optic networks and capacity increases on existing networks. In response, carriers dramatically slowed their purchases of systems from the Company's customers, which in turned slowed purchases of components and modules from the Company's competitors and the Company. Moreover, as their sales declined, the Company's customers moved to reduce their component and module inventory levels. Consequently, the impact of the slowdown on the Company's business is magnified, as it faces declining sales as the result of its customers' declining business and the resulting adjustment to their inventory levels. In April 2001, the Company initiated the Global Realignment Program, under which it is restructuring its business in response to the changes in its industry and customer demand and as part of its continuing overall integration program. Consequently, the Company recorded $264.3 million and $243.0 million of restructuring charges in the fourth quarter of fiscal 2001 (Phase 1) and first quarter of fiscal 2002 (Phase 2), respectively. As a result of the Phase 1 and Phase 2 restructuring activities, the Company is consolidating and reducing the manufacturing, sales and administrative facilities by approximately 2.0 million square feet. The total number of sites closed under both Phase 1 and Phase 2 is seventeen. Total workforce will be reduced by approximately 14,200 employees. As of December 31, 2001, approximately 13,400 employees have been terminated. Restructuring Activities - Phase 1 (Fourth Quarter of Fiscal 2001): The following table summarizes the Company's Phase 1 restructuring activities through the end of the second quarter of fiscal 2002 (in millions):
Workforce Facilities and Lease Reduction Equipment Commitments Total -------- -------------- ----------- -------- Total restructuring charges -- Phase 1 $ 79.1 $ 122.2 $ 63.0 $ 264.3 Cash payments (24.9) -- (0.9) (25.8) Non-cash charges (11.1) (122.2) -- (133.3) -------- -------- -------- -------- Balance as of June 30, 2001 43.1 -- 62.1 105.2 Cash payments (20.9) -- (1.7) (22.6) -------- -------- -------- -------- Balance as of September 30, 2001 22.2 -- 60.4 82.6 Cash payments (8.7) -- (2.5) (11.2) -------- -------- -------- -------- Balance as of December 31, 2001 $ 13.5 $ -- $ 57.9 $ 71.4 ======== ======== ======== ========
During the three months ended June 30, 2001, the Company completed and approved plans to close nine operations located in North America, Europe and Asia, vacate approximately 25 buildings or 1.2 million square feet of manufacturing and office space at operations to be closed, as well as at continuing operations, and reduce its workforce by approximately 9,000 employees. Worldwide workforce reduction During the three months ended June 30, 2001, the Company recorded a charge of approximately $79.1 million primarily related to severance and fringe benefits associated with the reduction of 9,000 employees. In addition, the Company incurred non-cash severance charges of $11.1 million related to the modification of a former executive's stock options. Of the 9,000 terminations for which costs have been accrued prior to June 30, 2001, approximately 8,200 were engaged in manufacturing activities and approximately 7,100, 1,200, and 700 were from sites located in North America, Europe and Asia, respectively. As of December 31, 2001, approximately 8,700 employees have been terminated in connection with Phase 1 of the restructuring activities. The Company expects to complete its workforce reduction within the next six months. 11 Consolidation of excess facilities and equipment The consolidation of excess facilities includes the closure of certain manufacturing, research and development facilities, and administrative and sales offices throughout North America, Europe and Asia for business activities that have been restructured as part of the Program. The operations closed as of June 30, 2001 were in Asheville, North Carolina; Bracknell, United Kingdom; Freehold, New Jersey; Hillend, United Kingdom; Oxford, United Kingdom; Richardson, Texas; Rochester, New York; Shunde, China and Taipei, Taiwan. Property and equipment that was disposed of or removed from operations resulted in a charge of $122.2 million of which $29.4 million, $89.3 million and $3.5 million, related to the Thin Film Products and Instrumentation Group, Transmission and Network Components Group, and other operating segments, respectively. The property and equipment write-down consisted primarily of leasehold improvements, computer equipment and related software, production and engineering equipment, and office equipment, furniture, and fixtures. In addition, the Company incurred a charge of $63.0 million for exiting and terminating leases primarily related to excess or closed facilities with planned exit dates. The Company estimated the cost of exiting and terminating the facility leases based on the contractual terms of the agreements and then current real estate market conditions. The Company determined that it would take approximately three to twenty-one months to sublease the various properties that will be vacated in connection with Phase 1 of the restructuring activities. Amounts related to the lease expense (net of anticipated sublease proceeds) will be paid over the respective lease terms through 2015. The Company anticipates completing implementation of its Phase 1 restructuring program during the next six months. Restructuring Activities - Phase 2 (First Quarter of Fiscal 2002): The following table summarizes the Company's Phase 2 restructuring activities through the end of the second quarter of fiscal 2002 (in millions):
Workforce Facilities and Lease Reduction Equipment Commitment Total --------- -------------- ---------- -------- Total restructuring charges -- Phase 2 $ 55.8 $ 141.3 $ 45.9 $ 243.0 Cash payments (19.2) -- -- (19.2) Non-cash charges -- (141.3) -- (141.3) -------- -------- -------- -------- Balance as of September 30, 2001 36.6 -- 45.9 82.5 Cash payments (18.8) -- (0.4) (19.2) -------- -------- -------- -------- Balance as of December 31, 2001 $ 17.8 $ -- $ 45.5 $ 63.3 ======== ======== ======== ========
During the first quarter of fiscal 2002, the Company completed and approved plans to close eight operations located in North America, Europe and Asia, vacate approximately eleven buildings or 0.8 million square feet of manufacturing and office space at operations to be closed, as well as at continuing operations, and reduce its workforce by approximately 5,200 employees. Worldwide workforce reduction During the three months ended September 30, 2001, the Company recorded a charge of approximately $55.8 million primarily related to severance and fringe benefits associated with the reduction of approximately 5,200 employees. Of the 5,200 terminations for which costs have been accrued during the three months ended September 30, 2001, approximately 4,200 were engaged in manufacturing activities and 4,850, 300, and 50 were from sites located in North America, Europe and Asia, respectively. As of December 31, 2001, approximately 4,700 employees have been terminated under Phase 2 of the restructuring activities. The Company expects to complete the workforce reduction in the next nine months. In addition, because the Company restructured certain of its businesses and realigned its operations to focus on high growth markets and core opportunities, the Company reduced the workforce that had been valued in previous acquisitions. In accordance with SFAS 121, the Company wrote the related intangible assets down to their fair value and recorded charges of $10.8 million related to the reduction in purchased intangibles and $31.2 million related to goodwill associated with these assets. The charge was included in the "Reduction of goodwill and other long-lived assets" caption in the Statements of Operations for the six months ended December 31, 2001. 12 Consolidation of excess facilities and equipment The consolidation of excess facilities includes the closure of certain manufacturing, research and development facilities, and administrative and sales offices throughout North America, Europe and Asia for business activities that have been restructured as part of the Program. The operations subject to closure as Phase 2 of the restructuring program at September 30, 2001 are in Arnhem, Netherlands; Plymouth, United Kingdom; Witham, United Kingdom; Manteca, California; Gloucester, Massachusetts; Victoria, British Columbia; and two operations in Ottawa, Ontario. Property and equipment that was disposed or removed from operations resulted in a charge of $141.3 million of which $11.8 million, $129.5 million and $0 related to the Thin Film Products and Instrumentation Group, Transmission and Network Components Group, and other operating segments, respectively. The property and equipment write-down consisted primarily of leasehold improvements, computer equipment and related software, production and engineering equipment, and office equipment, furniture, and fixtures. In addition, the Company incurred a charge of $45.9 million for exiting and terminating leases primarily related to excess or closed facilities with planned exit dates. The Company estimated the cost of exiting and terminating the facility leases based on the contractual terms of the agreements and then current real estate market conditions. The Company determined that it would take approximately three to twenty-four months to sublease the various properties that will be vacated in connection with the Phase 2 of the restructuring activities. Amounts related to the lease expense (net of anticipated sublease proceeds) will be paid over the respective lease terms through 2020. The Company anticipates completing implementation of its Phase 2 restructuring program during the next nine months. Reduction of Goodwill and Other Long-Lived Assets: The Company, as part of its review of financial results for three months ended December 31, 2001, performed an assessment of the carrying value of the Company's long-lived assets to be held and used including significant amounts of goodwill and other intangible assets recorded in connection with its various acquisitions. The assessment was performed pursuant to SFAS 121 because of the significant negative industry and economic trends affecting both the Company's current operations and expected future sales as well as the general decline of technology valuations. The conclusion of that assessment was that the decline in market conditions within the Company's industry was significant and other than temporary. As a result, the Company recorded a charge of $1,267.6 million to reduce goodwill and other long-lived assets during the three months ended December 31, 2001, based on the amount by which the carrying amount of these assets exceeded their fair value. Of the total write down, $1,265.1 million is related to the goodwill associated with the acquisitions of SDL and OCLI with the balance of $2.5 million relating to other long-lived assets. The charge is included in the caption "Reduction of goodwill and other long-lived assets" on the Statements of Operations. Fair value was determined based on discounted future cash flows for the operating entities that had separately identifiable cash flows. The cash flow periods used were five years using annual growth rates of 5 percent to 60 percent, the discount rate used was 14 percent, and the terminal values were estimated based upon terminal growth rates of 5 percent to 7 percent. The assumptions supporting the estimated future cash flows, including the discount rate and estimated terminal values, reflect management's best estimates. The discount rate was based upon our weighted average cost of capital as adjusted for the risks associated with our operations. NOTE 11. ACQUISITION On December 28, 2001, the Company acquired the optical transceiver business of IBM Corporation ("IBM"). The acquisition extends the Company's product portfolio to provide optical solutions beyond its existing telecommunications markets to the growing enterprise data communications markets. Under the terms of the acquisition, the Company paid IBM $100.0 million in cash and issued 26.9 million shares of the Company's common stock valued at $232.3 million using an average market price of $8.65 per share. The average market price was based on the average closing price for a range of trading days around the announcement date of the acquisition (December 19, 2001). The Company also incurred an estimated $6.3 million in direct transaction costs. In addition, the Company may be required to make an additional payment of up to $85.0 million in cash or the Company's common stock in the first half of calendar year 2003 based on the financial performance of the optical transceiver business. The total purchase cost of the acquisition is summarized as follows (in millions):
Value of common stock issued $ 232.3 Cash consideration 100.0 -------- Total consideration 332.3 Estimated transaction costs 6.3 -------- Total purchase price $ 338.6 ========
13 The purchase price allocation is as follows (in millions):
Tangible net assets: Inventory $ 15.6 Fixed assets 13.5 Intangible assets acquired: Existing technology 45.1 Core technology 15.4 Supply / contract manufacturing agreements 6.4 Non-competition agreement 1.7 Distribution agreements 1.7 Real estate license agreement 0.6 Goodwill 216.5 In-process research and development 22.1 -------- Total purchase price: $ 338.6 ========
The purchase price allocation is preliminary and is dependent on receiving the final valuation of the intangible assets acquired and the Company's final analysis, which is expected to be completed during the third quarter of fiscal 2002. The acquisition was accounted for as a purchase transaction in accordance with SFAS 141, and accordingly, the assets acquired were recorded at their estimated fair value at the date of the acquisition. The tangible assets acquired include inventories and fixed assets (including an adjustment of $3.8 million to write up inventory and an adjustment of $16.5 million to write down fixed assets). No liabilities were assumed from the acquisition. The results of operations of the optical transceiver business will be included in the Company's financial statements beginning in the third quarter of fiscal 2002. A portion of the purchase price has been allocated to developed technology and acquired in-process research and development ("IPR&D"). Developed technology and IPR&D were identified and valued through analysis of data provided by IBM concerning developmental products, their stage of development, the time and resources needed to complete them, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPR&D. Developmental projects that had reached technological feasibility were classified as developed technology, and the value assigned to developed technology was capitalized. Those developmental projects that had not reached technological feasibility and had no future alternative uses were classified as IPR&D and expensed in the second quarter of fiscal 2002. The nature of the efforts required to develop the purchased IPR&D into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. In valuing the IPR&D, the Company considered the importance of each project to the overall development plan, estimating costs to develop the purchased IPR&D into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The sales estimates used to value the purchased IPR&D were based on estimates or relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by the optical transceiver business and its competitors. The rates utilized to discount the net cash flows to their present value are based on the optical transceiver business' weighted average cost of capital. Given the nature of the risks associated with the difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets, the weighted average cost of capital was adjusted. Based on these factors, discount rates of 14 percent and 38 percent were deemed appropriate for the developed technology and IPR&D, respectively. 14 The estimates used in valuing IPR&D were based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual results may vary from the projected results. Any such variance may result in a material adverse effect on the optical transceiver business' financial condition and results of operations. The acquired existing technology, which is comprised of products that are already technologically feasible, includes products in most of the optical transceiver business' product lines. These products include small form factor transceivers and gigabit interface converters using optical fibre channel and gigabit Ethernet protocols. The Company is amortizing the acquired existing technology of approximately $45.1 million on a straight-line basis over an average estimated remaining useful life of five years. The acquired core technology represents the optical transceiver business' trade secrets and patents developed through years of experience in design, package and manufacture of optical transceiver products for the storage area networks and local area networks. The optical transceiver business' products are designed to expand the Company's product lines beyond the existing markets for submarine, long haul and metro applications to the enterprise data communications markets. This proprietary know-how can be leveraged by the Company to develop new and improved products and manufacturing processes. The Company is amortizing the acquired core technology of approximately $15.4 million on a straight-line basis over an average estimated remaining useful life of five years. The Company is amortizing the supply/contract manufacturing agreements and the distribution agreements of approximately $6.4 million and $1.7 million, respectively, on a straight-line basis over an estimated remaining useful life of five years. The non-competition agreement disallows IBM to compete with the Company in certain optical transceiver products for a specified period of time. The Company is amortizing the non-competition agreement of approximately $1.7 million on a straight-line basis over an estimated remaining useful life of three years. The real estate agreement provides the Company with rent-free facilities in several locations for a limited period. The Company is amortizing the real estate agreement of approximately $0.6 million on a straight-line basis over an estimated remaining useful life of one year. Goodwill, which represents the excess of the purchase price of an investment in an acquired business over the fair value of the underlying net identifiable assets, is not amortized but will be reviewed annually (or more frequently if impairment indicators arise) for impairment in accordance with SFAS 142. NOTE 12. RELATED PARTY TRANSACTIONS On June 30, 1999, Furukawa Electric Co., LTD. ("Furukawa") and its subsidiaries, in conjunction with the Company's acquisition of JDS FITEL, acquired 24 percent of the Company's outstanding common stock and exchangeable shares. Subsequent to June 30, 2001, Furukawa owned less than 10 percent of the Company's outstanding common stock and exchangeable shares. Furukawa does not have control over or cannot significantly influence the management or operating policies of the Company. Two members of the Company's Board of Directors were officers at Cisco Systems, one of the Company's largest customers, during portions of fiscal 2001. Subsequent to June 30, 2001, no members of the Company's Board of Directors were officers at Cisco Systems. NOTE 13. LEASE COMMITMENTS The Company leases all of its facilities and certain equipment under operating leases. The operating facilities leases contain renewal options. Certain of the Company's facility leases provide for periodic rent increases based on general rate of inflation. As part of certain lease transactions, the Company has an option to purchase the property (land or ground lease interest) and improvements for $37.9 million or, at the end of the lease, to arrange for the sale of the property to a third party with the Company retaining an obligation to the owner for the difference between the sales price and the guaranteed residual value of $32.2 million if the sales price is less than this amount, subject to certain provisions of the lease. Additionally, the Company restricted $37.9 million of its investment securities as collateral for specified obligations of the lessors under the leases. These investment securities are restricted as to withdrawal and are managed by a third party subject to certain limitations under the Company's investment policy. In addition, the Company must maintain a minimum consolidated tangible net worth, as defined, of $500.0 million. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT EVENTS Global Realignment Program Since the beginning of calendar 2001, our industry and we have experienced a dramatic downturn, the primary direct cause of which has been a precipitous decrease in network deployment and capital spending by telecommunications carriers. This decrease can be attributable to, among other things: (a) network overcapacity, as bandwidth demand, while continuing to grow, did not reach levels sufficient to sustain the pace of network deployment; (b) constrained capital markets; and (c) other factors, including the general inability of the competitive local exchange carriers ("CLECs") to obtain sufficient access to established telecommunications infrastructures and consolidation among the telecommunications carriers. The result was a decrease in the overall demand for new fiber optic networks and capacity increases on existing networks. In response, carriers dramatically slowed their purchases of systems from our customers, which in turned slowed purchases of components and modules from our competitors and us. Moreover, as our customers' sales declined, they moved to reduce their component and module inventory levels. Consequently, the impact of the slowdown on our business is magnified, as we face declining sales as the result of our customers' declining business and the resulting adjustment to their inventory levels. In response to the current market environment, in April 2001, we initiated the Global Realignment Program, under which we are restructuring our business in response to the changes in our industry and customer demand and as part of our continuing overall integration program: - - Beginning in the fourth quarter of fiscal 2001 and continuing through the second quarter of fiscal 2002, we recorded costs of approximately $851 million related to the implementation of the Global Realignment Program. The charges recorded included $507 million of restructuring charges, $299 million of non-recurring costs charged to cost of goods sold, and $45 million of non-recurring costs charged to operating expenses. Included in the total costs of the Global Realignment Program are charges for obsolete inventory write-downs related to product platform consolidation, accelerated depreciation, and moving and employee costs related to the phasing out of certain facilities and equipment. - - We reduced our workforce from approximately 29,000 employees to approximately 11,000 employees. Of the 18,000 reductions in workforce, approximately 13,400 were related to our Phase 1 and Phase 2 restructuring activities. - - As of December 31, 2001, seventeen sites have been closed or scheduled for closure as part of our Phase 1 and 2 restructuring activities. In addition, we announced the closure of our site at Piscataway, New Jersey, in the second quarter of fiscal 2002. The Global Realignment Program has reduced our annual spending rates by approximately $800 million since its inception in April 2001. The Global Realignment Program is expected to reduce our costs by approximately $900 million annually after its complete implementation, which is expected by the end of fiscal 2002. The Global Realignment Program represents our concerted efforts to respond to the current demands of our industry. However, these efforts may be inappropriate or insufficient. The Global Realignment Program may not be successful in achieving the cost reductions or other benefits expected, may be insufficient to align our operations with customer demand and the changes affecting our industry, or may be more costly or extensive than currently anticipated. Acquisition On December 28, 2001, we acquired the optical transceiver business of IBM Corporation ("IBM"). The acquisition extends our product lines beyond the existing markets for submarine, long haul and metro applications to the growing enterprise data communications markets. The products of the optical transceiver business include small form factor transceivers and gigabit interface converters for storage area networks and local area networks using optical fibre channel and gigabit Ethernet protocols. Under the terms of the acquisition, we paid IBM $100.0 million in cash and issued 26.9 million shares of our common stock valued at $232.3 million using an average market price of $8.65 per share. The average market price was based on the 16 average closing price for a range of trading days around the announcement date of the acquisition (December 19, 2001). We also incurred an estimated $6.3 million in direct transaction costs. In addition, we may be required to make an additional payment of up to $85.0 million in cash or common stock in the first half of calendar year 2003 based on the financial performance of the optical transceiver business. Changes in Board of Directors On November 9, 2001, we appointed two new non-employee directors, Kevin Kennedy and Richard Liebhaber, to our Board of Directors. The seats were vacated by John MacNaughton and Donald Listwin, who did not seek re-election. Mr. Kennedy is the chief operating officer of Openwave Systems, and Mr. Liebhaber is a retired executive vice president and chief technology officer of MCI Communications. Impact of Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. In addition, SFAS 141 further clarifies the criteria to recognize intangible assets separately from goodwill. Specifically, SFAS 141 requires that an intangible asset may be separately recognized only if such an asset meets the contractual-legal criterion or the separability criterion. The requirements of SFAS 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001. We are currently evaluating the impact of SFAS 141 and have not yet determined the impact that adopting SFAS 141 will have on our financial statements. On adoption, we will be required to reassess the goodwill and intangible assets previously recorded in acquisitions prior to July 1, 2001 to determine if the new recognition criteria for an intangible asset to be recognized apart from goodwill are met. As of December 31, 2001, we have approximately $39.1 million of separately recognized intangible assets that do not meet the new recognition criteria for an intangible asset to be recognized apart from goodwill and the unamortized balance as of June 30, 2002 will be reclassified to goodwill. