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JDS Uniphase DEF 14A 2009 Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14A (Rule 14a-101) SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant x Filed by a Party other than the Registrant ¨ Check the appropriate box:
JDS Uniphase Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box):
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JDS UNIPHASE CORPORATION 430 North McCarthy Boulevard Milpitas, California 95035 (408) 546-5000 Notice of Annual Meeting of Stockholders and Proxy Statement 2009 Annual Report
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE ENCOURAGE YOU TO READ THIS PROXY STATEMENT AND SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE. FOR SPECIFIC INSTRUCTIONS ON HOW TO VOTE YOUR SHARES, PLEASE REFER TO INSTRUCTIONS (A) OR (B) BELOW, AS APPLICABLE. (A) IF YOU ARE A HOLDER OF COMMON STOCK, PLEASE REFER TO (I) THE INSTRUCTIONS OF THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS YOU RECEIVED IN THE MAIL, (II) THE SECTION ENTITLED GENERAL INFORMATION BEGINNING ON PAGE 1 OF THIS PROXY STATEMENT, OR (III) IF YOU REQUESTED TO RECEIVE PRINTED PROXY MATERIALS, YOUR ENCLOSED PROXY CARD. (B) IF YOU ARE A HOLDER OF EXCHANGEABLE SHARES, PLEASE REFER TO (I) THE SECTION ENTITLED GENERAL INFORMATION BEGINNING ON PAGE 1 OF THIS PROXY STATEMENT OR (II) YOUR ENCLOSED PROXY CARD.
Table of ContentsCONSIDERING REGISTERING ELECTRONICALLY FOR STOCKHOLDER MATERIALS? JDS Uniphase Corporation is pleased to take advantage of the new Securities and Exchange Commission (the “SEC”) rule allowing companies to furnish this Proxy Statement and Annual Report over the Internet to our stockholders who hold Common Stock. We believe that this new e-proxy process, also known as “Notice and Access” will expedite the holders’ of Common Stock receipt of proxy materials, reduce our printing and mailing expenses and reduce the environmental impact of producing materials required for our Annual Meeting. Holders of Common Stock should refer to the “General Information” portion of the following Proxy Statement (beginning on page 1) or contact our Investor Relations hotline at 408-546-4445 for assistance regarding instructions on how to register for and thereafter access our Proxy Statement and Annual Report online. Holders of Exchangeable Shares remain unaffected by the new SEC rule and will continue to receive paper copies of the Proxy Statement and Annual Report.
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Stockholder Letter
Proxy
Form 10-K
Table of ContentsDear Stockholders, Fiscal 2009 was both a challenging and opportunistic year for JDSU. Similar to most companies around the world, the global economic climate significantly reduced demand from our customers. For the full fiscal year total non-GAPP revenue was $1.3 billion down 15% from $1.53 billion in fiscal 2008. Even though revenue was reduced, non-GAAP gross margins for the full year remained flat when compared to the prior year at 42.8%, reflecting our improved cost structure and move from a fixed to a more variable cost model. Non-GAAP operating income for fiscal 2009 was $27.2 million or 2.1% of revenue, down from $77.7 million or 5.1% of revenue for the prior year. Although we faced strong headwinds during most of the fiscal year, we successfully navigated through the global economic turbulence during the year by executing against four priorities, which resulted in an improved financial model, a stronger product portfolio, and a solid balance sheet as we exited fiscal 2009. We will continue to focus on these priorities in fiscal 2010 to further advance the company: Our priorities were the following: Simplifying and scaling the business model JDSU embarked on productivity improvement programs, in the form of lean initiatives, across the company. They were designed to reduce the overall complexity of JDSU and to move the company from a fixed to a more variable cost manufacturing model. Major milestones in fiscal 2009 include an agreement with Sanmina that transferred our Shenzhen manufacturing facility to Sanmina for the manufacture of JDSU’s optical communications product lines. The Communications Test and Measurement segment signed an agreement with contract manufacturer Benchmark, and we consolidated research and development sites transitioning from 19 sites down to 13. The results of these initiatives in fiscal 2009 include a $120 million reduction of our annual operating expenses, a $40 million reduction in our annual manufacturing overhead, and a 20% reduction in our facilities footprint. Continued focus on innovation Advanced product offerings across a diverse technology portfolio is a hallmark of JDSU. We continued our investment in innovation despite uncertain economic times to further strengthen our leadership position. The resulting 100 new product introductions in fiscal 2009 we believe have increased our competitive position in a number of product areas. Increasing our global market presence JDSU began placing more emphasis on expanding our market penetration outside of our traditionally strong North American and Western European markets for further growth opportunities. A higher level of diversification provides for better balance as various economies around the globe fluctuate. Untapped emerging markets where basic network infrastructure build outs are taking place represent growth opportunities for our test and measurement business segment. Maximizing the utilization of our assets We are focused on the utilization of our assets in order to maximize stockholder value. During fiscal 2009 we generated cash from operations in all four quarters, generating nearly $53 million in free cash flow. We reduced our convertible debt balance by $183 million and our move to a more variable manufacturing cost model resulted in a $55 million decline in inventories from their peak in the second quarter of fiscal 2009. In July we announced the acquisition of the storage network tools business, the leading provider of storage network protocol test and services, expected to be immediately accretive. We ended the fiscal year with a cash balance of over $695 million and an overall stronger balance sheet. Strong End Markets Our strategy continues to be to execute as a diversified technology company with a focus on optical and broadband innovation. Despite the economic downturn in fiscal 2009, market research indicates that our end markets and long-term drivers remain strong as broadband demand continues to grow. According to ComScore,
Table of ContentsU.S. consumers watched 16.8 billion online videos in April, a 53% growth year over year. Worldwide IPTV subscribers reached 26 million in calendar year 2008 and are expected to grow to 155 million by calendar year 2013. And social networking sites like Facebook and Twitter are driving an increase in mobile internet services. The business segments during fiscal year 2009 follow: Communications and Commercial Optical Products
The Optical Communications business provides products used by communications equipment providers for telecommunications and enterprise data communications. These products enable the transmission and transport of video, audio, and text data over high-capacity fiber optic cables. Increased use of voice, video, and data applications among consumers places strains on network bandwidth. The industry continues to ask for solutions that are highly reconfigurable, giving network equipment manufacturers (NEM) and service providers the flexibility they need while giving them the ability to reduce inventory and help reduce their total cost of ownership. Examples of our leadership in reconfigurable solutions are ROADMs, tunable transponders, and photonically integrated amplifiers. Over the past year we introduced a number of platforms that possess high functional integration where we can differentiate ourselves in the marketplace. The Tunable XFP, the first tunable introduced in an XFP form factor targets both the fixed wavelength XFP and 300 pin tunable transponder markets and our AON Super Transport Blade architecture generates significant footprint savings for our NEM customers. JDSU developed the first ever Photonically Integrated Amplifier platform (PIA). The PIA platform replaces up to fifty discrete components with a single chip and is up to 50% smaller than current solutions.
JDSU provides laser components and subsystems for a broad range of applications. Our pipeline for new laser products over fiscal 2010 is robust as we continue to invest in research and development. Our product development will continue to be focused on advanced solid state and fiber laser platforms. These new products, when introduced, are expected to increase our served available market by more than three-fold by the end of the fiscal year. Communications Test and Measurement Our Communications Test & Measurement segment is structured along three product groups. Each of these units’ portfolios addresses a portion of the lifecycle of the communication network market. Lab and Production supplies test equipment for development, system verification and production; Field Services supplies both telecom and cable instruments to install and troubleshoot broadband triple play services; Service Assurance Solutions ensures quality of services by providing end-to-end network test and monitoring. Although fiscal 2009 was challenging for the test and measurement industry, JDSU remained the market leader in our served addressable markets. Our test and measurement business has the number one market share position in optical transport test, fiber field test, cable networking test and access/metro field test tools. JDSU continued to provide service providers new field tools and service assurance systems designed to speed up triple play service delivery and to ensure quality. This year we introduced the MTS/T-BERD 4000 Multiple Services test platform for testing and maintenance of FTTx networks, which is the first full-capacity single box solution for fiber, copper, and triple play testing. The T-BERD/MTS 6000A is the industry’s smallest 10GigE field test with advanced IPTV and Triple play service test features and has been widely accepted by our service provider customers. The NetComplete Home Performance Monitoring ensures high quality broadband service performance. NetComplete Home offers increased visibility required to meet quality experience expectations for video, voice, and data over DSL and FTTx networks by accessing service performance information inside the home.
Table of ContentsAdvanced Optical Technologies The Advanced Optical Technologies business segment leverages its core technology strengths of optics and materials science to manage light and/or color effects. This segment provides optical security solutions including brand protection, anti counterfeiting for currency, and transaction card authentication; custom optics for aerospace and defense; and innovative custom color solutions for helping manufacturers differentiate their products. The diversity of products in the AOT segment contributes to revenue resiliency despite adverse market conditions. Positive trends for the AOT segment include 3D film releases, customers requiring more complex integrated design features to combat counterfeiting utilizing multiple technologies, and growth in aerospace. Looking Ahead Fiscal 2010 will be a new chapter for the company. Our strong product portfolio, solid balance sheet, and improved business model positions JDSU for growth as the economy rebounds. We will continue to focus on our core priorities to further advance the company towards our long-term goals. I look forward to updating you on our progress in the coming quarters. If you are interested in learning more about JDSU in the meantime, visit our website at www.jdsu.com/investors or contact our Investor Relations Department at investor.relations@jdsu.com or (408) 546-4445. Thank you for your support of JDSU. All of JDSU’s accomplishments are made possible because of the in-depth knowledge and extensive skill set of our employees. I would like to thank our employees whose focused commitment and tremendous efforts continue to advance JDSU towards long-term success. I would also like to thank our customers, partners, vendors and long-term stockholders for their continued support of JDSU.
Thomas H. Waechter President & CEO Forward-Looking Statements This letter includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are based on certain assumptions and reflect our current expectations. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements to differ materially from any future results, performance, or achievements discussed or implied by such forward-looking statements. Any forward-looking statement is qualified by reference to these risks, uncertainties and factors. For more information on the risks affecting the Company’s business, please refer to the “Risk Factors” section included in the Company’s Annual Report on Form 10-K for the year ended June 27, 2009 filed with the Securities and Exchange Commission, as well as in other filings on Forms 10-Q and 10-K. The forward-looking statements contained in this letter are made as of the date hereof and the Company does not assume any obligation to update the reasons why actual results could differ materially from those projected in the forward-looking statements.
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JDS UNIPHASE CORPORATION NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 11, 2009
Milpitas, California September 25, 2009
Table of ContentsJDS UNIPHASE CORPORATION 430 North McCarthy Boulevard Milpitas, California 95035 (408) 546-5000
PROXY STATEMENT
GENERAL INFORMATION Why am I receiving these proxy materials? The Board of Directors (the “Board” or “Board of Directors”) of JDS Uniphase Corporation, a Delaware corporation (the “Company”), is furnishing these proxy materials to you in connection with the Company’s 2009 Annual Meeting of Stockholders (the “Annual Meeting”). The Annual Meeting will be held at 690 North McCarthy Boulevard, Milpitas, California 95035, on November 11, 2009 at 9:00 a.m., Pacific Time. You are invited to attend the Annual Meeting and are entitled and requested to vote on the proposals outlined in this proxy statement (“Proxy Statement”). What is “Notice and Access”? The Securities and Exchange Commission has adopted amendments to the proxy rules that change how companies must provide proxy materials. These new rules are often referred to as “Notice and Access”. Under the Notice and Access model, a company may select either of the following two options for making proxy materials available to stockholders:
A company may use a single method for all its stockholders, or use full set delivery for some while adopting the notice only option for others. This process reduces the amount of time it takes for stockholders to obtain the materials, reduces the printing and mailing expenses paid by the Company, and reduces the environmental impact of producing the materials. The Company is required to comply with these new “Notice and Access” rules in connection with its Annual Meeting. Other than holders of Exchangeable Shares, who will continue to receive printed copies of the proxy materials, most of our stockholders who hold Common Stock will not receive printed copies of the proxy materials unless they request them. Instead, the “Notice of Internet Availability of Proxy Materials” (referred herein as the “Notice”), which was mailed to our stockholders who hold Common Stock, will instruct you as to how you may access and review all of the proxy materials on the Internet. The Notice also instructs you as to how you may submit your proxy on the Internet. If you would like to receive a paper or e-mail copy of our proxy materials, you should follow the instructions in the Notice for requesting such materials. If I am a holder of Exchangeable Shares, do the “Notice and Access” rules apply to me? No. The new “Notice and Access” rules apply only to stockholders of the Company who hold Common Stock. Accordingly, as a holder of Exchangeable Shares, you will continue to receive printed copies of the proxy materials.
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Table of ContentsWhat is the Full Set Delivery Option? Under the full set delivery option, a company delivers all proxy materials to its stockholders as it would have done prior to the change in the rules. This can be by mail or, if a stockholder has previously agreed, by e-mail. In addition to delivering proxy materials to stockholders, a company must now post all proxy materials on a publicly-accessible website and provide information to stockholders about how to access that website. What is the Notice Only Option? Under the notice only option, a company must post all its proxy materials on a publicly accessible website. However, instead of delivering its proxy materials to stockholders, the company instead delivers a Notice. This Notice includes, among other matters:
If a stockholder requests paper copies of the proxy materials, these materials must be sent to the stockholder within three business days. Additionally, paper copies must be sent via first class mail. In connection with its Annual Meeting, the Company has elected to use the notice only delivery option with respect to the Company’s holders of Common Stock. Accordingly, if you are a holder of Common Stock, you should have received the Notice, which provides instructions on how to access the proxy materials on-line. Will the Company use the Notice Only option in the future? The Company may choose to continue to use the notice only option in the future as a delivery option of its proxy materials with respect to its holders of Common Stock. By reducing the amount of materials that the Company is required to print and mail, the notice only option provides an opportunity for cost savings as well as conservation of natural resources. The Company plans to evaluate the future possible cost savings as well as the possible impact on stockholder participation as it considers future use of the notice only option. As a Holder of Common Stock, what do I need to do? If you would prefer to continue receiving paper copies of proxy materials if the Company elects to use the notice only option for future annual meetings, please mark the “Paper Copies” box on your Proxy Card (or provide this information when you vote telephonically or via the internet). As noted above, the Company must provide paper copies via first class mail to any stockholder who, after receiving the Notice referenced above, nevertheless requests paper copies. Accordingly, for example, even if you do not check the “Paper Copies” box now, you will still have the right to request delivery of a free set of proxy materials upon receipt of any Notice in the future. Because first class postage is significantly costlier than bulk mail rates and because each such request must be processed on a stockholder-by-stockholder basis, the cost of responding to a single request for paper copies is likely to be significantly greater than the per stockholder cost the Company currently incurs in delivering proxy materials in bulk. Accordingly, requests for paper copies could significantly undermine or eliminate expected cost savings associated with the notice only option. By developing in advance a database of Common Stock holders who would prefer to continue receiving paper copies of proxy materials, the Company would be able to use the full set delivery option for these stockholders—using bulk mail to deliver the paper copies—while using the notice only option for other Common
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Table of ContentsStock holders. We believe this would significantly reduce the number of requests for paper copies that the Company would need to process on a stockholder-by-stockholder basis and would position the Company to better capture cost savings should it continue to use the notice only option in the future. We appreciate your assistance in helping us develop this database through the Proxy Card, telephonic and internet voting processes. If I am a holder of Common Stock, how do I obtain electronic access to the proxy materials? The Notice will provide you with instructions regarding how to:
Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you and will reduce the impact of printing and mailing these materials on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it. What if I prefer to receive paper copies of the materials? If you are a holder of Exchangeable Shares, you will continue to receive printed copies of the proxy materials. If you are a holder of Common Shares and if you prefer to receive paper copies of the materials, you can still do so. You may request a paper copy of the materials by (i) calling 1-800-579-1639; (ii) sending an e-mail to sendmaterial@proxyvote.com; or (iii) logging onto www.ProxyVote.com. There is no charge to receive the materials by mail. If requesting material by e-mail, please send a blank e-mail with the 12 digit “Control Number” (located on the second page of the Notice) in the subject line. What proposals will be voted on at the Annual Meeting? There are five proposals scheduled to be voted on at the Annual Meeting: 1. To elect four Class II directors to serve until the 2012 annual meeting of Stockholders and until their successors are elected and qualified. 2. To approve amendments to the Plans to permit the Exchange Program. 3. To approve an amendment to the ESPP to increase the number of shares of common stock authorized for issuance under the ESPP. 4. To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm (hereinafter referred to as “independent auditors”) for the fiscal year ending June 30, 2010. 5. To consider such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. As to any other business which may properly come before the Annual Meeting, the persons named on the enclosed proxy card will vote according to their best judgment. The Company does not know now of any other matters to be presented or acted upon at the Annual Meeting.
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Table of ContentsWhat are the recommendations of the Company’s Board of Directors? The Board recommends that you vote “FOR” each of the four proposals presented in this Proxy Statement. Specifically, the Board recommends you vote:
What is the record date and what does it mean? The record date for the Annual Meeting is September 14, 2009. The record date is established by the Board of Directors as required by Delaware law. Holders of shares of the Company’s Common Stock and holders of Exchangeable Shares of JDS Uniphase Canada Ltd., a subsidiary of the Company, at the close of business on the record date are entitled to receive notice of the Annual Meeting and to vote at the Annual Meeting and any adjournments or postponements thereof. What shares can I vote? Each stockholder of the Company’s common stock, par value $.001 per share (“Common Stock”), is entitled to one vote for each share of Common Stock owned as of the record date, and CIBC Mellon Trust Company (the “Trustee”), the holder of the Company’s special voting share (“Special Voting Share”), is entitled to one vote for each exchangeable share of JDS Uniphase Canada Ltd., a subsidiary of the Company (“Exchangeable Shares”), outstanding as of the record date (other than Exchangeable Shares owned by the Company and its affiliates). Holders of Common Stock and the Exchangeable Shares are collectively referred to as “Stockholders”. Votes cast with respect to Exchangeable Shares will be voted through the Special Voting Share by the Trustee as directed by the holders of Exchangeable Shares, except votes cast with respect to Exchangeable Shares whose holders request to vote directly in person as proxy for the Trustee at the Annual Meeting. At the record date, 217,953,264 shares of Common Stock were issued and outstanding, one share of the Company’s Special Voting Share was issued and outstanding, and 4,501,756 Exchangeable Shares were issued and outstanding (excluding Exchangeable Shares owned by the Company and its affiliates which are not voted). Each Exchangeable Share is exchangeable at any time, at the option of its holder, for one share of the Company’s Common Stock. What constitutes a quorum? The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the shares of Common Stock and Exchangeable Shares outstanding and entitled to vote on the record date will constitute a quorum permitting the Annual Meeting to conduct its business. How are abstentions and broker non-votes treated? Under the General Corporation Law of the State of Delaware, an abstaining vote and a broker non-vote are counted as present and are, therefore, included for purposes of determining whether a quorum of shares is present at the Annual Meeting. Broker non-votes are not included in the tabulation of the voting results on the election of directors or issues requiring approval of a majority of the shares present or represented by proxy and entitled to
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Table of Contentsvote at the Annual Meeting and, therefore, do not have an effect on Proposals 1, 2, 3 or 4. A broker non-vote occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have the discretionary voting instructions with respect to that item and has not received instructions from the beneficial owner. Under the rules that govern brokers who are voting with respect to shares held by them as nominee, brokers have the discretion to vote such shares only on routine matters. Routine matters include, among others, the election of directors and ratification of auditors. Non-routine matters include, among others, the proposed amendments to the Plans and the proposed amendment to the ESPP. For the purpose of determining whether the Stockholders have approved matters other than the election of directors, abstentions are treated as shares present or represented and voting, so abstentions have the same effect as negative votes. Shares held by brokers who do not have discretionary authority to vote on a particular matter and have not received voting instructions from their customers are not counted or deemed to be present or represented for purposes of determining whether Stockholders have approved that matter. Thus, if you do not give your broker specific instructions, your shares may not be voted on these matters and will not be counted in determining the number of shares necessary for approval of Proposals 1, 2, 3, or 4. What is the voting requirement to approve each of the proposals? Proposal 1. The four candidates receiving the greatest number of affirmative votes of the votes attached to shares of Common Stock and the Special Voting Share present in person, or represented by proxy, and entitled to vote at the Annual Meeting will be elected, provided a quorum is present and voting. Abstentions and broker non-votes will not be counted toward a nominee’s total. Proposal 2. Approval of the amendments to the Plans requires the affirmative vote of a majority of the shares of Common Stock and the votes represented by the Special Voting Share (all taken together as one class) present or represented by proxy and entitled to vote on this proposal at the Annual Meeting. As a result, abstentions will have the same effect as votes against this proposal. Broker non-votes will have no effect on the outcome of this vote. Proposal 3. Approval of the amendment to the ESPP requires the affirmative vote of a majority of the shares of Common Stock and the votes represented by the Special Voting Share (all taken together as one class) present or represented by proxy and entitled to vote on this proposal at the Annual Meeting. As a result, abstentions will have the same effect as votes against this proposal. Broker non-votes will have no effect on the outcome of this vote. Proposal 4. Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors requires the affirmative vote of a majority of the shares of Common Stock and the votes represented by the Special Voting Share (all taken together as one class) present or represented by proxy and entitled to vote on this proposal at the Annual Meeting. As a result, abstentions will have the same effect as votes against the proposal. Broker non-votes will have no effect on the outcome of this vote. All shares of Common Stock and the Special Voting Share represented by valid proxies will be voted in accordance with the instructions contained therein. Votes with respect to Exchangeable Shares represented by valid voting instructions received by the Trustee will be cast by the Trustee in accordance with those instructions. In the absence of instructions, proxies from holders of Common Stock will be voted FOR Proposals 1, 2, 3 and 4. If no instructions are received by the Trustee from a holder of Exchangeable Shares, the votes to which such holder is entitled will not be exercised. How do I vote my shares? If you are a record holder of Common Stock, you can either attend the Annual Meeting and vote in person or give a proxy to be voted at the Annual Meeting:
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The Internet and telephone voting procedures have been set up for your convenience and are designed to authenticate the Common Stock holders’ identities, to allow the holders of Common Stock to provide their voting instructions, and to confirm that their instructions have been recorded properly. The Company believes the procedures which have been put in place are consistent with the requirements of applicable law. Specific instructions for record holders of Common Stock who wish to use the Internet or telephone voting procedures are set forth on the enclosed proxy card or in the Notice you received by mail. If you are a record holder of Exchangeable Shares, you can either attend the Annual Meeting and vote in person or give a proxy to be voted at the Annual Meeting by mailing the enclosed voting instruction card to the Trustee. If a holder of Exchangeable Shares does not provide the Trustee with voting instructions, your Exchangeable Shares will not be voted. Who will tabulate the votes? An automated system administered by Broadridge Financial Services, Inc. (“Broadridge”) will tabulate votes cast by proxy at the Annual Meeting and a representative of the Company will tabulate votes cast in person at the Annual Meeting. Is my vote confidential? Proxy instructions, ballots and voting tabulations that identify individual Stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within the Company or to third parties, except (i) as necessary to meet applicable legal requirements, or (ii) to allow for the tabulation and/or certification of the vote. Can I change my vote after submitting my proxy? You may revoke your proxy at any time before the final vote at the Annual Meeting. You may do so by one of the following four ways:
If you hold Exchangeable Shares and you wish to direct the Trustee to change the vote attached to the Special Voting Share on your behalf, you should follow carefully the instructions provided by the Trustee, which accompany this Proxy Statement. The procedure for instructing the Trustee differs in certain respects from the procedure for delivering a proxy, including the place for depositing the instructions and the manner for revoking the proxy.
