This excerpt taken from the JDSU DEF 14A filed Sep 25, 2009.
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 Companys 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.