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." Under SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. For intangible assets with indefinite useful lives, the impairment review will involve a comparison of fair value to carrying value, with any excess of carrying value over fair value being recorded as an impairment loss. For goodwill, the impairment test shall be a two-step process, consisting of a comparison of the fair value of a reporting unit with its carrying amount, including the goodwill allocated to each reporting unit. If the carrying amount is in excess of the fair value, the implied fair value of the reporting unit goodwill is compared to the carrying amount of the reporting unit goodwill. Any excess of the carrying value of the reporting unit goodwill over the implied fair value of the reporting unit goodwill will be recorded as an impairment loss. Separable intangible assets that are deemed to have a finite life will continue to be amortized over their useful lives (but with no maximum life). Intangible assets with finite useful lives will continue to be reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, we will apply the new accounting rules beginning July 1, 2002 and will reassess the useful lives of our separately recognized intangible assets in the first quarter of fiscal 2003. We will review for impairment previously recognized intangible assets that are deemed to have indefinite lives upon the completion of this analysis in the first quarter of fiscal 2003. Additionally, upon the adoption of SFAS 142, we will perform a transitional impairment review related to the carrying value of goodwill as of July 1, 2002 by the end of the second quarter of fiscal 2003. Because of the different transition dates for goodwill and intangible assets acquired on or before June 30, 2001 and those acquired after that date, pre-existing goodwill and intangibles will be amortized during this transition period until adoption whereas new goodwill and indefinite lived intangible assets acquired after June 30, 2001 will not. We are currently in the process of determining our reporting units for the purpose of applying the impairment test, analyzing how fair value will be determined for purposes of applying SFAS 142 and quantifying the anticipated impact of adopting the provisions of SFAS 142. The adoption of SFAS 142 is expected to have a material impact on our results of operations primarily because goodwill will no longer be amortized subsequent to the adoption of SFAS 142. Amortization of goodwill was $331.6 million and $664.3 million for the three and six months ended December 31, 2001, respectively. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which supercedes SFAS 121 and the provisions of Accounting Principles 17 Board Opinion No. 30 ("APB 30"), "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," with regard to reporting the effects of a disposal of a segment of a business. SFAS 144 retains many of the provisions of SFAS 121, but significantly changes the criteria that would have to be met to classify an asset as held for disposal such that long-lived assets to be disposed of other than by sale are considered held and used until disposed of. In addition, SFAS 144 retains the basic provisions of APB 30 for presentation of discontinued operations in the statement of operations but broadens that presentation to a component of an entity. We will apply SFAS 144 beginning July 1, 2002. We are currently evaluating the potential impact, if any, the adoption of SFAS 144 will have on our financial position and results of operations. RESULTS OF OPERATIONS -- SECOND QUARTER OF FISCAL 2002 COMPARED TO SECOND QUARTER OF FISCAL 2001 Net Sales. For the three months ended December 31, 2001, net sales of $286.1 million represented a decrease of $639.0 million or 69 percent compared to the same period of the prior year. The decline in our net sales was due to: (i) lower demand across all telecommunication products due to the severe industry downturn; (ii) price declines in our products; and (iii) a generally weaker global economy. The impact of acquisitions completed subsequent to December 31, 2000 provided approximately $40.5 million of net sales for the three months ended December 31, 2001. Separate discussions with respect to net sales and operating profits for each of our reportable operating segments can be found under the heading Operating Segment Information. We had no customer representing more than 10 percent of net sales during the three months ended December 31, 2001. During the three months ended December 31, 2000, Nortel and Lucent represented 20 percent and 13 percent of net sales, respectively. Sales to our leading customers vary significantly from quarter to quarter and we do not have the ability to predict future sales to these customers. Net sales to customers outside North America represented 25 percent of net sales for the three months ended December 31, 2001 compared to 32 percent in the comparable prior year period. Gross Margin. Gross margin decreased to negative 17 percent of net sales for the three months ended December 31, 2001 from 51 percent in the comparable prior year period. The decrease in gross margin was primarily due to the following: (i) a $79.8 million write-down of excess and obsolete inventory for the three months ended December 31, 2001 as compared to $30.5 million for the comparable prior year period; (ii) product yields adversely affected by product relocations and other changes in connection with the Global Realignment Program; (iii) a change in product mix due to higher sales of modules that were not yet fully integrated with our components; (iv) non-recurring costs associated with the Global Realignment Program of $53.1 million, consisting of accelerated depreciation, and moving and employee costs related to the phasing out of certain facilities and equipment; and (v) non-cash stock compensation expenses of $9.8 million. These factors were partially offset by the sale during the three months ended December 31, 2001 of inventory with an original cost of approximately $29.0 million that had previously been written down. Our gross margin can generally be affected by a number of factors, including product mix, customer mix, applications mix, product demand, pricing pressures, manufacturing constraints, warranty costs, higher costs resulting from new production facilities, product yield, non-cash stock compensation expenses, and acquisitions of businesses that may have different margins than ours. If actual orders do not match our forecasts, as we experienced in the second half of fiscal 2001 and the first half of fiscal 2002, we may have excess or shortfalls of some materials and components as well as excess inventory purchase commitments. Furthermore, we could experience reduced or delayed product shipments or incur additional inventory write-downs and cancellation charges or penalties, which would increase our costs and could seriously harm our business. Considering these factors, gross margin fluctuations are difficult to predict and there can be no assurance that we will surpass or maintain gross margin percentages at historical or projected levels in future periods. Research and Development. Research and development ("R&D") expense was $64.1 million or 22 percent of net sales for the three months ended December 31, 2001 compared to $71.2 million or 8 percent of net sales for the three months ended December 31, 2000. The decrease in R&D spending reflected the cost savings resulting from our Global Realignment Program, primarily the elimination of overlapping product development programs as well as the reduction of workforce. The decrease in R&D spending was partially offset by (i) non-cash stock compensation expenses of $7.4 million; (ii) non-recurring costs associated with our Global Realignment Program of $5.1 million, consisting of accelerated depreciation, and moving and employee costs related to the phasing out of certain facilities and equipment; and (iii) the inclusion of acquisitions completed subsequent to December 31, 2000. The increase in R&D as a percentage of net sales was due to our net sales declining faster than our R&D spending. 18 Due to our recently announced Global Realignment Program, we expect our level of R&D expenses to decline in future quarters. However, we expect to spend at least 15 percent of net sales over the remainder of fiscal 2002 on R&D. There can be no assurance that expenditures for R&D will continue at expected levels or that such expenditures will be successful or that improved processes or commercial products will result from these projects. Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expense was $98.4 million or 34 percent of net sales for the three months ended December 31, 2001 compared to $105.7 million or 11 percent of net sales for the three months ended December 31, 2000. The decrease in SG&A spending was due to the following: (i) lower expenses resulting from our Global Realignment Program; and (ii) lower payroll tax expenses related to the lower value of non-qualified stock option exercises. These cost reductions were offset by (i) non-cash stock compensation expenses of $12.4 million; (ii) non-recurring costs associated with our Global Realignment Program of $14.4 million, consisting of accelerated depreciation, and moving and employee costs related to the phasing out of certain facilities and equipment; (iii) the inclusion of acquisitions completed subsequent to December 31, 2000; and (iv) higher depreciation charges resulting from the implementation of our Enterprise Resource Planning system, the acquisition of SDL, and other information technology capital assets. The increase in SG&A expense as a percentage of net sales was due to our net sales declining faster than our SG&A spending. Due to our Global Realignment Program, we expect our SG&A expenses to decline in future quarters. We also expect to continue incurring charges to operations, which to date have been within management's expectations, associated with integrating recent acquisitions. There can be no assurance however as to the amount or nature of our future SG&A expenses. Amortization of Purchased Intangibles. For the three months ended December 31, 2001, amortization of purchased intangibles expense of $441.3 million, or 154 percent of net sales, represented a decrease of $662.8 million or 60 percent compared to the same period of the prior year. The decrease in amortization expense was due to the intangible assets written off during the third and fourth quarters of fiscal 2001. We expect that our amortization expense of purchased intangibles will continue to contribute or cause net losses, at least through the end of fiscal 2002 at which time new accounting rules will apply. The balance of goodwill and other intangibles arising from acquisition activities was $5.1 billion at December 31, 2001 (see Note 6 of Notes to Consolidated Condensed Financial Statements). Acquired In-Process Research and Development. During December 2001, we acquired IBM's optical transceiver business and this resulted in the write-off of acquired in-process research and development ("IPR&D") of $22.1 million. This amount was expensed on the acquisition date because the acquired technology had not yet reached technological feasibility and had no future alternative use. There can be no assurance that acquisitions of businesses, products or technologies by us in the future will not result in substantial charges for acquired IPR&D that may cause fluctuations in our quarterly or annual operating results. A description of the IPR&D for our acquisition of IBM's optical transceiver business, as well as the current status of IPR&D projects for prior acquisitions, can be found later in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Reduction of Goodwill and Other Long-lived Assets. For the three months ended December 31, 2001, we recorded a reduction of goodwill and other long-lived assets of $1,267.6 million. As part of our review of financial results, we performed an assessment of the carrying value of the our long-lived assets to be held for use including significant amounts of goodwill and other intangible assets recorded in connection with our various acquisitions. The assessment was performed pursuant to SFAS 121 because of the significant negative industry and economic trends affecting our current operations and expected future sales as well as the general decline of technology valuations. The conclusion of that assessment was that the decline in market conditions within our industry was significant and other than temporary. As a result, we recorded a charge of $1,267.6 million to reduce goodwill and other long-lived assets during the three months ended December 31, 2001, based on the amount by which the carrying amount of these assets exceeded their fair value. Of the total write down, $1,265.1 million is related to the goodwill associated with the acquisitions of SDL and OCLI with the balance of $2.5 million relating to other long-lived assets. Fair value was determined based on discounted future cash flows for the operating entities that had separately identifiable cash flows. The cash flow periods used were five years using annual growth rates of 5 percent to 60 percent, the discount rate used was 14 percent, and the terminal values were estimated based upon terminal growth rates of 5 percent to 7 percent. The assumptions supporting the estimated future cash flows, including the discount rate and estimated terminal values, 19 reflect management's best estimates. The discount rate was based upon our weighted average cost of capital as adjusted for the risks associated with our operations. It is possible that the estimates and assumptions used (e.g., interest rates, growth rates and future sales) under a SFAS 121 assessment may change in the near term resulting in the need to write down our goodwill and other long-lived assets further. In addition, it is possible we may incur additional reductions in goodwill if our market capitalization declines to a level that is less than our net assets in future periods. Interest and Other Income, Net. Interest and other income decreased $2.5 million during the three months ended December 31, 2001 over that of the comparable period during fiscal 2001. The decrease was primarily attributable to a decline in interest income earned as a result of lower average daily cash balances and interest rates during the second quarter of fiscal 2002, as well as realized losses on foreign exchange transactions. Gain on Sale of Investments. For the three months ended December 31, 2001, we realized a gain of $6.4 million on sale of investments. The gain resulted primarily from sale of certain non-marketable securities, as well as fixed income investments to fund the $100.0 million in cash for our acquisition of IBM's optical transceiver business. Activity Related to Equity Method Investments. For the three months ended December 31, 2001, activity related to equity method investments was $25.8 million, which was primarily related to our share of the net loss of ADVA. Our investment in ADVA has been reduced to $0 at December 31, 2001, and no further pro rata share of ADVA's net loss will be recorded in subsequent quarters. Should ADVA report net income in future periods, we will resume applying the equity method after our pro rata share of ADVA's net income exceeds our pro rata share of ADVA's net losses not recognized during the periods the equity method is suspended. Income Tax Expense. We recorded a tax provision of $177.8 million for the three months ended December 31, 2001, as compared to $49.6 million for the same period of the prior year. The tax provision recorded for the three months ended December 31, 2001 differs from the expected tax benefit that would be calculated by applying the federal statutory rate to the loss before income taxes primarily because of non-deductible acquisition-related charges, write-offs of deferred tax assets recorded in prior business combinations relating to assumed employee stock options that either expired unexercised or were exercised during the quarter when the market value of the underlying stock was less than the previously recorded value at the business combination date, and increases in the valuation allowance for deferred tax assets recorded in prior periods due to reductions in our forecasts of future domestic taxable income. Although realization of our net domestic deferred tax assets of $90.0 million as of December 31, 2001 is not assured, management believes it is more likely than not that these deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term resulting in additional income tax expense if forecasts of future domestic taxable income are reduced. Our tax provision or (benefit) for income taxes recorded in subsequent quarters of fiscal 2002 may be adversely affected by write-offs of deferred tax assets recorded for employee stock options assumed in prior business combinations that either expire unexercised or are exercised in subsequent quarters when the market value of the underlying stock is less than the previously recorded value at the business combination date. Operating Segment Information Transmission and Network Components. Net sales for the Transmission and Network Components Group decreased 72 percent in the three months ended December 31, 2001 compared to the comparable period in the prior year. The decline in our net sales was due to: (i) lower demand across all telecommunication products due to the severe industry downturn; (ii) price declines in our products; and (iii) a generally weaker global economy. Net sales for the three months ended December 31, 2001 also include a full quarter's contribution of net sales from the acquisition of SDL. Operating loss as a percentage of net sales was 102 percent during the current quarter as compared to operating income of 32 percent of net sales for the comparable period in the prior year. The decrease in operating income as a percentage of net sales was due to the significant decline in sales during the current period resulting in a higher fixed cost base, inventory write-downs, and the costs associated with the Global Realignment Program implemented during April 2001. Thin Film Products and Instrumentation. Net sales for the Thin Film Products and Instrumentation Group decreased 54 percent in the three months ended December 31, 2001 compared to the comparable period in the prior year. The decline in our net sales was due to: (i) lower demand across all telecommunication products due to the severe industry downturn; (ii) price declines in our products; and (iii) a generally weaker global economy. Operating loss as a percentage of net sales was 5 20 percent during the current quarter as compared to operating income of 51 percent of net sales for the comparable period in the prior year. The decrease in operating income as a percentage of net sales was due to the decline in sales during the current period resulting in a higher fixed cost base, inventory write-downs, and the costs associated with the Global Realignment Program implemented during April 2001. RESULTS OF OPERATIONS -- FIRST HALF OF FISCAL 2002 COMPARED TO FIRST HALF OF FISCAL 2001 Net Sales. For the six months ended December 31, 2001, net sales of $614.7 million represented a decrease of $1,096.9 million or 64 percent compared to the same period of the prior year. The decline in our net sales was due to: (i) lower demand across all telecommunication products due to the severe industry downturn; (ii) price declines in our products; and (iii) a generally weaker global economy. The impact of acquisitions completed subsequent to December 31, 2000 provided approximately $83.8 million of net sales for the six months ended December 31, 2001. Separate discussions with respect to net sales and operating profits for each of our reportable operating segments can be found under the heading Operating Segment Information. We had no customer representing more than 10 percent of net sales during the six months ended December 31, 2001. During the six months ended December 31, 2000, Nortel and Lucent represented 19 percent and 14 percent of net sales, respectively. Sales to our leading customers vary significantly from quarter to quarter and we do not have the ability to predict future sales to these customers. Net sales to customers outside North America represented 28 percent of net sales for the first half of fiscal 2002 compared to 31 percent for the comparable fiscal 2001 period. Gross Margin. Gross margin decreased to negative 10 percent of net sales for the six months ended December 31, 2001 from 48 percent in the comparable fiscal 2001 period. The decrease in gross margin was primarily due to the following: (i) a $142.2 million write-down of excess and obsolete inventory for the six months ended December 31, 2001 as compared to $76.7 million for the comparable fiscal 2001 period; (ii) product yields adversely affected by product relocations and other changes in connection with the Global Realignment Program; (iii) a change in product mix due to higher than expected sales of modules that were not yet fully integrated with our components; (iv) higher warranty costs; (v) non-recurring costs associated with the Global Realignment Program of $79.0 million, consisting of accelerated depreciation, and moving and employee costs related to the phasing out of certain facilities and equipment; and (vi) non-cash stock compensation expenses of $18.4 million. These factors were partially offset by the sale during the six months ended December 31, 2001 of inventory with an original cost of approximately $29.0 million that had previously been written down. Our gross margin can generally be affected by a number of factors, including product mix, customer mix, applications mix, product demand, pricing pressures, manufacturing constraints, warranty costs, higher costs resulting from new production facilities, product yield, non-cash stock compensation expenses, and acquisitions of businesses that may have different margins than ours. If actual orders do not match our forecasts, as we experienced in the second half of fiscal 2001 and the first half of fiscal 2002, we may have excess or shortfalls of some materials and components as well as excess inventory purchase commitments. Furthermore, we could experience reduced or delayed product shipments or incur additional inventory write-downs and cancellation charges or penalties, which would increase our costs and could seriously harm our business. Considering these factors, gross margin fluctuations are difficult to predict and there can be no assurance that we will surpass or maintain gross margin percentages at historical or projected levels in future periods. Research and Development. R&D expense was $133.3 million or 22 percent of net sales for the six months ended December 31, 2001 compared to $133.6 million or 8 percent of net sales for the six months ended December 31, 2000. R&D spending for the six months ended December 31, 2001 reflected the cost savings resulting from our Global Realignment Program, primarily the elimination of overlapping product development programs as well as the reduction of workforce. The decrease in R&D spending was partially offset by (i) non-cash stock compensation expense of $12.3 million; (ii) non-recurring costs associated with our Global Realignment Program of $5.6 million, consisting of accelerated depreciation, and moving and employee costs related to the phasing out of certain facilities and equipment; and (iii) the inclusion of acquisitions completed subsequent to December 31, 2000. The increase in R&D as a percentage of net sales is due to our net sales declining faster than our R&D spending. Due to our recently announced Global Realignment Program, we expect our level of R&D expenses to decline in future quarters. However, we expect to spend at least 15 percent of net sales over the remainder of fiscal 2002 on R&D. There can 21 be no assurance that expenditures for R&D will continue at expected levels or that such expenditures will be successful or that improved processes or commercial products will result from these projects. Selling, General and Administrative Expense. SG&A expense was $204.7 million, or 33 percent of net sales for the six months ended December 31, 2001 compared to $221.9 million or 13 percent of net sales for the six months ended December 31, 2000. The decrease in SG&A spending was due to the following: (i) lower expenses resulting from the Global Realignment Program; (ii) lower payroll tax expenses related to the lower value of non-qualified stock option exercises; and (iii) lower sales commissions. These cost reductions were offset by (i) non-cash stock compensation expenses of $22.7 million; (ii) non-recurring costs associated with the Global Realignment Program of $23.3 million, consisting of accelerated depreciation, and moving and employee costs related to the phasing out of certain facilities and equipment; (iii) the inclusion of acquisitions completed subsequent to December 31, 2000; and (iv) higher depreciation charges resulting from the implementation of our Enterprise Resource Planning system, the acquisition of SDL and other information technology capital assets. Due to our Global Realignment Program, we expect our SG&A expenses to decline in future quarters. We also expect to continue incurring charges to operations, which to date have been within management's expectations, associated with integrating recent acquisitions. There can be no assurance however as to the amount or nature of our future SG&A expenses. Amortization of Purchased Intangibles. For the six months ended December 31, 2001, amortization of purchased intangibles expense of $884.6 million, or 144 percent of net sales, represented a decrease of $1,327.0 million or 60 percent compared to the same period of the prior year. The decrease in amortization expense was due to the intangible assets written off during the third and fourth quarters of fiscal 2001. We expect that our amortization expense of purchased intangibles will continue to contribute or cause net losses, at least through the end of fiscal 2002 at which time new accounting rules will apply. The balance of goodwill and other intangibles arising from acquisition activities was $5.1 billion at December 31, 2001 (see Note 6 of Notes to Consolidated Condensed Financial Statements). Acquired In-process Research and Development. During December 2001, we acquired IBM's optical transceiver business and this resulted in the write-off of IPR&D of $22.1 million. This amount was expensed on the acquisition date because the acquired technology had not yet reached technological feasibility and had no future alternative use. There can be no assurance that acquisitions of businesses, products or technologies by us in the future will not result in substantial charges for acquired IPR&D that may cause fluctuations in our quarterly or annual operating results. A description of the IPR&D for our acquisition of IBM's optical transceiver business, as well as the current status of IPR&D projects for prior acquisitions, can be found later in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Reduction of Goodwill and Other Long-lived Assets. For the six months ended December 31, 2001, we recorded a reduction of goodwill and other long-lived assets of $1,309.6 million. As part of our review of financial results, we performed an assessment of the carrying value of the our long-lived assets to be held for use including significant amounts of goodwill and other intangible assets recorded in connection with our various acquisitions. The assessment was performed pursuant to SFAS 121 because of the significant negative industry and economic trends affecting our current operations and expected future sales as well as the general decline of technology valuations. The conclusion of that assessment was that the decline in market conditions within our industry was significant and other than temporary. As a result, we recorded a charge of $1,267.6 million to reduce goodwill and other long-lived assets during the three months ended December 31, 2001, based on the amount by which the carrying amount of these assets exceeded their fair value. Of the total write down, $1,265.1 million is related to the goodwill associated with the acquisitions of SDL and OCLI with the balance of $2.5 million relating to other long-lived assets. Fair value was determined based on discounted future cash flows for the operating entities that had separately identifiable cash flows. The cash flow periods used were five years using annual growth rates of 5 percent to 60 percent, the discount rate used was 14 percent, and the terminal values were estimated based upon terminal growth rates of 5 percent to 7 percent. The assumptions supporting the estimated future cash flows, including the discount rate and estimated terminal values, reflect management's best estimates. The discount rate was based upon our weighted average cost of capital as adjusted for the risks associated with our operations. In addition, pursuant to our Global Realignment Program, we restructured certain of our businesses and realigned our operations to focus on profit contribution, high growth markets, and core opportunities, we reduced the workforce that had 22 been valued in previous acquisitions. In accordance with SFAS 121, we wrote the related intangible assets down to their fair value and recorded a charge of $10.8 million related to the reduction in purchased intangibles and $31.2 million related to goodwill associated with these assets for the six months ended December 31, 2001. It is possible that the estimates and assumptions used (e.g., interest rates, growth rates and future sales) under a SFAS 121 assessment may change in the near term resulting in the need to write down our goodwill and other long-lived assets further. In addition, it is possible we may incur additional reductions in goodwill if our market capitalization declines to a level that is less than our net assets in future periods. Restructuring Charges. In April 2001, we initiated the Global Realignment Program, under which we are restructuring our business in response to the changes in our industry and customer demand and as part of our continuing overall integration program. Consequently, this resulted in $264.3 million and $243.0 million of restructuring charges recorded in the fourth quarter of fiscal 2001 and first quarter of fiscal 2002, respectively. During the six months ended December 31, 2001, we incurred non-cash charges and cash payments related to the Global Realignment Program of $141.3 million and $72.2 million, respectively. Restructuring Activities - Phase 1 (Fourth Quarter of Fiscal 2001): The following table summarizes our Phase 1 restructuring activities through the end of the second quarter of fiscal 2002 (in millions):