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Table of ContentsWho is paying for this proxy solicitation? This Proxy Statement and the accompanying proxy were first sent by mail to the Trustee for the Special Voting Share and holders of Exchangeable Shares on or about September 25, 2009. The Company has also sent printed copies of the proxy materials by mail to holders of Common Stock to each holder of Common Stock who has requested such copy. The Company will bear the cost of soliciting proxies, including preparation, assembly, printing and mailing of the Proxy Statement. If you are a holder of Common Stock and if you choose to access the proxy materials and/or vote over the Internet, you are responsible for Internet access charges you may incur. If you choose to vote by telephone, you are responsible for telephone charges you may incur. The Company has not retained the services of any proxy solicitor. In addition, the Company will reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation materials to such beneficial owners. Proxies may be solicited by certain of the Company’s directors, officers and regular employees, without additional compensation, either personally, by telephone, facsimile, or telegram. How can I find out the voting results? The Company will announce the preliminary results at the Annual Meeting and publish the final results in the Company’s Quarterly Report on Form 10-Q for the second quarter of fiscal 2010. Stockholders may also find out the final results by calling the Company’s Investor Relations Department at (408) 546-4445. How do I receive electronic access to proxy materials for the current and future annual meetings? Stockholders who have previously elected to receive the Proxy Statement and Annual Report over the Internet will be receiving an e-mail on or about September 25, 2009 with information on how to access Stockholder information and instructions for voting over the Internet. Stockholders of record may vote via the Internet until 11:59 p.m. Eastern Time, November 10, 2009. If your shares are registered in the name of a brokerage firm and you have not elected to receive your Proxy Statement and Annual Report over the Internet, you still may be eligible to vote your shares electronically over the Internet. A large number of brokerage firms are participating in the ADP online program, which provides eligible Stockholders who receive a paper copy of this Proxy Statement the opportunity to vote via the Internet. If your brokerage firm is participating in ADP’s program, your proxy card will provide instructions for voting online. Stockholders can elect to view future proxy statements and annual reports over the Internet instead of receiving paper copies, which results in cost savings for the Company. If you are a Stockholder of record and would like to receive future Stockholder materials electronically, you can elect this option by following the instructions provided when you vote your proxy over the Internet at www.ProxyVote.com. If you chose to view future proxy statements and annual reports over the Internet, you will receive an e-mail notification next year with instructions containing the Internet address of those materials. Your choice to view future proxy statements and annual reports over the Internet will remain in effect until you contact either your broker or the Company to rescind your instructions. You do not have to elect Internet access each year. If you elected to receive this Proxy Statement electronically over the Internet and would now like to receive a paper copy of this Proxy Statement so that you may submit a paper proxy in lieu of an electronic proxy, you should contact your broker or the Company. How can I avoid having duplicate copies of the Proxy Statement sent to my household? Some brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports, which results in cost savings for the Company. The practice of “householding” means that only one copy of the Proxy Statement and Annual Report will be sent to multiple
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Table of ContentsStockholders in a Stockholder’s household. The Company will promptly deliver a separate copy of either document to any Stockholder who contacts the Company’s Investor Relations Department at (408) 546-4445 requesting such copies. If a Stockholder is receiving multiple copies of the Proxy Statement and Annual Report at the Stockholder’s household and would like to receive a single copy of those documents for a Stockholder’s household in the future, that Stockholder should contact their broker, other nominee record holder, or the Company’s Investor Relations Department to request mailing of a single copy of the Proxy Statement and Annual Report. When are Stockholder proposals due for next year’s annual meeting? In order for Stockholder proposals to be considered properly brought before an annual meeting by a Stockholder, the Stockholder must have given timely notice in writing to the Secretary of the Company. To be timely for the 2010 annual meeting of Stockholders (the “2010 Annual Meeting”), a Stockholder’s notice must be received by the Company at its principal executive offices 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 must set forth as to each matter the Stockholder proposes to bring before the 2010 Annual Meeting: (i) a brief description of the business desired to be brought before the 2010 Annual Meeting and the reasons for conducting such business at the 2010 Annual Meeting; (ii) the name and record address of the Stockholder proposing such business; (iii) the class and number of shares of the Company which are beneficially owned by the Stockholder; and (iv) any material interest of the Stockholder in such business. Subject to applicable laws and regulations, the Company has discretion over what Stockholder proposals will be included in the agenda for the 2010 Annual Meeting and/or in the related proxy materials. Subject to applicable laws and regulations, the Company will also have discretionary authority to vote all shares for which it has proxies regarding a Stockholder proposal if the Company fails to receive notice of the Stockholder proposal for next year’s annual meeting at least 45 days before the date in 2009 on which the Company filed this Proxy Statement (specifically, since the Company filed this fiscal 2009 proxy on September 25, 2009, the Company will have this discretionary authority if notice of a Stockholder proposal for the 2010 Annual Meeting is not received by the Company by August 11, 2010).
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Table of ContentsPROPOSAL 1 ELECTION OF CLASS II DIRECTORS The Board is divided into three classes as nearly equal in number as possible. The members of each class of directors serve staggered three-year terms. As of September 25, 2009, the Board is composed of the following eleven members:
In January 2009, Thomas Waechter joined the Board of Directors. As a result of this change, as of September 25, 2009 the authorized number of directors on the Board is eleven. The Board is currently composed of four Class I directors (Mr. Day, Mr. Kaplan, Mr. Kennedy and Mr. Waechter), four Class II directors (Mr. Belluzzo, Mr. Covert, Ms. Herscher and Mr. Jabbar) and three Class III directors (Mr. Liebhaber, Mr. Skrzypczak and Mr. DeNuccio), whose terms will expire upon the election and qualification of directors at the Annual Meeting of Stockholders held in 2010, 2009 and 2011, respectively. At each Annual Meeting of Stockholders, directors will be elected for a full term of three years to succeed those directors whose terms are expiring. At this Annual Meeting, the Stockholders will elect four Class II directors recommended by the Corporate Governance Committee (which serves as the Company’s Nominating Committee) and nominated by the Board, each to serve a three year term until the 2012 Annual Meeting of Stockholders and until a qualified successor is elected and qualified or until the director’s earlier resignation or removal. The Board has no reason to believe that the nominees named below will be unable or unwilling to serve as a director if elected.
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Table of ContentsCertain information about the Board of Directors nominees is furnished below. Class II Directors Whose Terms Will Expire in 2009
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION TO THE BOARD OF EACH OF THE NOMINEES NAMED ABOVE.
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Table of ContentsThe Company’s directors listed below will continue in office for the remainder of their terms or earlier in accordance with the Company’s Bylaws. Information regarding the business experience of each such director is provided below. Class I Director—Nominees For Three Year Terms That Will Expire in 2010
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Table of ContentsClass III Directors Whose Terms Will Expire in 2011
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Table of ContentsCORPORATE GOVERNANCE Code of Ethics The Board and management of the Company believe that good corporate governance is an important component in enhancing investor confidence in the Company and increasing Stockholder value. The imperative to continue to develop and implement best practices throughout our corporate governance structure is fundamental to our strategy to enhance performance by creating an environment that increases operational efficiency and ensures long-term productivity growth. Solid corporate governance practices also ensure alignment with Stockholder interests by promoting fairness, transparency and accountability in business activities among employees, management and the Board. Our corporate governance practices represent our firm commitment to the highest standards of corporate ethics, compliance with laws, financial transparency and reporting with objectivity and the highest degree of integrity. Representative steps we have taken to fulfill this commitment include, among others:
The Company has adopted a Code of Ethics (known as the Code of Business Conduct) for its directors, officers and other employees. The Company will post on its website any amendments to, or waivers from, any provision of its Code of Business Conduct. A copy of the Code of Business Conduct is available on the Company’s website at www.jdsu.com. Director Independence In accordance with current NASDAQ listing standards, the Board of Directors, on an annual basis, affirmatively determines the independence of each Director and nominee for election as a Director. Our Director independence standards include all elements of independence set forth in the NASDAQ listing standards, which can be found in the “Corporate Governance” section of our website at www.jdsu.com.
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Table of ContentsBoard Committees and Meetings During fiscal 20091, the Board held sixteen meetings. The Board has four committees: Audit Committee, Compensation Committee, Corporate Governance Committee, and Corporate Development Committee. The members of the committees during fiscal 2009 are identified in the following table:
No director attended fewer than 75% of all Board meetings and committees on which he served after becoming a member of the Board of Directors, except Mr. Kennedy, who did not attend five Board meetings related to the subject of the selecting his successor as CEO and President of the Company. The Company encourages, but does not require, its Board members to attend the annual Stockholders meeting. All then-current Directors attended the 2008 Annual Meeting. The Audit Committee met ten times in fiscal 2009. The Audit Committee is responsible for assisting the full Board of Directors in fulfilling its oversight responsibilities relative to the Company’s financial statements, financial reporting practices, systems of internal accounting and financial control, the internal audit function, annual independent audits of the Company’s financial statements, and such legal and ethics programs as may established from time to time by the Board. The Audit Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and may retain external consultants at its sole discretion. In addition, the Audit Committee considers whether the Company’s independent auditors’ provision of non-audit services is compatible with maintaining the independence of the independent auditors. The Board has determined that all members of the Audit Committee are “independent” as that term is defined in Rule 4200 of the Marketplace Rules of the Nasdaq Stock Market, Inc. The Board has further determined that Harold L. Covert, Bruce D. Day and Masood A. Jabbar are “audit committee financial expert(s)” as defined by Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are independent as defined by Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act. A copy of the Audit Committee charter can be viewed at the Company’s website at www.jdsu.com. The Compensation Committee met nine times in fiscal 2009. The Compensation Committee of the Board of Directors is responsible for ensuring that the Company adopts and maintains responsible and responsive compensation programs for its employees, officers and directors consistent with the long-range interests of Stockholders. The Compensation Committee is also responsible for administering certain other compensation programs for such individuals, subject in each instance to approval by the full Board. The Compensation
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Table of ContentsCommittee also has the exclusive responsibility for the administration of the Company’s employee stock purchase plans and equity incentive plans. The chair of the Compensation Committee reports on the Compensation Committee’s actions and recommendations at Board meetings. In addition, the Compensation Committee has the authority to engage the services of outside advisors, experts and others to provide assistance as needed. All members of the Compensation Committee are “independent” as that term is defined in Rule 4200 of the Marketplace Rules of the Nasdaq Stock Market, Inc. A copy of the Compensation Committee charter can be viewed at the Company’s website at www.jdsu.com. Additional information on the Compensation Committee’s processes and procedures for consideration of executive compensation are addressed in the “Compensation Discussion and Analysis” below. The Corporate Development Committee met four times in fiscal 2009. The Corporate Development Committee oversees the Company’s strategic acquisition and investment activities. The Corporate Development Committee reviews and approves certain strategic transactions for which approval of the full Board of Directors is not required and makes recommendations to the Board of Directors regarding those transactions for which the consideration of the full Board of Directors is appropriate. A copy of the Corporate Development Committee charter can be viewed at the Company’s website at www.jdsu.com. The Corporate Governance Committee met three times in fiscal 2009. The Corporate Governance Committee, which serves as the Company’s nominating committee, reviews current trends and practices in corporate governance and recommends to the Board of Directors the adoption of programs pertinent to the Company. As provided in the charter of the Corporate Governance Committee, nominations for director may be made by the Corporate Governance Committee or by a Stockholder of record entitled to vote. The Corporate Governance Committee will consider and make recommendations to the Board of Directors regarding any Stockholder recommendations for candidates to serve on the Board of Directors. Stockholders wishing to recommend candidates for consideration by the Corporate Governance Committee may do so by writing to the Company’s Investor Relations Department-Attention Corporate Governance Committee at 430 North McCarthy Boulevard, Milpitas, California 95035 providing the candidate’s name, biographical data and qualifications, a document indicating the candidate’s willingness to act if elected, and evidence of the nominating Stockholder’s ownership of Company’s stock at least 120 days prior to the next annual meeting to assure time for meaningful consideration by the Corporate Governance Committee. There are no differences in the manner in which the Corporate Governance Committee evaluates nominees for director based on whether the nominee is recommended by a Stockholder. All members of the Corporate Governance Committee are “independent” as that term is defined in Rule 4200 of the Marketplace Rules of the Nasdaq Stock Market, Inc. In reviewing potential candidates for the Board, the Corporate Governance Committee considers the individual’s experience in the Company’s industry, the general business or other experience of the candidate, the needs of the Company for an additional or replacement director, the personality of the candidate, the candidate’s interest in the business of the Company, as well as numerous other subjective criteria. Of greatest importance is the individual’s integrity, willingness to be involved and ability to bring to the Company experience and knowledge in areas that are most beneficial to the Company. The Board intends to continue to evaluate candidates for election to the Board on the basis of the foregoing criteria. A detailed description of the criteria used by the Corporate Governance Committee in evaluating potential candidates may be found in the charter of the Corporate Governance Committee. The Corporate Governance Committee operates under a written charter setting forth the functions and responsibilities of the committee. A copy of the charter can be viewed at the Company’s website at www.jdsu.com. Compensation Committee Interlocks and Insider Participation No interlocking relationship exists between any member of the Company’s Board or Compensation Committee and any member of the board of directors or compensation committee of any other companies, nor has such interlocking relationship existed in the past. Messrs. Belluzo, DeNuccio, Herscher, Kaplan and
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Table of ContentsSkrzypczak were not at any time an officer or employee of JDSU. In addition, none of our executive officers serves as a member of the Board of Directors or Compensation Committee of any company that has one or more of its executive officers serving as a member of our Board of Directors or Compensation Committee. Communication between Stockholders and Directors Stockholders may communicate with the Company’s Board of Directors through the Company’s Secretary by sending an email to bod@jdsu.com, or by writing to the following address: Chairman of the Board, c/o Company Secretary, JDSU, 430 North McCarthy Boulevard, Milpitas, California 95035. The Company’s Secretary will forward all correspondence to the Board of Directors, except for spam, junk mail, mass mailings, product complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material. The Company’s Secretary may forward certain correspondence, such as product-related inquiries, elsewhere within the Company for review and possible response. Director Compensation In June 2008 the Compensation Committee recommended, and the full Board approved, a new director compensation structure that took effect following the 2008 Annual Meeting, except for new directors joining the Board after June 2008 for whom the new structure was effective immediately. In approving the new compensation structure the Board desired to align the Company’s total pay structure for directors with relevant director compensation benchmarks, but believed it more appropriate to leave unchanged the compensation of then current directors until after the 2008 Annual Meeting. Each non-employee director of the Company receives an annual cash retainer of $60,000 which is paid in quarterly installments of $15,000. Also, upon initial appointment to the Board, each non-employee director receives a grant of restricted stock units having a value on the date of grant of $150,000, net of applicable taxes at the discretion of each non-employee director. Additionally, each non-employee director receives an annual grant of restricted stock units having a value on the date of grant of $100,000, net of applicable taxes at the discretion of each non-employee director. Such restricted stock units are subject to a grant agreement which provides for vesting over a three year period. Upon vesting each restricted stock unit is converted into one share of the Company’s Common Stock. In addition, each non-employee director serving on the Audit Committee of the Board receives an annual cash retainer of $15,000, whereas the director serving as the Audit Committee chair receives an annual cash retainer of $30,000. Each non-employee director serving on the Compensation Committee of the Board receives an annual cash retainer of $10,000, whereas the director serving as the Compensation Committee chair receives an annual cash retainer of $20,000. Each non-employee director serving on the Governance or Corporate Development Committees of the Board receives an annual cash retainer of $7,500, whereas the directors serving as the Governance or Corporate Development Committee chairs receive an annual cash retainer of $15,000. In addition to the compensation described above, Mr. Kaplan, who serves as Chairman of the Board, receives an additional annual cash retainer of $100,000 as compensation for his services which is paid in quarterly installments of $25,000. Directors who are also employed by the Company do not receive any compensation for their services as directors. All directors are reimbursed for expenses incurred in connection with attending Board and committee meetings.
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Table of ContentsAll director compensation described above is summarized in the following table in the column titled “Board Compensation Following 2008 Annual Meeting.” The previous director compensation structure is summarized in the following table in the column titled “Board Compensation Before 2008 Annual Meeting”:
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Table of ContentsNon-Management Directors’ Compensation for Fiscal Year 2009 The director compensation policies summarized above resulted in the following total compensation for our non-management directors in fiscal year 2009: DIRECTOR COMPENSATION TABLE
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Table of ContentsRelationships Among Directors or Executive Officers There are no family relationships among any of the Company’s directors or executive officers. Certain Relationships and Related Person Transactions Review and Approval of Related Person Transactions We review all relationships and transaction in which the Company and our Directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. The Company’s legal staff is primarily responsible for the development and implementation of processes and controls to obtain information from the Directors and executive officers with respect to related person transactions and for then determining, based on the facts and circumstances, whether the Company or a related person has a direct or indirect material interest in the transaction. On an annual basis, all Directors and executive officers must respond to a questionnaire requiring disclosure about any related person transactions, arrangements or relationships (including indebtedness). As required under SEC rules, any transactions that are determined to be directly or indirectly material to the Company or a related person are disclosed in the Company’s Proxy Statement. In addition, the Audit Committee reviews and approves or ratifies any related person transaction that is required to be disclosed. Related Person Transactions The Company has entered into an employment agreement with Thomas Waechter and Kevin J. Kennedy (see “Employment Contracts, Termination of Employment and Change in Control Arrangements” below). Executive Officers The following sets forth certain information regarding the Company’s executive officers as of June 30, 2009:
Thomas Waechter became Chief Executive Officer and President of the Company in January 2009, prior to which he was Executive Vice President of the Communications Test & Measurement Group. Prior to joining the Company, Mr. Waechter was the chief operating officer of Harris Stratex Networks, an independent supplier of wireless transmission systems. As president and chief executive officer of Stratex Networks, he was instrumental in the merging of Stratex and Harris, while growing revenues substantially and improving profitability. Prior to that, Mr. Waechter was the president and chief executive officer of REMEC Corporation and has also served as
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Table of Contentspresident and chief executive officer of Spectrian Corporation. Additionally, he held a number of executive level global operations positions during his 14 year career with Schlumberger as well as a senior executive position with Asyst Technologies. He holds a Bachelor of Business Administration from The College of William and Mary. Mr. Waechter also serves as a trustee for the College of William and Mary Foundation. David Vellequette joined the Company in July 2004 as Vice President and Operations Controller and served in this capacity until June 2005 when he accepted the position of Chief Financial Officer. Prior to joining the Company, Mr. Vellequette was Vice President of Worldwide Sales and Services Operations at Openwave Systems, Inc., from April 2002 to July 2004. Between 1992 and 2002, Mr. Vellequette held increasingly responsible positions at Cisco Systems, first as Corporate Controller of StrataCom Corporation (acquired by Cisco in 1996) and later as Vice President of Finance. Mr. Vellequette is a Certified Public Accountant and holds a B.S. degree in accounting from the University of California, Berkeley. Mr. Vellequette serves on the board of directors of Superconductor Technologies Inc. Roy Bie became Senior Vice President, Advanced Optical Technologies Products Group in 2006, prior to which he was Vice President and General Manager of the Flex Products Group from 2000 until 2006, and Vice President of Operations for Flex Products from 1996 to 2000. From 1993 to 1996, Mr. Bie served as Director of Operations for Flex Products. Prior to joining the Company, Mr. Bie held operational and management leadership positions with Xicor (now part of Intersil), Material Progress (now part of Komag), Mag-Media (bought by Polaroid), and began his career at National Semiconductor. Matthew Fawcett joined the Company in August 1999 as Corporate Counsel and then served as Associate General Counsel and Director of Intellectual Property until October 2008 when he became Senior Vice President, General Counsel and Secretary. Prior to joining JDSU, Mr. Fawcett was Corporate Counsel to Fujitsu, and before that he worked in private practice at Morrison & Foerster. Fawcett holds a bachelor’s degree from the University of California at Berkeley and a J.D. from the University of California at Los Angeles. David Holly joined the Company in August 2005 as part of its acquisition of Acterna, and he became Executive Vice President and President, Communications Test & Measurement in April 2009. He has more than 18 years of experience in the test and measurement industry. Prior to Acterna/JDSU, Mr. Holly had managerial sales responsibilities at NYNEX (now part of Verizon) and began his career in engineering at IBM. Mr. Holly earned a bachelor’s of science degree in electrical engineering from Lehigh University and a master’s degree in business administration from the State University of New York in Binghamton. Alan Lowe joined the Company in September 2007 as Senior Vice President of the Commercial Lasers business, and he became Executive Vice President and President, Communications & Commercial Optical Products in October 2008. Prior to joining the Company, Mr. Lowe was Senior Vice President, Customer Solutions Group at Asyst Technologies, Inc. a leader in automating semiconductor and flat panel display fabs. From 2000 to 2003, he was president and chief executive officer of Read-Rite Corporation, a manufacturer of thin-film recording heads for disk and tape drives. From 1989 to 2000, Lowe served in roles of increasing responsibility at Read-Rite, including President and Chief Operating Officer, and senior vice president, customer business units. Prior to joining Read-Rite, he served in various sales positions with Microcom Corporation and IBM Corporation. Mr. Lowe holds bachelor’s degrees in computer science and business economics from the University of California, Santa Barbara, and also completed the Stanford Executive Program in 1994. Sharad Rastogi joined the Company in October 2008 as Senior Vice President, Corporate Development & Marketing. Prior to joining the Company in 2008, Mr. Rastogi served as vice president of corporate development at Avid Technology and general manager of Pinnacle Systems, Avid’s consumer business unit. Prior to Avid, Sharad was a partner at management consulting firm Bain & Company, Inc. Before Bain & Company, he was senior automation engineer at hard-disk manufacturer Komag, Inc. Rastogi holds a bachelor of technology in mechanical engineering from the Indian Institute of Technology in New Delhi and an M.S. in manufacturing engineering from Boston University. He also holds an MBA from the Wharton School at the University of Pennsylvania.
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Table of ContentsPROPOSAL 2 STOCK OPTION EXCHANGE PROGRAM FOR ELIGIBLE EMPLOYEES We are asking our Stockholders to approve amendments to certain of our existing equity incentive plans to allow for a one-time, value-for-value stock option exchange program (the “Exchange Program”). Our Board, upon recommendation by the Compensation Committee of our Board (the “Compensation Committee”), authorized the Exchange Program on August 12, 2009, subject to Stockholder approval of this proposal. In brief, under the Exchange Program, Company employees other than the Named Executive Officers (“NEOs”) and members of our Board would be given the one-time opportunity to exchange stock options with an exercise price no lower than our 52-week high on NASDAQ for a lesser number of new restricted stock units (“RSUs”) that have approximately the same value as the options surrendered or, under limited circumstances, new stock options, may be issued instead of RSUs. We believe the Exchange Program is in the best interests of our Stockholders and the Company, as new RSUs and stock options received under the Exchange Program will enhance our employee retention efforts by motivating and engaging our eligible employees to continue to build Stockholder value. In addition, we also believe that the Exchange Program will allow the Company to reduce its “overhang” of outstanding employee stock options (defined as the sum of options outstanding plus the unvested restricted stock plus the shares available for grant under the Company’s equity plans divided by the total Common Stock outstanding) and allow the Company and our Stockholders to realize value from the compensation expense already incurred and anticipated to be incurred in the future from the surrendered stock options. In order to effectuate the Exchange Program, we specifically are seeking Stockholder approval of an amendment to each of our Amended and Restated 1993 Flexible Stock Incentive Plan, Amended and Restated 2003 Equity Incentive Plan, Amended and Restated 2005 Acquisition Equity Incentive Plan, and the SDL, Inc. 1995 Stock Option Plan (collectively, the “Plans”). The amendments, each of which are included as an appendix to this Proxy Statement, would permit some of our employees to surrender certain outstanding stock options that are significantly “underwater” (i.e., options with an exercise price that is greater than the current per share closing price of our Common Stock) for cancellation in exchange for a lesser number of RSUs or a lesser number of stock options with lower exercise prices to be granted under our Amended and Restated 2003 Equity Incentive Plan (the “2003 Plan”). Exchange ratios will be designed to result in the employee receiving a value as of the grant date of the RSU or the new option which is approximately equal to the value of the options that are being replaced. Each RSU issued in the Exchange Program will represent an unfunded right to receive one share of our Common Stock on the future date when the RSU vests. This proposal does not seek additional shares of our Common Stock for our Plans or to extend the terms of our 2003 Plan. The exercise price threshold for options eligible to be exchanged will be no lower than the highest closing price of our Common Stock on NASDAQ during the 52 weeks prior to the start of the Exchange Program (“Exchange Price”), though the Board will retain discretion to set the Exchange Price higher than this trailing 52 week high. The use of this threshold is designed to ensure that only outstanding options that are significantly underwater are eligible to participate in the Exchange Program. Additionally, no stock options granted within the 12-month period prior to the commencement of the Exchange Program will be eligible for exchange. The Board in its sole discretion may also exclude options that expire within a short time period from the date the Exchange Program is effectuated from participating in the Exchange Program. The Exchange Program will be open to all employees of the Company and any of our subsidiaries designated for participation by the Compensation Committee other than, as mentioned above, members of the Board and our NEOs. Stockholder approval is required for this proposal under the NASDAQ listing standards and the terms of certain of the Plans. If this proposal is approved, and our Board determines to implement the Exchange Program, the option exchange would commence within 12 months of the date of the Annual Meeting. If our Stockholders do not approve this proposal, the Exchange Program will not take place.
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Table of ContentsVote Required Stockholder approval of this proposal requires the affirmative vote of a majority of the shares of Common Stock and the votes represented by the Special Voting Share (all taken together as one class) present or represented by proxy and entitled to vote on this proposal at the Annual Meeting. As a result, abstentions will have the same effect as votes against the proposal. Broker non-votes will have no effect on the outcome of this vote. Rationale for the Exchange Program Economic conditions worldwide have contributed to slowdowns in the technology industry at large, as well as to the specific segments and markets in which we operate. More specifically, the worldwide economic downturn and the impacted credit markets have affected the solvency of customers, the solvency of key suppliers and the ability of customers to obtain credit to finance purchases of products. In addition, and in response to the global economic slowdown, many customers have deferred and/or delayed new deployments and build-outs. Consequently, there has been a widespread reduction in telecom carrier and cable operator capital and R&D spending levels. This, in turn, has negatively impacted our sales compared to the prior fiscal year, as well as the sales of our competitors, and some of our customers who also serve the telecom and cable end markets. These macroeconomic conditions have contributed to a significant reduction in our share price. As described elsewhere in this Proxy Statement, we award stock options in order to motivate and retain our talented employees. In addition, we believe that equity-based compensation aligns the interests of our employees with those of our Stockholders by providing opportunities to derive compensation through equity ownership and appreciation in the fair market value of the shares of our Common Stock. Our long-term equity compensation program is broad-based, with over 57% of our employees currently holding equity awards. Our stock price decline over the last several years has resulted in a significant weakening of the incentive and retention value of our outstanding stock options, which are important components of our total compensation program. The Board believes that these underwater options no longer support the long-term incentive and retention objectives that they were intended to provide. The Board believes the Exchange Program is important in order to restore the intended objectives and realign employee and Stockholder interests. Specifically, we believe that it is critical to implement the Exchange Program at this time in order to be able to continue to effectively motivate and retain employees, particularly given the challenges and difficult operating conditions which currently persist in the global financial and economic climate and the threat to employee retention once conditions improve. In addition, we believe the Exchange Program would help reduce market overhang provided by our equity awards to better balance the objectives of our long term incentive plans and our Stockholder’s interests. Further, cancellation of certain outstanding options in exchange for RSUs or fewer new stock options will result in an increase in the number of shares available for further strategic grant under the 2003 Plan because certain cancelled options originally issued under the 2003 Plan would be returned to the available share pool of the 2003 Plan, thus potentially reducing the frequency and/or size of future requests to increase the maximum number of shares that may be strategically issued under the 2003 Plan. On June 27, 2009, there were options outstanding to purchase 16.8 million shares of our Common Stock with exercise prices ranging from $1.04 to $1,054.50 per share, and a weighted average exercise price of $33.65 as compared to the closing price per share of our Common Stock on the NASDAQ National Market on that day of $5.70. Approximately 70% of our outstanding options are underwater. The weighted average exercise price of these underwater options was $46.36 as compared to a $5.70 closing price of our Common Stock on June 27, 2009 and a weighted average expected term of 3.3 years. The majority of the stock options eligible for the Exchange Program were granted as part of our periodic broad-based equity compensation program. In addition to our periodic broad-based grants, historically we have granted options under our guidelines at varying times to newly-hired employees and employees who have been promoted or assumed greater responsibilities outside our regular compensation cycle. Please see the “Equity Grant Practices” section of our Compensation Discussion and Analysis for more information.
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Table of ContentsWe believe the Exchange Program is important for the following reasons:
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Table of ContentsAlternatives Considered As part of our consideration of the Exchange Program, we considered the following alternatives:
The Exchange Program The Exchange Program has been designed to take into account our Stockholder’s interests and includes the following principles:
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Description of Exchange Program General. We have not commenced the Exchange Program and will not do so unless our Stockholders approve this proposal. Our Board, upon recommendation by the Compensation Committee, authorized the Exchange Program on August 12, 2009, subject to Stockholder approval of this proposal. If this proposal is approved, and our Board determines to implement the Exchange Program, the option exchange would commence within 12 months of the date of the Annual Meeting. Under the proposed Exchange Program, Eligible Employees will be offered the opportunity to participate in the Exchange Program pursuant to a written offer that will be distributed to all eligible employees. The Eligible Employees will be given at least 20 business days in which to accept the offer of the new RSUs in exchange for the surrender of their eligible options. The surrendered options will be cancelled on the first business day following this election period. The new RSUs will be granted under the 2003 Plan on the date of cancellation of the surrendered options. In those limited cases where new options will be granted or cash payments made in exchange for surrendered options, such grants or payments also will be made on the date of the cancellation of the surrendered options. The shares of our Common Stock subject to surrendered options will not be available for future issuance under our equity incentive plans once the surrendered options are cancelled except that shares subject to surrendered options initially granted under the 2003 Plan will be returned to the 2003 Plan’s share pool and available for future strategic award issuance to the extent permitted by RiskMetrics guidelines. Based on an assumption that 100% of the options eligible for the Exchange Program are surrendered, we estimate approximately 4 million shares will be returned to the 2003 Plan through the Exchange Program (after the necessary adjustment for the RSUs that will be issued in exchange for the surrendered options). Prior to commencement of the Exchange Program, we will file the offer to exchange with the Securities and Exchange Commission (the “SEC”) as part of a tender offer statement on Schedule TO. Eligible Employees, as well as Stockholders and members of the public, will be able to review the offer to exchange and other related documents filed by us with the SEC free of charge on the SEC’s website at www.sec.gov.
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Table of ContentsEligible Employees. If implemented, the Exchange Program will be open to all of our then-active employees worldwide, including any employees of our majority-owned subsidiaries, who hold options with a per share exercise price greater than or equal to the Exchange Price, except where we determine that it is infeasible or impractical to offer the Exchange Program under local regulations (an “Eligible Employee”). Our members of the Board and NEOs will not be eligible to participate in the Exchange Program. Our other executive officers will be eligible to participate in the Exchange Program. The Exchange Program will not be available to any former employees. An active employee who tenders his or her options for exchange must also remain an Eligible Employee through the date that the new RSU grant is made following the completion of the Exchange Program in order to receive the new RSUs. Active employment does not include any period of “garden leave” or notice periods that may be provided for under local law. If an option holder is no longer an active employee with us or one of our majority-owned subsidiaries for any reason, including layoff, termination, voluntary resignation, death or disability, on the date that the Exchange Program is commenced, that option holder cannot participate in the Exchange Program. If an option holder is no longer an active employee with us or one of our majority-owned subsidiaries for any reason on the date that the new RSU grant is made following the completion of the offer, even if he or she had elected to participate and had tendered his or her options for exchange, such employee’s tender will automatically be deemed withdrawn and he or she will not participate in the Exchange Program. He or she will retain his or her outstanding options in accordance with their original terms and conditions, and he or she may exercise them during a limited period of time following termination of employment in accordance with their terms and to the extent that they are vested. A vote by an employee in favor of this proposal at the Annual Meeting does not constitute an election to participate in the Exchange Program. Election to Participate. Participation in the Exchange Program will be entirely voluntary on part of the Eligible Employees. The Eligible Employees will have an election period of at least 20 business days from the commencement of the Exchange Program in which to determine whether they wish to participate. Eligible Options. Only stock options with an exercise price above the Exchange Price (which, assuming an exchange offer to implement the Exchange Program were to have commenced June 27, 2009, would have been no lower than $11.90) will be eligible for exchange under the Exchange Program. In addition, only stock options that were granted at least 12 months prior to the commencement of the Exchange Program will be eligible for exchange under the Exchange Program. On June 27, 2009, the per share closing price of our Common Stock on the NASDAQ National Market was $5.70. Thus, the exercise prices of the stock options eligible under the Exchange Program, which would range from $11.91 to $1,054.50, are approximately 2 to 185 times such closing price. Approximately 70% of all of our currently outstanding options are underwater and approximately 44% of our currently outstanding stock options would be eligible for exchange in the Exchange Program. Exchange Ratio. The exchange ratios set forth below for the Exchange Program (that is, how many options an employee must surrender in order to receive one RSU) will be determined using the Black-Scholes option pricing model with a computation of expected volatility based on a combination of historical and market-based implied volatility from traded options on our Common Stock. Volatility is calculated on the same basis as we use for calculating stock expense under FAS 123(R). We chose to use this model to enable us to implement the Exchange Program in a manner that will result in the granting of new RSUs that have a fair value equal as of its grant date which is approximately equal to the fair value of the surrendered options and to avoid the stockholder dilution that occurs when all options are exchanged on a one option for one RSU basis. New RSU grants calculated according to the exchange ratios will be rounded down to the nearest whole share on a grant-by-grant basis. Fractional RSUs will not be issued. Although the final exchange ratios cannot be determined now, the exchange ratios set forth below provide an example by utilizing the Black-Scholes option pricing model and actual data available as of June 27, 2009 (the conclusion of our 2009 fiscal year) including (i) our closing stock price on NASDAQ of $5.70, (ii) our previous highest per share closing price of our Common Stock for the 52-week period immediately preceding June 27, 2009 of $11.90, (iii) the number of stock options that would be eligible for exchange using a hypothetical June 27, 2009 exchange date, (iv) the principle that the new RSUs or options granted will have a fair value approximately equal as of its grant date to the fair value of the surrendered options, (v) the presumption that all
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Table of Contentseligible options will be surrendered through the Exchange Program, and (vi) the exclusion of all options set to expire by their contractual terms prior to July 1, 2010 as an example of the potential exercise of the Board’s discretion to exclude options that will expire within a short time period after the Exchange Program is effectuated. The illustrative exchange ratios for new RSUs and options granted in exchange for surrendered options are set forth in the table below. The actual exchange ratios will be determined at the time the Exchange Program commences based on our then-current stock price and volatility. OPTION-FOR-RSU EXCHANGE
OPTION-FOR-OPTION EXCHANGE
Vesting of New RSUs. New RSUs granted in the Exchange Program will not be vested on their date of grant regardless of whether the surrendered option was fully vested. Instead, the new RSUs will vest on the first anniversary of the grant date. New RSUs will only vest if the award holder remains an employee with us or one of our majority-owned subsidiaries. Any portion of the new RSUs that are not vested at termination of employment will be forfeited. As described above, the new RSUs will be completely unvested on the date of grant, regardless of whether the surrendered options were partially or completely vested. Term and Conditions of New RSUs. The terms and conditions of the new RSUs will be governed by the terms and conditions of the 2003 Plan and the RSU agreement entered into thereunder. New Stock Options. In Canada, and potentially in other foreign jurisdictions, an option-for-RSU exchange is subject to taxation on the date the options are cancelled in exchange for the new RSUs grants. In light of the potential adverse consequences of such taxation to eligible employees in foreign jurisdictions such as Canada, we will grant a lesser number of new options in exchange for surrendered options held by employees in Canada and other foreign jurisdictions where we determine that the tax consequences of an option-for-RSU exchange are prohibitively adverse to employees. Any new options granted as part of the Exchange Program will be granted on the date of cancellation of the old options, will have a per share exercise price equal to the fair market value of
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Table of Contentsour Common Stock on the date of grant and will have a fair value approximately equal as of its grant date to the fair value of the surrendered options (as calculated using the same assumptions as are used for the RSU exchange ratios). All new options granted as part of the Exchange Program will vest on the first anniversary of the grant date and will have a new term of five years. Cash Payments. In certain instances where we have determined that offering RSUs would provide minimal retentive value, would be overly burdensome to implement or administer or would not provide a meaningful benefit to holders of eligible options, we will provide for a cash payment to the employee in exchange for the surrendered options. Generally, subject to the determination of the Board, we expect that this will be limited to cases where less than an aggregate of 100 new RSUs would be issuable to an employee in the Exchange Program. The amount of the cash payment will be calculated based on the RSU exchange ratio and in a manner intended to provide those receiving cash payments with a fair value approximately equal as of the payment date to the fair value of the surrendered options, less any taxes and social insurance contributions due on the payments. To ensure that the payments of any such de minimis cash amounts satisfy securities law requirements that they be made promptly following the completion of the Exchange Program, we have determined that such payments cannot be subject to vesting or other delayed payment schedule. Accordingly, any cash payments that we provide in exchange for surrendered options will not be subject to any vesting schedule and will be made on the date that replacement RSUs are granted. Accounting Treatment. The intent of the Exchange Program is that it will be approximately cost-neutral and not result in us incurring significant additional compensation expense. Based on this objective, the average fair value of the awards granted to employees in exchange for surrendered stock options, measured as of the date such awards are granted (and the amount of any cash payments made for eligible options) will be approximately equal to fair value of the surrendered options (other than compensation expense that might result from fluctuations in stock price after the exchange ratios have been set but before the exchange actually occurs). The unamortized compensation expense from the surrendered options and incremental compensation expense, if any, associated with the new awards under the Exchange Program will be recognized over the service period of the new awards. If any portion of the new awards granted is forfeited due to termination of employment, the compensation cost for the forfeited portion of the award generally will not be recognized. Based on the assumptions described under “Description of Exchange Program—Exchange Ratios” above, and assuming that our stock price does not materially fluctuate between the establishment of the exchange ratios and the date the exchange actually occurs, then, as a result of the Exchange Program, we would expect to recognize an incremental non-cash accounting charge of approximately $453,000 over the vesting period of the new awards. However, even if our stock price fluctuates between the date the Exchange Program commences and the date the exchange actually occurs, we would not expect to recognize any material non-cash accounting charges as a result of the Exchange Program. U.S. Federal Income Tax Consequences and Other Tax Consequences. The following is a summary of the anticipated material U.S. federal income tax consequences of participating in the Exchange Program. A more detailed summary of the applicable tax considerations to participating employees will be provided in the offer to exchange. We believe that the Exchange Program should be treated as a non-taxable exchange for U.S. federal income tax purposes, and we and our participating employees should recognize no income for U.S. federal income tax purposes upon the issuance of the new RSUs. Recipients of cash payments will recognize ordinary income for U.S. federal income tax purposes on the date the cash payments are made to them, and the payments will be subject to applicable tax withholdings. However, the tax consequences of the Exchange Program are not entirely certain, and the Internal Revenue Service is not precluded from adopting a contrary position. The law and regulations themselves are also subject to change. The tax consequences of the Exchange Program in foreign jurisdictions will depend on applicable foreign tax rules and regulations. All Eligible Employees are urged to consult their own tax advisors regarding the tax treatment of participating in the Exchange Program under all applicable laws prior to participating in the Exchange Program. Potential Modification to Terms to Comply with Governmental Requirements. The terms of the Exchange Program will be described in a tender offer statement on Schedule TO that will be filed with the SEC. Although
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Table of Contentswe do not anticipate that the SEC would require us to modify the terms materially, it is possible that we will need to alter the terms of the Exchange Program to comply with potential SEC comments. In addition, it is currently our intention to make the program available to our Eligible Employees, including certain employees of our majority-owned subsidiaries who are located outside of the United States, where permitted by local law and where we determine it is feasible and practical to do so. It is possible that we will make modifications to the terms offered to employees in countries outside the United States to comply with local requirements, for tax or accounting reasons or for other reasons. The Board will retain the discretion to make any such necessary or desirable changes to the terms of the Exchange Program for purposes of complying with comments from the SEC or optimizing the consequences of U.S. federal or foreign tax, accounting or other local requirements. For example, as described above, because of the adverse tax consequences to participants who are resident in Canada and potentially in some other foreign jurisdictions of an option-for-RSU exchange, we intend to issue a lesser number of options, calculated based on the same methodology as for the option-for-RSU exchange described above, to employees resident in Canada and potentially to employees in jurisdictions with similar adverse tax consequences. Amendment to the Plans In order to permit us to implement the Exchange Program in compliance with the terms of the Plans and applicable NASDAQ listing standards, our Board, upon recommendation by the Compensation Committee, authorized the Exchange Program, including amendments to each of the Plans, subject to Stockholder approval of this proposal. We are seeking Stockholder approval to amend each of the Plans to provide for the Exchange Program, notwithstanding any provision to the contrary in the respective plan. Please see the Appendices to this Proxy Statement for the text of the amendments to the Plans. Effect on Stockholders The Exchange Program was designed to provide renewed incentives and motivate the eligible employees to continue to create Stockholder value and reduce the number of shares currently subject to outstanding options, thereby avoiding the dilution in ownership that normally results from supplemental grants of new stock options or other awards. We are unable to predict the precise impact of the Exchange Program on our Stockholders because we are unable to predict how many or which of our employees will be considered Eligible Employees or will choose to participate in the Exchange Program. As noted above, however, members of our Board and our NEOs will not be able to participate in the Exchange Program. The Exchange Program is also not available to any former employee of us or our majority-owned subsidiaries. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE STOCK OPTION EXCHANGE PROGRAM FOR ELIGIBLE EMPLOYEES.
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Table of ContentsPROPOSAL 3 AMENDMENT OF THE AMENDED AND RESTATED 1998 EMPLOYEE STOCK PURCHASE PLAN General The Company’s Stockholders are being asked to approve the amendment of the Company’s 1998 Employee Stock Purchase Plan (the “Plan”), which will have the effect of increasing the number of shares reserved under the Plan by 8,000,000 shares to 14,250,000. The Company’s Plan was adopted in June 1998. The Plan was originally amended on November 9, 2001 and subsequently amended and restated on July 31, 2002, November 10, 2005, November 16, 2007, and June 22, 2009. On August 12, 2009 the Board approved the amendment of the Plan to increase the number of shares reserved under the Plan by 8,000,000 shares, subject to Stockholder approval at the Annual Meeting. The Plan is an important component in the Company’s compensation structure, providing eligible employees an opportunity to purchase Company stock through payroll deductions and benefit from stock price appreciation, thus enhancing the alignment of employee and stockholder interests. The Board believes that amending the Plan to increase the share reserve is critical in enabling the Company to continue offering benefits to employees under the Plan and to motivate high levels of performance through employee stock ownership in the Company. The Stockholders were last requested to approve the addition of shares to the Plan eight years ago at the Company’s annual meeting of Stockholders for its 2001 fiscal year on November 9, 2001. At that time Stockholders approved an increase in the number of authorized shares to the current approved total of 6,250,000 shares, which has been sufficient to provide for purchases until now. The Board believes, however, that the remaining share balance has declined to the point where it is no longer adequate to ensure that the Company will be able to continue to offer the Plan as a benefit to eligible employees beyond another one to two purchase periods. The Company presently anticipates that the addition of the shares for which approval is being sought through this proposal will be sufficient to provide for employee purchases under the Plan for approximately seven years. Summary of Plan Amendment At the Annual Meeting, the Stockholders are being asked to approve an amendment to the Plan to add 8,000,000 shares to the number of shares reserved for issuance under the Plan. This will increase the total number of shares reserved for issuance under the Plan to 14,250,000. Summary of the Purchase Plan The following summary of the Plan is qualified in its entirety by the specific language of the Plan, a copy of which is available to any Stockholder upon request or may be viewed without charge on the Securities and Exchange Commission website at www.sec.gov. General. The Plan is intended to provide eligible employees of the Company and one or more of its Corporate Affiliates with the opportunity to purchase shares in the Company through participation in a stock purchase plan. It is also intended to qualify as an “employee stock purchase plan” under section 423 of the Internal Revenue Code. Each Participant in the Plan is granted at the beginning of each Purchase Period under the Plan the right to purchase through accumulated payroll deductions up to a number of shares of the common stock of the Company (referred to under this Proposal as a “Purchase Right”) determined on the first day of the Purchase Period. The Purchase Right is automatically exercised on the last date of the Purchase Period provided the Purchase Right remains outstanding on such date.
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Table of ContentsAuthorized Shares. Currently, an aggregate of 6,250,000 of the Company’s authorized but unissued or reacquired shares of common stock have been authorized for issuance under the Plan. The amendment would increase this number to 14,250,000. Under the terms of the Plan, the maximum amount of shares purchased by an individual Participant may not exceed 4,000 shares pursuant to any one outstanding Purchase Right. Appropriate adjustments will be made to the number of shares authorized under the Plan and to outstanding Purchase Rights in the event of any recapitalization, stock dividend, stock split, combination of shares, or other change affecting the outstanding common stock of the Company. All outstanding Purchase Rights will be automatically exercised immediately prior to any sale, merger, reorganization, or liquidation of the Company. Administration. The Plan is administered by the Plan Administrator, which is defined by the Plan as either the Board of Directors or a Committee of the Board (referred to under this Proposal collectively as the “Board”). The Board has full authority to construe, interpret, and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. All determinations of the Board are final and binding on all persons having an interest in the Plan or any Purchase Right. Eligibility. Any Employee of the Company or of any present or future Corporate Affiliate designated by the Board for inclusion in the Plan is eligible to participate in a particular Purchase Period under the Plan so long as the Employee is customarily employed for more than 20 hours per week and more than five months in any calendar year. However, no Employee who owns or holds options to purchase, or who, as a result of participation in the Plan, would own or hold options to purchase, five percent or more of the total combined voting power or value of all classes of stock of the Company or of its Corporate Affiliates is eligible to participate in the Plan. The Employee must complete the enrollment forms prescribed by the Board and file the forms with the Company before the start of the Purchase Period. As of July 31, 2009, approximately 2,913 Employees, including seven executive officers, were eligible to participate in the Plan. Purchase Periods. The Plan is implemented through offerings of approximately six months in duration, beginning on or about February 1 and August 1 of each year. Two separate Purchase Periods shall begin during a calendar year during which the Plan remains in existence. Participation and Purchase of Shares. Participation in a Purchase Period under the Plan is limited to eligible Employees who authorize payroll deductions prior to the first day of a Purchase Period. Payroll deductions may be any multiple of 1% of Compensation paid to the Employee up to a maximum of 10%. An employee who becomes a Participant in the Plan will automatically participate in each subsequent Purchase Period beginning immediately after the last day of the Purchase Period in which he or she is a Participant until the employee withdraws from the Plan, becomes ineligible to participate, or terminates employment. Subject to any notice requirements imposed by the Company, a Participant may decrease his or her rate of payroll deductions one time in each Purchase Period. The reduced rate shall stay in effect unless the Participant designates a different rate (up to the 10% maximum) before the beginning of the next Purchase Period. If the rate is increased, the new rate will be effective for the first Purchase Period after the appropriate forms are filed with the Company. The Participant may withdraw from the Plan before any purchase date by filing the prescribed notice with the Company. Upon withdrawal, the Company will refund without interest the Participant’s accumulated payroll deductions not previously applied to the purchase of shares. Once a Participant withdraws from a Purchase Period, that Participant may not again participate in the same Purchase Period. Subject to certain limitations, the shares a Participant can acquire for a Purchase Period shall be the number of whole shares determined by dividing both the payroll deductions collected during the Purchase Period and any amount carried over from prior Purchase Periods, by the purchase price in effect for such purchase date. As a further limitation, no Participant may accrue a right to purchase shares of common stock under the Plan or any other employee stock purchase plan of the Company having a fair market value exceeding $25,000 (measured by the fair market value of such stock on the date or dates the rights are granted to the Participant) for each calendar year in which the Purchase Right is outstanding at any time. Purchase Rights are nontransferable unless by laws of descent and distribution, and may only be exercised by the Participant.