Workforce Facilities and Lease Reduction Equipment Commitments Total --------- -------------- ----------- -------- Total restructuring charges -- Phase 1 $ 79.1 $ 122.2 $ 63.0 $ 264.3 Cash payments (24.9) -- (0.9) (25.8) Non-cash charges (11.1) (122.2) -- (133.3) -------- -------- -------- -------- Balance as of June 30, 2001 43.1 -- 62.1 105.2 Cash payments (20.9) -- (1.7) (22.6) -------- -------- -------- -------- Balance as of September 30, 2001 22.2 -- 60.4 82.6 Cash payments (8.7) -- (2.5) (11.2) -------- -------- -------- -------- Balance as of December 31, 2001 $ 13.5 $ -- $ 57.9 $ 71.4 ======== ======== ======== ========
During the three months ended June 30, 2001, we completed and approved plans to close nine operations located in North America, Europe and Asia, vacate approximately 25 buildings or 1.2 million square feet of manufacturing and office space at operations to be closed, as well as at continuing operations, and reduce our workforce by approximately 9,000 employees. Worldwide workforce reduction During the three months ended June 30, 2001, we recorded a charge of approximately $79.1 million primarily related to severance and fringe benefits associated with the reduction of 9,000 employees. In addition, we incurred non-cash severance charges of $11.1 million related to the modification of a former executive's stock options. Of the 9,000 terminations for which costs have been accrued prior to June 30, 2001, approximately 8,200 were engaged in manufacturing activities and approximately 7,100, 1,200, and 700 were from sites located in North America, Europe and Asia, respectively. As of December 31, 2001, approximately 8,700 employees had been terminated in connection with Phase 1 of the restructuring activities. We expect to complete the Phase 1 workforce reduction within the next six months. Consolidation of excess facilities and equipment The consolidation of excess facilities includes the closure of certain manufacturing, research and development facilities, and administrative and sales offices throughout North America, Europe and Asia for business activities that have been restructured as part of the Program. The operations closed as of June 30, 2001 were in Asheville, North Carolina; Bracknell, United Kingdom; Freehold, New Jersey; Hillend, United Kingdom; Oxford, United Kingdom; Richardson, Texas; Rochester, New York; Shunde, China and Taipei, Taiwan. The total number of sites closed under the Global Realignment Program, including both Phase 1 and Phase 2, is seventeen. Property and equipment that was disposed of or removed from operations resulted in a charge of $122.2 million of which $29.4 million, $89.3 million and $3.5 million, related to the Thin Film Products and Instrumentation Group, Transmission and 23 Network Components Group, and other operating segments, respectively. The property and equipment write-down consisted primarily of leasehold improvements, computer equipment and related software, production and engineering equipment, and office equipment, furniture, and fixtures. In addition, we incurred a charge of $63.0 million for exiting and terminating leases primarily related to excess or closed facilities with planned exit dates. We estimated the cost of exiting and terminating the facility leases based on the contractual terms of the agreements and then current real estate market conditions. We determined that it would take approximately three to twenty-one months to sublease the various properties that will be vacated in connection with Phase 1 of the restructuring activities. Amounts related to the lease expense (net of anticipated sublease proceeds) will be paid over the respective lease terms through 2015. We anticipate completing implementation of our Phase 1 restructuring program during the next six months. Restructuring Activities - Phase 2: The following table summarizes our Phase 2 restructuring activities through the end of the second quarter of fiscal 2002 (in millions):
Workforce Facilities and Lease Reduction Equipment Commitment Total --------- -------------- ---------- -------- Total restructuring charges -- Phase 2 $ 55.8 $ 141.3 $ 45.9 $ 243.0 Cash payments (19.2) -- -- (19.2) Non-cash charges -- (141.3) -- (141.3) -------- -------- -------- -------- Balance as of September 30, 2001 36.6 -- 45.9 82.5 Cash payments (18.8) -- (0.4) (19.2) -------- -------- -------- -------- Balance as of December 31, 2001 $ 17.8 $ -- $ 45.5 $ 63.3 ======== ======== ======== ========
During the three months ended September 30, 2001, we completed and approved plans to close eight operations located in North America, Europe and Asia, vacate approximately eleven buildings or 0.8 million square feet of manufacturing and office space at operations to be closed, as well as at continuing operations, and reduce our workforce by approximately 5,200 employees. Worldwide workforce reduction During the three months ended September 30, 2001, we recorded a charge of approximately $55.8 million primarily related to severance and fringe benefits associated with the reduction of approximately 5,200 employees. Of the 5,200 terminations for which costs have been accrued prior to September 30, 2001, approximately 4,200 were engaged in manufacturing activities and 4,850, 300, and 50 were from sites located in North America, Europe and Asia, respectively. As of December 31, 2001, approximately 4,700 employees had been terminated under Phase 2 of the restructuring activities. We expect to complete our Phase 2 workforce reduction within the next nine months. Consolidation of excess facilities and equipment The consolidation of excess facilities includes the closure of certain manufacturing, research and development facilities, and administrative and sales offices throughout North America, Europe and Asia for business activities that have been restructured as part of the Program. The operations being closed as of September 30, 2001 under Phase 2 of the Restructuring Program are in Arnhem, Netherlands; Plymouth, United Kingdom; Witham, United Kingdom; Manteca, California; Gloucester, Massachusetts; Victoria, British Columbia; and two operations in Ottawa, Ontario. Property and equipment that was disposed or removed from operations resulted in a charge of $141.3 million of which $11.8 million, $129.5 million and $0 related to the Thin Film Products and Instrumentation Group, Transmission and Network Components Group, and other operating segments, respectively. The property and equipment write-down consisted primarily of leasehold improvements, computer equipment and related software, production and engineering equipment, and office equipment, furniture, and fixtures. In addition, we incurred a charge of $45.9 million for exiting and terminating leases primarily related to excess or closed facilities with planned exit dates. We estimated the cost of exiting and terminating the facility leases based on the contractual terms of the agreements and then current real estate market conditions. We determined that it would take approximately three to twenty-four months to sublease the various properties that will be vacated in connection with Phase 2 of the restructuring activities. 24 Amounts related to the lease expense (net of anticipated sublease proceeds) will be paid over the respective lease terms through 2020. We anticipate completing implementation of our Phase 2 restructuring program during the next nine months. Interest and Other Income, Net. Net interest and other income decreased $1.0 million during the six months ended December 31, 2001 over that of the comparable period during fiscal 2001. The decrease was primarily attributable to a decline in interest income earned as a result of lower average daily cash balances and interest rates, as well as realized losses on foreign exchange transactions. Reduction in Value of Investments. At December 31, 2001, we had 24.7 million shares of Nortel common stock at a market value of $179.3 million. During the first half of fiscal 2002, we recognized a reduction in market value of $84.5 million associated with the 24.7 million shares held by us, as we determined the decline in the market value of the shares of Nortel common stock to be other-than-temporary. We also recorded a charge of $9.6 million in connection with other available-for-sale investments because of an other-than-temporary decline in market value. In addition, we recorded a charge of $12.4 million related to a decline the market value of our non-marketable equity securities accounted for under the cost method that was deemed to be other-than-temporary. Gain on Sale of Investments. For the six months ended December 31, 2001, we realized a gain of $6.4 million on sale of investments. The gain resulted primarily from sale of certain non-marketable securities, as well as fixed income investments to fund the $100.0 million in cash for our acquisition of IBM's optical transceiver business. Activity Related to Equity Method Investments. For the six months ended December 31, 2001, activity related to equity method investments was $45.1 million. This includes: (i) a $13.9 million charge to write down the carrying value of our investment in ADVA due to a other-than-temporary decline in its market value; (ii) $0.7 million of amortization expense related to the difference between the cost of the investment and the underlying equity in the net assets of ADVA; and (iii) $30.5 million related to our share of the net loss of ADVA and other equity method investments. Our investment in ADVA has been reduced to $0 at December 31, 2001, and no further pro rata share of ADVA's net loss will be recorded in subsequent quarters. Should ADVA report net income in future periods, we will resume applying the equity method after our pro rata share of ADVA's net income exceeds our pro rata share of ADVA's net losses not recognized during the periods the equity method is suspended. Income Tax Expense. We recorded a tax provision of $373.0 million for the six months ended December 31, 2001 as compared to $93.5 million for same period of the prior year. The tax provision recorded for six months ended December 31, 2001 differs from the expected tax benefit that would be calculated by applying the federal statutory rate to the loss before income taxes primarily because of non-deductible acquisition-related charges, write-offs of deferred tax assets recorded in prior business combinations relating to assumed employee stock options that either expired unexercised or were exercised during the quarter when the market value of the underlying stock was less than the previously recorded value at the business combination date, and increases in the valuation allowance for deferred tax assets recorded in prior periods due to reductions in our forecasts of future domestic taxable income. Although realization of our net domestic deferred tax assets of $90.0 million as of December 31, 2001 is not assured, management believes it is more likely than not that these deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term resulting in additional income tax expense if forecasts of future domestic taxable income are reduced. Our tax provision or (benefit) for income taxes recorded in subsequent quarters of fiscal 2002 may be adversely affected by write-offs of deferred tax assets recorded for employee stock options assumed in prior business combinations that either expire unexercised or are exercised in subsequent quarters when the market value of the underlying stock is less than the previously recorded value at the business combination date. Operating Segment Information Transmission and Network Components. Net sales for the Transmission and Network Components Group decreased 69 percent in the six months ended December 31, 2001 compared to the comparable period in the prior year. The decline in our net sales was due to: (i) lower demand across all telecommunication products due to the severe industry downturn; (ii) price declines in our products; and (iii) a generally weaker global economy. Net sales for the six months ended December 31, 2001 also include contribution of net sales from the acquisition of SDL. Operating loss as a percentage of net sales was 118 percent during the first half as compared to operating income of 32 percent of net sales for the comparable period in the prior year. The decrease in operating income as a percentage of net sales was due to the significant decline in sales during the six-month 25 period resulting in a higher fixed cost base, inventory write-downs, and the costs associated with the Global Realignment Program implemented during April 2001. Thin Film Products and Instrumentation. Net sales for the Thin Film Products and Instrumentation Group decreased 36 percent in the six months ended December 31, 2001 compared to the comparable period in the prior year. The decline in our net sales was due to: (i) lower demand across all telecommunication products due to the severe industry downturn; (ii) price declines in our products; and (iii) a generally weaker global economy. Operating loss as a percentage of net sales was 14 percent during the first half of fiscal 2002 as compared to operating income of 56 percent of net sales for the comparable period in the prior year. The decrease in operating income as a percentage of net sales was due to the significant decline in sales during the six-month period resulting in a higher fixed cost base, inventory write-downs, and the costs associated with the Global Realignment Program implemented during April 2001. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2001, our combined balance of cash, cash equivalents and short-term investments was $1,652.9 million, a decrease of $159.3 million from June 30, 2001. Operating activities generated $62.2 million during the six months ended December 31, 2001, primarily resulting from: (i) net loss adjusted for non-cash accounting charges for depreciation, stock-based compensation, write-off of the acquired in-process technology from our acquisition of the optical transceiver business of IBM, loss on disposal of fixed assets, reduction of goodwill and other long-lived assets, non-cash restructuring costs associated with our Global Realignment Program, reduction in the fair value of investments, activity related to equity method investments and amortization of intangibles; (ii) a decrease in accounts receivable; and (iii) a decrease in net deferred income taxes. These items were partially offset by a decrease in current liabilities. Cash used by investing activities was $627.6 million during the six months ended December 31, 2001. We incurred capital expenditures of $86.7 million for facilities expansion that had begun in prior periods and capital equipment purchases during the first half of fiscal 2002. We currently expect to spend approximately $100 million for capital equipment purchases and leasehold improvements during the remainder of fiscal 2002, although there can be no assurance as to the actual level and nature of our future capital expenditures. During the first half of fiscal 2002, we invested an additional net $429.7 million in available-for-sale investments. Our financing activities for the six months ended December 31, 2001 provided cash of $18.5 million. The exercise of stock options and the sale of common stock through our employee stock purchase plans provided $46.0 million in cash offset by the repayment of $27.5 million in debt. We had $7.6 million of debt outstanding as of December 31, 2001, of which $5.0 million was paid in full as of February 8, 2002. This debt was assumed from entities we acquired. In addition, we have two standby letter of credit facilities totaling approximately $11.0 million. We also had an unsecured operating U.S. dollar line of credit totaling $25.0 million. We had no outstanding borrowings under this facility at December 31, 2001. We believe that our existing cash balances and investments, together with cash flow from operations will be sufficient to meet our liquidity and capital spending requirements at least through the foreseeable future. However, possible investments in or acquisitions of complementary businesses, products or technologies, such as our acquisition of IBM's optical transceiver business in the second quarter of fiscal 2002, may require additional financing prior to such time. In addition, if the current economic downturn prolongs, we may need to expend our cash reserves to fund our operations. There can be no assurance that additional debt or equity financing will be available when required or, if available, can be secured on terms satisfactory to us. In general, our investment policy requires that our securities purchases be rated A1/P1, MIG-1, AA-/Aa3 or better. No securities may have a maturity that exceeds 36 months, and the average duration of our investment portfolio may not exceed 18 months. At any time, no more than 25% of the investment portfolio may be insured by a single insurer other than the US government. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT PROJECTS -- OPTICAL TRANSCEIVER BUSINESS An independent valuation specialist performed an allocation of the total purchase price of IBM's optical transceiver business to its individual assets. Of the total purchase price, $22.1 million has been allocated to IPR&D and was charged to expense 26 for the three months ended December 31, 2001. The remaining purchase price has been allocated specifically to identifiable assets acquired. After allocating value to the IPR&D projects and the optical transceiver business' tangible assets, specific intangible assets were then identified and valued. The identifiable intangible assets include existing technology, core technology, distribution agreements, supply/contract manufacturing agreements, real estate license agreement and non-competition agreement. The IPR&D is comprised of two main categories: gigabit interface converters and small form factors transceivers for storage area networks and local area networks using optical fibre channel and gigabit Ethernet protocols. The optical transceiver business has incurred $15.9 million to date and estimates that an additional investment of approximately $18.5 million in research and development will be required to complete the IPR&D by the second quarter of fiscal 2004. The nature of the efforts required to develop the purchased IPR&D into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. CURRENT STATUS OF OTHER ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT PROJECTS We periodically review the stage of completion and likelihood of success of each of the IPR&D projects. The current status of the IPR&D projects for all significant mergers and acquisitions during the past three years are as follows: SDL The products under development at the time of acquisition included: (1) pump laser chips; (2) pump laser modules; (3) Raman chips and amplifiers; (4) external modulators and drivers; and (5) industrial laser products. The pump laser chips and industrial laser products have been completed at a cost consistent with our expectations. The micro amplifier development has been terminated at SDL and transferred to another division within the Company. Thin film dispersion compensator research has been cancelled. The pump laser modules and Raman chips are expected to be completed by the fourth quarter of fiscal 2002. We have incurred costs of $31.9 million through the end of the second quarter of fiscal 2002, with estimated costs to complete of $1.1 million. The differences between the actual outcome noted above and the assumptions used in the original valuation of the technology are not expected to significantly impact our results of operations and financial position. Epion The products under development at the time of acquisition included Gas Cluster Ion Beam technology used for atomic scale surface smoothing and cleaning where surface or film quality is of great importance. Epion has incurred $3.3 million to date and estimates that a total investment of approximately $3.6 million in research and development over the next 24 months will be required to complete the IPR&D. The nature of the efforts required to develop the purchased IPR&D into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. The differences between the actual outcome noted above and the assumptions used in the original valuation of the technology are not expected to significantly impact our results of operations and financial position. E-TEK The products under development at the time of acquisition included: (1) wavelength division multiplexers (WDM's); (2) submarine products; and (3) other component products and modules. The WDM and submarine products have been completed at a cost consistent with our expectations. Our development efforts for other components and modules include attenuators, circulators, switches, dispersion equalization monitors and optical performance monitors. Our development efforts fell behind schedule on some of these products but are now complete at a cost of $7.7 million. The differences between the actual outcome noted above and the assumptions used in the original valuation of the technology have not significantly impacted our results of operations and financial position. 27 OCLI The products under development at the time of the acquisition included: (1) thin film filters and switches, (2) optical display and projection products, and (3) light interference pigments. Thin film filters includes switches and dispersion compensators. The MEMS 2x2 Switch development has been terminated at OCLI and transferred to another division within the Company. Thin film dispersion compensator research has been cancelled. We incurred post acquisition costs of approximately $4.9 million. The optical display and projection products development has been terminated due to the uncertainty of current market conditions. Light interference pigments are currently in the commercial stage of the development cycle for this product family and these projects were completed in the first quarter of calendar year 2002. We have incurred post-acquisition research and development expenses of approximately $16.4 million and estimate that cost to complete these projects will be another $0.2 million. The differences between the actual outcome noted above and the assumptions used in the original valuation of the technology are not expected to significantly impact our results of operations and financial position. SIFAM The products under development at the time of the acquisition included: (1) miniature couplers; (2) combined components; and (3) micro-optic devices. Miniature coupler development and combined components development are complete at a cost consistent with our expectations. Micro-optic device development is currently being evaluated relative to similar efforts already underway within our organization. The costs incurred post-acquisition for micro-optic device development has been consistent with our expectations. EPITAXX The products under development at the time of the acquisition included (1) high-speed receivers and (2) an optical spectrum analyzer product. The high-speed receiver and optical spectrum analyzer have been completed at costs consistent with our expectations. JDS FITEL The products under development at the time of our merger included: (i) Thermo Optic Waveguide Attenuators, (ii) Solid State Switch, (iii) 50 GHz WDM, and (iv) Erbium Doped Fiber Amplifiers ("EDFA"). Thermo Optic Waveguide Attenuator development was discontinued in the first quarter of 2001, due to lower than expected demands for this product, and higher demands for other products. Solid State Switch, WDM and EDFA developments are complete at a cost consistent with our expectations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS FOREIGN EXCHANGE We generate a significant portion of our sales from sales to customers located outside the United States, principally in Europe. International sales are made mostly from our foreign subsidiaries in the local countries and are typically denominated in either U.S. dollars or the local currency of each country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. Our international business is subject to risks typical of an international business including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors. We enter into foreign exchange forward contracts to offset the impact of currency fluctuations on certain nonfunctional currency assets and liabilities, primarily denominated in the Australian dollar, Canadian dollar, Euro and British pound. The foreign exchange forward contracts we enter into generally have original maturities ranging from one to three months. We do not enter into foreign exchange forward contracts for trading purposes. We do not expect gains or losses on these contracts to have a material impact on our financial results. INTEREST RATES 28 We invest our cash in a variety of financial instruments, including fixed and floating rate bonds, municipal bonds, auction instruments and money market instruments. These investments are denominated in U.S. and Canadian dollars. Cash balances in foreign currencies overseas are operating balances and are primarily invested in short-term deposits of a local operating bank. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted because of a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations because of changes in interest rates or we may suffer losses in principal if forced to sell securities that have seen a decline in market value because of changes in interest rates. Our investments are made in accordance with an investment policy approved by the Board of Directors. In general, our investment policy requires that our securities purchases be rated A1/P1, MIG-1, AA-/Aa3 or better. No securities may have a maturity that exceeds 36 months, and the average duration of our investment portfolio may not exceed 18 months. At any time, no more than 25% of the investment portfolio may be insured by a single insurer other than the US government. LEASES We are exposed to interest rate risk associated with leases on our facilities where payments are tied to the London Interbank Offered Rate ("LIBOR"). We have evaluated the hypothetical change in lease obligations held at December 31, 2001 due to changes in the LIBOR. The modeling technique used measures hypothetical changes in lease obligations arising from selected hypothetical changes in LIBOR. The hypothetical market changes reflected immediate parallel shifts in the LIBOR curve of plus or minus 50 BPS, 100 BPS, and 150 BPS over a 12-month period. The results of this analysis were not material in comparison to our financial results. 29 RISK FACTORS OUR OPERATING RESULTS AND STOCK PRICE FLUCTUATE SUBSTANTIALLY Operating results for future periods are never perfectly predictable even in the most certain of economic times, and we expect to continue to experience fluctuations in our quarterly results and in our guidance, when provided, for financial performance in future periods. These fluctuations, which in the future may be significant, could cause substantial variability in the market price of our stock. In addition to those concerns discussed below, all of the concerns we have discussed under "Risk Factors" could affect our operating results from time to time. Our operating results and stock price are affected by fluctuations in our customers' businesses Our business is dependent upon product sales to telecommunications network system providers, who in turn are dependent for their business upon orders for fiber optic systems from telecommunications carriers. Any downturn in the business of any of these parties affects us. Moreover, our sales often reflect orders shipped in the same quarter in which they are received, which makes our sales vulnerable to short-term fluctuations in customer demand and difficult to predict. In general, customer orders may be cancelled, modified or rescheduled after receipt. Consequently, the timing of these orders and any subsequent cancellation, modification or rescheduling of these orders have affected and will in the future affect our results of operations from quarter to quarter. Also, as our customers typically order in large quantities, any subsequent cancellation, modification or rescheduling of an individual order may alone affect our results of operations. We are experiencing decreased sales and increased difficulty in predicting future operating results As a result of currently unfavorable economic and market conditions, (a) our sales are declining, (b) we are unable to predict future sales accurately, and (c) we are currently unable to provide long-term guidance for future financial performance. The conditions contributing to this difficulty include: - - uncertainty regarding the capital spending plans of the major telecommunications carriers, upon whom our customers, and ultimately we, depend for sales; - - the telecommunications carriers' current limited access to the capital required for expansion; - - our customers decreasing inventory levels, which, in turn, reduces our sales; - - lower near term sales visibility; and - - general market and economic uncertainty. Based on these and other factors, many of our major customers have reduced, modified, cancelled or rescheduled orders for our products and have expressed uncertainty as to their future requirements. As a result, we currently anticipate that our net sales in future periods may decline. In addition, our ability to meet financial expectations for future periods may be harmed. We have incurred, and may in the future incur, inventory-related charges, the amounts of which are difficult to predict accurately As a result of the business downturn, we have incurred charges to align our inventory with actual customer requirements over the near term. We use a rolling six-month forecast based on anticipated product orders, product order history, forecasts and backlog to assess our inventory requirements. As discussed above, our ability to forecast our customers' needs for our products in the current economic environment is very limited. We have incurred, and may in the future incur, significant inventory-related charges. In the first half of fiscal 2002, we incurred charges related to inventory write-downs of $142.2 million. These charges were partially offset by the sale of approximately $29.0 million in inventory that had previously been written down. We may incur significant similar charges in future periods. Moreover, because of our current difficulty in forecasting sales, we may in the future revise our previous forecasts. While we believe, based on current information, that the inventory-related charges recorded in fiscal 2002 are appropriate, subsequent changes to our forecast may indicate that these charges were insufficient or even excessive. 30 As a result of these and other factors, our stock price has declined substantially over the past year. Despite this decline, the market price of our stock and the stocks of many of the other companies in the optical components, modules and systems industries continue to trade at high multiples of earnings. An outgrowth of these multiples and market volatility is the significant vulnerability of our stock price and the stock prices of our customers and competitors to any actual or perceived fluctuation in the strength of the markets we serve, no matter how minor in actual or perceived consequence. Consequently, these multiples and, hence, market prices may not be sustainable. These broad market and industry factors have caused and may in the future cause the market price of our stock to decline, regardless of our actual operating performance or the operating performance of our customers. IF WE FAIL TO MANAGE OR ANTICIPATE OUR FUTURE GROWTH, OUR BUSINESS WILL SUFFER The optical networking business has historically grown, at times rapidly, and we have grown accordingly. We have made and, although we are currently in an industry downturn, expect to continue to make significant investments to enable our future growth through, among other things, internal expansion programs, internal product development and acquisitions and other strategic relationships. If we fail to effectively manage or anticipate our future growth effectively, particularly during periods of industry decline, our business will suffer. Difficulties associated with integrating our acquired businesses could harm our overall business operations Our growth strategy includes acquisitions of other companies, technologies and product lines to complement our internally developed products. In fact, we are the product of several substantial acquisitions, including, among others, JDS FITEL on June 30, 1999, OCLI on February 4, 2000, E-TEK on June 30, 2000 and SDL on February 13, 2001. We expect to continue this strategy. Critical to the success of this strategy and, ultimately, our business as a whole, is the ordered, efficient integration of acquired businesses into our organization. If our integration efforts are unsuccessful, our businesses will suffer. Successful integration depends upon: - - our ability to integrate the manufacture, sale and marketing of the products of the businesses acquired with our existing products; - - our ability to complete product development programs and consolidate research and development efforts; - - our ability to retain key personnel of the acquired business and effectively organize the acquired business' personnel with our own; - - our ability to consolidate and reorganize operations with those of the acquired business; and - - our ability to expand our information technology systems (including accounting and financial systems, management controls and procedures). Our integration efforts, which are ongoing, may not be successful and may result in unanticipated operations problems, expenses and liabilities and the diversion of management attention. Our acquisition strategy is costly Our acquisition strategy is costly. For example, we have incurred direct costs of $12.0 million associated with the combination of Uniphase and JDS FITEL, $8.2 million associated with the acquisition of OCLI, $32.3 million associated with the acquisition of E-TEK and $44.6 million associated with the acquisition of SDL. In addition, we paid certain SDL executives $300.9 million in consideration of their agreement to amend their change of control agreements and enter into non-compete agreements with us. We may incur additional material charges in subsequent quarters to reflect additional costs associated with these and other combinations and acquisitions, which will be expensed as incurred. Moreover, to the extent an acquired business does not perform as expected, we have and may continue to incur substantial additional unforeseen costs to develop, restructure or dispose of such business. Nonperforming or underperforming acquired businesses may also divert management attention, dilute the value of our common stock and exchangeable shares and weaken our financial condition. Our Global Realignment Program may not be successful 31 As part of our continuing integration efforts and in response to the current economic slowdown, we commenced a Global Realignment Program in April 2001, under which we are, among other things: - - consolidating our product development programs and eliminating overlapping programs; - - consolidating our manufacturing of several products from multiple sites into specific locations around the world; and - - realigning our sales organization to offer customers a single point of contact within the company, and creating regional and technical centers to streamline customer interactions with product line managers. Implementation of the Global Realignment Program involves reductions in our workforce and facilities and, in certain instances, the relocation of products, technologies and personnel. We have incurred and will incur significant expenses to implement the program and we expect to realize significant future cost savings as a result. As with our other integration efforts, the Global Realignment Program may not be successful in achieving the cost savings and other benefits within the expected timeframes, may be insufficient to align our operations with customer demand and the changes affecting our industry, may disrupt our operations, or may be more costly than currently anticipated. Even if the Global Realignment Program is successful, our sales must increase substantially for us to be profitable. If we fail to commercialize new product lines, our business will suffer We intend to continue to develop new product lines and to improve existing product lines to meet our customers' diverse and changing needs. However, our development of new products and improvements to existing products may not be successful, as: - - we may fail to complete the development of a new product or product improvement; or - - our customers may not purchase the new product or improved product because, among other things, the product is too expensive, is defective in design, manufacture or performance, or is uncompetitive, or because the product has been superceded by another product or technology. Nonetheless, if we fail to successfully develop and introduce new products and improvements to existing products, our business will suffer. Furthermore, new products require increased sales and marketing, customer support and administrative functions to support anticipated increased levels of operations. We may not be successful in creating this infrastructure, nor may we realize any increased sales and operations to offset the additional expenses resulting from this increased infrastructure. In connection with our recent acquisitions, we have incurred expenses in anticipation of developing and selling new products. Our operations may not achieve levels sufficient to justify the increased expense levels associated with these new businesses. Any failure of our information technology infrastructure could harm our business We rely upon the capacity, reliability and security of our information technology hardware and software infrastructure and our ability to expand and update this infrastructure in response to our growth and changing needs. In connection with our growth, we are constantly updating our current information technology infrastructure and expect to incur significant costs and expend significant management and other resources relating to our upgrade efforts. Among other things, we are currently unifying our manufacturing, accounting, sales and human resource data systems using an Oracle platform, expanding and upgrading our networks and integrating our voice communications systems. Any failure to manage, expand and update our information technology infrastructure could harm our business. WE HAVE MANUFACTURING AND PRODUCT QUALITY CONCERNS If we do not achieve acceptable manufacturing volumes, yields and costs, our business will suffer Our success depends upon our ability to timely deliver products to our customers at acceptable volume and cost levels. The manufacture of our products involves highly complex and precise processes, requiring production in highly controlled and clean environments. Changes in our manufacturing processes or those of our suppliers, or inadvertent use of defective or contaminated materials by us or by our suppliers, could significantly hurt our ability to meet our customers' product volume 32 and quality needs. Moreover, in some cases, existing manufacturing techniques, which involve substantial manual labor, may not achieve the volume or cost targets of our customers. In these cases, we will need to develop new manufacturing processes and techniques, which are anticipated to involve higher levels of automation, to achieve these targets, and we will need to undertake other efforts to reduce manufacturing costs. Currently, we are devoting significant funds and other resources to (a) the development of advanced manufacturing techniques to improve product volumes and yields and reduce costs, and (b) realign some of our product manufacturing to locations offering optimal labor costs. These efforts may not be successful. If we fail to achieve acceptable manufacturing yields, volumes and costs, our business will be harmed. If our customers do not qualify our manufacturing lines for volume shipments, our operating results could suffer Customers will not purchase any of our products, other than limited numbers of evaluation units, prior to qualification of the manufacturing line for the product. Each new manufacturing line must go through varying levels of qualification with our customers. Moreover, under our Global Realignment Program we are consolidating our worldwide manufacturing operations. Among other things, we are moving the manufacturing of some of our products to other facilities. The manufacturing lines for these products at the consolidated facilities must undergo qualification with our customers before commercial manufacture of these products can recommence. The qualification process, whether for new products or in connection with the relocation of manufacturing of current products, determines whether the manufacturing line achieves the customers' quality, performance and reliability standards. Delays in qualification can cause a product to be dropped from a long-term supply program and result in significant lost sales opportunities over the term of that program. We may experience delays in obtaining customer qualification of our manufacturing lines and, as a consequence, our operating results and customer relationships would be harmed. If our products fail to perform, our business will suffer Our business depends on our producing excellent products of consistently high quality. To this end, our products are rigorously tested for quality both by our customers and us. Nevertheless, our products are highly complex and our customers testing procedures are limited to evaluating our products under likely and foreseeable failure scenarios. For various reasons (including, among others, the occurrence of performance problems unforeseeable in testing), our products may fail to perform as expected. Failures could result from faulty design or problems in manufacturing. In either case, we could incur significant costs to repair and/or replace defective products under warranty, particularly when such failures occur in installed systems. We have experienced such failures in the past and remain exposed to such failures, as our products are widely deployed throughout the world in multiple demanding environments and applications. In some cases, product redesigns or additional capital equipment may be required to correct a defect. In addition, any significant or systemic product failure could result in lost future sales of the affected product and other products, as well as customer relations problems. ACCOUNTING TREATMENT OF OUR ACQUISITIONS HAS IMPACTED OUR OPERATING RESULTS Our operating results are adversely impacted by purchase accounting treatment, primarily due to the impact of amortization of and other reductions in the carrying value of goodwill and other intangibles originating from acquisitions Under GAAP, we accounted for most of our acquisitions using the purchase method of accounting. Under purchase accounting, we recorded the market value of our common shares and the exchangeable shares of our subsidiary, JDS Uniphase Canada Ltd., issued in connection with acquisitions, the fair value of the stock options assumed and the amount of direct transaction costs as the cost of acquiring these entities. That cost is allocated to the individual assets acquired and liabilities assumed, including various identifiable intangible assets such as in-process research and development, acquired technology, acquired trademarks and trade names and acquired workforce, based on their respective fair values. We allocated the excess of the purchase cost over the fair value of the net identifiable assets to goodwill. The impact of purchase accounting on our operating results is significant. For fiscal 2001 and the first half of fiscal 2002, we recorded $5,387.0 million and $884.6 million, respectively, of amortization expense. Additionally, we also incur other purchase accounting related costs and expenses in the period a particular transaction closes to reflect purchase accounting adjustments adversely affecting gross profit and the costs of integrating new businesses or curtailing overlapping operations. Purchase accounting treatment of our mergers and acquisitions, at least through the end of fiscal 2002 at which time new accounting rules will apply, will result in a net loss, which will have a material and adverse effect on our results of operations. 33 The downturn in telecommunications equipment and financial markets created unique circumstances with regard to the assessment of certain of our long-lived assets and acquired equity investments. Beginning in the second half of fiscal 2001 and through the end of the second quarter of fiscal 2002, we evaluated the carrying value of certain long-lived assets and acquired equity investments, consisting primarily of goodwill and other intangible assets and our investment in ADVA. We were carrying a large amount of goodwill on our balance sheet because of our significant acquisitions as accounting rules require that goodwill be recorded based on stock prices at the time merger agreements are executed and announced, and our merger agreements were negotiated and announced at times when market valuations were considerably higher than at present. During the fourth quarter of fiscal 2001, under applicable accounting rules, we began to evaluate the carrying value of our goodwill and certain other long-lived assets. As a result of this evaluation, we recorded reductions of $50.1 billion in goodwill and other intangible assets, and a $744.7 million charge to write down the value of our investment in ADVA in fiscal 2001. During the first half of fiscal 2002, we recorded reductions of $1.3 billion in goodwill and other intangible assets, and a $13.9 million write-down of our investment in ADVA. It is possible that our operating results would be adversely affected by additional write-downs of our goodwill and other long-lived assets and acquired equity investments. Our operating results could be adversely affected by SFAS 141 and SFAS 142 In July 2001, the Financial Accounting Standards Board issued SFAS 141 and SFAS 142. Upon adoption of SFAS 142 on July 1, 2002, we will no longer amortize our goodwill. Instead, goodwill will be reviewed for impairment annually, or more frequently if impairment indicators arise. As of December 31, 2001, our balance of goodwill was $3.6 billion. In addition, we had approximately $39.1 million of separately recognized intangible assets that will be reclassified to goodwill on July 1, 2002 because they do not meet the new recognition criteria for an intangible asset under SFAS 141. If general macroeconomic conditions continue to deteriorate, affecting our business and operating results over the long term, we could be required to record additional impairment charges related to goodwill, which could adversely affect our financial results. OUR SALES ARE DEPENDENT UPON A FEW KEY CUSTOMERS Our customer base is highly concentrated. Historically, orders from a relatively limited number of optical system providers accounted for a substantial portion of our net sales. During fiscal 2000, two customers, Lucent and Nortel, accounted for 21 percent and 15 percent of net sales, respectively. During fiscal 2001, three customers, Nortel, Alcatel and Lucent, accounted for 14 percent, 12 percent and 10 percent of net sales, respectively. During the first half of fiscal 2002, no customer accounted for more than ten percent of net sales. However, we expect that, for the foreseeable future, sales to a limited number of customers will continue to account, alone or in the aggregate, for a high percentage of our net sales. Sales to any single customer may vary significantly from quarter to quarter. If current customers do not continue to place orders, we may not be able to replace these orders with new orders from new customers. In the telecommunications industry, our customers evaluate our products and competitive products for deployment in their telecommunications systems. Our failure to be selected by a customer for particular system projects can significantly impact our business, operating results and financial condition. Similarly, even if our customers select us, the failure of those customers to be selected as the primary suppliers for an overall system installation could adversely affect us. Such fluctuations could materially harm our business. INTERRUPTIONS AFFECTING OUR KEY SUPPLIERS COULD DISRUPT PRODUCTION, COMPROMISE OUR PRODUCT QUALITY AND ADVERSELY AFFECT OUR SALES We obtain various components included in the manufacture of our products from single or limited source suppliers. A disruption or loss of supplies from these companies or a price increase for these components would materially harm our results of operations, product quality and customer relationships. In addition, we currently utilize a sole source for the crystal semiconductor chip sets incorporated in our solid-state microlaser products for use in our solid-state laser products from Opto Power Corporation and GEC. We obtain lithium niobate wafers, gallium arsenide wafers, specialized fiber components and some lasers used in our telecommunications products primarily from Crystal Technology, Fujikura, Ltd., Philips Key Modules and Sumitomo, respectively. These materials are important components of certain of our products and we currently do not have alternative sources for such materials. Also, we do not have long-term or volume purchase agreements with any of these suppliers, and these components may not in the future be available in the quantities required by us, if at all, in which case our business could be materially harmed. ANY FAILURE TO REMAIN COMPETITIVE IN OUR INDUSTRY WOULD HARM OUR OPERATING RESULTS If our business operations are insufficient to remain competitive in our industry, our operating results could suffer 34 The telecommunications markets in which we sell our products are highly competitive and characterized by rapidly changing and converging technologies. We face intense competition from established competitors and the threat of future competition from new and emerging companies in all aspects of our business. Among our current competitors are our customers, who are vertically integrated and either manufacture and/or are capable of manufacturing some or all of the products we sell to them. In addition to our current competitors, we expect that new competitors providing niche, and potentially broad, product solutions will increase in the future. While the current economic downturn has reduced the overall level of business in our industry, the competition for that business remains fierce. To remain competitive in both the current and future business climates, we believe we must maintain a substantial commitment to focused research and development, improve the efficiency of our manufacturing operations, and streamline our marketing and sales efforts, and attendant customer service and support. Under our Global Realignment Program, we have ongoing initiatives in each of these areas. However, our efforts to remain competitive, under the Global Realignment Program and otherwise, may be unsuccessful. Among other things, we may not have sufficient resources to continue to make the investments necessary to remain competitive, or we may not make the technological advances necessary to remain competitive. In addition, notwithstanding our efforts, technological changes, manufacturing efficiencies or development efforts by our competitors may render our products or technologies obsolete or uncompetitive. Our industry is consolidating Our industry is consolidating and we believe it will continue to consolidate in the future as companies attempt to strengthen or