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Table of ContentsOn the last day of each offering (referred to under this Proposal as “Purchase Date”), the Company issues to each Participant in the offering the number of shares of the Company’s common stock determined by dividing the amount of payroll deductions accumulated for the Participant during the offering by the purchase price, limited in any case by the number of shares subject to the Participant’s Purchase Right for that offering. The price at which shares are sold under the Plan is established by the Board but shall be the lesser of 95% of the fair market value of the share on the date the Purchase Right is granted or on the date it is exercised. The fair market value of the common stock on any relevant date generally will be the closing price per share as reported on the NASDAQ Stock Market. On June 26, 2009, the closing price per share of our common stock was $5.70. Any payroll deductions under the Purchase Plan not applied to the purchase of shares will be returned to the Participant without interest, unless the amount remaining is less than the amount necessary to purchase a whole share of common stock, in which case the remaining amount may be applied to the next Purchase Period if the Participant participates in the next Purchase Period. Change in Control. If there is a disposal of all or substantially all of the assets or outstanding capital stock of the Company by means of a sale, merger, reorganization where the Company is not the surviving corporation, or in the event of a liquidation, then all outstanding Purchase Rights under the Plan shall automatically be exercised prior to such sale, merger, reorganization or liquidation. Subject to other limitations under the Plan, all purchase rights will be automatically exercised by applying previously collected payroll deductions to the purchase of whole shares of Stock. Termination or Amendment. The Plan will continue until the earlier of: (i) the date it is terminated by the Company under the sole discretion of the Board, (ii) August 1, 2018, or (iii) until all of the shares reserved for issuance under the Plan have been issued. The Board may at any time alter, amend, suspend or terminate the Plan, except that no such action will become effective until after any outstanding Purchase Rights are exercised in a Purchase Period during which said action was authorized. New Plan Benefits. No purchase rights have been granted, and no shares have been issued, on the basis of the 8,000,000 share increase, which is the subject of this proposal. Because benefits under the Plan will depend on employees’ elections to participate and the fair market value of the Company’s common stock at various future dates, it is not possible to determine the benefits that will be received by executive officers and other employees if the share increase is approved by the shareholders. Non-employee directors are not eligible to participate in the Plan.
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Table of ContentsPurchases Under the Plan The following table shows, as to each of our named executive officers and the other individuals and groups indicated, the number of shares of common stock purchased under the Plan from the inception of the Plan through the most recent Purchase Date:
Summary of U.S. Federal Income Tax Consequences The following summary is intended only as a general guide to the U.S. federal income tax consequences of participation in the Plan and does not attempt to describe all possible federal or other tax consequences of such participation or tax consequences based on particular circumstances. Generally, there are no tax consequences to an Employee of either becoming a Participant in the Plan or purchasing shares under the Plan. The tax consequences of a disposition of shares vary depending on the period such stock is held before its disposition. If a Participant disposes of shares within two years after the offer date or within one year after the purchase date on which the shares are acquired (a “disqualifying disposition”), the Participant recognizes ordinary income in the year of disposition in an amount equal to the difference between the fair market value of the shares on the purchase date and the purchase price. Any additional gain or resulting loss recognized by the Participant from the disposition of the shares is a capital gain or loss. If the Participant disposes of shares at least two years after the offer date and at least one year after the purchase date on which the shares are acquired, the Participant recognizes ordinary income in the year of disposition in an amount equal to the lesser of (i) the difference between the fair market value of the shares on the date of disposition and the purchase price or (ii) the difference between the fair market value of the shares on
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Table of Contentsthe offering date and purchase price (determined as if the Purchase Right were exercised on the offering date). Any additional gain recognized by the Participant on the disposition of the shares is a capital gain. If the fair market value of the shares on the date of disposition is less than the purchase price, there is no ordinary income, and the loss recognized is a capital loss. If the Participant owns the shares at the time of the Participant’s death, the lesser of (i) the difference between the fair market value of the shares on the date of death and the purchase price or (ii) the difference between the fair market value of the shares on the offer date and purchase price (determined as if the Purchase Right were exercised on the offering date) is recognized as ordinary income in the year of the Participant’s death. If the exercise of a Purchase Right does not constitute an exercise pursuant to an “employee stock purchase plan” under section 423 of the Internal Revenue Code, it will be treated as the exercise of a nonstatutory stock option. The Participant would therefore recognize ordinary income on the Purchase Date equal to the excess of the fair market value of the shares acquired over the purchase price. Such income is subject to withholding of income and employment taxes. Any gain or loss recognized on a subsequent sale of the shares, as measured by the difference between the sale proceeds and the sum of (i) the purchase price for such shares and (ii) the amount of ordinary income recognized on the exercise of the Purchase Right, will be treated as a capital gain or loss, as the case may be. If the Participant disposes of the shares in a disqualifying disposition, the Company should be entitled to a deduction equal to the amount of ordinary income recognized by the Participant as a result of the disposition, except to the extent such deduction is limited by applicable provisions of the Internal Revenue Code. In all other cases, no deduction is allowed the Company. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT OF THE 1998 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE SHARE RESERVE.
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Table of ContentsPROPOSAL 4 RATIFICATION OF INDEPENDENT AUDITORS The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP as the Company’s independent auditors for the fiscal year ending June 30, 2010, and the Board has directed that the selection of the independent auditors be submitted for ratification by the Stockholders at the Annual Meeting. Although the Company is not required to seek Stockholder approval of its selection of the independent auditors, the Board believes it to be sound corporate governance to do so. If the appointment is not ratified, the Board will investigate the reasons for Stockholder rejection and will reconsider its selection of the independent auditors. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the fiscal year if the Audit Committee determines that such a change would be in the Company’s and its Stockholders’ best interests. Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions. Audit and Non-Audit Fees The following table presents fees billed for professional audit services rendered by PricewaterhouseCoopers LLP for the audit of the Company’s annual financial statements for the years ended June 30, 2009 and June 30, 2008, respectively, and fees billed for other services rendered by PricewaterhouseCoopers LLP and during those periods.
For fiscal year 2009, the Audit Committee considered whether audit-related services and services other than audit-related services provided by PricewaterhouseCoopers LLP are compatible with maintaining the independence of PricewaterhouseCoopers LLP and concluded that the independence of PricewaterhouseCoopers LLP was maintained. Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. The Audit Committee has adopted a policy for the pre-approval of services provided by the independent auditors.
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Table of ContentsUnder the policy, pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. In addition, the Audit Committee may also pre-approve particular services on a case-by-case basis. For each proposed service, the independent auditors are required to provide detailed back-up documentation at the time of approval. Pursuant to the Sarbanes-Oxley Act of 2002, the fees and services provided as noted in the table above were authorized and approved by the Audit Committee in compliance with the pre-approval policies and procedures described herein. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT AUDITORS FOR THE YEAR ENDING JUNE 30, 2010.
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Table of ContentsSECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information known to the Company with respect to the beneficial ownership as of August 15, 2009, by (i) all persons who are beneficial owners of five percent (5%) or more of the Company’s Common Stock including Exchangeable Shares, (ii) each director and nominee, (iii) the Named Executive Officers (as defined in the “Compensation of Executive Officers” section below), and (iv) all current directors and executive officers as a group. As of August 15, 2009, 217,665,583 shares of the Company’s Common Stock were outstanding, 4,501,756 Exchangeable Shares were outstanding. The amounts and percentages of Common Stock beneficially owned are reported on the basis of regulations of the Securities and Exchange Commission (“SEC”) governing the determination of beneficial ownership of securities. Under the SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of securities as to which such person has no economic interest.
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Table of ContentsEXECUTIVE COMPENSATION Compensation Discussion and Analysis Compensation Philosophy We believe that the quality, experience, skills, engagement and dedication of our executive officers are critical factors affecting the Company’s performance and our ability to drive long-term growth of Stockholder value. These factors guide our primary executive compensation philosophy: that total compensation should be established at a competitive level to attract, motivate and retain the superior executive talent necessary to achieve our business objectives. Our compensation philosophy recognizes that retention of superior executive talent is enabled through reinforcement of a strong pay for performance compensation system which provides the opportunity to earn above average compensation in return for achieving business and financial success, and the sustained delivery of the results, leadership and innovation necessary to drive long-term growth of Stockholder value. Additionally, our compensation philosophy continues to evolve to align compensation with our diversified technology structure. We recognize that especially with respect to shared services positions we compete for superior executive talent in a highly competitive market not only within our industry, but also with companies outside our immediate product and geographic markets and thus should consider role-specific factors when determining executive compensation. Finally, we anticipate that when macroeconomic conditions improve competition for executive talent is likely to increase. In support of this compensation philosophy, the Compensation Committee of the Board (the “Committee”) utilizes three primary compensation elements, each aligned with specific goals: (a) base salary, to attract and retain highly qualified executive talent; (b) the opportunity to earn annual, semi-annual and other cash incentive bonuses to incentivize and reward delivery of financial and business results that enable sustained profitability and revenue growth within each operating segment and at a corporate level; and (c) equity grants, including restricted stock units (“RSUs”), time-based stock options, performance-based stock options with stock price appreciation vesting requirements and other stock-based incentive awards intended to align our executives’ interests with those of our Stockholders by providing opportunities to derive compensation through equity ownership and appreciation in the fair market value of our stock and enable the Company to attract and retain superior executive talent. Each of these compensation elements are discussed in detail below. Throughout this proxy statement, the individuals who served as the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) during the fiscal year 2009, as well as the other individuals included in the Summary Compensation Table, are referred to as the “named executive officers” (or “NEOs”). Determining Executive Compensation It is the Committee’s intent that base salary, target cash bonus levels and target long-term incentive award values for the Company’s NEOs generally are to be established at or near the 60th percentile for cash components and 70th-75th percentile for equity incentive compensation, relative to a peer group utilized for benchmarking purposes (as discussed below). The Committee believes that these percentile levels and targets are necessary and appropriate to achieve the Committee’s primary executive compensation goals discussed above in the highly competitive market for high quality executive talent and during the Company’s current phase in its evolution and business cycles. To assist the Committee in its review of executive compensation, the Company’s Human Resources Department and the Company’s primary external compensation consultant, Compensia, Inc., (retained both by management and by the Committee), provide compensation data compiled both from executive compensation surveys (including proprietary surveys conducted by Radford Surveys + Consulting, Inc., Buck Consultants, LLC and Compensia, Inc.), and annual reports and proxy statements from companies that the Committee selects as a “peer group” of technology companies for executive compensation analysis purposes. The peer group utilized for this benchmarking purpose is determined based upon geographic location, annual revenue and other financial performance metrics including revenue growth, earnings, market capitalization, headcount,
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Table of Contentsposition within relevant business cycles, and the Company’s competition in recruiting executive talent. The Committee’s policy is to select peer group members that have one or more attributes significantly similar to JDSU, including markets, manufacturing profile, level of integration and enterprises with global operations. The peer group is periodically reviewed by the Committee and may be amended from time to time based on the criteria stated above. The current list of peer group companies (the “Peer List”) is as follows: Agilent Technologies, Inc., Sandisk Corporation, Beckman Coulter, Inc., Network Appliance Inc., Juniper Networks, Inc., Tellabs, Inc., KLA-Tencor Corporation, Applied Biosystems Inc., Palm, Inc., PerkinElmer, Inc. , XO Holdings, Inc., Teradyne, Inc., AVX Corporation, ADC Telecommunications, Inc., Bio-Rad Laboratories, Inc., Quantum Corporation, Brocade Communications Systems, Inc., Coherent Communications Systems Corp, Ciena Corporation, Newport Corporation To enable alignment of compensation decisions with actual individual performance the CEO periodically apprises the Committee of his personal assessment of each executive officer’s performance. In assessing each executive officer, the CEO reviews and documents each executive officer’s performance during the relevant year or portion thereof, including accomplishments, areas of strength, areas for development and long-term potential. The CEO bases this evaluation on his own knowledge of each executive officer’s performance, actual results achieved and feedback provided by others. In addition, the independent members of the Committee have periodic formal and informal interactions with each NEO multiple times during the year including discussions relative to the functions and/or business units for which such NEO is responsible. Prior to any Committee decision on compensation for NEOs, the CEO, working with the Senior Vice President of Human Resources, the Compensation and Benefits group within the Human Resources Department and Compensia, reviews the compensation data obtained as described in the preceding paragraph and budgetary data obtained from the Company’s Finance Department, and provides a recommendation to the Committee for each NEO’s compensation, except for himself. The Committee ultimately is responsible for the final determination of all compensation for NEOs other than the CEO. The CEO’s annual performance is reviewed by the Committee and the independent members of the full Board using performance criteria developed by the Committee and approved by the full Board’s independent directors. The CEO’s performance criteria established for fiscal year 2009 and methodology used for their determination are discussed below. In assessing CEO performance, the Committee and independent members of the Board review Company business, operational and financial performance and other factors that may be included in the CEO performance criteria described above and feedback that may be obtained from the CEO’s direct reports and other employees. Additionally, the CEO performs a self-assessment which he provides to the Chairpersons of the Committee and the Board, respectively. The Committee recommends all elements of compensation for the CEO to the independent directors of the Board, including salary and incentive-based and equity-based compensation, for the Board’s review, consideration and approval. NEOs are not present for, nor do they participate in, Committee or Board discussions or approvals regarding their own compensation. Elements of Executive Compensation The fundamental policy of the Committee is to provide NEOs with competitive compensation opportunities based upon the overall financial performance of the Company and the Company’s individual operating segments, their specific current and anticipated future contributions to the financial success of the Company and their personal performance relative to associated business performance objectives. It is the Committee’s objective to have a significant portion of each named executive officer’s compensation contingent upon the Company’s performance, and as applicable, individual operating segment performance, as well as upon his or her own individual contributions to the achievement of business objectives. The compensation package for NEOs is, and
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Table of Contentsin fiscal year 2009 was, comprised of three elements: (i) base salary, which is designed primarily to be competitive with salary levels in the industry as well as reflect individual performance through merit increases; (ii) the opportunity to earn periodic variable cash bonuses tied to the Company’s achievement of financial and business performance results and objectives within each operating segment and at a corporate level; and (iii) long-term equity-based incentive awards which provide enhanced executive compensation opportunities in return for performance intended to increase long-term Stockholder value and enable the Company to attract and retain superior executive talent. As an executive officer’s level of responsibility increases, a greater proportion of such executive’s total target compensation is comprised of cash incentive bonuses and equity compensation vehicles in order to align total target compensation with the actual achievement of Company and operating segment business and financial performance objectives. The factors which the Committee considered in establishing the individual components of each NEO’s compensation package for fiscal year 2009 are summarized below. The Committee may in its discretion apply different factors, particularly different measures of financial and business performance, in setting future NEO compensation. Base Salary. The Company provides NEOs and other executives with a fixed base salary set at a level to allow the Company to attract, motivate and retain qualified executives. The base salary for each NEO is determined on the basis of the following factors: scope of responsibilities, experience, skill level, personal performance, and salary levels in effect for comparable positions within and outside the industry against which the Company competes for superior executive talent. The Committee also compares the compensation of NEOs with the compensation of other executive officers and Company employees for internal pay equity purposes. The weight given to each of these factors differs from individual to individual as the Committee deems appropriate and necessary to support the Company’s business objectives. The Committee targets setting each NEO’s base salary at or near the 60th percentile when compared to similarly situated senior executives at peer group companies utilizing the Company’s Peer List, as described above, which such targeted levels may be reached over time depending upon the various factors described above and the performance of the individual NEO. Salary levels generally are considered annually as part of the Company’s performance review process as well as upon a promotion or other change of position or level of responsibility. Merit based increases to salaries of the Company’s NEOs other than the CEO are recommended by the CEO to the Committee, and all increases are based on the Committee’s (and in the case of the CEO, the independent directors of the full Board) review and assessment of the individual’s performance, skill set and competitive market factors. No NEOs received merit or other pay increases in fiscal 2009 except in connection with specific promotions, and the expansion of responsibilities resulting from such promotions. Thomas Waechter joined the Company as Executive Vice President and President of the Company’s Communications Test and Measurement operating segment (“CommTest”) in October 2007 at a base salary of $450,000, which was consistent with the base salary of his predecessor. Mr. Waechter’s salary was not adjusted during the first half of fiscal year 2009. On December 17, 2008, the Board approved, and the Company and Mr. Waechter entered into, an employment agreement (the “Waechter Agreement”), pursuant to which Mr. Waechter became the CEO and President of the Company, effective January 1, 2009. Mr. Waechter’s base salary under the Waechter Agreement is $700,000. The Board believes that the new base salary for Mr. Waechter is consistent with its compensation philosophy articulated above. In determining Mr. Waechter’s base salary (and other compensation elements, as discussed below) under the Waechter Agreement, the Board and Committee reviewed data from the sources described above, including data pertaining to the Company’s Peer List. Additionally, the Board and Committee also considered market survey data of broad high-technology companies with revenues between $1 billion and $6 billion with internal CEO promotions in calendar years 2007 and 2008 compiled by Compensia (the “Internal Promotions Survey”). The Committee and the Board also noted that this new base salary was consistent with the Committee’s compensation philosophy discussed above and below the Company’s 60th percentile base salary target for NEOs when compared with CEOs within the Company’s Peer List and the Internal Promotions Survey and less than the base salary of Mr. Waechter’s predecessor.
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Table of ContentsKevin Kennedy was the CEO at the commencement of fiscal 2009, a position he had held for more than 4 years. At the beginning of fiscal 2009, Mr. Kennedy’s base salary was $800,000 per year (as discussed in the CD&A included within the Company’s Proxy and Annual Report for Fiscal Year 2008, the “2008 CD&A”) and was not adjusted during fiscal year 2009. On October 24, 2008 Mr. Kennedy notified the Company of his resignation as CEO and President of the Company, effective as of December 31, 2008. On December 5, 2008, the Board approved, and the Company and Mr. Kennedy entered into, an agreement (the “Transition Agreement”) which cancelled and replaced Mr. Kennedy’s previous employment agreement dated October 2, 2007 (the “Kennedy Agreement”). Pursuant to the terms of the Transition Agreement, the Company provided Mr. Kennedy with a bonus payment for the first half of fiscal year 2009 in the amount of $400,000 within seven days of the termination of Mr. Kennedy’s service as CEO and President (discussed further below under “Cash Incentive Compensation”). In conjunction with the Transition Agreement, on December 5, 2008, the Company and Mr. Kennedy also entered into a consulting agreement (the “Consulting Agreement”) which, pursuant to its terms, commenced on January 1, 2009 and will terminate on December 31, 2009. In exchange for certain transition and support services described in the Consulting Agreement, Mr. Kennedy will receive consulting fees of $800,000, payable in equal monthly installments each calendar month of 2009. In determining the fees under the Consulting Agreement, the Committee and the independent members of the Board determined that the Company would benefit from Mr. Kennedy’s engagement as a consultant to the Company to assist with the transition of the President and CEO responsibilities to his successor, and for ongoing support of significant and strategic Company initiatives commenced during his term as CEO. David Holly was appointed Executive Vice President and President of CommTest in April 2009. In connection with this promotion Mr. Holly’s base salary was set at $355,000 per year. Roy Bie’s salary of $310,000 and David Vellequette’s base salary of $405,000 were not changed during the course of the fiscal year. The Committee determined that each of these base salaries were consistent with the compensation philosophy discussed. . The Committee determined that each of these base salaries were consistent with the compensation philosophy discussed above and are less than the Committee’s 60th percentile target for NEO base salaries. Alan Lowe was appointed to the role of Executive Vice President and President of the Commercial and Consumer Optics Products segment (“CCOP”) in October 2008. In connection with this promotion Mr. Lowe’s base salary was set at $425,000 per year (an increase from $315,000 prior to his promotion). In considering Mr. Lowe’s new base salary the Committee considered the base salary target for NEOs discussed above, as well as Mr. Lowe’s prior experience and anticipated contributions given the aggressive business objectives set by the Company for the CCOP segment for the remainder of the fiscal year, including significant restructuring activities such as the outsourcing of key manufacturing operations, product line rationalization, and the need to significantly reduce operational cost structure in light of the impact of the global recession. Accordingly, the Committee determined that while Mr. Lowe’s base salary is above the Committee’s target of 60th percentile within the Company’s Peer Group, a higher base salary was warranted. Cash Incentive Compensation. The Company utilizes two primary cash incentive programs relative to its NEOs which are designed to achieve the compensation goals discussed above: (i) the Annual Incentive Plan, in which the broad majority of Company personnel participate, and (ii) the CEO Incentive Program, in which participation was limited to Mr. Kennedy for the first half of fiscal year 2009 and to Mr. Waechter for the second half of fiscal year 2009. Annual Incentive Plan: Semi-annual incentive bonuses, designed to reward short-term performance and achievement of designated results, may be earned by each NEO under the Company’s Annual Incentive Plan (“AIP”), in which the majority of Company employees participate. Awards under the AIP are based on Company performance as a whole and on the performance of individual operating segments, measured with respect to financial and business performance objectives, projections and estimates established for each half of the fiscal year by the Committee and the Board. These goals are determined in a manner designed to align executives’ and Stockholders’ interests by making payouts under the AIP contingent on profitability improvement, revenue growth, and/or business performance objectives (such as innovation, enhancements in effective corporate
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Table of Contentsgovernance and controls, customer satisfaction, employee retention, and operational excellence) consistent with long-term profitability, revenue growth and sustainable, long-term appreciation in Stockholder value. Each participant in the AIP is assigned a target bonus of a percentage of his or her base salary, based upon the individual’s grade level within the Company’s standard leveling structure for all Company employees. For fiscal year 2009 the assigned target bonuses for each of the Company’s NEOs were: 100% for Mr. Kennedy, and 75% for each of Mr. Vellequette, Mr. Lowe and Mr. Bie. Mr. Waechter’s assigned target bonus was increased from 75% for the first half of fiscal year 2009 to 100% for the second half of fiscal year 2009 concurrent with his promotion to the role of CEO and President effective January 1, 2009, as discussed above. Mr. Holly’s assigned target bonus was increased from 50% for the first half of fiscal year 2009 to 75% concurrent with his promotion Executive Vice President and President of CommTest for the second half of fiscal year 2009. The actual bonus payments earned by each employee annually under the AIP may be either less or greater than these target bonus percentages depending on whether and the extent to which the various operating segment and Company performance goals (as discussed below) are achieved in the fiscal year, and may range from 0% to 125% of each employee’s assigned target bonus. Additionally, each employee’s actual bonus under the AIP may be adjusted lower or higher by a factor of 25% based upon subjective individual performance criteria (“Individual Performance Factor” or “IPF”). The CEO recommends to the Committee whether an IPF adjustment is warranted relative to executives other than himself, although the Committee (or in the case of the CEO the independent members of the Board) retains discretion to approve such adjustments. Actual bonuses earned by our NEOs in fiscal year 2009 are indicated in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. AIP goals are recommended by management and reviewed and approved by the Committee (and the independent members of the Board relative to the CEO’s participation in the AIP) for each operating segment and for central function employees (“Corporate”) to align AIP compensation with the Company’s portfolio structure, and are equally applicable to all employees eligible to participate in the AIP, regardless of grade level. These goals reflect financial and business performance objectives, projections and estimates approved by the Board upon the start of each half of the fiscal year utilized for purposes of financial and business planning and analysis. For fiscal year 2009, Mr. Kennedy and Mr. Vellequette, and for the second half of fiscal year 2009 only, Mr. Waechter, were treated as Corporate employees, Mr. Lowe as an employee of CCOP, Mr. Holly and Mr. Waechter for the first half of fiscal year 2009 as employees of CommTest, and Mr. Bie as an employee of the Advanced Optical Technologies segment (“AOT”). The Company’s financial and business planning and performance objectives, projections and estimates approved by the Board upon the start of each half of the fiscal year and the corresponding AIP goals reflect the Company’s confidential and commercially sensitive analysis, expectations and objectives for its financial, operating and overall business performance, taking into consideration then current forecasted economic conditions, the outlook for the industry and the Company’s businesses, technology and new product development, and strategic objectives intended to drive growth in long-term Stockholder value, among other factors. Due to the confidential and commercially sensitive nature of these analyses, expectations and objectives and corresponding AIP funding thresholds and goals (as described below), their specific disclosure would result in competitive harm to the Company. It is for this reason that the Company’s specific financial performance objectives and estimates, while frequently referenced in this document, are not disclosed. The use of financial metrics and defined operating objectives for the establishment of the Company’s incentive bonus (and for equity compensation as discussed below) performance criteria is intended to set challenging goals and is designed to ensure that all participants, including our NEOs, are focused on operating the Company in a disciplined manner in accordance with the Committee’s and Board’s compensation objectives discussed above. In general, achievement of Company annual operating plan objectives will result in NEOs earning incentive compensation payments below the target percentages listed above. Accordingly, in order for NEOs to receive their full target bonuses, and subject to the application of the IPF as discussed above, the Company must exceed operating plan objectives. The Committee anticipated that achieving fiscal year 2009 annual operating plan
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Table of Contentsobjectives would result in bonus payments of approximately 50% of target bonuses, which was determined to be considerably less than the percentage of target bonus payments for annual operating plan achievement at most companies within the Peer List. For the first and second halves of fiscal year 2009, payment of bonuses under the AIP were contingent upon the Company achieving a minimum threshold of operating income as a percentage of revenue for the respective fiscal half year (“Funding”). The independent members of the Board and the Committee approved Funding targets for fiscal year 2009 as follows: (a) the operating income percentage threshold for the first half of the fiscal year was set at a level higher than the Company’s reported operating income percentage in its fiscal year 2008, and (b) the operating income percentage threshold for the second half of the fiscal year 2009 was set at a level approximately 75% higher than selected for the first half of the fiscal year. In each case the operating income percentage targets were set at progressively increasing levels over the Company’s fiscal year 2008 actual results in order to align AIP bonus payments with the Company’s objective of continuously driving operating performance improvements and cash generation and were intended to be reasonably achievable. Subject to Funding having been achieved, actual payment of bonuses under the AIP were subject to achievement of Corporate and segment goals as discussed above. Goals under the AIP for the first half of the fiscal year applicable to Messrs. Kennedy and Vellequette were as follows (in each case subject to Funding): 50% of the bonus calculation was based on the achievement of a Company-wide revenue target, 25% was based on the achievement of a Company-wide free cash flow target, and the remaining 25% was based on the achievement of a targeted level of corporate operating expenses as a percentage of revenue. CommTest goals applicable to Mr. Waechter and Mr. Holly were as follows (subject to Funding): (i) 30% for achievement of a CommTest revenue target, (ii) 50% for achievement of a CommTest contribution margin target, (iii) 10% for achievement of a CommTest inventory turns target, and (iv) 10% for achievement of a CommTest free cash flow target. CCOP goals applicable to Mr. Lowe were as follows (subject to Funding): (i) 50% for achievement of a CCOP revenue target, (ii) 20% for achievement of a CCOP gross margin target, (iii) 20% for achievement of a CCOP operating income target, and (iv) 10% for achievement of a CCOP free cash flow target. AOT goals applicable to Mr. Bie were as follows (subject to Funding): (i) 35% for achievement of a AOT revenue target, (ii) 40% for achievement of a AOT revenue target, (ii) 40% for achievement of a contribution margin target, (iii) 10% for achievement of a specific revenue growth target from non-currency security related customers, and (iv) 10% for achievement of a AOT free cash flow target. In each case the specific operational objectives selected for each segment were intended to align cash incentive compensation opportunities with segment operating performance metrics which would yield increases in operating cash flows. The Company did not attain the Funding targets, and thus no AIP bonuses were paid to any of the Company’s NEOs for the first half of fiscal year 2009. As a result of the general global economic downturn and its impact upon the Company’s financial performance in the first half of the fiscal year, the Committee and independent members of the Board (with respect to the CEO), upon management’s recommendation, suspended the AIP for the second half of fiscal year 2009. Accordingly, no Corporate or segment performance goals were adopted for such period and no bonuses were paid to any of the Company’s NEOs for the second half of the fiscal year under the AIP. However, as discussed above, in connection with his promotion to Executive Vice President and President of CCOP, the Company guaranteed the payment of Mr. Lowe’s second half of fiscal year 2009 bonus at his assigned target bonus of 75% of his base salary for the applicable period. The actual bonus paid to Mr. Lowe is shown on the Summary Compensation Table. CEO Incentive Plan: In addition to his eligibility to participate in the AIP, as CEO Mr. Kennedy was eligible to participate in an alternate annual incentive compensation plan (the “CEO Incentive Plan”) as defined within the Kennedy Agreement. Mr. Kennedy was entitled to receive the greater of (a) what he would be entitled to under the AIP, or (b) his respective bonus under the CEO Incentive Plan, but not both. Under the CEO Incentive Plan and pursuant to the Kennedy Agreement, Mr. Kennedy was eligible to earn a minimum cash incentive bonus in fiscal year 2009 of $400,000 and a maximum cash incentive bonus of $1,000,000 (125% of Mr. Kennedy’s base salary) based upon performance criteria and performance evaluation
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Table of Contentsrecommended by the Committee and approved by the independent members of the Board for each fiscal year. For fiscal year 2009, performance criteria considered by the Committee and the independent members of the Board included a comprehensive evaluation of the Company’s financial and business performance including the total payout under the AIP to the Corporate Group, talent management (including talent acquisition, succession planning and organization planning objectives) and strategy development (including strategy development, updates and execution, as well as growth in Asian markets). Additionally, unless the Company achieved a minimum of 50% of Corporate objectives under the AIP, bonus payments to the CEO under the CEO Incentive Plan were capped at 50% of Mr. Kennedy’s base salary. In considering whether to provide Mr. Kennedy with a bonus under the CEO Incentive Plan the Committee and the independent directors of the Board performed an evaluation of Mr. Kennedy’s performance during the first half of the fiscal year. The Committee and the Board also considered the fact that no bonuses were paid to other Company NEOs under the AIP for the first half of fiscal year 2009. Based upon these considerations and despite the substantial operational and financial performance improvements achieved under Mr. Kennedy’s leadership, the Committee and Board determined that Mr. Kennedy would not be paid a CEO Incentive Bonus for the first half of fiscal year 2009. In addition to annual incentive bonus payments, executive officers are eligible for individual recognition bonuses at the discretion of the Committee or, in the case of the CEO, the independent members of the Board, for exceptional achievement that exceeds the performance metrics set for that executive through the AIP or any other incentive bonus program. None of the Company’s NEOs other than Mr. Kennedy earned an individual recognition bonus in fiscal year 2009. In December 2008 the Board approved the payment to Mr. Kennedy of an individual bonus in the amount of $400,000 to be paid upon the conclusion of his service as CEO. In considering this bonus the Board evaluated actions taken by the Company under Mr. Kennedy’s leadership in the first half of fiscal year 2009 to (a) aggressively reduce operating expenses as the Company began to experience the impact of the global economic recession, which enabled the Company to generate $28.7 million in free cash flow during the first half of fiscal year 2009 despite declines in revenue over that same period, and (b) driving a manufacturing outsourcing strategy intended to position the Company to further reduce fixed operating costs and enable the Company to generate greater leverage once the recession ends. Long-Term Incentive Compensation. Long-term incentives are provided through RSUs, restricted stock and/or stock option grants. The Committee believes that stock-based compensation aligns the interests of employees with long-term Stockholder value creation, providing each NEO with an incentive to manage the Company from the perspective of an owner driving long-term Stockholder value. The Committee also believes stock-based compensation provides the Company with an important long-term retention tool in a highly competitive market for executive talent. The Committee sets equity grant levels to executive officers based on a variety of factors, including the individual performance of the executive officer, an assessment of the value of the individual’s current and anticipated future services to the Company, relative business criticality of the position held, the awards given to other executives, and the desire to keep the Company’s overall compensation competitive. The number of shares of Common Stock subject to each grant is set at a level intended to create a meaningful opportunity for stock ownership and resulting compensation opportunity based on the executive officer’s current position with the Company, the average size and potential returns of comparable awards made to executive officers in similar positions within the industry, the executive officer’s potential for increased responsibility and promotion over the grant term, and the executive officer’s personal performance in recent periods. The Committee also takes into account the number of vested and unvested equity incentives held by the executive officer in order to maintain an appropriate level of equity incentives for that executive officer. Additionally, the Committee generally grants equity awards to executive officers upon commencement of their employment with the Company or their promotion, with the level of award based on factors similar to those considered in connection with awards to existing executive officers. Finally, the Committee considers the number of shares of Common Stock which would be subject to proposed equity incentive awards to individual NEOs for consistency with the Committee’s objective to limit actual net dilution attributable to equity awards to Company employees to at or below a long-term average of 3% per annum.
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Table of ContentsRSUs are granted with vesting requirements related to (a) the passage of time, to encourage continued service and retention, or (b) the satisfaction of performance or financial goals or other conditions that are aligned with the Company’s business and financial objectives and designed to support growth in long-term Stockholder value. In all cases, vesting of RSUs is contingent upon the executive officer’s continued service with the Company. The Company utilizes a mix of time and performance-based RSU awards for all of its NEOs. Similarly, all stock options are granted at a fixed price per share equal to or greater than the market price on the grant date and have a term not to exceed eight years. In February 2009 the Company began issuing performance stock options which include vesting criteria providing that each such option will vest in three equal installments on the latter to occur of (i) the first, second and third anniversaries of the grant date and (ii) the appreciation of the price of the Company’s common stock such that it will have traded at a minimum of a 25% premium to the exercise price of these options for at least 30 consecutive trading days (the “Performance Options”). The Company also issues time-based stock options, which generally become exercisable either in three equal annual installments (for annual awards) or, for new hire awards, at the rate of 25% of the shares subject thereto one year from the grant date and as to approximately 6.25% of the shares subject to the option at the end of each three-month period thereafter such that the option is fully exercisable four years from the grant date, contingent upon the executive officer’s continued service with the Company (the “Time Based Options”). Accordingly, the option will provide the maximum return to the executive officer only if the executive officer remains employed by the Company for the full three or four year vesting period, and then only if the market price of the underlying shares of Common Stock appreciate over the option term. The Committee affirmed its commitment to pay-for-performance on October 28, 2008 by announcing its intent that, with respect to all equity compensation awards granted after that date:
As discussed in the 2008 CD&A, Mr. Waechter, Mr. Vellequette, Mr. Lowe and Mr. Bie were awarded RSUs in June 2008 as an element of the Company’s fiscal year 2008 annual review process. Management recommended and the Committee determined a target award level for each NEO (the “Target Award Level”) consistent with the 70th-75th percentile level of the Peer List and adjusted based upon an individual and role-based assessment and factors discussed above. Each individual was then awarded approximately 80% of the total RSUs representing this adjusted Target Award Level in the form of time-based RSUs, which vest in three equal annual installments.2 It was the Committee’s intent as an element of the June 2008 awards program that if the Company achieved full Company fiscal year 2009 EBITDA target that the Company would award each of Mr. Waechter, Mr. Vellequette, Mr. Lowe and Mr. Bie RSUs in a number equivalent to the remaining 20% of such executive’s fiscal year 2009 adjusted Target Award Level (the “Anticipated Performance Awards”), subject to further adjustment as described below, following the public release of the Company’s fiscal year 2009 results. The actual number of units awarded in each Anticipated Performance Award was dependent upon the percentage achievement of the Company’s commercially sensitive fiscal year 2009 Company EBITDA target, subject to a minimum threshold achievement. In the event Anticipated Performance Awards were issued, 1/3rd of the units comprising each such award would immediately vest, and the remaining 2/3rds of these units would vest in equal installments on the first and second anniversary of the award date. The Committee believed that aligning the performance goals for the Anticipated Performance Awards with Company fiscal year 2009 EBITDA targets
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Table of Contentswould most closely tie compensation of these NEOs to Company profitability growth. In August 2009 the Committee reviewed the Company’s actual fiscal year 2009 EBITDA results against the 2009 EBITDA target and determined that the minimum performance threshold had not been attained. As a result, none of these NEOs were awarded the Anticipated Performance Awards. Mr. Vellequette, Mr. Holly and Mr. Bie were awarded RSUs and stock options in February 2009 as an element of the Company’s fiscal year 2009 equity award and review process. Management recommended and the Committee determined a target award level for each NEO consistent with the 70th-75th percentile level of the Peer List and adjusted based upon individual performance assessments as discussed above. Consistent with the Company’s commitment discussed above to ensure that at least 50% of equity awards to NEOs are performance-based. Each NEO was then awarded 50% of the target award level shares in the form of Performance Options. The remaining 50% of the shares subject to award were then apportioned between time-based RSUs and time-based stock options (together the “2009 Time Based Awards”) such that approximately 25% of the total potential value of the combined elements of the award would be delivered in the form of RSUs and the remaining approximately 75% in the form of stock options (valuing stock options on a Black-Scholes basis). All of the 2009 Time Based Awards were subject to the Company’s standard time-based vesting schedules discussed above. Actual awards to NEOs are shown in the Grants of Plan-Based Awards Table. Pursuant to the long-term incentive compensation portion of the Waechter Agreement, the following equity incentive awards were granted to Mr. Waechter upon his becoming the Company’s CEO on January 1, 2009:
In determining the appropriate size and value of Mr. Waechter’s promotion related equity award the independent members of the Board considered the same data discussed above with respect to determination of Mr. Waechter’s CEO base salary. In particular, the Board noted that while the number of shares of the Company’s common stock subject to the award was higher as a percentage of outstanding shares than the 75th percentile of the Internal Promotions Survey, the Black-Scholes valuation of the award was less than the 50th percentile. Consistent with the Company’s commitment relative to at least 50% of all equity awarded being subject to performance vesting criteria, the Board utilized a mix of 50% Performance Options and time-based RSUs and Time-Based Options. Certain elements of Mr. Kennedy’s long-term incentive compensation were stipulated by the terms of the Kennedy Agreement, as disclosed and described in the 2008 CD&A. These elements included the award to Mr. Kennedy of a grant of 175,000 deferred stock units (“DSUs”) on October 15, 2007 which was fully vested upon the date of grant. Pursuant to the terms of the Kennedy Agreement and the terms of the DSU award described in the 2008 CD&A, the DSUs were delivered to Mr. Kennedy (and awarded as shares) on July 1, 2009. Similarly, pursuant to the terms of the Kennedy Agreement, on August 29, 2008 the Company awarded Mr. Kennedy a grant of the required minimum of 375,000 RSUs (the “2009 Kennedy Award”). The 2009 Kennedy Award was subject to the following conditions of vesting:
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In February 2009 and in August 2009 the independent members of the Board and the Committee evaluated the Company’s financial performance in the first and second halves of fiscal year 2009 against the performance criteria applicable to the above described performance-based portion of the 2009 Kennedy Award as established by the independent members of the Board in June 2008 (as discussed in the 2008 CD&A) and determined in each case that such performance criteria were not met. As a result, none of the performance based-portion of the 2009 Kennedy Award vested in the Company’s 2009 fiscal year. The Committee and the Board intended that the above elements of Mr. Kennedy’s and Mr. Waechter’s long-term incentive compensation result in compensation opportunities that are at or near the 75thth percentile when compared to CEOs at peer group companies on the Company’s Peer List, consistent with the long-term incentive compensation philosophy discussed above. The Committee and the Board further believe that targeting the CEO’s long-term incentive compensation at or near the 75th percentile is necessary and appropriate to retain the highest caliber of individual at the CEO level to manage the continuing risks, challenges and opportunities inherent in sustaining the positive momentum resulting from a successfully completed corporate turnaround situation and continuing to transform the Company into a benchmark for sustainable cash generation and profitability, especially in a challenging recessionary environment. In connection with Mr. Lowe’s promotion in October 2008, Mr. Lowe was awarded 269,607 time based RSUs, which will vest in three equal installments on the first, second and third anniversaries of the grant date. Additionally, the Company committed to awarding up to an additional 269,607 RSUs which will be granted subject to the achievement of specific performance criteria determined by the CEO and the Committee (the “Lowe Performance RSUs”). The relative value of Mr. Lowe’s equity award associate with his promotion was determined by the Committee to be consistent with the Committee’s 75th percentile target for NEOs. Additionally, in approving the award the Committee considered the fact that Mr. Lowe would not be eligible to participate in the Company’s fiscal year 2009 focal equity incentive program. The specific performance criteria applicable to the Lowe Performance RSUs were approved by the Committee in November 2008 and, like the objectives discussed above with respect to the AIP, reflect the Company’s confidential and commercially sensitive financial and business planning and performance objectives, projections and estimates, the specific disclosure of which would result in competitive harm to the Company. In general, the performance targets assigned to the Lowe Performance RSUs are as follows:
Pursuant to the vesting terms of the Lowe Performance RSUs, upon achievement of the specific performance targets, the corresponding portion of the RSUs will vest 50% upon Committee determination of the achievement of such performance target, and the remaining 50% shall vest on the first anniversary of such determination. However, no portion of the Lowe Performance RSUs may vest prior to May 15, 2009, and any portion of the Lowe Performance RSUs for which the applicable performance targets have not been met by the end of the third quarter of the Company’s fiscal year 2011 shall be cancelled. The Committee approved the above performance criteria in order to incentivize specific operational actions which the Board and Committee believe will accelerate the Company’s objectives of sustained profitability and cash generation through margin improvements and reduction in fixed manufacturing expenses. In each case the performance targets were intended by the Committee to be challenging yet reasonably achievable.
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Table of ContentsIn May 2009 the Committee determined that Mr. Lowe had achieved the performance target tied to 20% of the Lowe Performance RSUs and accordingly that portion of the RSUs became subject to vesting on the schedule described in the preceding paragraph. In connection with Mr. Holly’s promotion in April 2009, Mr. Holly was awarded the following equity incentive awards:
The relative value of Mr. Holly’s equity award associate with his promotion was determined by the Committee to be less than the Committee’s 75th percentile target for NEOs. Additionally, in approving the award the Committee considered the fact that Mr. Holly would not be eligible to participate in the Company’s fiscal year 2010 focal incentive program, and had in February 2009 received an equity award pursuant to the Company’s fiscal year 2009 focal incentive program. Other Compensation Programs and Policies. In addition to the components of compensation that the Company currently pays to its NEOs, below are two additional potential elements of compensation available to NEOs: Deferred Compensation Plan. The Company maintains a deferred compensation plan, pursuant to which certain members of management (including executive officers) may elect to defer a portion of his or her annual compensation. The participants’ funds are invested among various funds designated by the plan administrator and which are identical to those available in the Company’s 401(k) Retirement Plan, and may not be invested in the Company’s Common Stock or other Company securities. Upon the death or retirement of a participant, the funds attributable to the participant (including any earnings on contributions) are distributed to the participant or the participant’s beneficiary in a lump sum or in annual installments over a period not to exceed fifteen years. During fiscal year 2009, none of the Company’s NEOs participated in the deferred compensation plan. Perquisites and Other Personal Benefits. We strongly believe that it is critical that the Company maintains an egalitarian culture in our facilities and operations, and that our executive officers are not entitled to operate under different standards than other employees. The Company’s healthcare, insurance, and other welfare and employee benefit programs are the same for all eligible employees, including executive officers. The Company shares the cost of health and welfare benefits with its employees, a cost that is dependent on the level of benefits coverage that each employee elects. The Company does not have programs for providing personal benefit perquisites to NEOs, such as defraying the cost of financial or legal advice, personal entertainment, recreational club memberships or family travel, nor does it provide its officers with reserved parking spaces or separate dining or other facilities or services. The Company has no outstanding loans of any kind to any of its executive officers, and it expects its officers to be role models under its Code of Business Conduct, which applies equally to all employees. Compensation Recovery Policy The Committee will evaluate in appropriate circumstances whether to seek the reimbursement of certain compensation awards paid to an executive officer if such executive engages in misconduct that caused or partially caused a restatement of financial results, in accordance with section 304 of the Sarbanes-Oxley Act of 2002. If circumstances warrant, we will seek to claw back appropriate portions of the executive officer’s compensation for the relevant period, as provided by law.
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Table of ContentsExecutive Stock Ownership Policy The Committee recommended and the full Board approved formal stock ownership requirements for non-employee directors and executive officers of the Company in fiscal year 2005. Under the policy, each non-employee director of the Company should have a minimum equity interest in the Company’s stock at least equal to that non-employee director’s then current annual cash retainer by the later to occur of the fifth anniversary of his or her first election the Board or June 30, 2010. Likewise, each executive officer of the Company should have a minimum equity interest in the Company’s stock at least equal to that executive officer’s then current annual base salary by the later to occur of the fifth anniversary of his or her commencement of employment with the Company or June 30, 2010. The shares that count towards this Company policy include stock owned outright, unvested and vested restricted stock and RSUs, and any stock options exercisable with 60 days of the valuation date. The equity incentive awards granted in fiscal year 2009 to each of the current named executive officers are listed in the Outstanding Equity At Fiscal Year End Table. Equity Grant Practices All stock option awards made to our NEOs, as well as all other Company employees, have an exercise price equal to the fair market value of our common stock on the date of grant (though as noted above the Performance Options only vest upon significant stock price appreciation over the exercise price). Fair market value is defined under our equity compensation plans as the closing market price of a share of our common stock on NASDAQ on the date of grant. The Committee generally makes grants to our NEOs and other senior management on a once-a-fiscal year basis, but the Committee retains the discretion to make additional awards to NEOs at other times in connection with the initial hiring of a new officer, for retention purposes, or otherwise. All new hire equity incentive awards for all employees, including officers, are granted on the 15th day of the month immediately following the first day of employment of such new employee. The Company does not have any program, plan or practice to time equity compensation grants to its executives in coordination with the release of material nonpublic information. The Company has not timed, nor does it plan to time, the release of material nonpublic information for the purpose of affecting the value of executive compensation, nor are equity compensation grants timed with regard to current share price or factors which may affect future share price. Tax Considerations The Committee endeavors to maximize deductibility of compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) to the extent practicable while maintaining a competitive, performance-based compensation program. Based on the amount of deductions the Company can take each year, the actual impact of the loss of deduction for compensation paid to any NEO over the $1 million limitation is extremely small and has a de minimus impact on the Company’s overall tax position. For the foregoing reasons, the Committee, while considering tax deductibility as one of the factors in determining compensation, will not limit compensation to those levels or types of compensation that will be deductible. The Committee will, of course, consider alternative forms of compensation that, consistent with its compensation goals, preserve deductibility. The Company’s 2003 Equity Incentive Plan (the “2003 Plan”) is structured such that compensation deemed paid to an executive officer when he or she exercises an outstanding option under the 2003 Plan, with an exercise price equal to the fair market value of the option shares on the grant date, will qualify as performance-based compensation which will not be subject to the $1 million limitation. In addition, other stock based awards issued under the 2003 Plan may be exempt from the $1 million limitation if such awards are subject to performance criteria and administered in accordance with Section 162(m) of the Code. The Company has discretion to issue other stock based awards which are intended to be exempt from the $1 million limitation as well as other stock based awards that are not intended to be exempt from the $1 million limitation.
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Table of ContentsCOMPENSATION COMMITTEE REPORT The information contained in the following report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, except to the extent that the Company specifically requests that the information be treated as soliciting material or incorporates it by reference into a document filed under the Securities Act or the Exchange Act. The information will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. COMPENSATION COMMITTEE Casimir S. Skrzypczak, Chair Richard E. Belluzzo Kevin A. DeNuccio Penelope A. Herscher Martin A. Kaplan
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Table of ContentsSUMMARY COMPENSATION TABLE The following table summarized the total compensation of our Named Executive Officers in fiscal years 2007 through 2009. The amounts shown below for stock awards (i.e. RSUs) and stock options represent the amounts we expensed during fiscal years 2007 through 2009, rather than the amounts actually received by our NEOs, and includes compensation cost recognized in our consolidated financial statements with respect to awards granted in fiscal years 2007 through 2009, respectively, and in prior years.