hold their market positions in an evolving industry. We anticipate that consolidation will accelerate as a result of the current industry downturn. We believe that industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in operating results as we compete to be a single vendor solution and could harm our business. Fiber-optic component average selling prices are declining Prices for telecommunications fiber-optic products generally decline over time as new and more efficient components and modules with increased functionality are developed, manufacturing processes improve and competition increases. The current economic downturn has exacerbated the general trend, as declining sales have forced telecommunications carriers and their systems provider suppliers to reduce costs, leading to increasing pricing pressure on our competitors and us. Weakened demand for optical components and modules has created an oversupply of these products, which has increased pressure on us to reduce our prices. To the extent this oversupply is not corrected in subsequent periods, we anticipate continuing pricing pressure. Moreover, currently, fiber-optic networks have significant excess capacity. Industry participants disagree as to the amount of this excess capacity. However, to the extent that there is significant overcapacity and this capacity is not profitably utilized in subsequent periods, we expect to face additional pricing pressure. In response to pricing pressure, we must continue to (1) timely develop and introduce new products that incorporate features that can be sold at higher selling prices, (2) increase the efficiency of our manufacturing operations, and (3) generally reduce costs. Failure to do so could cause our net sales and gross margins to decline, which would harm our business. If we fail to attract and retain key personnel, our business could suffer Our future depends, in part, on our ability to attract and retain key personnel. In addition, our research and development efforts depend on hiring and retaining qualified engineers. Competition for highly skilled engineers is extremely intense, and, the current economic downturn notwithstanding, we continue to face difficulty identifying and hiring qualified engineers in many areas of our business. We may not be able to hire and retain such personnel at compensation levels consistent with our existing compensation and salary structure. Our future also depends on the continued contributions of our executive officers and other key management and technical personnel, each of whom would be difficult to replace. We do not maintain a key person life insurance policy on our chief executive officer or any other officer. The loss of the services of one or more of our executive officers or key personnel or the inability to continue to attract qualified personnel could delay product development cycles or otherwise materially harm our business. As a consequence of the current economic downturn and as part of our Global Realignment Program, we have reduced our global workforce to the current level of approximately 11,000 employees. To date, we have not lost the services of any personnel (either through the announced reduction or otherwise) that have had or which we expect will have a material adverse 35 effect on our business or financial condition. However, we cannot predict the impact our recent workforce reductions and any reductions we are compelled to make in the future will have on our ability to attract and retain key personnel in the future. WE FACE RISKS RELATED TO OUR INTERNATIONAL OPERATIONS AND SALES Our customers are located throughout the world. In addition, we have significant offshore operations, including manufacturing facilities, sales personnel and customer support operations. Our operations outside North America include facilities in the United Kingdom, the Netherlands, Germany, Australia and the People's Republic of China. Our international presence exposes us to risks not faced by wholly North American companies. Specifically, we face the following risks, among others: - - our ability to comply with the customs, import/export and other trade compliance regulations of the countries in which we do business, together with any unexpected changes in such regulations; - - tariffs and other trade barriers; - - political, legal and economic instability in foreign markets, particularly in those markets in which we maintain manufacturing and research facilities; - - difficulties in staffing and management; - - language and cultural barriers; - - seasonal reductions in business activities in the summer months in Europe and some other countries; - - integration of foreign operations; - - longer payment cycles; - - greater difficulty in accounts receivable collection; - - currency fluctuations; and - - potentially adverse tax consequences. Net sales to customers outside the United States and Canada accounted for $1,043.4 million and $326.7 million, or 32 percent and 23 percent of net sales, for the years ended June 30, 2001 and 2000, respectively. For the first half of fiscal 2002, net sales to customers outside the United States and Canada accounted for $170.0 million, or 28 percent of net sales. We expect that sales to customers outside of North America will continue to account for a significant portion of our net sales. We continue to expand our operations outside of the United States and enter additional international markets, both of which will require significant management attention and financial resources. Since a significant portion of our foreign sales is denominated in U.S. dollars, our products may also become less price competitive in countries in which local currencies decline in value relative to the U.S. dollar. Lower sales levels that typically occur during the summer months in Europe and some other overseas markets may also materially and adversely affect our business. Furthermore, the sales of many of our optical system provider customers depend on international sales and consequently further exposes us to the risks associated with such international sales. The international dimensions of our operations and sales subject us to a myriad of domestic and foreign trade regulatory requirements. As part of our ongoing integration program, we are evaluating our current trade compliance practices and implementing improvements, where necessary. Among other things, we are auditing our product export classification and customs procedures and are installing company-wide trade information and compliance systems using our global enterprise software platforms. We do not currently expect the cost of such evaluation or the implementation of any resulting improvements to have a material adverse effect on our finances or business, nor do we expect our failure to comply in all 36 respects with applicable regulations to have a material adverse effect on our business, but our evaluation and related implementation are not yet complete. We have significant and increasing operations in the People's Republic of China and those operations are subject to greater political, legal and economic risks than those faced by our other international operations. In particular, the political, legal and economic climate in China is extremely fluid and unpredictable. Among other things, the legal system in China, both at the national and regional levels, remains highly underdeveloped and subject to change, with little or no prior notice, for political or other reasons. Moreover, the enforceability of applicable existing Chinese laws and regulations is uncertain. These concerns are exacerbated for foreign businesses, such as ours, operating in China. Our business could be materially harmed by any modifications to the political, legal or economic climate in China or the inability to enforce applicable Chinese laws and regulations. IF WE HAVE INSUFFICIENT PROPRIETARY RIGHTS OR IF WE FAIL TO PROTECT THOSE WE HAVE, OUR BUSINESS WOULD BE MATERIALLY HARMED We may not obtain the intellectual property rights we require Others, including academic institutions and our competitors, hold numerous patents in the industries in which we operate. We may seek to acquire license rights to these or other patents or other intellectual property to the extent necessary for our business. Unless we are able to obtain such licenses on commercially reasonable terms, patents or other intellectual property held by others could inhibit our development of new products for our markets. While in the past licenses generally have been available to us where third-party technology was necessary or useful for the development or production of our products, in the future licenses to third-party technology may not be available on commercially reasonable terms, if at all. Generally, a license, if granted, includes payments by us of up-front fees, ongoing royalties or a combination thereof. Such royalty or other terms could have a significant adverse impact on our operating results. We are a licensee of a number of third-party technologies and intellectual properties rights and are required to pay royalties to these third-party licensors on some of our telecommunications products and laser subsystems. Our products may be subject to claims that they infringe the intellectual property rights of others The industry in which we operate experiences periodic claims of patent infringement or other intellectual property rights. We have received in the past and may from time to time in the future receive notices from third parties claiming that our products infringe upon third-party proprietary rights. Any litigation to determine the validity of any third-party claims, regardless of the merit of these claims, could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not we are successful in such litigation. If we are unsuccessful in any such litigation, we could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology that is the subject of the litigation. We may not be successful in such development or such licenses may not be available on terms acceptable to us, if at all. Without such a license, we could be enjoined from future sales of the infringing product or products. We are currently subject to various claims regarding third party intellectual property rights. Based on the current information, these claims are not expected to have a material adverse effect on our business. Our intellectual property rights may not be adequately protected Our future depends in part upon our intellectual property, including trade secrets, know-how and continuing technological innovation. We currently hold numerous U.S. patents on products or processes and corresponding foreign patents and have applications for some patents currently pending. The steps taken by us to protect our intellectual property may not adequately prevent misappropriation or ensure that others will not develop competitive technologies or products. Other companies may be investigating or developing other technologies that is similar to our own. It is possible that patents may not be issued from any application pending or filed by us and, if patents do issue, the claims allowed may not be sufficiently broad to deter or prohibit others from marketing similar products. Any patents issued to us may be challenged, invalidated or circumvented. Further, the rights under our patents may not provide a competitive advantage to us. In addition, the laws of some territories in which our products are or may be developed, manufactured or sold, including Asia, Europe or Latin America, may not protect our products and intellectual property rights to the same extent as the laws of the United States. IF WE FAIL TO SUCCESSFULLY MANAGE OUR EXPOSURE TO WORLDWIDE FINANCIAL MARKETS, OUR OPERATING RESULTS COULD SUFFER 37 We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and marketable equity security prices. We utilize derivative financial instruments to mitigate these risks. We do not use derivative financial instruments for speculative or trading purposes. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, a majority of our marketable investments are floating rate and municipal bonds, auction instruments and money market instruments denominated in U.S. dollars. We mitigate currency risks of investments denominated in foreign currencies with forward currency contracts. If we designate such contracts as hedges and they are determined to be effective, depending on the nature of the hedge, changes in the fair value of derivatives will be offset against the change in fair value of assets, liabilities or firm commitments through earnings (fair value hedges) or recognized in other comprehensive income until the hedged item is recognized in earnings (cash flow hedges). The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. A substantial portion of our sales, expense and capital purchasing activities are transacted in U.S. dollars. However, we do enter into these transactions in other currencies, primarily Canadian and European currencies. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, we enter into foreign currency forward contracts. The contracts reduce, but do not always entirely eliminate, the impact of foreign currency exchange rate movements. Actual results on our financial position may differ materially. IF WE FAIL TO OBTAIN ADDITIONAL CAPITAL AT THE TIMES, IN THE AMOUNTS AND UPON THE TERMS REQUIRED, OUR BUSINESS COULD SUFFER We have devoted substantial resources for new facilities and equipment to the production of our products. Currently we are incurring substantial costs associated with restructuring our business and operations under our Global Realignment Program. Although we believe existing cash balances, cash flow from operations, available lines of credit, and proceeds from the realization of investments in other businesses will be sufficient to meet our capital requirements at least for the next 12 months, we may be required to seek additional equity or debt financing to compete effectively in these markets. We cannot precisely determine the timing and amount of such capital requirements and will depend on several factors, including our acquisitions and the demand for our products and products under development. Such additional financing may not be available when needed, or if available, may not be on terms satisfactory to us. OUR CURRENTLY OUTSTANDING PREFERRED STOCK AND OUR ABILITY TO ISSUE ADDITIONAL PREFERRED STOCK COULD HARM THE RIGHTS OF OUR COMMON STOCKHOLDERS In connection with the acquisition of Uniphase Netherlands in June 1998, we issued 100,000 shares of non-voting, non-cumulative Series A Preferred Stock to Philips Electronics having a par value of $0.001 per share. The Series A Preferred Stock is generally convertible into additional shares of common stock based on an agreed upon formula for annual and cumulative shipments of certain products during the four-year period ending June 30, 2002. The number of shares of common stock to be issued upon conversion of this preferred stock is tied to unit shipments of certain products by UNL during the four-year period ending June 30, 2002 and our stock price at the date the contingency attributable to the unit shipments is removed. During the fourth quarter of 2001, Uniphase Netherlands achieved cumulative shipments of certain products that will require us to issue at least $90.8 million of the Company's common stock to Philips. The number of common shares to be issued is based on the stock price at the end of the earn-out period and cannot currently be calculated. In June 1998, we adopted a Stockholder Rights Agreement, as amended and declared a dividend distribution of one right per share of common stock for stockholders of record as of July 6, 1998. As adjusted for stock splits and dividends by us, each outstanding share of our common stock currently includes one-eighth of a right. Each right entitles stockholders to purchase 1/1000 share of our Series B Preferred Stock at an exercise price of $3,600. The rights only become exercisable in certain limited circumstances following the tenth day after a person or group announces acquisitions of or tender offers for 15 percent or more of our common stock. For a limited period of time following the announcement of any such acquisition or offer, the rights are redeemable by us at a price of $0.01 per right. If the rights are not redeemed, each right will then entitle the holder to purchase common stock having the value of twice the then-current exercise price. For a limited period of time after the exercisability of the rights, each right, at the discretion of our board of directors, may be exchanged for either 1/1000 share of Series B Preferred Stock or one share of common stock per right. The rights expire on June 22, 2008. Our board of directors has the authority to issue up to 799,999 shares of undesignated preferred stock and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated preferred stock and to fix the number of shares constituting any series and the designation of such series, without the consent of our stockholders. The preferred stock could be issued with voting, liquidation, dividend and other rights superior to those of the holders of common stock. 38 The issuance of Series B Preferred Stock or any preferred stock subsequently issued by our board of directors, under some circumstances, could have the effect of delaying, deferring or preventing a change in control. Some provisions contained in the rights plan, and in the equivalent rights plan that our subsidiary, JDS Uniphase Canada Ltd., has adopted with respect to our exchangeable shares, may have the effect of discouraging a third party from making an acquisition proposal for us and may thereby inhibit a change in control. For example, such provisions may deter tender offers for shares of common stock or exchangeable shares which offers may be attractive to the stockholders, or deter purchases of large blocks of common stock or exchangeable shares, thereby limiting the opportunity for stockholders to receive a premium for their shares of common stock or exchangeable shares over the then-prevailing market prices. SOME ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER AND UNDER DELAWARE LAWS COULD HINDER A TAKEOVER ATTEMPT We are subject to the provisions of Section 203 of the Delaware General Corporation Law prohibiting, under some circumstances, publicly held Delaware corporations from engaging in business combinations with some stockholders for a specified period of time without the approval of the holders of substantially all of our outstanding voting stock. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, even if such events could be beneficial, in the short term, to the interests of the stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions relating to the limitations of liability and indemnification of our directors and officers, dividing our board of directors into three classes of directors serving three-year terms and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders. These provisions also may have the effect of deterring hostile takeovers or delaying changes in control or management of us. FORWARD-LOOKING STATEMENTS Statements contained in this Quarterly Report on Form 10-Q which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. A forward-looking statement may contain words such as "plans," "hopes," "believes," "estimates," "will continue to be," "will be," "continue to," "intend," "expect to," "anticipate that," " to be" or "can impact" or similar words. These forward-looking statements include any statements we make, or implications suggested by statements we make, as to: - - the impact on our business and financial condition of new Statements of Financial Accounting Standards ("SFAS") -- SFAS 141, SFAS 142 and SFAS 144; - - our future levels of R&D and SG&A expenses; - - the amount of and our ability to realize our deferred tax assets and the effect of deferred tax assets recorded for assumed employee stock options on our tax provision or benefit for income taxes recorded in future periods; - - the value of our tax provision for income taxes; - - the future prospects for and growth of us and our industry, including, without limitation, (a) the extent and duration of the current economic downturn, (b) the timing and extent of any recovery from such downturn, (c) the viability, development and growth of new fiber optic telecommunications markets, including the metro and fiber to the curb markets, and (d) the benefits and opportunities for us and others in our industry provided by such new markets; - - the implementation of our Global Realignment Program, the timing and level of cost reductions and other benefits we expect to receive as a result of the Program, and the expected cost to complete the Program, including, without limitation, (a) the level of the expected workforce reductions, (b) the benefits we expect to receive from the elimination and consolidation of research and development programs and manufacturing facilities, and (c) the benefits we expect to receive from integrating our sales force and restructuring our customer service program; - - the sufficiency of existing cash balances and investments, together with cash flow from operations and available lines of credit to meet our liquidity and capital spending requirements for future periods; and - - the cost to complete our acquired in-process research and development and the expected amortization of such costs. Management cautions that forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties include, among other things, the risk that (1) the current economic downturn may be more severe and long-lasting than we can anticipate, and, notwithstanding our projections, beliefs and expectations for our business, may cause our business and financial condition to suffer, (2) due to the current economic slowdown, in general, and setbacks in our customers' businesses, in particular, our ability to predict our financial performance, in particular, and our future success, in general, for future periods is far more 39 difficult than in previous periods; (3) our ongoing integration and restructuring efforts, including, among other things, the Global Realignment Program, may not be successful in achieving their expected benefits, may be insufficient to align our operations with customer demand and the changes affecting our industry, or may be more costly or extensive than currently anticipated; (4) increasing pricing pressure, as the result of the economic downturn and competitive factors, may harm our revenues and profit margins; (5) our research and development programs may be insufficient or too costly or may not produce new products, with performance, quality, quantity and price levels satisfactory to our customers; and (6) our ongoing efforts to reduce product costs to our customers, through, among other things, automation, improved manufacturing processes and product rationalization may be unsuccessful. Further, our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties including the risks set forth above, and those described under the heading "Risk Factors" above. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform such statements to actual results or to changes in our expectations. 40 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS N/A ITEM 2. CHANGES IN SECURITIES During the second quarter of fiscal 2002, the Company issued 0.1 million shares of the Company's common stock, valued at $0.8 million, in connection with the acquisition of OPA. These shares were issued as a result of milestones achieved as part of the initial purchase agreement. The issuance of the common stock was exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended. During the second quarter of fiscal 2002, the Company issued 26.9 million shares of the Company's common stock, valued at $232.2 million, to IBM in connection with the acquisition of IBM's optical transceiver business. The issuance of the common stock was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. ITEM 3. DEFAULTS UPON SENIOR SECURITIES N/A ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders (the "Annual Meeting") was held on November 9, 2001. At the Annual Meeting, three items were voted upon: 1. The election of two Class I directors to serve until the 2004 Annual Meeting and until their successors are elected and qualified: Bruce Day Martin Kaplan The terms of the following directors continued after the Annual Meeting: Robert Enos Peter Guglielmi Donald Scifres Casimir Skrzypczak Jozef Straus 2. An amendment to the Company's 1998 Employee Stock Purchase Plan ("ESPP") increasing the number of shares of common stock reserved for issuance from 25,000,000 shares to 50,000,000 shares. 3. The appointment of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending June 30, 2002. The voting results were:
Broker For Against Abstained Non-Votes ------------- ------------- ------------- ------------- 1. Directors: Bruce Day 997,635,458 -- 9,062,820 0 Martin Kaplan 997,495,940 -- 9,202,338 0 2. Increase number of shares reserved for the ESPP 989,989,732 31,804,979 5,603,336 0 3. Appointment of Ernst & Young LLP 1,011,437,398 11,342,302 4,618,347 0
41 ITEM 5. OTHER INFORMATION N/A ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits:
Exhibit No. Exhibit Description ----------- ------------------- 3.5 Restated Bylaws of JDS Uniphase Corporation, a Delaware Corporation, as of November 16, 2001. 10.1 Amended and Restated 1993 Flexible Stock Incentive Plan (Amended and Restated as of November 9, 2001). 10.4 1998 Employee Stock Purchase Plan, as Amended November 9, 2001. 10.15 Amended and Restated 1999 Canadian Employee Stock Purchase Plan, as Amended November 9, 2001.
b) Reports on Form 8-K: The Company filed five reports on Form 8-K during the three months ended December 31, 2001. Information regarding the items reported on is as follows:
DATE OF REPORT ITEM REPORTED ON - -------------- ---------------- December 19, 2001 Regulation FD disclosure in connection with the Company's acquisition of the optical transceiver business of IBM. December 10, 2001 Regulation FD disclosure in connection with sales guidance for future periods. December 3, 2001 The plan of certain Board of Directors and Executive Officers under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, for trading in shares of the Company's common stock. October 31, 2001 Regulation FD disclosure in connection with a stockholder update to be delivered by the officers of the Company on November 1, 2001 that included written communication comprised of slides. October 25, 2001 Regulation FD disclosure in connection with a conference call delivered by the officers of the Company on October 25, 2001.
42 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JDS Uniphase Corporation ------------------------------------- (Registrant) Date: February 11, 2002 /s/ Anthony R. Muller ------------------------------------- Anthony R. Muller, Executive Vice President and CFO (Principal Financial and Accounting Officer 43 EXHIBIT INDEX
Exhibit No. Exhibit Description - ----------- ------------------- 3.5 Restated Bylaws of JDS Uniphase Corporation, a Delaware Corporation, as of November 16, 2001. 10.1 Amended and Restated 1993 Flexible Stock Incentive Plan (Amended and Restated as of November 9, 2001). 10.4 1998 Employee Stock Purchase Plan, as Amended November 9, 2001. 10.15 Amended and Restated 1999 Canadian Employee Stock Purchase Plan, as Amended November 9, 2001.