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Table of ContentsEmployment Contracts, Termination of Employment and Change in Control Arrangements On December 17, 2008, the Company and Mr. Waechter entered into an employment agreement (the “Waechter Agreement”), pursuant to which Mr. Waechter became the Chief Executive Officer and President of the Company, effective January 1, 2009. Mr. Waechter’s base salary under the Waechter Agreement is $700,000. In addition, Mr. Waechter is eligible to earn a cash incentive under the Company’s established incentive plan(s) for senior executives with a target bonus of 100% of his annual base salary, based upon achievement of objectives determined by the Company from time to time, commencing in the second half of the Company’s fiscal year 2009. Mr. Waechter also received the following equity incentive awards pursuant to the Waechter Agreement, each granted on January 1, 2009:
On December 5, 2008, the Company and Mr. Kennedy entered into an agreement (the “Transition Agreement”), pursuant to which the Company paid Mr. Kennedy $400,000 within seven days of the termination of Mr. Kennedy’s service as Chief Executive Officer and President. Additionally, on December 5, 2008, the Company and Mr. Kennedy entered into a consulting agreement (the “Transitional Consulting Agreement”) which, pursuant to its terms, commenced on January 1, 2009 and will terminate on December 31, 2009. In exchange for certain transition and support services, Mr. Kennedy will be paid consulting fees of $800,000 pursuant to the terms of the Transitional Consulting Agreement, payable in equal monthly installments each calendar month of 2009. For a complete summary of the termination and change of control provisions of the above agreements, please see the section “Potential Payments Made Upon Termination or Change of Control” below. A complete summary of the 2008 Change of Control Benefits Plan that the Company adopted on August 29, 2008, which explains the termination benefits available to the NEOs other than Mr. Waechter and Mr. Kennedy, can also be found under that section heading below.
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Table of ContentsGRANTS OF PLAN-BASED AWARDS TABLE The following table provides information about equity and non-equity awards granted to the Named Executive Officers in fiscal year 2009:
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Table of ContentsOUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE The following table provides information regarding outstanding equity awards, including stock options and RSUs, and applicable market values at the end of fiscal year 2009.
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Table of ContentsOPTION EXERCISES AND STOCK VESTED TABLE The following Option Exercises and Stock Vested Table provides additional information about the value realized by the Named Executive Officers due to the vesting of restricted stock units during fiscal year 2009.
Potential Payments Made Upon Termination or Change of Control The descriptions and table below reflect the amount of compensation to each of the Named Executive Officers of the Company in the event of termination of such executive’s employment. The amounts of compensation shown below are payable to each named executive officer upon termination without cause or for good reason, following a change of control, for non-renewal of an employment contract and in the event of death or disability of the executive. The figures shown below assume that such termination was effective as of June 30, 2009 (and therefore use the closing price of our Common Stock on NASDAQ as of June 26, 2009 for all equity-based calculations), and thus include amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts that would be paid can only be determined at the time of such executive’s separation from the Company. For a complete summary of the salary and bonus provisions of the employment agreement between the Company and Thomas Waechter, our Chief Executive Officer and President (the “Waechter Agreement”), please see the section “Employment Contracts, Termination of Employment and Change in Control Arrangements” following the Summary Compensation Table above. What follows below summarizes only the termination and change of control provisions of the Waechter Agreement. The Waechter Agreement provides that in the event that Mr. Waechter’s employment is terminated by the Company for reasons other than for Cause prior to any Change of Control (as both terms are defined in the Waechter Agreement) of the Company, Mr. Waechter will be entitled to receive: (i) a cash payment equivalent to two times his annual base salary as of the date of termination of employment; and (ii) Company paid COBRA benefits continuation for a period of the lesser of the maximum allowable COBRA period or 24 months. The Waechter Agreement further provides that in the event that Mr. Waechter’s employment is terminated by the Company for reasons other than for Cause or by Mr. Waechter for Good Reason upon or following any change of control (as these terms are defined in the Waechter Agreement) of the Company, Mr. Waechter will be entitled to receive: (i) a cash payment equivalent to three times his annual base salary as of the date of termination of employment; (ii) right, title and entitlement to any unvested options, restricted stock units, or any other securities or similar incentives which have been granted or issued as of the date of termination of his employment, shall immediately vest; and (iii) Company paid COBRA benefits continuation for a period of the lesser of the maximum allowable COBRA period or 24 months.
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Table of ContentsThe only termination provision of the Transition Consulting Agreement between the Company and Mr. Kennedy provides that the Company shall pay Mr. Kennedy the balance of the $800,000 he is due under that agreement if the Company terminates it for convenience before it expires on December 31, 2009, as that term is defined in the Transition Consulting Agreement. The other Named Executive Officers are subject to the 2008 Change of Control Benefits Plan (the “Change of Control Plan”). The Change of Control Plan provides that in the event of a qualifying termination, each of the eligible executives will be entitled to receive (i) accelerated vesting of any unvested stock options and other securities or similar incentives held at the time of termination, (ii) a lump sum payment equal to eighteen months’ base salary (less applicable tax and other withholdings), and (iii) reimbursement of COBRA premiums for up to one year. A qualifying termination under the Change of Control Plan is any involuntary termination without cause, any voluntary termination for good reason, or any termination due to disability or death, in each case occurring upon or within twelve months following a change of control of the Company, as such terms are defined in the Change of Control Plan. POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
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Table of ContentsEQUITY COMPENSATION PLANS The following table sets forth information about shares of the Company’s Common Stock and Exchangeable Shares that may be issued under the Company’s equity compensation plans, including compensation plans that were approved by the Company’s Stockholders as well as compensation plans that were not approved by the Company’s Stockholders. Information in the table is as of June 27, 2009.
The following are descriptions of the material features of the Company’s equity compensation plans that were not approved by the Company’s Stockholders: 1996 Non-Qualified Stock Option Plan The Board of Directors adopted the 1996 Non-Qualified Stock Option Plan (the “1996 Plan”) in November 1996. The 1996 Plan is administered by the Compensation Committee. Pursuant to the 1996 Plan, the Compensation Committee may grant nonqualified stock options only to employees, independent contractors and consultants of the Company or any parent or subsidiary corporation of the Company. Only nonqualified stock options may be issued under the 1996 Plan. Stock options may not be granted to officers and directors of the
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Table of ContentsCompany. The 1996 Plan will continue in effect until terminated by the Board of Directors. The Company last granted stock options under the 1996 Plan on April 17, 1998. The Company presently does not intend to grant any additional options under the 1996 Plan. An aggregate of 2,392,000 shares has been reserved for the grant of stock options under the 1996 Plan. Shares underlying awards that are forfeited or canceled are not counted as having been issued under the 1996 Plan. Stock options issued under the 1996 Plan must have an exercise price of not less than 85% of the fair market value of the Company’s Common Stock on the date of grant of the option. Options are generally non-transferable. The term of all options granted under the Plan shall not exceed eight years from the date of grant. Amended and Restated 1999 Canadian Employee Stock Purchase Plan The Amended and Restated 1999 Canadian Employee Stock Purchase Plan (the “Canadian ESPP”) was adopted by the Board of Directors in August 1999 and terminated by its terms on July 1, 2009, and was administered by the Board of Directors. An aggregate of 10,000,000 shares of Common Stock had been reserved for issuance under the Canadian ESPP. Only employees of JDS Uniphase Inc. (which generally includes all Company employees in Ottawa) and corporate affiliates of the Company as designated by the Board of Directors were eligible to participate in the Canadian ESPP. The Canadian ESPP was not intended to qualify as an “Employee Stock Purchase Plan” under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). The terms of the Canadian ESPP provided that shares of the Company’s Common Stock were offered for purchase through a series of successive or overlapping purchase periods (the “Purchase Periods”), each of a duration (not to exceed twenty-four months) as determined by the Board of Directors. Participants enrolled in a Purchase Period were granted a purchase right which entitles the participating employee to specify a level of payroll deduction between 1% and 10% of compensation to be in effect on each pay day during the Purchase Period, and the accumulated payroll deductions were applied to the purchase of the shares when the purchase right was exercised. No rights or accumulated payroll deductions of a participant under the Canadian ESPP could have been transferred (other than by will or by the laws of descent and distribution). Outstanding purchase rights were automatically exercised on successive quarterly or semi-annual purchase dates as determined by the Board of Directors. The purchase right was exercised by applying the accumulated payroll deductions to the purchase of whole shares on each quarterly or semi-annual purchase date. The purchase price per share was the lesser of (i) 85% of the fair market value per share on the date the Purchase Period began or (ii) 85% of the fair market value per share on the date the purchase right was exercised. The Canadian ESPP limited purchase rights to a maximum of (i) $25,000 worth of stock (determined at the fair market value of the shares at the time the purchase right was granted) in any calendar year, and (ii) 20,000 shares in any Purchase Period. The Board of Directors amended the Canadian ESPP on July 31, 2002 to provide that no new Purchase Periods shall commence under the Canadian ESPP on or after August 1, 2002, except as otherwise determined by the Board of Directors. Although the Canadian ESPP did not terminate by its terms until July 1, 2009, all Purchase Periods under the Canadian ESPP were terminated on July 31, 2002. The Company integrated former participants in the Canadian ESPP into the Company’s Stockholder approved Amended and Restated 1998 Employee Stock Purchase Plan. 2005 Acquisition Equity Incentive Plan The Board of Directors adopted the 2005 Acquisition Equity Incentive Plan (the “2005 Plan”) in August 2005. The 2005 Plan is administered by the Compensation Committee. Pursuant to the 2005 Plan, the Compensation Committee may grant stock options, SARs, Dividend Equivalent Rights, Restricted Stock,
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Table of ContentsRestricted Stock Units and Performance Units to employees (including directors and officers) of the Company or any parent or subsidiary corporation of the Company, or any other such entity in which the Company holds a substantial ownership interest. Pursuant to NASDAQ listing rules regarding equity compensation plans not approved by security holders, the Company can and will only issue awards under the 2005 Plan to individuals joining the Company as a result of acquisitions or related strategic transactions, and not for new grants to continuing employees of the Company, nor to regular new hires. The 2005 Plan will continue in effect until terminated by the Board of Directors. An aggregate of 2,000,000 shares has been reserved for the grant of awards under the 2005 Plan. As of June 27, 2009, there were 680,069 shares remaining available for future grants under the 2005 Plan and no awards had been issued by the Company under the 2005 Plan since March 20, 2006. Shares underlying awards that are forfeited, canceled or expired are not counted as having been issued under the 2005 Plan. Stock options and any awards intended to qualify as performance-based compensation issued under the 2005 Plan must have an exercise price of not less than 100% of the fair market value of the Company’s Common Stock on the date of grant of the award. Awards are generally non-transferable. The term of all awards granted under the Plan shall not exceed eight years from the date of grant.
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Table of ContentsAUDIT COMMITTEE REPORT The information contained in the following report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, except to the extent that the Company specifically requests that the information be treated as soliciting material or incorporates it by reference into a document filed under the Securities Act or the Exchange Act. The information will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. The Audit Committee of the Board of Directors is responsible for assisting the full Board of Directors in fulfilling its oversight responsibilities relative to the Company’s financial statements, financial reporting practices, systems of internal accounting and financial control, the internal audit function, annual independent audits of the Company’s financial statements, and such legal and ethics programs as may be established from time to time by the Board. The Audit Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and may retain external consultants at its sole discretion. The Audit Committee is composed solely of non-employee directors, as such term is defined in Rule 16b-3 under the Securities and Exchange Act of 1934, as amended, all of whom satisfy the independence, financial literacy and experience requirements of Section 10A of the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act of 2002, rules applicable to NASDAQ-listed issuers, and any other regulatory requirements. All members of the Committee are required to have a working knowledge of basic finance and accounting, and at all times at least one member of the Committee qualifies as a “financial expert” as defined by the Sarbanes-Oxley Act of 2002. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards and for issuing a report thereon. The Audit Committee has the general oversight responsibility with respect to the Company’s financial reporting and reviews the scope of the independent audits, the results of the audits and other non-audit services provided by the Company’s independent registered public accounting firm. The following is the Report of the Audit Committee with respect to the Company’s audited financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 27, 2009, which includes the consolidated balance sheets of the Company as of June 27, 2009 and June 28, 2008, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended June 27, 2009, and the notes thereto. Review with Management The Audit Committee has reviewed and discussed the Company’s audited financial statements with management. Review and Discussions with Independent Registered Public Accounting Firm The Audit Committee has discussed with PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”), the Company’s independent registered public accounting firm, the matters required to be discussed by Statement on Accounting Standards No. 61, “Communications with Audit Committees” which as amended (AICPA, Professional Standards, Vol. 1. section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, which includes, among other items, matters related to the conduct of the audit of the Company’s financial statements, and both with and without management present, discussed and reviewed the results of PricewaterhouseCoopers’ examination of the financial statements.
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Table of ContentsThe Audit Committee has received the written disclosures letter from PricewaterhouseCoopers LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent public accountant’s communications with the Audit Committee concerning independence, and has discussed with PricewaterhouseCoopers LLP the independent public accountant’s independence. During the course of fiscal year 2009 management engaged in documentation, testing and evaluation of the Company’s system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. The Audit Committee was kept apprised of the progress of the evaluation and provided oversight and advice to management during the process. In connection with this oversight, the Audit Committee received periodic updates provided by management and PricewaterhouseCoopers at Audit Committee meetings. At the conclusion of the process, management provided the Audit Committee with, and the Audit Committee reviewed, a report on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee continues to oversee the Company’s efforts related to its internal control over financial reporting and management’s preparations for the evaluation for fiscal year 2010. Conclusion Based on the review and discussions referred to above, the Audit Committee recommended to the Company’s Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2009. AUDIT COMMITTEE Harold L. Covert, Chair Bruce D. Day Masood Jabbar Casimir S. Skrzypczak
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Table of ContentsBENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors, executive officers and any persons who directly or indirectly hold more than 10 percent of the Company’s Common Stock (“Reporting Persons”) to file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received and written representations from certain Reporting Persons that no such forms were required, the Company believes that during fiscal 2009, with the exception of one late Form 4 filing for Kevin Kennedy, all Reporting Persons complied with the applicable filing requirements on a timely basis. OTHER MATTERS The Company knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters properly come before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgments of the persons voting the proxies. ANNUAL REPORT ON FORM 10-K AND ANNUAL REPORT TO STOCKHOLDERS UPON WRITTEN REQUEST TO THE CORPORATE SECRETARY, JDS UNIPHASE CORPORATION, 430 NORTH MCCARTHY BOULEVARD, MILPITAS, CALIFORNIA 95035, THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON SOLICITED A COPY OF THE FISCAL 2009 REPORT, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FILED THEREWITH.
Milpitas, California September 25, 2009
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Table of ContentsAPPENDIX A Amendments to JDS Uniphase Corporation Amended and Restated 2003 Equity Incentive Plan
Pursuant to Section 13 and notwithstanding any other provision of the Plan to the contrary, upon approval by the Company’s shareholders, the Board and the Committee shall have the authority to implement and determine the terms and conditions of a one-time-only voluntary option exchange program pursuant to which certain outstanding options, could at the election of the person holding such options, be tendered to the Company for cancellation in exchange for the issuance of a lesser amount of restricted stock units, options or cash payments (“the Program”). Details of the Program are set forth in Addendum A to the Plan. The Plan shall be modified only to the extent necessary to implement the Program, including without limitation, Sections 3, 5 and 6. All provisions of the Plan not modified by the Program shall remain applicable and unchanged. To the extent that any provision of the Program conflicts with a provision of the Plan, the provision of the Program shall prevail. Addendum A Subject to shareholder approval and the following mandatory conditions, the Board has approved a one-time voluntary option exchange program, the terms and conditions which may be determined by the Committee (the “Program”): The Program may start on such date as shall subsequently be determined by the Committee, but in no event more than twelve (12) months of the date of the Company’s Annual Meeting for year 2009. Outstanding Options granted more than 12-months prior to the commencement of the Program having exercise prices greater than the highest closing price for the Company’s shares during the 52 weeks prior to the start of the Program shall be eligible for participation to the program; provided, however, that Board shall retain discretion to set the eligibility threshold higher than this trailing 52 week high and to exclude options that will expire within a short time period from the commencement of the Program (“Eligible Options”). Eligible Options shall be eligible for replacement either for new Options (“New Options”) or restricted stock units (“RSU Award”) over a smaller number of shares to be granted under the Plan. The Program will result in the grant of a replacement RSU Award or New Options, or a cash payment, that will have a value which is approximately equal as of the grant or payment date (as applicable) to the value, determined using the Black-Scholes valuation model, of the Eligible Options being replaced. Optionees eligible to participate in the Program shall include employees of the Company and any of its subsidiaries designated for participation by the Committee other than members of the Board and the Company’s Named Executive Officers. Each RSU Award or New Option shall be subject to the terms and conditions of an appropriate form of agreement, including without limitation the applicable vesting schedules, approved by the Committee. At the discretion of the Board and the Committee, Shares underlying Eligible Options that are tendered pursuant to the Program may be eligible for use in connection with New Options or RSU Awards granted pursuant to the Program and may revert back to the Plan for future award grants.
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Table of ContentsAPPENDIX B Amendments to JDS Uniphase Corporation Amended and Restated 2005 Acquisition Equity Incentive Plan
Pursuant to Section 13 and notwithstanding any other provision of the Plan to the contrary, upon approval by the Company’s shareholders, the Board and the Committee shall have the authority to implement and determine the terms and conditions of a one-time-only voluntary option exchange program pursuant to which certain outstanding options, could at the election of the person holding such options, be tendered to the Company for cancellation in exchange for the issuance of a lesser amount of restricted stock units, options or cash payments (“the Program”). Details of the Program are set forth in Addendum A to the Plan. The Plan shall be modified only to the extent necessary to implement the Program, including without limitation, Sections 5, 6 and 13. All provisions of the Plan not modified by the Program shall remain applicable and unchanged. To the extent that any provision of the Program conflicts with a provision of the Plan, the provision of the Program shall prevail. Addendum A Subject to shareholder approval and the following mandatory conditions, the Board has approved a one-time voluntary option exchange program, the terms and conditions which may be determined by the Committee (the “Program”): The Program may start on such date as shall subsequently be determined by the Committee, but in no event more than twelve (12) months of the date of the Company’s Annual Meeting for year 2009. Outstanding Options granted more than 12-months prior to the commencement of the Program having exercise prices greater than the highest closing price for the Company’s shares during the 52 weeks prior to the start of the Program shall be eligible for participation to the program; provided, however, that Board shall retain discretion to set the eligibility threshold higher than this trailing 52 week high and to exclude options that will expire within a short time period from the commencement of the Program (“Eligible Options”). Eligible Options shall be eligible for replacement either for new Options (“New Options”) or restricted stock units (“RSU Award”) over a smaller number of shares to be granted under the Company’s Amended and Restated 2003 Equity Incentive Plan (the “2003 Plan”). The Program will result in the grant of a replacement RSU Award or New Options, or a cash payment, that will have a value which is approximately equal as of the grant or payment date (as applicable) to the value, determined using the Black-Scholes valuation model, of the Eligible Options being replaced. Optionees eligible to participate in the Program shall include employees of the Company and any of its subsidiaries designated for participation by the Committee other than members of the Board and the Company’s Named Executive Officers. Each RSU Award or New Option shall be subject to the terms and conditions of an appropriate form of agreement, including without limitation the applicable vesting schedules, approved by the Committee. Shares underlying Eligible Options that are tendered pursuant to the Program shall be cancelled and shall not revert back to the Plan for future award grants.
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Table of ContentsAPPENDIX C Amendments to JDS Uniphase Corporation Amended and Restated 1993 Flexible Stock Incentive Plan
Pursuant to Section 8 and notwithstanding any other provision of the Plan to the contrary, upon approval by the Company’s shareholders, the Board and the Committee shall have the authority to implement and determine the terms and conditions of a one-time-only voluntary option exchange program pursuant to which certain outstanding options, could at the election of the person holding such options, be tendered to the Company for cancellation in exchange for the issuance of a lesser amount of restricted stock units, options or cash payments (“the Program”). Details of the Program are set forth in Addendum A to the Plan. The Plan shall be modified only to the extent necessary to implement the Program, including without limitation, Sections 3, 4 and 6. All provisions of the Plan not modified by the Program shall remain applicable and unchanged. To the extent that any provision of the Program conflicts with a provision of the Plan, the provision of the Program shall prevail. Addendum A Subject to shareholder approval and the following mandatory conditions, the Board has approved a one-time voluntary option exchange program, the terms and conditions which may be determined by the Committee (the “Program”): The Program may start on such date as shall subsequently be determined by the Committee, but in no event more than twelve (12) months of the date of the Company’s Annual Meeting for year 2009. Outstanding Options granted more than 12-months prior to the commencement of the Program having exercise prices greater than the highest closing price for the Company’s shares during the 52 weeks prior to the start of the Program shall be eligible for participation to the program; provided, however, that Board shall retain discretion to set the eligibility threshold higher than this trailing 52 week high and to exclude options that will expire within a short time period from the commencement of the Program (“Eligible Options”). Eligible Options shall be eligible for replacement either for new Options (“New Options”) or restricted stock units (“RSU Award”) over a smaller number of shares to be granted under the Company’s Amended and Restated 2003 Equity Incentive Plan (the “2003 Plan”). The Program will result in the grant of a replacement RSU Award or New Options, or a cash payment, that will have a value which is approximately equal as of the grant or payment date (as applicable) to the value, determined using the Black-Scholes valuation model, of the Eligible Options being replaced. Optionees eligible to participate in the Program shall include employees of the Company and any of its subsidiaries designated for participation by the Committee other than members of the Board and the Company’s Named Executive Officers. Each RSU Award or New Option shall be subject to the terms and conditions of an appropriate form of agreement, including without limitation the applicable vesting schedules, approved by the Committee. Shares underlying Eligible Options that are tendered pursuant to the Program shall be cancelled and shall not revert back to the Plan for future award grants.
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Table of ContentsAPPENDIX D Amendments to SDL, Inc. 1995 Stock Option Plan
Pursuant to Section 9 and notwithstanding any other provision of the Plan to the contrary, upon approval by the Company’s shareholders, the Board and the Committee shall have the authority to implement and determine the terms and conditions of a one-time-only voluntary option exchange program pursuant to which certain outstanding options, could at the election of the person holding such options, be tendered to the Company for cancellation in exchange for the issuance of a lesser amount of restricted stock units, options or cash payments (“the Program”). Details of the Program are set forth in Attachment B to the Plan. The Plan shall be modified only to the extent necessary to implement the Program, including without limitation, Sections 3, 4 and 6. All provisions of the Plan not modified by the Program shall remain applicable and unchanged. To the extent that any provision of the Program conflicts with a provision of the Plan, the provision of the Program shall prevail. Attachment B Subject to shareholder approval and the following mandatory conditions, the Board has approved a one-time voluntary option exchange program, the terms and conditions which may be determined by the Committee (the “Program”): The Program may start on such date as shall subsequently be determined by the Committee, but in no event more than twelve (12) months of the date of the Company’s Annual Meeting for year 2009. Outstanding Options granted more than 12-months prior to the commencement of the Program having exercise prices greater than the highest closing price for the Company’s shares during the 52 weeks prior to the start of the Program shall be eligible for participation to the program; provided, however, that Board shall retain discretion to set the eligibility threshold higher than this trailing 52 week high and to exclude options that will expire within a short time period from the commencement of the Program (“Eligible Options”). Eligible Options shall be eligible for replacement either for new Options (“New Options”) or restricted stock units (“RSU Award”) over a smaller number of shares to be granted under the JDS Uniphase Corporation Amended and Restated 2003 Equity Incentive Plan (the “2003 Plan”). The Program will result in the grant of a replacement RSU Award or New Options, or a cash payment, that will have a value which is approximately equal as of the grant or payment date (as applicable) to the value, determined using the Black-Scholes valuation model, of the Eligible Options being replaced. Optionees eligible to participate in the Program shall include employees of the Company and any of its subsidiaries designated for participation by the Committee other than members of the Board and the Company’s Named Executive Officers. Each RSU Award or New Option shall be subject to the terms and conditions of an appropriate form of agreement, including without limitation the applicable vesting schedules, approved by the Committee. Shares of Stock underlying Eligible Options that are tendered pursuant to the Program shall be cancelled and shall not revert back to the Plan for future award grants.
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Table of ContentsAPPENDIX E Amendment No. 1 to the JDS Uniphase Corporation 1998 Employee Stock Purchase Plan as Amended and Restated June 22, 2009 JDS Uniphase Corporation (the “Company”), having previously established the Company’s 1998 Employee Stock Purchase Plan, as Amended and Restated June 22, 2009, (the “Plan”), hereby amends the Plan, effective as of November 11, 2009, subject to approval by the Stockholders of the Company at the next Annual Meeting of Stockholders, as follows: The second sentence of Section VI(a) shall be amended in its entirety to read as follows: The total number of shares of Stock which may be issued under the Plan shall not exceed fourteen million two hundred fifty thousand (14,250,000) shares (subject to adjustment under Section VI(b)).
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Table of ContentsAPPENDIX F 2009 Annual Report
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One)
Commission File Number 0-22874 JDS UNIPHASE CORPORATION (Exact name of Registrant as specified in its charter)
430 North McCarthy Boulevard, Milpitas, California 95035 (Address of principal executive offices including Zip code) (408) 546-5000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value of $0.001 per share Preferred Stock Purchase Rights (Title of Class) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x As of December 27, 2008 the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $0.8 billion, based upon the closing sale prices of the common stock and exchangeable shares as reported on the NASDAQ National Market and the Toronto Stock Exchange, respectively. Shares of common stock and exchangeable shares held by executive officers and directors have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of July 24, 2009, the Registrant had 217,002,671 shares of common stock outstanding, including 4,506,556 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. Documents Incorporated by Reference: Portions of the Registrant’s Notice of Annual Meeting of stockholders and Proxy Statement to be filed pursuant to Regulation 14A within 120 days after Registrant’s fiscal year end of June 27, 2009 are incorporated by reference into Part III of this Report.
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Table of ContentsFORWARD-LOOKING STATEMENTS Statements contained in this Annual Report on Form 10-K 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 “anticipates that,” “believes,” “can impact,” “continue to,” “estimates,” “expects to,” “intends,” “may,” “plans,” “potential,” “projects,” “to be,” “will be,” “will continue to be,” “continuing,” “ongoing,” or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. Forward-looking statements include statements regarding: our expectations regarding an increase in consumer demand for real-time, interactive visual and audio experiences; our beliefs regarding bandwidth growth over optical networks; our belief that we are well positioned to benefit from industry trends; our plan to expand opportunities in emerging geographies and through channel marketing; our strategy to operate as a Company comprised of a portfolio of businesses with a focus on optical and broadband innovation; our expectation that the growing demand for network capacity will encourage the adoption of communications and commercial optical products across the telecom sector; our belief that an increase in network capacity will increase the demand for optical products in the storage and enterprise sectors; our belief that the deployment of fiber closer to the end user increases the availability of high-bandwidth services and will result in increased demand on the metro and long-haul networks; our plan to continue to enable our customers to build systems for Agile Optical Networks (“AON”); our expectation that the Company will continue to play a vital role in the broadband and optical innovation that enables breakthrough solutions for essential high-tech industries; our belief that we are well positioned to migrate from fixed to reconfigurable dense wavelength division multiplexer (“DWDM”) architectures and networks; our belief that increasing deployments of broadband access, the expansion of IP-based services, and the need to reduce deployment time and cost should result in increased demand for communications test and measurement instruments, systems, software and services; our expectation that the Company’s Communications Test and Measurement business unit will continue to improve profitability; our belief that we have the broadest range of wire line products and solutions available in the communications test and measurement industry; our belief that our broad portfolio of test and measurement solutions position the Company well to benefit from these improvements; our plan to continue to leverage our unique intellectual property, including leading expertise in optics, light management and material technology to develop solutions that provide unique advantages for our customers; our belief in the increasing demand for high quality lasers for a variety of markets; our belief that the Company is well positioned to benefit from the demand for quality compact lasers; our plan to accelerate new customer applications enabled by using lasers coupled with high performance photonic power photovoltaic converters to provide power over fiber; our belief that the Company is a pioneer in the emerging market of photonic power; our plan to continue to help customers make their existing networks more flexible and agile by designing agility into our products at the photonic level; our objective to continue to be a leading supplier for all markets and industries we serve and the strategies we plan to pursue to achieve such objective; our commitment to invest organically through acquisitions and partnerships in new technologies, products and services; our commitment to the ongoing evaluation of strategic opportunities and the acquisition of additional products, technologies or businesses; our belief that we strengthened our business model by expanding our addressable market, customer base and expertise, diversifying our product portfolio and fortifying our core businesses through acquisitions as well as other organic initiatives; our plans to leverage the technologies, distribution relationships, products and services gained as a result of acquisitions; our belief that our acquisitions create new opportunities for the acquired products due to JDSU’s direct sales and service organization serving the largest telecommunications and cable service providers worldwide; our plan to continue to strengthen our partnerships with contract manufacturers for our telecommunications, data communications and laser products; our intention to continue to centralize many administrative functions such as information technology, human resources and finance; our devotion of substantial resources to research and development in order to develop new and enhanced products to serve our markets and segments; our intention to establish at least two sources of supply for raw materials whenever possible; our intention not to broadly license our intellectual property rights; our belief that we have good employee relations; our expectation that seasonable demand fluctuations will cause significant, periodic variations in our financial results for our Communications Test and Measurement segment; our desire to expand our markets and customer base, improve the profitability of our product portfolio and
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Table of Contentsimprove time to revenue in our Advanced Optical Technologies segment and commercial lasers business and efforts to effect such changes; our efforts to reduce our cost structure; the impact of restructuring and related charges on our results of operations and cash flows; our efforts to divert resources from new product research and development and other functions to assist with difficulties related to execution capabilities and customer relations; our continued experiences with product failures; our intention to continue to develop new product lines and improve the business for existing ones; our expectation that the introduction of new products will continue to incur higher start-up costs and increased yield and product quality risk among other issues; our expectations regarding our future growth; our continued reliance on a limited number of customers for a significant portion of our revenues; our expectation that we will continue to experience strain on our supply chain and periodic supplier problems; our belief that we must maintain a substantial commitment to innovation and product differentiation, as well as significantly reduce cost structure to remain competitive in future business climates; our intention to continue to address the need to develop new products through acquisitions of other companies and technologies; our efforts to continue to recruit key personnel; our expectations that net revenue from international customers outside of North America will continue to account for a significant portion of our total revenue; our expectation regarding the expansion of our research and development activities in China; our expectation of the need to respond to and our intention to respond to intellectual property infringement claims in the course of our business operations from our competitors; our belief that our existing properties, including both owned and leased sites, are in good condition and suitable for the conduct of our business; our belief that our existing facilities are adequate to meet our immediate needs; our belief that various critical accounting policies are affected by significant estimates, assumptions and judgments used in the preparation of our consolidated financial statements; our belief that certain equipment is not software related and should be excluded from the scope of the AICPA SOP No. 97-2; our belief that using a combination of historical and market-based implied volatility from traded options on Company common stock is a better indicator of expected volatility and future stock price trends than relying solely on historical volatility; our anticipation that cash dividends will not be paid in the foreseeable future; our commitment to enabling broadband and optical innovation in the communications and commercial markets; our expectation that high customer concentration, attendant pricing pressure, and other effects on our communications markets will remain for the foreseeable future; our efforts to expand our products, customers and distribution channels for several of our core competencies; our expectations that seasonality in the Communications Test and Measurement segment will continue for the foreseeable future; our expectation that the adoption of certain accounting pronouncements will not have a material adverse effect on our financial statements; our estimates for costs associated with our restructuring plans; our assumptions related to pension and postretirement benefits; our expectation that we will continue to encounter a number of industry and market structural risks and uncertainties that will limit our business climate and market visibility; the continued North American assembly transitions; our belief that investment in research and development (“R&D”) is critical to attaining our strategic objectives; our continued efforts to reduce total operating spending; our intention to continue to address our selling, general and administrative (“SG&A”) expenses and reduce these expenses as and when opportunities arise; our expectations regarding future SG&A expenses; our expectation that none of the non-core SG&A expenses will have a material adverse impact on our financial condition; our expectation that the zero coupon convertible notes will be retired within one year; our efforts to take advantage of opportunities to reduce costs through targeted, customer-driven restructuring events; our expectation that payments related to severance benefits will be paid off by the third quarter of fiscal 2013 and that payments related to lease costs will be paid by the fourth quarter of fiscal 2012; our plan to pay the lease costs associated with the Ottawa facility by the third quarter of fiscal 2018; our belief that we have provided adequate amounts for adjustments that may result from tax audits; our estimates for additional required investment in research and development in connection with our acquisitions; our expectation that our acquisitions will strengthen the Company’s position in the related markets and help grow our business in various regions; our belief that our existing cash balances and investments will be sufficient to meet our liquidity and capital spending requirements at least through the next 12 months; our expectation that gains and losses on derivatives will be offset by re-measurement gains and losses on the foreign currency dominated assets and liabilities; our ability to mitigate credit risk and marketability risk of our portfolio of investments; our intention to maintain a sufficient safety stock of products and to maintain ongoing communications with suppliers to guard against interruptions or cessation of supply; the expectation for the deductibility of goodwill associated
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Table of Contentswith our acquisitions; our estimates for associated restructuring and non-recurring charges; our estimate that no additional taxes would have to be provided if the earnings were repatriated back to the U.S.; our belief that certain jurisdictions in which we received tax benefits attributable to the release of valuation allowances will generate future income; our expectation that the Full Value Awards will vest over one to four years; our expectation to amortize $18.6 million of unrecognized stock-based compensation cost related to stock option activity over a period of 2.3 years; our expectation to amortize $0.1 million of stock based compensation expense related to the employee stock purchase plan (“ESPP”) in the first quarter of fiscal 2010; our expectation to amortize $41.8 million of estimated stock based compensation expense related to Full Value Awards over an estimated amortization period of 2.1 years; our expectation that the required contribution to the Company’s pension plans in fiscal 2010 will be $0.3 million; our expectation to close $128.8 million in obligations to purchase inventory and other commitments within one year; our estimate that the Company’s potential tax liability related to a Texas franchise tax audit will be from zero to $36.9 million, plus interest and penalties; and our belief that resolving claims that arise in the ordinary course of our business will not have a material adverse impact on our financial position or results of operations. 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 forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, including, without limitation, the following: incorrect assumptions regarding the basis for consumer demands; an unexpected decreased in the availability of broadband networks; our inability to successfully capitalize on our position in the market, industry trends and strategic opportunities; inability to successfully operate as a portfolio of businesses solely with a focus on optical and broadband innovation; inability to meet marketplace demands for communications and commercial optical products; inability to accurately assess the demand on the metro and long-haul networks into which high-bandwidth services feed; inability to support our customer growth in building systems for AONs; our inability to assess the feasibility of certain innovations and the impact that such innovations might have on high-tech industries; licensing issues related to our intellectual property; broader product offering of competitors; inaccuracies regarding the direction of the market to migrate from fixed to reconfigurable DWDM architectures and networks; inability to accurately assess the market demand for communications test and measurement instruments, systems, software and services; difficulties associated with limiting and predicting costs in the Communications Test and Measurement business unit; inaccurate assumptions regarding the optical industry; inability to accurately predict the demand for high-quality lasers in various commercial markets; inability to quickly introduce customer applications into the marketplace to meet customer demands for commercial lasers; inaccuracies regarding the Company’s position in the photonic power market; inaccurate assumptions regarding the importance of agility and flexibility to our current customers; our inability to invest in new technologies; inaccuracies regarding promising markets and our ability to focus the company’s resources towards developing products for potentially promising markets; unanticipated SG&A expenses and inaccuracies as to the impact of SG&A expenses on the Company’s financial condition; inaccurate assumptions regarding the viability of certain product lines; unanticipated difficulties associated with the centralization of administrative functions; inability to timely and effectively develop, manufacture and market our new products, or enhance our existing products; our inability to accurately and timely complete valuation analyses in connection with our acquisitions; our limited ability to perceive or predict market trends; decreases in our product portfolio and revenues; inaccuracies regarding our employee relations and inability to maintain a steady workforce; loss of a significant customer eliminating a significant portion of our future revenues; dependence on fewer customers limiting our ability to increase our profitability; unrealized customer and market penetration resulting from our recent acquisitions; inability to effectively execute programs related to our investments and partnerships; failure to reduce manufacturing costs through restructuring efforts; inability to accurately predict the volatility of future stock trends; introduction of new accounting pronouncements; lack of resources set aside for investment in R&D; inaccurate assessment of our tax liability as a result of acquisitions and tax audits; greater than anticipated tax exposure; unforeseen damage and repairs to the Company’s leased and owned properties; need to expand or decrease the size of our existing facilities; excessive costs associated with defending various claims and suits brought against the Company and its directors; unexpected impairment of goodwill associated with our
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Table of Contentsacquisitions; delays in bringing products to market due to development problems; excessively high costs in the future related to enhancing our existing systems; significant changes in customer preferences; the possibility that competitors will introduce products faster than us; unanticipated difficulties in building close working relationships with manufacturers; our inability to establish relationships with alternative suppliers of raw materials; growth in our business placing unexpected strains on our resources; international expansion beyond the capacities of our current properties; loss of key personnel to competitors and an inability to effectively recruit replacements; inherent uncertainty surrounding the litigation process and the fact that litigation could result in substantial cost and diversion of our management’s attention; inability to obtain new orders from major customers; substantial technological changes in the Communications Test and Measurement solutions market; the timing of orders; difficulties in assessing the impact of accounting changes on financial statements; incorrect estimates, assumptions and judgments used in preparing the Company’s consolidated financial statements; inaccuracies in categorizing equipment for accounting purposes; inaccuracies related to the assumptions used in assessing the Company’s option-price; market rejection of new products; inaccuracies of the strength of various acquisitions on improving the Company’s position within various markets; inability to accurately predict when various products acquired during our acquisitions will be fully developed and completed; inaccurate assumptions or estimates associated with severance and lease payments; inability to accurately assess additional tax expenses due to repatriation of certain earnings in China; inability to accurately assess future income attributable to tax benefits; inability to predict the vesting period of the Company’s Full Value Awards; difficulty in estimating the amortization period of stock based compensation expense of stock option activity and our ESPP; inability to accurately predict the amount of money the Company must contribute to its pension plans as legally mandated; inability to deliver inventory and collect payments due under purchase orders; and other factors set forth in “Risk Factors” and elsewhere herein. 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 in Part I, Item 1A “Risk Factors” set forth in this Form 10-K. Moreover, neither we assume nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Forward-looking statements are made only as of the date of this Report and subsequent facts or circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements. We are under no duty to update any of the forward-looking statements after the date of this Form 10-K to conform such statements to actual results or to changes in our expectations.
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Table of ContentsPART I ITEM 1. BUSINESS General Overview JDS Uniphase Corporation (“JDSU”) is a leading provider of communications test and measurement solutions and optical products for telecommunications service providers, cable operators, and network equipment manufacturers. JDSU is also a leading provider of optical solutions for biomedical and environmental instrumentation, semiconductor processing, aerospace and defense, brand authentication, display systems, and custom color product differentiation applications. To serve its markets, JDSU operates in the following business segments: Communications Test and Measurement (“CommTest”), which accounted for approximately 47% of net revenue in fiscal 2009; Communications and Commercial Optical Products (“CCOP”), which accounted for approximately 37% of net revenue in fiscal 2009; and Advanced Optical Technologies (“AOT”), which accounted for approximately 16% of net revenue in fiscal 2009. Industry Trends The trends that drive the broadband communications industry are key drivers for our communications test and measurement and our communications and commercial optical products businesses. Demand for high-bandwidth communications is increasing, powered by the growing number of broadband users worldwide and the greater reliance on high-bandwidth capabilities in our daily lives. For example, video and music downloads, IPTV, gaming, and other on-line interactive applications are growing rapidly. Optical networks are being extended closer to the end user with fiber-to-the-home (“FTTH”) and other fiber (“FTTx”) networks. Mobile data traffic also is increasing as cell phones continue to proliferate with increasingly sophisticated audio, photo, video, email and Internet capabilities. The resulting traffic, in turn, is felt throughout the network, including the core that depends on optical technology. JDSU is well-positioned to continue to benefit from these industry trends due to its leadership in the broadband test and measurement and optical networking markets. In addition to communications, optical technologies are increasingly applied to solve complex problems in other industries. For example, our high-precision lasers enable the trend toward smaller integrated circuits for use in today’s compact consumer electronics, the classification and sorting of biological cells using induced fluorescence, and deoxyribonucleic acid (“DNA”) sequencing through the appropriate application of monochromatic light. Our optically variable pigment, holographic, and microtaggant technologies protect global brands, including medicines, electronics, and government documents, including currency and high security credentials against counterfeiting. Precision optical coatings are used for high performance applications in aerospace, entertainment and biomedical instrumentation. Sales and Marketing JDSU markets its products to telecommunications and cable television service providers, network equipment manufacturers, OEMs, distributors and strategic partners worldwide. Each business segment has a dedicated sales force that communicates directly with customers’ executive, technical, manufacturing and purchasing personnel as needed to determine design, performance, and cost requirements. In addition, all business segments are working to expand opportunities in emerging geographies and through alternate channels of distribution. A high level of support is necessary to develop and maintain long-term relationships with our customers. JDSU engages the customer at the design-in phase and continues to build the relationship as customer needs change and develop. Service and support are provided through JDSU offices and those of its partners worldwide.
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Table of ContentsAdditional Information JDSU was incorporated in California in 1979 and reincorporated in Delaware in 1993. JDSU is the product of several significant mergers and acquisitions including, among others, the combination of Uniphase Corporation and JDS FITEL in 1999, and the acquisition of Acterna, Inc. in 2005. Our strategy is to operate as a company comprised of a portfolio of business with a focus on optical and broadband innovation. We are subject to the information requirements of the Securities Exchange Act of 1934, or the Exchange Act. Therefore, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330, by sending an electronic message to the SEC at publicinfo@sec.gov or by sending a fax to the SEC at 1-202-777-1027. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We also post all SEC filings on our website at www.jdsu.com/investors as soon as reasonably practicable after they are electronically filed or furnished to the SEC. Business Segments During the second quarter of fiscal year 2009, JDSU changed the reporting structure to combine the former All Others, Commercial Lasers business segment with the Optical Communications business segment and formed a new business segment, Communications and Commercial Optical Products. As a result, there are three reportable segments, Communications Test and Measurement, Communications and Commercial Optical Products, and Advanced Optical Technologies, as of June 27, 2009. Each segment has its own engineering, manufacturing, sales, and marketing groups to better serve customers and respond quickly to the market needs. In addition, our business segments share common corporate services that provide capital, infrastructure, resources, and functional support, allowing them to focus on core technological strengths to compete and innovate in their markets. Communications Test and Measurement The Communications Test and Measurement business segment products and services enable the design, deployment, and maintenance of communication equipment and networks, as well as ensure the quality of services delivered to the end customer. These products and services provide solutions that help accelerate the deployment of new services and lower operating expenses while improving performance and reliability. Included in the product portfolio are test tools, platforms, and services for optical transport networks, DSL services, data networks, cable networks, digital video broadcast, and fiber characterization services. Market JDSU provides instruments, service assurance systems and services for communications network operators and equipment manufacturers that deliver and/or operate broadband/IP networks (cable, fixed and mobile) deploying triple- and quad-play services (voice, video, data, and wireless). JDSU test solutions address the needs of lab and production, which includes research, development and manufacture of network equipment; field service, including triple-play deployments for cable, telecom, FTTx, and home networking; and service assurance, which includes monitoring and maintaining quality of experience (“QoE”) for Ethernet and IP services, including cable, wireless and fixed/telecom networks. Customers JDSU customers for communications test and measurement solutions include the world’s largest communications service providers, communications equipment manufacturers, government organizations, and large corporate customers. These include major telecom and cable operators such as AT&T, Bell Canada, British
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Table of ContentsTelecom, China Telecom, Comcast, Deutsche Telecom, France Telecom, Telefonica, Telmex, TimeWarner, Verizon and many others. JDSU test and measurement customers also include many of the network equipment manufacturers served by our communications and commercial optical products group, including Alcatel-Lucent, Ciena, Cisco, Huawei, Fujitsu, Nortel, and Motorola. Trends As content providers in the communications industry are developing new business models to expand their distribution capabilities, they are increasingly adopting on-line channels for rich broadband content such as music, gaming, video programming, and movies. Telecommunications service providers are, in turn, planning to increase their revenues and profitability by expanding the capabilities of their IP packet-based networks to increase their network capacity and to deliver sophisticated levels of quality of service required to meet the service requirements of the content providers and the consumers. Telecommunications, cable television, satellite, and wireless service providers are competing with each other to offer content providers and consumers the ability to carry virtually any type of content via bundled services. With more applications and content available, potential benefits for service providers include increased average revenue per user (“ARPU”) and less customer turnover due to better service quality, thus increasing profitability and long-term competitive advantage. As a result, many providers are developing consolidated network architectures intended to enable a triple-play (integrated voice, data and video services) offering from a single provider rather than three separate services from three separate providers over three separate networks. Additionally, the proliferation of new and higher bandwidth services, including video-based content such as news, movies, and gaming, is generating strong growth in demand for network capacity and bandwidth rates, which in turn drives demand for many types of networking, access and transport systems. Increasing deployments of broadband access, the expansion of IP-based services, and the need to reduce deployment time and cost should result in demand for communications test and measurement instruments, systems, software, and services. These communications test and measurement solutions support the rapid deployment of new services, increase customer satisfaction by helping technicians complete installation and repair work quickly and correctly, and lower operating expenses by automating and improving network installation, maintenance, and management processes. Our broad portfolio of test and measurement solutions positions us well to benefit from these developments. Strategy The JDSU Communications Test and Measurement business segment plans to improve profitability by providing communications test and management solutions that address the business challenges of network operators and communications equipment manufacturers. Its focus is to enable network operators to accelerate deployment of new services, improve service quality, reduce customer churn, and lower network operating expenses. Competition JDSU competes against various companies, including Agilent, Anritsu, Exfo, Spirent, Sunrise, and VeEX. While JDSU faces multiple competitors for each of its product families, it continues to have one of the broadest portfolios of wireline products and solutions available in the communications test and measurement industry. Offerings JDSU provides the industry’s most expansive set of communications-focused test and measurement solutions. This portfolio provides end-to-end test support across communications networks, including the core,
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Table of Contentsmetro, access, and home networking environments. JDSU is a leader in the test and measurement market and has an installed base of hundreds of thousands of test instruments and systems deployed in communications networks around the world. Our test and measurement product portfolio includes: Instruments JDSU provides devices that perform various communications test and monitoring functions. Designed to be mobile, these products assist service provider technicians in assessing the performance of network elements and segments or verifying the integrity of the information being transmitted across the network. These instruments incorporate high levels of intelligence and have user interfaces that are designed to simplify operation and minimize training. JDSU test instruments also include those used by network equipment manufacturers (“NEMs”) in the design and manufacture of next-generation network equipment. Thorough testing by NEMs plays a critical role in producing the components and equipment that are the building blocks of network infrastructure. Software JDSU provides software products and custom software development services to its customers. Software products address applications for network capacity management, test operations support systems and workflow solutions. Software services are provided to customize software applications and to interface JDSU software to customer operations support systems. Systems JDSU systems typically consist of integrated hardware and software components that reside in communication networks. Using an integrated test and management system, JDSU customers are able to analyze a variety of network elements, transmission technologies and protocols from a single console, simplifying the process of deploying, provisioning and managing network equipment and services. From a centralized location, technicians can access the test systems within the network and perform simultaneous test and monitoring functions on one or more elements, either manually or automatically. These capabilities allow network operators to initiate service to new customers faster, decrease the need for technicians to make on-site service calls, help to make necessary repairs faster and, as a result, provide higher quality and more reliable services. Services JDSU offers a range of product support and professional services geared to comprehensively address its customers’ requirements. These services include repair, calibration, software support services and technical assistance for its products. JDSU also offers product and technology training as well as consulting services. JDSU professional services, provided in conjunction with system integration projects, include project management installation and implementation. Communications and Commercial Optical Products The Communications and Commercial Optical Products (“CCOP”) business segment provides optical communications products used by network equipment manufacturers for telecommunications and enterprise data communications. These products enable the transmission and transport of video, audio and text data over high-capacity fiber optic cables. Transmission products primarily consist of optical transceivers, optical transponders, and their supporting components such as modulators and source lasers, including innovative products such as vertical-cavity surface-emitting lasers (“VCSELs”). Transport products primarily consist of amplifiers and reconfigurable optical add/drop multiplexers (“ROADMs”) and their supporting components such as pump lasers, passive devices, and array waveguides (AWGs). In fact, today’s most advanced optical networks are built on our transport and transmission components, modules and subsystems.