44 EX-3.5 3 f78765ex3-5.txt EXHIBIT 3.5 EXHIBIT 3.5 RESTATED BYLAWS OF JDS UNIPHASE CORPORATION A DELAWARE CORPORATION TABLE OF CONTENTS ARTICLE I OFFICES......................................................................5 Section 1. Registered Office......................................................5 Section 2. Other Offices..........................................................5 ARTICLE II STOCKHOLDERS' MEETINGS......................................................5 Section 1. Place of Meetings......................................................5 Section 2. Annual Meetings........................................................6 Section 3. Special Meetings.......................................................6 Section 4. Notice of Meetings.....................................................6 Section 5. Quorum and Voting......................................................7 Section 6. Voting Rights..........................................................8 Section 7. Voting Procedures and Inspectors of Elections..........................9 Section 8. List of Stockholders...................................................10 Section 9. Stockholder Proposals at Annual Meetings...............................10 Section 10. Nominations of Persons for Election to the Board of Directors..........11 Section 11. Action Without Meeting.................................................11 ARTICLE III DIRECTORS..................................................................13 Section 1. Number and Term of Office..............................................13 Section 2. Powers.................................................................13 Section 3. Vacancies..............................................................13 Section 4. Resignations and Removals..............................................13 Section 5. Meetings...............................................................14 Section 6. Quorum and Voting......................................................14 Section 7. Action Without Meeting.................................................15
2 Section 8. Fees and Compensation..................................................15 Section 9. Committees.............................................................15 ARTICLE IV OFFICERS....................................................................16 Section 1. Officers Designated....................................................16 Section 2. Tenure and Duties of Officers..........................................16 ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY THE CORPORATION..........................................18 Section 1. Execution of Corporate Instruments.....................................18 Section 2. Voting of Securities Owned by Corporation..............................18 ARTICLE VI SHARES OF STOCK.............................................................18 Section 1. Form and Execution of Certificates.....................................18 Section 2. Lost Certificates......................................................19 Section 3. Transfers..............................................................19 Section 4. Fixing Record Dates....................................................19 Section 5. Registered Stockholders................................................20 ARTICLE VII OTHER SECURITIES OF THE CORPORATION........................................20 ARTICLE VIII CORPORATE SEAL............................................................21 ARTICLE IX INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS................21 Section 1. Right to Indemnification...............................................21 Section 2. Authority to Advance Expenses..........................................22 Section 3. Right of Claimant to Bring Suit........................................22 Section 4. Provisions Nonexclusive................................................23 Section 5. Authority to Insure....................................................23 Section 6. Survival of Rights.....................................................23 Section 7. Settlement of Claims...................................................23
3 Section 8. Effect of Amendment....................................................23 Section 9. Subrogation............................................................23 Section 10. No Duplication of Payments.............................................23 ARTICLE X NOTICES......................................................................24 ARTICLE XI AMENDMENTS..................................................................25
4 RESTATED BYLAWS OF JDS UNIPHASE CORPORATION (FORMERLY UNIPHASE CORPORATION) A DELAWARE CORPORATION AS OF NOVEMBER 16, 2001 ARTICLE I OFFICES Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Dover, County of Kent. Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at 163 Baypointe Parkway, San Jose, California 95134, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II STOCKHOLDERS' MEETINGS Section 1. Place of Meetings. (a) Meetings of stockholders may be held at such place, either within or without this State, as may be designated by or in the manner provided in these Bylaws or, if not so designated, as determined by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by paragraph (b) of this Section 1. (b) If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication: (1) Participate in a meeting of stockholders; and (2) Be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (A) the corporation shall implement reasonable measures to verify 5 that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (B) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (C) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation. (c) For purposes of this Section 1, "remote communication" shall mean electronic mail or other forms of written or visual electronic communication satisfying the requirements of Section 11(b). Section 2. Annual Meetings. The annual meetings of the stockholders of the corporation, commencing with the year 1994, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Section 3. Special Meetings. Special Meetings of the stockholders of the corporation may be called, for any purpose or purposes, by the Chairman of the Board or the Chief Executive Officer or the Board of Directors at any time, subject to the rights of the holders of any stock having a preference over the common stock as to dividends or liquidation. Stockholders are not permitted to call a special meeting or to require the Board of Directors to call a special meeting of stockholders. Section 4. Notice of Meetings. (a) Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders, specifying the place, if any, date and hour and purpose or purposes of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the corporation; except that where the matter to be acted on is a merger or consolidation of the Corporation or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than twenty nor more than sixty days prior to such meeting. (b) If at any meeting action is proposed to be taken which, if taken, would entitle stockholders fulfilling the requirements of Section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement of that purpose and to that effect and shall be accompanied by a copy of that statutory section. (c) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote 6 communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (d) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and, to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (e) Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under any provision of this chapter, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if (i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent, and (ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this subparagraph (e) shall be deemed given: (1) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of these Bylaws, "electronic transmission" means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process. Section 5. Quorum and Voting. (a) At all meetings of stockholders, except where otherwise provided by law, the Certificate of Incorporation, or these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting have been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted 7 which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. (b) Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the corporation. Section 6. Voting Rights. (a) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum. (b) Every person entitled to vote or to execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three (3) years from its date unless the proxy provides for a longer period. Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given. (c) Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (b) of this section, the following shall constitute a valid means by which a stockholder may grant such authority: (1) A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. (2) A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telephone, telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telephone transmission, telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telephone transmission, telegram, cablegram or other electronic transmission was authorized by the stockholder. Such authorization can be established by the signature of the stockholder on the 8 proxy, either in writing or by a signature stamp or facsimile signature, or by a number or symbol from which the identity of the stockholder can be determined, or by any other procedure deemed appropriate by the inspectors or other persons making the determination as to due authorization. If it is determined that such telephone transmissions, telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. (d) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (c) of this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Section 7. Voting Procedures and Inspectors of Elections. (a) The corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. (b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (c) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the Inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise. (d) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Section 212(c)(2) of the Delaware General Corporation Law, ballots and the regular books and records of the corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b)(v) of this section shall specify the precise information considered by 9 them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. Section 8. List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 9. Stockholder Proposals at Annual Meetings. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors, or otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in Section 1 and this Section 9, provided, however, that nothing in this Section 9 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure. 10 The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of Section 1 and this Section 9, and if he should so determine he shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Section 10. Nominations of Persons for Election to the Board of Directors. In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, and (ii) the class and number of shares of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of preferred stock. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 11. Action Without Meeting. (a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken 11 without a meeting, without prior notice and without a vote, if a consent or consents in writing setting forth the action so taken are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. To be effective, a written consent must be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this Section to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation in accordance with this Section. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. (b) A telegram, cablegram or other electronic transmission consent to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this Section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine (i) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder, and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if to the extent and in the manner provided by resolution of the Board of Directors of the corporation. (c) Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing. 12 ARTICLE III DIRECTORS Section 1. Number and Term of Office. The number of directors which shall constitute the whole of the Board of Directors shall be nine (9). With the exception of the first Board of Directors, which shall be elected by the incorporators, and except as provided in Section 3 of this Article III, the directors shall be elected by a plurality vote of the shares represented in person or by proxy, at the stockholders annual meeting in each year and entitled to vote on the election of directors. Elected directors shall hold office until their successors shall be duly elected and qualified. Directors need not be stockholders. If, for any cause, the Board of Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. Section 2. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors. Section 3. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so elected shall hold office for the unexpired portion of the term of the director whose place shall be vacant, and until his successor shall have been duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this section in the case of the death, removal or resignation of any director, or if the stockholders fail at any meeting of stockholders at which directors are to be elected (including any meeting referred to in Section 4 below) to elect the number of directors then constituting the whole Board. Section 4. Resignations and Removals. (a) Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified. (b) At a special meeting of stockholders called for the purpose in the manner hereinabove provided, the Board of Directors, or any individual director, may be removed from 13 office, with or without cause, and a new director or directors elected by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of directors. Section 5. Meetings. (a) The annual meeting of the Board of Directors shall be held immediately after the annual stockholders' meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 of Article I hereof. Regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolutions of the Board of Directors or the written consent of all directors. (c) Special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board or, if there is no Chairman of the Board, by the President, or by any of the directors. (d) Written notice of the time and place of all regular and special meetings of the Board of Directors shall be delivered personally to each director or sent by telegram or facsimile transmission at least 48 hours before the start of the meeting, or sent by first class mail at least 120 hours before the start of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat. Section 6. Quorum and Voting. (a) A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with Section I of Article III of these Bylaws, but not less than one; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (b) At each meeting of the Board at which a quorum is present all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation, or these Bylaws. (c) Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (d) The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the 14 meeting, each of the directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 7. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board or committee. Section 8. Fees and Compensation. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors. Section 9. Committees. (a) Executive Committee: The Board of Directors may, by resolution passed by a majority of the whole Board, appoint an Executive Committee of not less than one member, each of whom shall be a director. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the corporation, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock, except such committee shall not have the power or authority to amend the Certificate of Incorporation, to adopt an agreement or merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, to recommend to the stockholders of the Corporation a dissolution of the Corporation or a revocation of a dissolution, or to amend these Bylaws. (b) Other Committees: The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws. (c) Term: The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board, subject to the provisions of subsections (a) or (b) of this Section 9, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as 15 alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (d) Meetings: Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 9 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any such committee may be held at the principal office of the corporation required to be maintained pursuant to Section 2 of Article I hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. ARTICLE IV OFFICERS Section 1. Officers Designated. The officers of the corporation shall be a Chairman of the Board of Directors and a President, each of whom shall be a member of the Board of Directors, and one or more Vice-Presidents, a Secretary, and a Treasurer. The order of the seniority of the Vice Presidents shall be in the order of their nomination, unless otherwise determined by the Board of Directors. The Board of Directors or the Chairman of the Board or the President may also appoint one or more assistant secretaries, assistant treasurers, and such other officers and agents with such powers and duties as it or he shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as they shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. Section 2. Tenure and Duties of Officers. (a) General: All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. 16 Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the corporation. (b) Duties of the Chairman of the Board of Directors: The Chairman of the Board of Directors (if there be such an officer appointed) shall preside at all meetings of the shareholders and the Board of Directors. The Chairman of the Board of Directors shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (c) Duties of President: The President shall be the chief executive officer of the corporation (unless the Board of Directors shall designate otherwise) and shall preside at all meetings of the shareholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The President shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (d) Duties of Vice-Presidents: The Vice-Presidents, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant. The Vice-President shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (e) Duties of Secretary: The Secretary shall attend all meetings of the shareholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice, in conformity with these Bylaws, of all meetings of the shareholders, and of all meetings of the Board of Directors and any Committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (f) Duties of Treasurer: The Treasurer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each Assistant Treasurer shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. At the election of the Board of Directors, the duties of Treasurer shall be performed by a Vice President designated by the Board of Directors to perform financial functions. 17 ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY THE CORPORATION Section 1. Execution of Corporate Instruments. (a) The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation. (b) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, formal contracts of the corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board (if there be such an officer appointed) or by the President; such documents may also be executed by any Vice-President and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. (c) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation, or in special accounts of the corporation, shall be signed by such person or persons as the Board of Directors shall authorize so to do. Section 2. Voting of Securities Owned by Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), or by the President, or by any Vice-President. ARTICLE VI SHARES OF STOCK Section 1. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President or any Vice- President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on 18 the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the corporation in such manner as it shall require and/or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. Section 3. Transfers. Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed. Section 4. Fixing Record Dates. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the date on which the meeting is held. A determination of stockholders of record entitled notice 19 of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the Delaware General Corporation Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 5. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII OTHER SECURITIES OF THE CORPORATION All bonds, debentures and other corporate securities of the corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice- President or such other person as may be authorized by the Board 20 of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE VIII CORPORATE SEAL The corporate seal shall consist of a die bearing the name of the corporation and the state and date of its incorporation. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE IX INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS Section 1. Right to Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent (hereafter an "Agent"), shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, 21 only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto) against all expenses, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article) reasonably incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereinafter "Expenses"); provided, however, that except as to actions to enforce indemnification rights pursuant to Section 3 of this Article, the corporation shall indemnify any Agent seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Article shall be a contract right. Section 2. Authority to Advance Expenses. Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding, provided, however, that if required by the Delaware General Corporation Law, as amended, such Expenses shall be advanced only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article or otherwise. Expenses incurred by other Agents of the corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the corporation for Expense advances shall be unsecured and no interest shall be charged thereon. Section 3. Right of Claimant to Bring Suit. If a claim under Section 1 or 2 of this Article is not paid in full by the corporation within 120 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. 22 Section 4. Provisions Nonexclusive. The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Certificate, agreement, or vote of the stockholders or disinterested directors is inconsistent with these bylaws, the provision, agreement, or vote shall take precedence. Section 5. Authority to Insure. The corporation may purchase and maintain insurance to protect itself and any Agent against any Expense, whether or not the corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article. Section 6. Survival of Rights. The rights provided by this Article shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. Section 7. Settlement of Claims. The corporation shall not be liable to indemnify any Agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action. Section 8. Effect of Amendment. Any amendment, repeal, or modification of this Article shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal, or modification. Section 9. Subrogation. In the event of payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights. Section 10. No Duplication of Payments. The corporation shall not be liable under this Article to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder. 23 ARTICLE X NOTICES Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given either (1) in writing, timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent, or (2) by a means of electronic transmission that satisfies the requirements of Section 4(e) of Article II of these Bylaws, and has been consented to by the stockholder to whom the notice is given. Any notice required to be given to any director may be given by the method hereinabove stated, or by telegram or other means of electronic transmission, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of facsimile telecommunication) facsimile telephone number as such director shall have filed in writing with the Secretary of the corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the office of the corporation required to be maintained pursuant to Section 2 of Article I hereof. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram or other means of electronic transmission shall be deemed to have been given as at the sending time recorded by the telegraph company or other electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. 24 ARTICLE XI AMENDMENTS These Bylaws may be repealed, altered or amended or new Bylaws adopted by written consent of stockholders in the manner authorized by Section 8 of Article II, or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaws setting forth the number of directors who shall constitute the whole Board of Directors) by unanimous written consent or at any annual, regular, or special meeting by the affirmative vote of a majority of the whole number of directors, subject to the power of the stockholders to change or repeal such Bylaws and provided that the Board of Directors shall not make or alter any Bylaws fixing the qualifications, classifications, or term of office of directors. 25 EX-10.1 4 f78765ex10-1.txt EXHIBIT 10.1 EXHIBIT 10.1 JDS UNIPHASE CORPORATION AMENDED AND RESTATED 1993 FLEXIBLE STOCK INCENTIVE PLAN (Amended and Restated as of November 9, 2001) 1. Establishment, Purpose, and Definitions. (a) There is hereby adopted the 1993 Flexible Stock Incentive Plan (the "Plan") of JDS Uniphase Corporation (the "Company"). (b) The purpose of the Plan is to provide a means whereby eligible individuals (as defined in Section 4 below) can acquire shares of the Company's Common Stock, $0.001 par value per share (the "Stock"). The Plan provides employees (including officers and directors who are employees) of the Company and of its Affiliates (as defined below) an opportunity to purchase shares of Stock pursuant to options which may qualify as incentive stock options (referred to as "incentive stock options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and employees, officers, directors, independent contractors, and consultants of the Company and its Affiliates an opportunity to purchase shares of Stock pursuant to options which are not described in Sections 422 or 423 of the Code (referred to as "nonqualified stock options"). (c) The term "Affiliates" as used in the Plan means parent or subsidiary corporations, as defined in Sections 424(e) and (f) of the Code (but substituting "the Company" for "employer corporation"), including parents or subsidiaries which become such after adoption of the Plan. 2. Administration of the Plan. (a) The Plan shall be administered by the Board of Directors of the Company (the "Board"). The Board may delegate the responsibility for administering the Plan to a committee, under such terms and conditions as the Board shall determine (the "Committee"), which Committee shall be constituted in such a manner as to satisfy all applicable laws pertaining to the administration of stock incentive plans under relevant provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any relevant stock exchange or national market system, and any foreign jurisdiction. If options are to be granted under the Plan to employees who are also officers or directors of the Company, the Committee shall also be constituted in such a manner as to cause the options to be exempt from Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended. Except as otherwise provided in Section 9 hereof, none of the members of the Committee shall receive, while serving on the Committee, or during the one-year period preceding appointment to the Committee, a grant or award of equity securities under (i) the Plan or 1 (ii) any other plan of the Company or its Affiliates under which the participants are entitled to acquire Stock (including restricted Stock), stock options, stock bonuses, related rights or stock appreciation rights of the Company or any of its Affiliates, other than pursuant to transactions in any such other plan which would not have disqualified a director from being a "disinterested person" under the version of Rule 16b-3 in effect immediately preceding the current form of Rule 16b-3. The limitations set forth in this Section 2(a) shall automatically incorporate any additional requirements that may in the future be necessary for the Plan to comply with Rule 16b-3. Members of the Committee shall serve at the pleasure of the Board. The Committee shall select one of its members as chairman, and shall hold meetings at such times and places as it may determine. A majority of the Committee shall constitute a quorum and acts of the Committee at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee, shall be the valid acts of the Committee. If the Board does not delegate administration of the Plan to the Committee, then each reference in this Plan to "the Committee" shall be construed to refer to the Board. (b) The Committee shall determine which eligible individuals (as defined in Section 4 below) shall be granted options under the Plan, the timing of such grants, the terms thereof (including any restrictions on the Stock), and the number of shares of Stock subject to such options. (c) The Committee may amend the terms of any outstanding option granted under this Plan, but any amendment which would adversely affect an optionee's rights under an outstanding option shall not be made without the optionee's written consent; provided, however, that the Committee may not amend the terms of any outstanding option to reduce the purchase price of the Stock covered by such option without the consent of the stockholders then sufficient to approve the Plan in the first instance. The Committee may, with the optionee's written consent, cancel any outstanding stock option or accept any outstanding stock option in exchange for a new option; provided, however, that the Committee may not cancel any outstanding option and replace such cancelled option with an option or options having a purchase price of the Stock covered by such option or options which is lower than that of the cancelled option without the consent of the stockholders then sufficient to approve the Plan in the first instance. (d) The Committee shall have the sole authority, in its absolute discretion, to adopt, amend, and rescind such rules and regulations as, in its opinion, may be advisable for the administration of the Plan, to construe and interpret the Plan, the rules and the regulations, and the instruments evidencing options granted under the Plan and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Committee shall establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford participants favorable treatment under such rules or laws; provided, however, that no option shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions that are materially more favorable to 2 optionees than the terms and conditions under the Plan, except as otherwise determined by the Committee. The Committee shall take any other action as the Committee deems appropriate. All decisions, determinations, and interpretations of the Committee shall be binding on all participants. (e) Notwithstanding the foregoing provisions of this Section 2, grants of options to any "Covered Employee," as such term is defined by Section 162(m) of the Code shall be made only by a subcommittee of the Committee which, in addition to meeting other applicable requirements of this Section 2, is composed solely of two or more "outside directors," within the meaning of Section 162(m) of the Code and the regulations thereunder (the "Subcommittee") to the extent necessary to qualify such grants as "performance-based compensation" under Section 162(m). In the case of such grants to Covered Employees, reference to the "Committee" shall be deemed to be references to the Subcommittee as specified above. 