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Table of ContentsThis business segment also provides lasers employed in a wide variety of OEM applications. Our broad portfolio of lasers are used by our customers in markets and applications such as biotechnology, graphics and imaging, remote sensing, and materials processing and precision machining such as micro via drilling in printed circuit boards, wafer singulation, and solar cell scribing. These products include diode-pumped solid-state and fiber-based lasers, diode lasers and fiber-delivered diode laser systems, and gas lasers. In addition, our photovoltaics (“PV”) products include concentrated photovoltaic (“CPV”) cells and receivers for generating energy from sunlight, as well as fiber optic-based systems for delivering and measuring electrical power. Market The CCOP business segment participates in the optical communications, laser, and photovoltaic markets. JDSU optical communications products include a wide range of components, modules, and subsystems to support and maintain customers in our two market segments: telecommunications, including carrier networks for access (local), metro (intracity), long-haul (city-to-city and worldwide), and submarine (undersea) networks; and enterprise data communications, including storage access networks (“SANs”), local area networks (“LANs”), and Ethernet wide-area networks (“WANs”). The JDSU portfolio of laser products includes components and subsystems used in a wide variety of original equipment manufacturer (“OEM”) applications that range in output power from several milliwatts to more than 100 watts and include ultraviolet (“UV”), visible, and infrared (“IR”) wavelengths. JDSU supports customers for applications such as biotechnology, graphics and imaging, remote sensing, materials processing and other precision machining. The photovoltaic business unit provides photonic power for a range of remote sensing applications, including to the electric power industry for measuring power transmission. It is also applying its technology to develop high efficiency concentrated photovoltaic cells for the generation of electric power from the solar radiation. Customers CCOP serves optical communications equipment manufacturers such as Alcatel-Lucent, Ciena, Cisco, Ericsson, Fujitsu, Hewlett-Packard, Huawei, IBM, Nokia Siemens Networks, Nortel, and Tellabs, and OEM laser customers such as Applied Biosystems (now part of Life Technologies Corporate), ASML, Beckman Coulter, Eastman Kodak, Electro Scientific Industries, General Dynamics, Han’s Laser, and Panasonic. Trends The business cycle notwithstanding, long term trends suggest growing opportunity for CCOP. These trends are discussed, by market, below: Optical Communications: To remain competitive, network operators worldwide must offer broader suites of digital services. To do this, they are migrating to Internet protocol (“IP”) networks, which effectively deliver triple-play services while lowering capital and operating costs of DWDM (dense wavelength division multiplexing) networks. In data communications, demand for broadband is driven by growing needs of intracompany LAN and intercompany WAN networks. The growing demand for capacity encourages the adoption of optical communications products across the telecom sector, including long-haul, metro (core and access), cable television (“CATV”), submarine, and fiber to the premises (“FTTP” or “FTTx”). It also increases demand for optical products in the storage and enterprise sectors, including LAN, SAN and WAN.
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Table of ContentsNew, bandwidth-intensive applications can result in sudden and severe changes in demand–essentially anywhere on the network. Migrating to agile optical networks (“AONs”), which employ ROADMs, tunable transponders, and other agile optical products, provide an effective way to respond to unpredictable bandwidth demands and manage expenses. With an AON, a service provider can add capacity by using remote management applications rather than by dispatching technicians to perform manual operations in the field. In addition, the high-end routers, switches, and cross-connect equipment that must handle legacy and IP traffic, are becoming increasingly complex in order to meet higher bandwidth, scalability, speed, and reliability needs. Products must provide higher levels of functionality and performance in compact designs that must also meet requirements for emissions, cost, and reduced power consumption. Deployment of fiber closer to the end user increases the availability of high-bandwidth services and should result in increased demand on the metro and long-haul networks into which these services feed. The dynamically reconfigurable nature of an AON enables lower operating costs and other competitive advantages, allowing service providers to more flexibly use and scale network capacity, streamline service provisioning, accelerate rerouting around points of failure, and modify network topology through simple point-and-click network management systems. JDSU is a leading provider of the optical products mentioned above to support the trends in this market. JDSU innovation, particularly in the area of photonic integrated circuits, which can replace many discrete components with a single photonic chip, is resulting in products that have more functionality, are smaller, require less power, and are more cost-effective. For example, the Photonic Integrated Amplifier is up to 50% smaller than comparable products, and the tunable XFP transceiver is 85% smaller than previous tunable models. Higher levels of integration have also led to development of the AON Super Transport Blade, which delivers all transport functions in a single, integrated platform, essentially replacing three blades with one. JDSU, with its innovative optical communications and flexible, cost-effective AON portfolio, is positioned to be the supplier of choice for next-generation networks. Lasers: As technology advances, high-tech and other vital industries increasingly turn to lasers when they need more precision, higher productivity, energy efficient or “green” alternatives for problems that can not be solved by mechanical, electronic or other means. For example, lasers have been used for years to help achieve the scale and precision needed in semiconductor processing. In biotech applications, lasers have been instrumental for advances (and new standard procedures) in cytology, hematology, genome sequencing, and crime scene investigations, among others. The long term trends in these industries should lead to increased demand for lasers. In addition, demand continues for electronic products, as well as products and components in other industries, to offer greater functionality while becoming smaller, lighter, and less expensive. Product designs that achieve this are requiring precise micromachining and materials processing, such as micro bending, soldering and welding–especially for plastics. At the scale and processing speed needed, lasers are replacing mature mechanical tools such as drills for tiny holes or “vias” in printed circuit boards and saws and scribes for singulating silicon wafers, resulting in greater precision and productivity. As these trends continue, we believe that manufacturers and industries will increase their reliance on lasers in order to maintain or increase their competitiveness. There is an increasing trend toward energy efficiency and “green” industry. Industries are using lasers to develop products that are smaller and lighter, and increase productivity and yield, thereby lowering their energy consumption. More directly, this trend has provided for significant growth in the solar power market segment and applications for lasers used in the production of solar panels.
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Table of ContentsJDSU is well-positioned with key OEM providers of laser solutions to these industries. We continue to develop our laser portfolio to offer smaller and more cost-effective products designed specifically for the performance, integration, reliability and support needs of our OEM customers. Photovoltaics: The trend toward lighter, cleaner, efficient solutions has lead to opportunities for photonics in a variety of applications. The use of photonic power for remote sensors solves the problem of EMI, RF and other interference associated with the use of electrical power. The need for clean energy is fueling a strong increase in demand for photovoltaic power. JDSU proprietary technology already in use for powering remote sensors has led to high efficiency products applicable to electric power generation from solar energy. Strategy JDSU delivers value to its customers though innovation, partnership and vision. In optical communications we are focused on technology leadership, cost leadership, and functional integration. We will continue to align the latest technologies with best-in-class, scalable manufacturing and operations to drive the next phase of optical communications with highly integrated technologies that are faster, more agile, and more reliable, making us a valuable business and technology partner for NEMs. In the laser markets, JDSU works to establish long-term business partnerships with its OEM customers. Leveraging established manufacturing, engineering, telecommunications, and photonics expertise, JDSU delivers products that meet cost-of-ownership and reliability needs while delivering on volume production demands. And in photovoltaics, JDSU is developing best-in-class performance technology applicable to the nascent, fast-growing solar power market. Competition JDSU competes against numerous public and private companies in its CCOP markets. A partial list of public company competitors providing optical communications includes Oclaro, Finisar, Fujitsu, Furukawa Electric, Opnext, Oplink Communications, and Sumitomo Electric. JDSU competitors in the laser market include Coherent, IPG Photonics, Rofin-Sinar, CVI-Melles, and the Spectra-Physics division of Newport Corporation. JDSU competes against Spectrolab and Emcore in the photovoltaic market. In addition to these established companies, JDSU faces significant and focused competition from other companies and emerging startups. While each of its product families has multiple competitors, JDSU has a broad range of products and leading technologies that are aligned with industry trends and the needs of its customers. Offerings CCOP serves the optical communications, laser, and photovoltaic markets. Optical Communications JDSU optical communications offerings address two market segments—telecommunications and enterprise data communications. In addition to a full selection of active and passive components, JDSU offers increasing levels of functionality and integration in modules, circuit packs, and subsystems for transmission, amplification, wavelength management, and more. Our optical communications product offerings include: In the telecommunications market segment, we offer transmission and transport solutions for the synchronous optical network (“SONET”), synchronous digital hierarchy (“SDH”) and wavelength division multiplexer (“WDM”) applications. Transmission products transmit and receive signals, such as our tunable
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Table of Contentstransponder, transceiver, and transmitter modules. JDSU also offers transmission components for the previously mentioned products, which include active components like our tunable lasers, detectors/receivers, and modulators. JDSU transport products provide switching, routing and conditioning of signals such as our ROADMs and optical amplifiers. We also provide components for transport, including passive components such as our attenuators, circulators, couplers/splitters/WDMs, gain flattening filters, hybrid interleavers, multiplexer/demultiplexers polarization components, switches, and wavelength lockers. Industry-leading innovation led to the AON Super Transport Blade, which integrates all major optical transport functions (wavelength switching, preamplification, postamplification, and monitoring) into a single-slot blade. This all-in-one solution reduces the size, cost, and power requirements of optical components, incorporates nano wavelength selective switch (“WSS”) technology, and enables greater chassis density and smaller footprint. In the enterprise data communications market segment, which relies on storing and moving vast amounts of data, JDSU offers transmission products, such as our optical transceivers for Fibre Channel and Gigabit Ethernet applications. JDSU transceivers are also used in Ethernet connections for servers, routers, hubs, and switches for Internet and e-mail services. JDSU integrated fiber optic transceivers provide a high-speed, serial electrical interface for connecting processors, switches, and peripherals. They are available in hot-pluggable or pin-through-hole versions with a small footprint for use in compact system designs. This allows manufacturers to double the density of transceivers on a board compared to conventional designs. For higher data transfer rates of 40 and 100G, JDSU offers vertical-cavity surface-emitting lasers (“VCSELs”). VCSELs reduce power consumption, heat, electromagnetic interference (“EMI”), and cost while increasing speed, reliability, and link distance. Our compact arrays offer an innovative solution for the LANs, SANs, broadband Internet, and metro-area network applications that currently depend on high-end routers, switches, and cross-connect equipment to handle legacy and IP traffic. Lasers Our broad range of products includes continuous-wave and pulsed diode-pumped solid-state and fiber-based lasers, high-reliability diode lasers and fiber-coupled diode laser systems, and gas lasers including argon-ion and helium-neon (“HeNe”) lasers: Diode-pumped solid-state and fiber-based lasers with excellent beam quality, low noise, and exceptional reliability are used in biotechnology, materials processing, graphics and imaging, remote sensing, and materials processing and precision machining applications. JDSU offers very low noise continuous-wave green lasers and blue lasers, high-repetition-rate near-infrared lasers, and high-power pulsed UV lasers. Diode lasers and fiber-delivered diode laser address a wide variety of applications, including laser pumping, thermal exposure, illumination, ophthalmology, image recording, printing, plastic welding, and selective soldering. Gas lasers, including argon-ion and helium-neon lasers provide a stable, low-cost and reliable solution over a wide range of operating conditions, making them well suited for complex, high-resolution OEM applications such as flow cytometry, DNA sequencing, graphics and imaging, and semiconductor inspection. Photonic power and photovoltaics Photonic power is an innovative power-over-fiber delivery system that converts optical power to electrical power. Since it is delivered over nonconducting fiber optic cable, it is not affected by RF or EMI, is lighter,
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Table of Contentsgenerates less heat, is spark-free, and can be used to drive sensors, gauges, actuators, low-power communications devices, and other electronic devices. JDSU capabilities in converting optical power to electrical power are now being applied to the solar energy market. Multijunction concentrated photovoltaic (CPV) cells generate power under concentrated sunlight. JDSU has developed CPV cells to be available both as chips and in receiver assemblies, for generating solar power. Advanced Optical Technologies The Advanced Optical Technologies (“AOT”) business segment leverages its core technology strengths of optics and materials science to manage light and color effects. With decades of experience in optical coating and holographic technology, AOT develops innovative solutions that meet the needs of a variety of markets—from counterfeit protection to space exploration. Market Our AOT segment spans several markets. Its multilayer product security technologies provide overt and covert product verification for protection against diversion, brand erosion, and lost revenue due to counterfeiting. These technologies safeguard high security government documents as well as brands in the transaction card, pharmaceutical, consumer electronics, printing/imaging supplies, and fast-moving consumer good industries through innovative optically variable pigment, holographic, and microtaggant technologies. AOT also produces precise, high-performance, optical thin-film coatings for a variety of applications in government and aerospace, biomedical, telecommunications, office automation, and other markets. These applications include night-vision goggles, satellite solar covers, medical instrumentation, optical communications components, fax machines, computer-driven projectors, and event lighting. In addition, we offer custom color solutions for product finishes and decorative packaging that can be applied to a wide variety of substrates. These include innovative optically-based color-shifting and other solutions that provide product enhancement for brands in the pharmaceutical, automotive, consumer electronics, sports apparel, and fast-moving consumer goods industries. Customers The AOT business segment serves customers such as BAE Systems, ITT, Mitsubishi, Northrup Grumman, SICPA, Seiko Epson, MasterCard and Dolby. JDSU technology is used to protect the currencies of China, the European Union, the United States, and other governments around the world. Leading pharmaceutical companies worldwide also use JDSU solutions to protect their brands, as do major issuers of transaction cards. JDSU custom color product differentiation and brand enhancement solutions are used by customers such as DuPont and PPG. Trends Product integrity is a worldwide, multibillion dollar issue that poses consumer health and safety risks, corporate liability, devaluation of brand image, weakening of brand loyalty, and lost revenues. Favored targets include pharmaceuticals, imaging supplies, apparel, automotive parts, consumer electronics, and electronic media. Other issues, such as product diversion, where distributors divert products intended for lower-priced markets to higher-priced markets, increasingly require brand protection. The spread of counterfeiting can be attributed to using the Internet to facilitate distribution, a ready availability of low-cost, high-quality printing equipment to reproduce product packaging, the elimination of international trade barriers, and an increasingly mobile global society. JDSU technology has become a worldwide standard for currency protection. Meanwhile, the need to protect high-value documents and offer solutions for authenticating personal, identification, and financial documents is
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Table of Contentsalso growing. Our authentication products can be combined to offer multilayer solutions for creating effective security programs that combine secure authentication, flexible aesthetics, and ease of application. Demand for optical solutions to solve complex problems extends to the aerospace, defense and medical/environmental instrumentation markets, which require customized, high-precision coated products and optical components that selectively absorb, transmit or reflect light to meet the performance requirements of sophisticated systems. Our custom optics products offer an array advanced technologies and precision optics—from the ultraviolet to the far infrared portion of the light spectrum. Most products are custom optical filters, on either a simple or complex irregular shape, that require from one to several hundred layers to create the coating. Another challenge is the need to differentiate products in order to build brands. Global competition and an increasing range of product offerings are driving designers to look for innovative ways to increase the aesthetic value of their products and make them stand out. Our custom color solutions are used in coatings and packaging to create unique and striking visual effects. Strategy The AOT business segment develops technologies that differentiate and effectively protect valuable brands via a secure, flexible, aesthetically striking optical platform. It also strives to supply the highest-quality, best-in-class optical components and assemblies with innovative thin-film coating processes that help customers protect and/or differentiate their products. JDSU will continue to leverage its intellectual property and leading expertise in optics, light management and material technology to develop solutions that provide a unique advantage to customers. Competition In these markets, JDSU faces competition from providers of special-effect pigments, like Merck KGA, from manufacturers of security holograms including Kurz, De La Rue and OpSec; from Japanese coating companies such as Nidek, Toppan, and Toray; from display-component companies such as Asahi, Fuji Photo-Optical, Nikon, and Nitto Optical; and from optics companies such as Barr Associates and Deposition Sciences. Offerings AOT consists of the Authentication Solutions Group (“ASG”), which has offerings for brand protection and document authentication; the Custom Optics Product Group (“COPG”), which offers optical thin-film coatings for a range of markets; and the Flex Products Group, which offers custom color solutions, currency protection, printing services, as well as solar window films. Brand Protection To strengthen brand integrity, many corporate brand owners are introducing overt protective measures in packaging that provides consumers and/or inspection personnel with the ability to quickly determine product authenticity by visually detecting a color effect on the package. Covert solutions provide an additional layer of protection that cannot be seen or detected without a visual aid. JDSU offers both overt and covert solutions for security, including SecureShift® light interference technology (which allows inks or plastics to exhibit different colors and visual effects from different viewing angles), holographic technology, and Charms™ microstructured taggants. Applications include transaction cards, pharmaceuticals, imaging supplies, electronics, computer, and other consumer goods. JDSU offers these solutions in a wide range of choices by incorporating them into printing inks, product labels, and product packaging.
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Table of ContentsDocument authentication JDSU optically variable pigment (“OVP®”) technology, which produces color-shifting and other optical effects, and our holographic technologies, are used to combat forgery and counterfeiting, protect against alteration of data, and allows for immediate authentication of high-value documents. JDSU works closely with its customers to design these solutions to meet their specific needs for passports, personal identification, and other government and secure documents. Custom Optics Optical thin-film coatings are submicroscopic (nanometer to micrometer) layers of materials, such as silicon and magnesium fluoride, that are applied to the surface of a substrate, including glass, plastic or metal. Thin-film coatings control the behavior of light to produce effects such as reflection, refraction, absorption, abrasion resistance, antiglare, oxygen and/or moisture transmission, and electrical conductivity for a variety of applications: Aerospace and defense: JDSU provides customized optics for solar cell coverglass, thermal control mirror technology, and optical sensors for aerospace applications. JDSU thin-film optics products can be found on spacecraft and satellites. In addition, JDSU supplies filters used in military applications such as infrared night vision goggles and electronic countermeasures. Consumer and commercial electronics: JDSU manufactures and sells coated optics for use in home and business display systems and 3D entertainment systems. These products include bandpass filters, mirrors, polarization compensators, heater panels and other coated optics, and assemblies. Products for the automation market include photo receptors and mirrors for photocopiers, scanners, computer-driven projectors, and facsimile machines. Instrumentation and lighting: JDSU provides multicavity and linear variable optical filters on a variety of substrates for applications including gas monitoring and analysis, thermal imaging, smart munitions, fire detection, spectroscopy, and pollution monitoring. These filters are also used in biomedical applications, semiconductor test systems, and test and measurement equipment. JDSU also provides advanced optical filters used to create dramatic lighting effects and rich, saturated color in intelligent lighting systems for entertainment and architectural lighting. Custom Color Solutions For product differentiation and brand enhancement, JDSU provides custom color solutions for a variety of applications using our ChromaFlair® and SpectraFlair® pigments to create color effects that emphasize body contours, create dynamic environments, or enhance products in motion. These pigments are added to paints, plastics, or textiles for products and packaging. Our line of custom color products uses proprietary manufacturing processes and light interference or diffractive technology to provide specific color characteristics that can be designed to meet the needs of individual products, brands or markets. The products create a durable finish with striking color properties for automotive, consumer electronics, and other applications. The design process is critical to delivering custom color solutions that meet the needs of specific customers, markets and brands. JDSU color specialists, Color Lab, and prototyping capabilities help customers overcome color design challenges during the design stage. Currency Protection Our optically variable pigment (“OVP®”) technology for overt security technology has become a standard used by governments worldwide for currency protection. OVP provides a color-shifting effect that enables positive, easy visual verification and deters counterfeiting.
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Table of ContentsPrinting Services Proprietary printing processes and a cGMP-compliant environment deliver solutions for labels, closures, hang tags, and flexible packaging for authentication and custom color solutions. In addition, JDSU provides high quality flexographic and gravure printing for labels for retail and apparel, healthcare, food and beverage, automotive, consumer goods and personal care. Corporate Strategy Our objective is to continue to be a leading provider for all markets and industries we serve. In support of our business segments, we are pursuing a corporate strategy that we believe will best position us for future opportunities. The key elements of our corporate strategy include:
We remain committed to working closely with our customers from initial product design and manufacturing through to solution deployment and training. We strive to engage with our customers at the early stages of development to provide them with the most innovative and timely products and services and ensure our technology direction is aligned with their emerging requirements. Our sales, customer support, product marketing, and development efforts are organized to maximize effectiveness in our customer interactions.
JDSU will take continue actions that will strengthen our balance sheet and provide financial support for market leadership and business expansion efforts. Fundamental to this strategy has been our ability to continue to generate positive cash flow through improved profitability, reduced inventory levels and reduced days sales outstanding (“DSOs”). These and other actions, such as focusing on businesses that meet our success criteria, and exiting others, will keep JDSU financially strong.
We remain committed to streamlining our manufacturing operations and reducing costs by using contract manufacturers where appropriate and consolidating to reduce our footprint and total fixed costs. As a result, we are moving from a fixed cost model to a variable one that is efficient, highly scalable, and capable of consistently meeting our customers’ quality and performance requirements. In addition, our shared corporate functions model cost-effectively provides our business segments with the centralized strength and depth of a larger company, while allowing each segment to remain focused and responsive to its own market needs.
Based on current and anticipated demand, we will continue to invest in R&D and through acquisitions and partnerships in new technologies, products and services that offer our customers increased efficiency, higher performance, improved functionality, and/or higher levels of integration. In fiscal 2009, we continued to invest in product development in line with our profitability and growth objectives. Similarly, acquisition targets are carefully selected to support our objective to expand our addressable market in potentially higher growth, higher profitability areas.
Long term, we expect higher rates of growth internationally than we do domestically, with the highest rates of growth in our Asia/Pacific, Latin America, and Eastern Europe regions. Therefore, we are developing products, sales, marketing and customer support to meet the specific needs in these regions in order to serve these customers better. Although we expect to successfully implement our strategy, internal and/or external factors could impact our ability to meet any, or all, of our objectives. Some of these factors are discussed under “Risk Factors.”
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Table of ContentsAcquisitions As part of our strategy, we are committed to the ongoing evaluation of strategic opportunities and, where appropriate, the acquisition of additional products, technologies or businesses that are complementary to, or broaden the markets for our products. We believe we strengthened our business model by expanding our addressable market, customer base, and expertise, diversifying our product portfolio, and fortifying our core businesses through acquisition as well as through organic initiatives. In July 2009, subsequent to our year end of fiscal 2009, we completed the acquisition of the Network Tools business of Finisar Corporation. Under the terms of the agreement, we acquired the Network Tools business for approximately $40.6 millions. In February 2008, we completed the acquisition of American Bank Note Holographics Inc. (“ABNH”), a public company. ABNH is a market leader in the origination, production and marketing of holograms for security applications and the leading supplier of optical security devices for the transaction card market and is included in our Advanced Optical Technologies segment. In January 2008, we completed the acquisition of certain assets of the fiber optics division of Westover Scientific Inc. (“Westover”). Westover is a leading provider of fiber optic inspection and cleaning solutions, which complements our existing fiber field and lab and production test portfolio and is included in our Communications Test and Measurement segment. In May 2007, we completed the acquisition of Innocor Ltd. (“Innocor”), a provider of broadband test solutions for network equipment manufacturers. The merger strengthened our position in the North American lab and production markets and helped grow our business in the EMEA and APAC regions. Innocor is included in our Communications Test and Measurement segment. In May 2007, we completed the acquisition of Picolight Inc. (“Picolight”), a designer and manufacturer of optic | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