3. Stock Subject to the Plan. (a) An aggregate of 157,524,403 shares of Stock shall be available for the grant of stock options and the issuance of Stock under the Plan, subject to increase as provided in this Section 3. Notwithstanding the foregoing, the maximum aggregate number of shares of Stock available for grant of incentive stock options shall be 4,250,000 shares of Stock, subject to increase as provided in this Section 3. If an option is surrendered (except surrender for shares of Stock) or for any other reason ceases to be exercisable in whole or in part, the shares of Stock which were subject to such option but as to which the option had not been exercised shall continue to be available under the Plan. Any Stock which is retained by the Company upon exercise of an option in order to satisfy the exercise price for such option or any withholding taxes due with respect to such option exercise shall be treated as issued to the optionee and will thereafter not be available under the Plan. (b) The shares of Stock available for the grant of stock options and the issuance of Stock under the Plan shall be automatically increased as follows: (i) effective on the first day of each fiscal year of the Company, beginning July 1, 2000, the number of shares of Stock so available shall automatically be increased by an amount, rounded to the nearest whole share (the "Annual Increase Shares"), equal to four percent (4%) of the aggregate number of shares of Stock and Exchangeable Stock (as defined below) outstanding as of such date ("Outstanding Shares") or such lesser number of shares as determined by the Committee; provided that, with respect to each such increase effective on the first day of each fiscal year of the Company beginning July 1, 2001, the number of Annual Increase Shares shall be reduced by the Excess Carryover, if any, and (ii) effective upon the closing of a Company Acquisition (as defined below), the number of shares of Stock so available shall 3 automatically be increased by an amount, rounded to the nearest whole share ("Acquisition Increase Shares"), equal to the product obtained by multiplying four percent (4%) times the Acquisition Consideration (as defined below). For the purposes of this Section 3(b), the term "Exchangeable Stock" shall mean the exchangeable shares of JDS Uniphase Canada Ltd, an indirect subsidiary of the Company; the term "Excess Carryover" shall mean, as of the effective date of each annual increase pursuant to clause (i) of this Section 3(b), the number of shares of Stock subject to the Plan that are not then-issued and are not subject to then-outstanding option grants in each case as of such effective date, minus the number of shares of Stock equal to one percent (1%) of the aggregate number of Outstanding Shares as of such effective date; the term "Company Acquisition" shall mean (x) if the consideration paid by the Company or its subsidiary consists, in whole or in part, of Stock, Exchangeable Shares or a combination thereof ("Stock Consideration"), the number of shares of Stock and/or Exchangeable Shares, (y) if the consideration paid by the Company or its subsidiary consists, in whole or in part, of cash, promissory notes or cash equivalents, or any combination thereof ("Cash Consideration"), the number of shares of Stock (rounded to the nearest whole share) equal to the Cash Consideration divided by the Market Value (as defined below), and (z) if the consideration paid by the Company or its subsidiary consists, in whole or in part, of any consideration (other than Stock Consideration or Cash Consideration), the number of shares of Stock (rounded to the nearest whole share) equal to the fair market value of such other consideration, as determined by the Committee, divided by the Market Value; the term "Market Value" shall mean the closing market price of one share of Stock on the NASDAQ National Market (or such other exchange upon which the Stock is then listed or quoted, if the Stock is not then-listed on the NASDAQ National Market) on the trading day immediately preceding the closing of the applicable Company Acquisition, as reported in the Wall Street Journal, Eastern Edition. Any increase in the number of shares of Stock subject to the Plan pursuant to this Section 3(b) shall not increase the number of shares of Stock available for the grant of incentive stock options under the Plan. (c) If there is any change in the Stock subject to either the Plan or an option agreement pursuant to the Plan, through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend (in excess of two percent (2%)), or other change in the corporate structure of the Company, appropriate adjustments shall be made by the Committee in order to preserve but not to increase the benefits to the individual, including adjustments to the aggregate number, kind of shares and price per share subject to either the Plan or an option agreement, and the maximum number of shares with respect to which options may be granted to any participant in any fiscal year of the Company. 4. Eligible Individuals. Individuals who shall be eligible to have granted to them the options provided for by the Plan shall be such employees, officers, directors, independent contractors and consultants of the Company or an Affiliate as the Committee, in its discretion, shall designate from time to time. Notwithstanding the 4 foregoing, only employees of the Company or an Affiliate (including officers and directors who are bona fide employees) shall be eligible to receive incentive stock options under the Plan. 5. The Option Price. The purchase price of the Stock covered by each incentive stock option shall be not less than one hundred percent (100%) of the per share fair market value of such Stock on the date the option is granted. The purchase price of the Stock covered by each nonqualified stock option shall be not less than one hundred percent (100%) of the per share fair market value of such Stock on the date the option is granted. Notwithstanding the foregoing, in the case of an incentive stock option granted to a person possessing more than ten percent (10%) of the combined voting power of the Company or an Affiliate (a "10% Stockholder"), the exercise price shall be not less than 110 percent (110%) of the fair market value of the Stock on the date the option is granted. The exercise price of an option shall be subject to adjustment to the extent provided in Section 3(c) above. 6. Terms and Conditions of Options. (a) Each option granted pursuant to the Plan will be evidenced by a written stock option agreement executed by the Company and the person to whom such option is granted. (b) The Committee shall determine the term of each option granted under the Plan; provided, however, that the terms of all options granted under the Plan shall not be for more than eight (8) years and that, in the case of an incentive stock option granted to a 10% Stockholder, the term shall be for no more than five (5) years. (c) In the case of incentive stock options, the aggregate fair market value (determined as of the date such option is granted) of the Stock with respect to which incentive stock options are exercisable for the first time by an eligible employee in any calendar year (under this Plan and any other plans of the Company or its Affiliates) shall not exceed $100,000. To the extent that the fair market value exceeds $100,000, such excess options, to the extent of the shares of Stock covered thereby in excess of the foregoing limitation, shall be treated as nonqualified stock options. (d) An optionee's stock option agreement may contain such other terms, provisions and conditions consistent with this Plan as may be determined by the Committee. If an option, or any part thereof is intended to qualify as an incentive stock option, the stock option agreement shall contain those terms and conditions which are necessary to so qualify it. (e) The maximum number of shares of Stock with respect to which options may be granted to any individual per fiscal year of the Company under the Plan shall be 3,000,000 shares of Stock, subject to adjustment after September 20, 1996 pursuant to Section 3(c). To the extent required by Section 162(m) of the Code or the 5 regulations thereunder, in applying the foregoing limitation with respect to an employee, if any option is cancelled, the cancelled option shall continue to count against the maximum number of shares of Stock for which options may be granted to the employee under this Section 6(e). For this purpose, the repricing of an option, if effected pursuant to Section 2(c), shall be treated as a cancellation of the existing option and the grant of a new option. 7. Use of Proceeds. Cash proceeds realized from the issuance of Stock under the Plan shall constitute general funds of the Company. 8. Amendment, Suspension, or Termination of the Plan. (a) The Board may at any time amend, suspend or terminate the Plan as it deems advisable; provided that such amendment, suspension or termination complies with all applicable requirements of state and federal law, including any applicable requirement that the Plan or an amendment to the Plan be approved by the Company's stockholders, and provided further that, except as provided in Section 3 above, the Board shall in no event amend the Plan in the following respects without the consent of stockholders then sufficient to approve the Plan in the first instance: (i) To increase the maximum number of shares of Stock subject to incentive stock options granted under the Plan; or (ii) To change the designation or class of persons eligible to receive incentive stock options under the Plan. (b) No option may be granted under the Plan during any suspension or after the termination of the Plan, and no amendment, suspension or termination of the Plan shall, without the affected individual's consent, alter or impair any rights or obligations under any option previously granted under the Plan. The Plan shall terminate with respect to the grant of incentive stock options on August 26, 2003, unless previously terminated by the Board pursuant to this Section 8. 9. Automatic Grants to Outside Directors. (a) Initial Grant. Each individual who first joins the Board as an outside (i.e., non-employee) director of the Company after the 1993 annual meeting of stockholders of the Company (the effective date of the Plan) automatically shall be granted a nonqualified stock option to purchase 40,000 shares of Stock at the time such individual first joins the Board ("Initial Option"). In addition, immediately after each annual meeting of stockholders of the Company, commencing with the 1993 annual meeting, each individual who is at the time continuing to serve as an outside director of the Company, whether or not such outside director stood for re-election at such annual meeting, automatically shall be granted a nonqualified stock option to purchase an 6 additional 10,000 shares of Stock, provided that each such individual has served as an outside director for at least nine months ("Additional Option"). (b) Terms of Options. The terms and conditions that apply to each such automatic option grant referred to above shall be as follows: (i) the per share exercise price of the Stock covered by each such option shall be equal to one hundred percent (100%) of the per share fair market value of such Stock on the date of grant; (ii) the term of the option shall be eight (8) years; (iii) the Initial Option shall be exercisable in thirty-six (36) equal monthly installments beginning on the first monthly anniversary of the grant of such Initial Option and Additional Options shall be exercisable in twelve (12) equal monthly installments beginning on the first monthly anniversary of the grant of such Additional Option; and (iv) all other terms and conditions of the option shall be as set forth in the Company's then current form of nonqualified stock option agreement under the Plan. (c) No Other Grants. Except for the automatic grants under this Section 9, members of the Committee who serve as administrator of the Plan shall not be eligible to receive any additional options under the Plan or any other stock plan of the Company or any Affiliate, except as otherwise permitted by Rule 16b-3. 10. Assignability. Each option granted pursuant to this Plan shall, during an optionee's lifetime, be exercisable only by such optionee, and neither the option nor any right hereunder shall be transferable by such optionee by operation of law or otherwise other than by will or the laws of descent and distribution. 11. Payment Upon Exercise of Options. (a) The consideration to be paid for the shares of Stock to be issued upon exercise or purchase of an option including the method of payment, shall be determined by the Committee (and, in the case of an incentive stock option, shall be determined at the time of grant). In addition to any other types of consideration the Committee may determine, the Committee is authorized to accept as consideration for shares of Stock issued under the Plan the following, provided that the portion of the consideration equal to the par value of the shares of Stock must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law: (i) cash; (ii) check; (iii) delivery of the optionee's promissory note with such recourse, interest, security, and redemption provisions as the Committee determines as appropriate; (iv) surrender of shares of Stock or delivery of a properly executed form of attestation of ownership of shares of Stock as the Committee 7 may require (including withholding of shares of Stock otherwise deliverable upon exercise of the option) which have a fair market value on the date of surrender or attestation equal to the aggregate exercise price of the shares of Stock as to which said option shall be exercised (but only to the extent that such exercise of the option would not result in an accounting compensation charge with respect to the shares of Stock used to pay the exercise price unless otherwise determined by the Committee); (v) payment through a broker-dealer sale and remittance procedure pursuant to which the optionee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased shares of Stock and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares of Stock and (B) shall provide written directives to the Company to deliver the certificates for the purchased shares of Stock directly to such brokerage firm in order to complete the sale transaction; or (vi) any combination of the foregoing methods of payment. (b) In the event that the purchase price is satisfied by the manner provided in (a)(iv) above, the Committee may grant such optionee an additional option, with terms identical to the optionee's then existing stock option agreement, entitling such optionee to purchase additional Stock in an amount equal to the number of shares of Stock so retained. 12. Withholding Taxes. (a) No option granted under the Plan shall be exercised until the optionee has made arrangements acceptable to the Committee for the satisfaction of foreign, federal, state, and local income and employment tax withholding obligations, including without limitation obligations incident to the receipt of Stock under the Plan, the lapsing of restrictions applicable to such Stock, the failure to satisfy the conditions for treatment as incentive stock options under applicable tax law. Upon an optionee's exercise of a stock option, the Company may satisfy its withholding obligations by withholding from such optionee or requiring the optionee to surrender shares of Stock sufficient to satisfy the minimum foreign, federal, state and local income and employment tax withholding obligations. (b) In the event that such withholding is satisfied by the Company or an optionee's employer retaining from the shares of Stock otherwise to be issued to such optionee shares of Stock having a value equal to such withholding tax, the Committee may grant to an optionee an additional option, with terms identical to such optionee's then existing stock option agreement under which the option was received, entitling optionee to purchase additional Stock in an amount equal to the number of shares of Stock so retained. 8 13. Restrictions on Transfer of Shares. The Stock acquired pursuant to the exercise of options granted under the Plan shall be subject to such restrictions and agreements regarding sale, assignment, encumbrances or other transfer as are in effect among the stockholders of the Company at the time such Stock is acquired, as well as to such other restrictions as the Committee shall deem advisable. 14. Corporate Transaction. (a) For purposes of this Section 14 for options granted on or after November 9, 2001, a "Corporate Transaction" shall include any of the following transactions: (i) a merger or consolidation in which the Company is not the surviving entity; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company; (iii) the liquidation or dissolution of the Company; (iv) any reverse merger in which the Company is the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; or (v) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities but excluding any such transaction that the Committee determines shall not be a Corporate Transaction. (b) For purposes of this Section 14 for options granted before November 9, 2001, a "Corporate Transaction" shall include any of the following stockholder-approved transactions to which the Company is a party: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state of the Company's incorporation; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company in liquidation or dissolution of the Company; or 9 (iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a holder or holders different from those who held such securities immediately prior to such merger. (c) In the event of any Corporate Transaction, all outstanding options shall vest in their entirety and become exercisable immediately prior to the specified effective date of the Corporate Transaction, unless such options are either (i) assumed by the successor corporation or its parent company pursuant to options providing substantially equal value and having substantially equivalent provisions as the options granted under this Plan or (ii) the options are affirmed by the Company; provided however that all options issued to non-employee directors shall vest in their entirety and become exercisable immediately prior to the specified effective date of the Corporate Transaction irrespective of whether such options are assumed by the successor corporation or its parent company or are affirmed by the Company. 15. No Effect on Retirement and Other Benefit Plans. Except as specifically provided in a retirement or other benefit plan of the Company or an Affiliate, options shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or an Affiliate, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation. The Plan is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement Income Security Act of 1974, as amended. 16. Approval of the Plan. The Plan became effective when adopted by the Board in August, 1993, and was approved by the Company's stockholders in October, 1993. In addition to previous amendments, the Board adopted and approved an amendment and restatement of the Plan on November 9, 2001 to modify the following: (i) the revision of Section 2(a) to ensure compliance with the new requirements under Rule 16b-3 of the Exchange Act; (ii) the reduction of the maximum number of shares of Stock with respect to which options may be granted to an individual per fiscal year of the Company in Section 6(e) to 3,000,000 shares of Stock and (iii) for new options granted on or after November 9, 2001, the revision of the definition of "Corporate Transaction" as set forth in Section 14. 10 EX-10.4 5 f78765ex10-4.txt EXHIBIT 10.4 EXHIBIT 10.4 JDS UNIPHASE CORPORATION 1998 EMPLOYEE STOCK PURCHASE PLAN AS AMENDED NOVEMBER 9, 2001 I. PURPOSE The JDS Uniphase Corporation 1998 EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is intended to provide eligible employees of the Company and one or more of its Corporate Affiliates with the opportunity to acquire a proprietary interest in the Company through participation in a plan designed to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code (the "Code"). II. DEFINITIONS For purposes of administration of the Plan, the following terms shall have the meanings indicated: Compensation means the (i) regular base salary paid to a Participant by one or more Participating Companies during such individual's period of participation in the Plan, plus (ii) any amounts contributed by the Corporation or any Corporate Affiliate pursuant to a salary reduction agreement which are not includible in the gross income of the Participant by reason of Code Sections 402(e)(3) or 125, plus (iii) all of the following amounts to the extent paid in cash: overtime payments, bonuses, commissions, profit-sharing distributions and other incentive-type payments. However, Eligible Earnings shall not include any contributions (other than those excludible from the Participant's gross income under Code Sections 402(e)(3) or 125) made on the Participant's behalf by the Corporation or any Corporate Affiliate to any deferred compensation plan or welfare benefit program now or hereafter established. Board means the Board of Directors of the Company. Company means JDS Uniphase Corporation, a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of JDS Uniphase Corporation, which shall by appropriate action adopt the Plan. Corporate Affiliate means any company which is either the parent corporation or a subsidiary corporation of the Company (as determined in accordance with Section 424 of the Code), including any parent or subsidiary corporation which becomes such after the Effective Date. Effective Date means August 1, 1998. However, should any Corporate Affiliate 1 become a Participating Company in the Plan after such applicable date, then such entity shall designate a separate Effective Date with respect to its employee-Participants. Employee means any person who is regularly engaged, for a period of more than 20 hours per week and more than 5 months per calendar year, in the rendition of personal services to the Company or any other Participating Company for earnings considered wages under Section 3121(a) of the Code. Quarter means any three-month period commencing August 1, November 1 February 1 or May 1, during each calendar year during the term of the Plan. Participant means any Employee of a Participating Company who is actively participating in the Plan. Participating Company means the Company and such Corporate Affiliate or Affiliates as may be designated from time to time by the Board. Plan Administrator means either the Board or a Committee of the Board that is responsible for administration of the Plan. Stock means shares of the common stock of the Company. III. ADMINISTRATION (a) The Plan shall be administered by the Plan Administrator which shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Plan Administrator shall, to the full extent permitted by Applicable Law, be final and binding upon all persons. (b) No member of the Committee while serving as such shall be eligible to participate in the Plan. IV. PURCHASE PERIODS (a) Stock shall be offered for purchase under the Plan through a series of successive purchase periods until such time as (i) the maximum number of shares of Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated in accordance with Article X or Article XI. (b) The Plan shall be implemented in a series of overlapping purchase periods, each to be of such duration (not to exceed twenty-four (24) months per purchase period) as 2 determined by the Plan Administrator prior to the commencement date of the purchase period. The initial purchase period will begin on the Effective Date and subsequent purchase periods will commence, at the Plan Administrator's discretion, either on the first day of each succeeding Quarter or of each alternate succeeding Quarter. Accordingly, either four (4) or two (2) separate purchase periods may commence in each subsequent calendar year during which the Plan remains in existence. The Plan Administrator shall have the authority to change the length of any purchase period by announcement at least thirty (30) days prior to the commencement of such purchase period and to determine whether subsequent purchase periods shall be consecutive or overlapping. A purchase period may be terminated by the Plan Administrator on any date of exercise if the Plan Administrator determines that the termination of the purchase period is in the best interests of the Company and its stockholders. (c) The Participant shall be granted a separate purchase right for each purchase period in which he/she participates. The purchase right shall be granted on the first day of the purchase period and shall be automatically exercised in (i) successive quarterly installments on the last day of each Quarter such purchase right remains outstanding, in the case of quarterly purchase periods, or (ii) successive semi-annual installments on the last day of each alternate Quarter such purchase right remains outstanding, in the case of semi-annual purchase periods. (d) An Employee may participate in only one purchase period at a time. Accordingly, an Employee who wishes to join a new purchase period must withdraw from the current purchase period in which he/she is participating and must also enroll in the new purchase period prior to the commencement date for that period. (e) The acquisition of Stock through participation in the Plan for any purchase period shall neither limit nor require the acquisition of Stock by the Participant in any subsequent purchase period. (f) Under no circumstances shall any purchase rights granted under the Plan be exercised, nor shall any shares of Stock be issued hereunder, until such time as (i) the Plan shall have been approved by the Company's stockholders and (ii) the Company shall have complied with all applicable requirements of the Securities Act of 1933 (as amended), all applicable listing requirements of any securities exchange on which the Stock is listed and all other applicable requirements established by law or regulation. V. ELIGIBILITY AND PARTICIPATION (a) Every Employee of a Participating Company shall be eligible to participate in the Plan on the first day of the first purchase period following the Employee's commencement of service with the Company or any Corporate Affiliate, but in no event shall participation commence prior to the Effective Date. 3 (b) In order to participate in the Plan for a particular purchase period, the Employee must complete the enrollment forms prescribed by the Plan Administrator (including a purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) prior to the commencement date of the purchase period. (c) The payroll deduction authorized by a Participant for purposes of acquiring Stock under the Plan may be any multiple of 1% of Compensation paid to the Participant during the relevant purchase period, up to a maximum of 10%. The deduction rate so authorized shall continue in effect for the entire purchase period unless the Participant shall, prior to the end of the purchase period for which the purchase right is in effect, reduce the rate by filing the appropriate form with the Plan Administrator (or its designate). The reduced rate shall become effective as soon as practicable following the filing of such form. Each Participant shall be permitted such a rate reduction only four (4) times in each purchase period. The reduced rate shall continue in effect for the entire purchase period and for each subsequent purchase period, unless the Participant shall, prior to the commencement of any subsequent purchase period, designate a different rate (up to the 10% maximum) by filing the appropriate form with the Plan Administrator (or its designate). The new rate shall become effective for the first purchase period commencing after the filing of such form. Payroll deductions, however, will automatically cease upon the termination of the Participant's purchase right in accordance with Section VII(d) or (e) below. VI. STOCK SUBJECT TO PLAN (a) The Stock purchasable by Participants under the Plan shall, solely in the Board's discretion, be made available from either authorized but unissued Stock or from reacquired Stock, including shares of Stock purchased on the open market. The total number of shares of Stock which may be issued under the Plan shall not exceed 50,000,000 shares (subject to adjustment under Section VI(b). (b) In the event any change is made to the Stock purchasable under the Plan by reason of any recapitalization, stock dividend, stock split, combination of shares or other change affecting the outstanding common stock of the Company as a class without receipt of consideration, then appropriate adjustments shall be made by the Plan Administrator to the class and maximum number of shares purchasable under the Plan, the class and maximum number of shares purchasable per Participant under any purchase right outstanding at the time or purchasable per Participant over the term of the Plan, and the class and number of shares and the price per share of the Stock subject to outstanding purchase rights held by Participants under the Plan. 4 VII. PURCHASE RIGHTS An Employee who participates in the Plan for a particular purchase period shall have the right to purchase Stock on the purchase dates designated by the Plan Administrator for such purchase period upon the terms and conditions set forth below and shall execute a purchase agreement embodying such terms and conditions and such other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable. (a) Purchase Price. The purchase price per share shall be the lesser of (i) 85% of the fair market value of a share of Stock on the date on which the purchase right is granted or (ii) 85% of the fair market value of a share of Stock on the date the purchase right is exercised. For purposes of determining such fair market value (and for all other valuation purposes under the Plan), the fair market value per share of Stock on any date shall be the closing selling price per share on such date, as officially quoted on the principal exchange on which the Stock is at the time traded or, if not traded on any exchange, the mean of the highest bid and the lowest asked prices (or, if such information is available, the closing price per share) of the Stock on such date, as reported on the NASDAQ system. If there are no sales of Stock on such day, then the closing selling price (or, to the extent applicable, the mean of the highest bid and lowest asked prices) for the Stock on the next preceding day for which there do exist such quotations shall be determinative of fair market value. (b) Number of Purchasable Shares. The number of shares purchasable by a Participant on any particular purchase date shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions during the quarterly or semi-annual period beginning with the start of the purchase period or the most recent purchase date in the same purchase period (whichever is applicable), together with any amount carried over from the preceding purchase date in the same purchase period pursuant to the provisions of Section VII(f), by the purchase price in effect for such purchase date. However, the maximum number of shares purchasable by the Participant pursuant to any one outstanding purchase right shall not exceed 40,000 shares (subject to adjustment under Section VI(b)). Under no circumstances shall purchase rights be granted under the Plan to any Employee if such Employee would, immediately after the grant, own (within the meaning of Section 424(d) of the Code), or hold outstanding options or other rights to purchase, stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any of its Corporate Affiliates. (c) Payment. Payment for Stock purchased under the Plan shall be effected by means of the Participant's authorized payroll deductions. Such deductions shall begin on the first pay day coincident with or immediately following the commencement date of the relevant purchase period and shall terminate with the pay day ending with or immediately prior to the last day of the purchase period. The amounts so collected shall be credited to the Participant's individual account under the Plan, but no interest shall be paid on the balance from time to time 5 outstanding in the account. The amounts collected from a Participant may be commingled with the general assets of the Company and may be used for general corporate purposes. (d) Termination of Purchase Rights. (i) A Participant may, prior to any purchase date, terminate his/her outstanding purchase right under the Plan by filing the prescribed notification form with the Plan Administrator (or its designate). The Company will then refund the payroll deductions which the Participant made with respect to the terminated purchase right, and no further amounts will be collected from the Participant with respect to such terminated right. (ii) The termination shall be irrevocable with respect to the particular purchase period to which it pertains and shall also require the Participant to re-enroll in the Plan (by making a timely filing of a new purchase agreement and payroll deduction authorization) if the Participant wishes to resume participation in a subsequent purchase period. (e) Termination of Employment. If a Participant ceases Employee status during any purchase period, then the Participant's outstanding purchase right under the Plan shall immediately terminate and all sums previously collected from the Participant and not previously applied to the purchase of stock during such purchase period shall be promptly refunded. However, should the Participant die or become permanently disabled while in Employee status, then the Participant or the person or persons to whom the rights of the deceased Participant under the Plan are transferred by will or by the laws of descent and distribution (the "successor") will have the election, exercisable at any time prior to the purchase date for the quarterly or semi-annual period in which the Participant dies or becomes permanently disabled, to (i) withdraw all of the funds in the Participant's payroll account at the time of his/her cessation of Employees status or (ii) have such funds held for purchase of shares of Stock on the purchase date. In no event, however, shall any further payroll deductions be added to the Participant's account following his/her cessation of Employee status. For purposes of the Plan: (a) a Participant shall be considered to be an Employee for so long as such Participant remains in the employ of the Company or any other Participating Company under the Plan and (b) a Participant shall be deemed to be permanently disabled if he/she is unable, by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of at least twelve (12) months, to engage in any substantial gainful employment. (f) Stock Purchase. Outstanding purchase rights shall be automatically exercised in a series of successive installments as provided in Section IV(c). The exercise shall be effected by applying the amount credited to the Participant's account on the last date of the Quarter, in the case of a purchase period in which purchases are effected quarterly, or the last 6 date of the alternate Quarter, in the case of a purchase period in which purchases are effected semi-annually, to the purchase of whole shares of Stock (subject to the limitations on the maximum number of purchasable shares set forth in Section VII(b)) at the purchase price in effect for such purchase date. Any amount remaining in the Participant's account after such exercise shall be held for the purchase of Stock on the next quarterly or semi-annual purchase date within the purchase period; provided, however, that any amount not applied to the purchase of Stock at the end of a purchase period shall be refunded promptly after the close of the purchase period and any amount not applied to the purchase of stock by reason by the Section VII(b) limitations on the maximum number of purchasable shares shall be refunded promptly after the quarterly or semi-annual purchase date. (g) Proration of Purchase Rights. Should the total number of shares of Stock which are to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and any amounts credited to the accounts of Participants shall, to the extent not applied to the purchase of Stock, be refunded to the Participants. (h) Rights as Stockholder. A Participant shall have no rights as a stockholder with respect to shares covered by the purchase rights granted to the Participant under the Plan until the shares are actually purchased on the Participant's behalf in accordance with Section VII(f). No adjustments shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase. A Participant shall be entitled to receive, as soon as practicable after the date of each purchase, stock certificates for the number of shares purchased on the Participant's behalf. (i) Assignability. No purchase rights granted under the Plan shall be assignable or transferable by a Participant except by will or by the laws of descent and distribution, and the purchase rights shall, during the lifetime of the Participant, be exercisable only by such Participant. (j) Merger or Liquidation of Company. In the event the Company or its stockholders enter into an agreement to dispose of all or substantially all of the assets or outstanding capital stock of the Company by means of a sale, merger or reorganization in which the Company will not be the surviving corporation (other than a reorganization effected primarily to change the State in which the Company is incorporated) or in the event the Company is liquidated, then all outstanding purchase rights under the Plan shall automatically be exercised immediately prior to such sale, merger, reorganization or liquidation by applying all sums previously collected from Participants pursuant to their payroll deductions in effect for such rights to the purchase of whole shares of Stock, subject, however, to the applicable limitations of Section VII(b). 7 VIII. ACCRUAL LIMITATIONS (a) No Participant shall be entitled to accrue rights to acquire Stock pursuant to any purchase right under this Plan if and to the extent such accrual, when aggregated with (I) Stock rights accrued under other purchase rights outstanding under this Plan and (II) similar rights accrued under other employee stock purchase plans (within the meaning of Section 423 of the Code) of the Company or its Corporate Affiliates, would otherwise permit such Participant to purchase more than $25,000 worth of stock of the Company or any Corporate Affiliate (determined on the basis of the fair market value of such stock on the date or dates such rights are granted to the Participant) for each calendar year such rights are at any time outstanding. (b) For purposes of applying the accrual limitations of Section VIII(a), the right to acquire Stock pursuant to each purchase right outstanding under the Plan shall accrue as follows: (i) The right to acquire Stock under each such purchase right shall accrue in a series of successive quarterly or semi-annual installments as and when the purchase right first becomes exercisable for each installment as provided in Section IV(c). (ii) No right to acquire Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire $25,000 worth of Stock (determined on the basis of the fair market value on the date or dates of grant) pursuant to that purchase right or one or more other purchase rights which may have been held by the Participant during such calendar year. (iii) If by reason of the Section VIII(a) limitations, the Participant's outstanding purchase right does not accrue for a particular purchase date of any purchase period, then the payroll deductions which the Participant made during that quarterly or semi-annual period with respect to such purchase right shall be promptly refunded. (c) In the event there is any conflict between the provisions of this Article VIII and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article VIII shall be controlling. IX. STATUS OF PLAN UNDER FEDERAL TAX LAWS (a) The Plan is designed to qualify as an employee stock purchase plan under Section 423 of the Code. However, after the Effective Date, the Plan Administrator may, at its discretion, cease to administer the Plan as a qualified employee stock purchase plan under Code 8 Section 423. Accordingly, share purchases effected under the Plan at any time after the Plan ceases to be administered as a qualified employee stock purchase plan under Code Section 423 (whether pursuant to purchase rights granted before or after the Plan ceases to be qualified) shall result in taxable income to each Participant equal to the excess of (i) the fair market value of the purchased shares on the purchase date over (ii) the purchase price paid for such shares. (b) To the extent required by law, the Company's obligation to deliver shares to the Participant upon the exercise of any outstanding purchase right shall be subject to the Participant's satisfaction of all applicable federal, state and local income and employment tax withholding requirements. X. AMENDMENT AND TERMINATION (a) The Board may from time to time alter, amend, suspend or discontinue the Plan; provided, however, that no such action shall become effective prior to the exercise of outstanding purchase rights at the end of the quarterly or semi-annual period in which such action is authorized. To the extent necessary to comply with Code Section 423, the Company shall obtain stockholder approval in such a manner and to such a degree as required. (b) The Company shall have the right, exercisable in the sole discretion of the Plan Administrator, to terminate the Plan immediately following the end of a quarterly or semi-annual purchase date. Should the Company elect to exercise such right, then the Plan shall terminate in its entirety, and no further purchase rights shall thereafter be granted, and no further payroll deductions shall thereafter be collected, under the Plan. XI. GENERAL PROVISIONS (a) The Plan shall terminate upon the earlier of (i) August 1, 2008 or (ii) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan. (b) All costs and expenses incurred in the administration of the Plan shall be paid by the Company. (c) Neither the action of the Company in establishing the Plan, nor any action taken under the Plan by the Plan Administrator, nor any provision of the Plan itself shall be construed so as to grant any person the right to remain in the employ of the Company or any of its Corporate Affiliates for any period of specific duration, and such person's employment may be terminated at any time, with or without cause. (d) Governing Law. The Plan is to be construed in accordance with and governed by the internal laws of the State of California (as permitted by Section 1646.5 of the California Civil Code, or any similar successor provision) without giving effect to any choice of 9 law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties, except to the extent the internal laws of the State of California are superseded by the laws of the United States. Should any provision of the Plan be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 10 EX-10.15 6 f78765ex10-15.txt EXHIBIT 10.15 EXHIBIT 10.15 JDS UNIPHASE CORPORATION AMENDED AND RESTATED 1999 CANADIAN EMPLOYEE STOCK PURCHASE PLAN AS AMENDED NOVEMBER 9, 2001 I. PURPOSE The JDS Uniphase Corporation 1999 Canadian Employee Stock Purchase Plan (the "Plan") is intended to provide eligible employees of JDS Uniphase Inc. ("JDS Uniphase Canada"), a wholly owned subsidiary of the Company (as defined below), with the opportunity to acquire a proprietary interest in the Company through participation in the Plan. II. DEFINITIONS For purposes of administration of the Plan, the following terms shall have the meanings indicated: "Board" means the Board of Directors of the Company. "Company" means JDS Uniphase Corporation, a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of the Company, which shall by appropriate action adopt the Plan. "Compensation" means: (i) the regular base salary paid to a Participant by one or more Participating Companies during the Participant's period of participation in the Plan; plus (ii) any amounts contributed by the Company or any Corporate Affiliate pursuant to a salary reduction agreement which are not includible in the gross income of the Participant by reason of Code Sections 402(e)(3) or 125; plus (iii) all of the following amounts to the extent paid in cash: overtime payments, bonuses, commissions, profit-sharing distributions and other incentive-type payments. However, "Compensation" shall not include any contributions (other than those excludible from the Participant's gross income under Code Sections 402(e)(3) or 125) made on the Participant's behalf by the Company or any Corporate Affiliate to any deferred compensation plan or welfare benefit program now or hereafter established. -2- "Corporate Affiliate" means any corporation which is either the parent corporation or a subsidiary corporation of the Company (as determined in accordance with Section 424 of the Internal Revenue Code (the "Code"), including any parent or subsidiary corporation which becomes such after the Effective Date. "Effective Date" means September 1, 1999. However, should any Corporate Affiliate become a Participating Company in the Plan after such applicable date, then such entity shall designate a separate Effective Date with respect to its employees which are Participants. "Employee" means any person who is regularly engaged, for a period of more than 25 hours per week and more than 5 months per calendar year, in the rendition of personal services to JDS Uniphase Canada or any other Participating Company for earnings considered wages under Section 3121(a) of the Code. "Quarter" means any three-month period commencing August 1, November 1, February 1 or May 1, during each calendar year during the term of the Plan, provided that the first Quarter shall be September 1, 1999 to January 31, 2000. "Participant" means any Employee of a Participating Company who is actively participating in the Plan. "Participating Company" means JDS Uniphase Canada and such Corporate Affiliate or Affiliates as may be designated from time to time by the Board. "Plan Administrator" means either the Board or a Committee of the Board (the "Committee") that is responsible for administration of the Plan. "Stock" means shares of the common stock of the Company. III. ADMINISTRATION (a) The Plan shall be administered by the Plan Administrator which shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Plan Administrator shall, to the full extent permitted by applicable law, be final and binding upon all persons. (b) No member of the Committee while serving as such shall be eligible to participate in the Plan. IV. PURCHASE PERIODS (a) Stock shall be offered for purchase under the Plan through a series of successive purchase periods until such time as (i) the maximum number of shares of Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated in accordance with Article X or Article XI. -3- (b) The Plan shall be implemented in a series of overlapping purchase periods, each to be of such duration (not to exceed twenty-four (24) months per purchase period) as determined by the Plan Administrator prior to the commencement date of the purchase period. The initial purchase period will begin on the Effective Date and subsequent purchase periods will commence, at the Plan Administrator's discretion, either on the first day of each succeeding Quarter or of each alternate succeeding Quarter. Accordingly, either four (4) or two (2) separate purchase periods may commence in each subsequent calendar year during which the Plan remains in existence. The Plan Administrator shall have the authority to change the length of any purchase period by announcement at least thirty (30) days prior to the commencement of such purchase period and to determine whether subsequent purchase periods shall be consecutive or overlapping. A purchase period may be terminated by the Plan Administrator on any date of exercise if the Plan Administrator determines that the termination of the purchase period is in the best interests of the Company and its stockholders. (c) The Participant shall be granted a separate purchase right for each purchase period in which he/she participates. The purchase right shall be granted on the first day of the purchase period and shall be automatically exercised in (i) successive quarterly instalment on the last day of each Quarter such purchase right remains outstanding, in the case of quarterly purchase periods, or (ii) successive semi-annual instalment on the last day of each alternate Quarter such purchase right remains outstanding, in the case of semi-annual purchase periods. (d) An Employee may participate in only one purchase period at a time. Accordingly, an Employee who wishes to join a new purchase period must withdraw from the current purchase period in which he/she is participating and must also enrol in the new purchase period prior to the commencement date for that purchase period. (e) The acquisition of Stock through participation in the Plan for any purchase period shall neither limit nor require the acquisition of Stock by the Participant in any subsequent purchase period. (f) Under no circumstances shall any purchase rights granted under the Plan be exercised, nor shall any shares of Stock be issued hereunder, until such time as the Company shall have complied with all applicable requirements of the Securities Act of 1933 (as amended), all applicable listing requirements of any securities exchange on which the Stock is listed and all other applicable requirements established by law or regulation and have obtained any required exemptions. V. ELIGIBILITY AND PARTICIPATION (a) Every Employee of JDS Uniphase Canada or a Participating Company shall be eligible to participate in the Plan on the first day of the first purchase period following the Employee's commencement of service with JDS Uniphase Canada or any Corporate Affiliate, but in no event shall participation commence prior to the Effective Date. (b) In order to participate in the Plan for a particular purchase period, the Participant must complete the enrolment forms prescribed by the Plan Administrator (including a purchase -4- agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) prior to the commencement date of the purchase period. (c) The payroll deduction authorized by a Participant for purposes of acquiring Stock under the Plan may be any multiple of 1% of the Base Compensation paid to the Participant during the relevant purchase period, up to a maximum of 10%. The amount deducted for each Participant shall be deducted from the Participant's salary in Canadian dollars and shall be converted to U.S. dollars using the noon buying rate as reported by the Federal Reserve Bank of New York for the purchase of U.S. dollars in Canadian currency on the day Stock is purchased for the Participant's account. The deduction rate so authorized shall continue in effect for the entire purchase period unless the Participant shall, prior to the end of the purchase period for which the purchase right is in effect, reduce the rate by filing the appropriate form with the Plan Administrator (or its designate). The reduced rate shall become effective as soon as practicable following the filing of such form. Each Participant shall be permitted such a rate reduction once in each purchase period. The reduced rate shall continue in effect for the entire purchase period and for each subsequent purchase period, unless the Participant shall, prior to the commencement of any subsequent purchase period, designate a different rate (up to the 10% maximum) by filing the appropriate form with the Plan Administrator (or its designate). The new rate shall become effective for the first purchase period commencing after the filing of such form. Payroll deductions, however, will automatically cease upon the termination of the Participant's purchase right in accordance with Section VII(d) or (e) below. VI. STOCK SUBJECT TO PLAN (a) The Stock purchasable by Participants under the Plan shall, solely in the Board's discretion, be made available from either authorized but unissued Stock or from reacquired Stock, including shares of Stock purchased on the open market. The total number of shares of Stock which may be issued under the Plan shall not exceed 10,000,000 shares of Stock (subject to adjustment under Section VI(b)). (b) In the event any change is made to the Stock purchasable under the Plan by reason of any recapitalization, stock dividend, stock split, combination of shares or other change affecting the outstanding common stock of the Company as a class without receipt of consideration, then appropriate adjustments shall be made by the Plan Administrator to the class and maximum number of shares purchasable under the Plan, the class and maximum number of shares purchasable per Participant under any purchase right outstanding at the time or purchasable per Participant over the term of the Plan, and the class and number of shares and the price per share of the Stock subject to outstanding purchase rights held by Participants under the Plan. VII. PURCHASE RIGHTS An Employee who participates in the Plan for a particular purchase period shall have the right to purchase Stock on the purchase dates designated by the Plan Administrator for such purchase period upon the terms and conditions set forth below and shall execute a purchase -5- agreement embodying such terms and conditions and such other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable. (a) Purchase Price. The purchase price per share shall be the lesser of (i) 85% of the fair market value of a share of Stock on the date on which the purchase right is granted or (ii) 85% of the fair market value of a share of Stock on the date the purchase right is exercised. For purposes of determining such fair market value (and for all other valuation purposes under the Plan), the fair market value per share of Stock on any date shall be the closing selling price per share on such date, as officially quoted on the principal exchange on which the Stock is at the time traded or, if not traded on any exchange, the mean of the highest bid and the lowest asked prices (or, if such information is available, the closing price per share) of the Stock on such date. If there are no sales of Stock on such day, then the closing selling price (or, to the extent applicable, the mean of the highest bid and lowest asked prices) for the Stock on the next preceding day for which there does exist such quotations shall be determinative of fair market value. (b) Number of Purchasable Shares. The number of shares purchasable by a Participant on any particular purchase date shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions during the quarterly or semi-annual period beginning with the start of the purchase period or the most recent purchase date in the same purchase period (whichever is applicable), together with any amount carried over from the preceding purchase date in the same purchase period pursuant to the provisions of Section VII(f), by the purchase price in effect for such purchase date. However, the maximum number of shares purchasable by the Participant pursuant to any one outstanding purchase right shall not exceed 20,000 shares (subject to adjustment under Section VI(b)). Under no circumstances shall purchase rights be granted under the Plan to any Employee if such Employee would, immediately after the grant, own (within the meaning of Section 424(d) of the Code), or hold outstanding options or other rights to purchase, stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any of its Corporate Affiliates. (c) Payment. Payment for Stock purchased under the Plan shall be effected by means of the Participant's authorized payroll deductions. Such deductions shall begin on the first pay day coincident with or immediately following the commencement date of the relevant purchase period and shall terminate with the pay day ending with or immediately prior to the last day of the purchase period. The amounts so collected shall be credited to the Participant's individual account under the Plan, but no interest shall be paid on the balance from time to time outstanding in the account. The amounts collected from a Participant may be commingled with the general assets of JDS Uniphase Canada and may be used for general corporate purposes. (d) Termination of Purchase Rights. (i) A Participant may, prior to any purchase date, terminate his/her outstanding purchase right under the Plan by filing the prescribed notification form with the Plan Administrator (or its designate). JDS Uniphase Canada will then refund the -6- payroll deductions which the Participant made with respect to the terminated purchase right, and no further amounts will be collected from the Participant with respect to such terminated right. (ii) The termination shall be irrevocable with respect to the particular purchase period to which it pertains and shall also require the Participant to re-enrol in the Plan (by making a timely filing of a new purchase agreement and payroll deduction authorization) if the Participant wishes to resume participation in a subsequent purchase period. (e) Termination of Employment. If a Participant ceases Employee status during any purchase period, then the Participant's outstanding purchase right under the Plan shall immediately terminate and all sums previously collected under the Plan shall immediately terminate and all sums previously collected from the Participant and not previously applied to the purchase of Stock during such purchase period shall be promptly refunded. However, should the Participant die or become permanently disabled while in Employee status, then the Participant or the person or persons to whom the rights of the disabled or deceased Participant under the Plan are exercisable or transferred by will or by the laws of descent and distribution (the "successor") will have the election, exercisable at any time prior to the purchase date for the quarterly or semi-annual period in which the Participant dies or becomes permanently disabled, to (i) withdraw all of the funds in the Participant's payroll account at the time of his/her cessation of Employee status or (ii) have such funds held for purchase of shares of Stock on the purchase date. In no event, however, shall any further payroll deductions be added to the Participant's account following his/her cessation of Employee status. For purposes of the Plan: (a) a Participant shall be considered to be an Employee for so long as such Participant remains in the employ of JDS Uniphase Canada or any other Participating Company under the Plan, but not for any period during which the Participant receives termination or severance pay in lieu of notice; and (b) a Participant shall be deemed to be permanently disabled if he/she is unable, by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of at least twelve (12) months, to engage in any substantial gainful employment. (f) Stock Purchase. Outstanding purchase rights shall be automatically exercised in a series of successive instalments as provided in Section IV(c). The exercise shall be effected by applying the amount credited to the Participant's account on the last date of the Quarter, in the case of a purchase period in which purchases are effected quarterly, or the last date of the alternate Quarter, in the case of a purchase period in which purchases are effected semi-annually, to the purchase of whole shares of Stock (subject to the limitations on the maximum number of purchasable shares set forth in Section VII(b)) at the purchase price in effect for such purchase date. Any amount remaining in the Participant's account after such exercise shall be held for the purchase of Stock on the next quarterly or semi-annual purchase date within the purchase period; provided, however, that any amount not applied to the purchase of Stock at the end of a purchase period shall be refunded promptly after the close of the purchase period and any amount not applied to the purchase of stock by reason by the Section VII(b) limitations on the maximum number of purchasable shares shall be refunded promptly after the quarterly or semi-annual purchase date. -7- (g) Proration of Purchase Rights. Should the total number of shares of Stock which are to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and non-discriminatory basis, and any amounts credited to the accounts of Participants shall, to the extent not applied to the purchase of Stock, be refunded to the Participants. (h) Rights as Stockholder. A Participant shall have no rights as a stockholder with respect to shares covered by the purchase rights granted to the Participant under the Plan until the shares are actually purchased on the Participant's behalf in accordance with Section VII(f). No adjustments shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase. A Participant shall be entitled to receive, as soon as practicable after the date of each purchase, stock certificates for the number of shares purchased on the Participant's behalf. (i) Assignability. No purchase rights granted under the Plan shall be assignable or transferable by a Participant except by will or by the laws of descent and distribution, and the purchase right shall, subject to the provisions set forth in Section VII(e) in the case of a Participant who dies or becomes permanently disabled, be exercisable only by such Participant. (j) Merger or Liquidation of Company. In the event the Company, its stockholders or JDS Uniphase Canada enter into an agreement to dispose of all or substantially all of the assets or outstanding capital stock of the Company or JDS Uniphase Canada by means of a sale, merger or reorganization in which the Company or JDS Uniphase Canada will not be the surviving corporation (other than a reorganization effected primarily to change the jurisdiction in which the Company or JDS Uniphase Canada is incorporated or in which the successor entity to JDS Uniphase Canada remains a directly or indirectly wholly owned subsidiary of the Company) or in the event the Company or JDS Uniphase Canada is liquidated, then all outstanding purchase rights under the Plan shall automatically be exercised immediately prior to such sale, merger, reorganization or liquidation by applying all sums previously collected from Participants pursuant to their payroll deductions in effect for such rights to the purchase of whole shares of Stock, subject, however, to the applicable limitations of Section VII(b). VIII. ACCRUAL LIMITATIONS (a) No Participant shall be entitled to accrue rights to acquire Stock pursuant to any purchase right under this Plan if and to the extent such accrual, when aggregated with (i) Stock rights accrued under other purchase rights outstanding under this Plan and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of Section 423 of the Code) of the Company or its Corporate Affiliates, would otherwise permit such Participant to purchase more than the Canadian dollar equivalent of $25,000 U.S. worth of stock of the Company or any Corporate Affiliate (determined on the basis of the fair market value of such stock on the date or dates such rights are granted to the Participant) for each calendar year such rights are at any time outstanding. -8- (b) For purposes of applying the accrual limitations of Section VIII(a), the right to acquire Stock pursuant to each purchase right outstanding under the Plan shall accrue as follows: (i) The right to acquire Stock under each such purchase right shall accrue in a series of successive quarterly or semi-annual instalments as and when the purchase right first becomes exercisable for each instalment as provided in Section IV(c). (ii) No right to acquire Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire the Canadian dollar equivalent of $25,000 U.S. worth of Stock (determined on the basis of the fair market value on the date or dates of grant) pursuant to that purchase right or one or more other purchase rights which may have been held by the Participant during such calendar year. (iii) If by reason of the Section VIII(a) limitations, the Participant's outstanding purchase right does not accrue for a particular purchase date of any purchase period, then the payroll deductions which the Participant made during that quarterly or semi-annual period with respect to such purchase right shall be promptly refunded. (c) In the event there is any conflict between the provisions of this Article VIII and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article VIII shall be controlling. IX. STATUS OF PLAN UNDER TAX LAWS (a) To the extent required by law, the Company's obligation to deliver shares to the Participant upon the exercise of any outstanding purchase right shall be subject to the Participant's satisfaction of all applicable federal, and provincial income and other tax withholding requirements. X. AMENDMENT AND TERMINATION (a) The Board may from time to time alter, amend, suspend or discontinue the Plan; provided, however, that no such action shall become effective prior to the exercise of outstanding purchase rights at the end of the quarterly or semi-annual period in which such action is authorized. (b) The Company shall have the right, exercisable in the sole discretion of the Plan Administrator, to terminate the Plan immediately following the end of a quarterly or semi-annual purchase date. Should the Company elect to exercise such right, then the Plan shall terminate in its entirety, and no further payroll deduction shall thereafter be collected, under the Plan. -9- XI. GENERAL PROVISIONS (a) The Plan shall terminate upon the earlier of (i) July 31, 2009 or (ii) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan. (b) All costs and expenses incurred in the administration of the Plan shall be paid by the Company. (c) Neither the action of the Company in establishing the Plan, nor any action taken under the Plan by the Plan Administrator, nor any provision of the Plan itself shall be construed so as to grant to any person the right to remain in the employ of JDS Uniphase Canada or any of the Corporate Affiliates for any period of specific duration, and such person's employment may be terminated at any time, with or without cause. (d) The Plan is to be construed in accordance with and governed by the internal laws of the State of Delaware without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of Delaware to the rights and duties of the parties, except to the extent the internal laws of the State of Delaware are superseded by the laws of the United States. Should any provision of the Plan be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. -----END PRIVACY-ENHANCED MESSAGE-----