UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.       )

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Ciena Corporation

 

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

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Ciena Corporation
1201 Winterson Road
Linthicum, Maryland 21090

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MARCH 23, 2011

 

 

To the stockholders of Ciena Corporation:

 

The 2011 Annual Meeting of Stockholders of Ciena Corporation will be held at The Westin Baltimore Washington Airport — BWI, located at 1110 Old Elkridge Landing Road, Linthicum, Maryland, on Wednesday, March 23, 2011 at 3:00 p.m. local time for the following purposes:

 

 

These matters are more fully described in the proxy statement accompanying this notice.

 

We are pleased to take advantage of Securities and Exchange Commission rules that allow us to furnish these proxy materials and our annual report to stockholders on the Internet. We believe that posting these materials on the Internet enables us to provide stockholders with the information that they need more quickly, while lowering our costs of printing and delivery and reducing the environmental impact of our Annual Meeting.

 

As a stockholder of Ciena, your vote is important. Whether or not you plan to attend the Annual Meeting in person, it is important that you vote as soon as possible to ensure that your shares are represented. Stockholders may listen to a webcast of the Annual Meeting by following the instructions that will be available in the “Investors” section of our website at www.ciena.com.

 

By Order of the Board of Directors,

 

David M. Rothenstein
Secretary

 

Linthicum, Maryland

February 2, 2011

TABLE OF CONTENTS

 

CIENA CORPORATION
1201 WINTERSON ROAD
LINTHICUM, MARYLAND 21090

 

 

PROXY STATEMENT

 

 

ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 23, 2011

 

Our Board of Directors has made these proxy materials available to you on the Internet or, upon your request, has delivered printed versions of these materials to you by mail. We are furnishing this proxy statement in connection with the solicitation by our Board of Directors of proxies to be voted at our 2011 Annual Meeting. The Annual Meeting will be held at The Westin Baltimore Washington Airport — BWI, located at 1110 Old Elkridge Landing Road, Linthicum, Maryland, on Wednesday, March 23, 2011 at 3:00 p.m. local time, or at any adjournment thereof. We mailed our Notice of Internet Availability of Proxy Materials to each stockholder entitled to vote at the Annual Meeting on or about February 2, 2011.

 

Who may vote at the Annual Meeting?

 

The Board of Directors has set January 26, 2011 as the record date for the Annual Meeting. If you were the owner of Ciena common stock at the close of business on January 26, 2011, you may vote at the Annual Meeting. You are entitled to one vote for each share of common stock you held on the record date.

 

A list of stockholders entitled to vote at the Annual Meeting will be open to examination by any stockholder, for any purpose germane to the Annual Meeting, during normal business hours for a period of ten days before the Annual Meeting at our corporate offices at 1201 Winterson Road, Linthicum, Maryland 21090, and at the time and place of the Annual Meeting.

 

How many shares must be present to hold the Annual Meeting?

 

A majority of our shares of common stock outstanding as of the record date must be present at the Annual Meeting in order to hold the meeting and conduct business. This is called a “quorum.” On the record date, there were 94,928,260 shares of Ciena common stock outstanding. Your shares are counted as present at the Annual Meeting if you are present and vote in person at the Annual Meeting or properly submit your proxy prior to the Annual Meeting.

 

Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of printed proxy materials?

 

Pursuant to the “notice and access” rules adopted by the Securities and Exchange Commission (“SEC”), we have elected to provide stockholders access to our proxy materials over the Internet. Accordingly, we sent a Notice of Internet Availability of Proxy Materials (“Notice”) to all of our stockholders as of the record date. The Notice includes instructions on how to access our proxy materials over the Internet and how to request a printed copy of these materials. In addition, by following the instructions in the Notice, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.

 

Choosing to receive your future proxy materials by email will save us the cost of printing and mailing documents to you and will reduce the impact of our annual meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email 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 email will remain in effect until you terminate it.

What proposals will be voted on at the Annual Meeting?

 

The items scheduled to be voted on at the Annual Meeting are:

 

 

How will voting on any business not described in this proxy statement be conducted?

 

We are not currently aware of any other business to be acted upon at the Annual Meeting. If any other matters are properly submitted for consideration at the Annual Meeting, including any proposal to adjourn the Annual Meeting, the persons named as proxies will vote the shares represented thereby in their discretion. Adjournment of the Annual Meeting may be made for the purpose of, among other things, soliciting additional proxies. Any adjournment may be made from time to time by approval of the holders of common stock representing a majority of the votes present in person or by proxy at the Annual Meeting, whether or not a quorum exists, without further notice other than by an announcement made at the Annual Meeting.

 

How does the Board of Directors recommend that I vote?

 

The Board of Directors recommends that you vote:

 

 

How many votes are required to approve each proposal?

 

In the case of an uncontested election, our bylaws require that each director be elected by the vote of a majority of the votes cast by holders of shares present in person or represented by proxy at the Annual Meeting. For this purpose, “a majority of the votes cast” means that the number of votes cast “FOR” a director’s election exceeds the number of votes cast “AGAINST” that director’s election. For more information regarding the Board’s required procedures and disclosures associated with this majority vote standard, please see “Majority Vote Standard in Director Elections” in the “Corporate Governance and the Board of Directors” section below. In the case of a contested election (i.e., an election in which the number of candidates exceeds the number of directors to be elected), directors will be elected by plurality vote.

 

Approval of proposals 2-4 each require the affirmative vote of a majority of the total votes cast by holders of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on these proposals. For proposal 5, the advisory vote on the frequency of stockholder advisory votes on our executive compensation in the future, there is no applicable voting standard. The Board intends to review the results for each voting alternative in

proposal 5 in making its determination on the frequency of the stockholder advisory vote on our executive compensation in the future.

 

How are votes counted?

 

With regard to proposals 1-4 set forth in this proxy statement to be presented at the Annual Meeting, you may vote “FOR,” “AGAINST” or “ABSTAIN.” You may vote “EVERY YEAR”, “EVERY TWO YEARS”, “EVERY THREE YEARS” or “ABSTAIN” for proposal 5. If you abstain from voting on these proposals, your shares will be counted as present for purposes of establishing a quorum at the Annual Meeting. An abstention will not count as a vote “FOR” or “AGAINST” the proposals at the Annual Meeting and will have no effect on the outcome of the election of our directors in an uncontested election or the outcome of the vote on the remaining proposals.

 

What are broker non-votes and how are they counted at the Annual Meeting?

 

Broker non-votes occur when brokers do not receive voting instructions from their customers and the broker does not have discretionary voting authority with respect to a proposal. If you hold shares through a broker, bank or other nominee and you do not give instructions as to how to vote, your broker may have authority to vote your shares on certain routine items but not on other items. Broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business but will not be counted for purposes of the election of directors and will have no effect on the outcome of the vote on the remaining proposals.

 

What is the difference between holding shares as a “stockholder of record” and as a beneficial owner of shares held in “street name”?

 

If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered the “stockholder of record” with respect to those shares, and the Notice was sent directly to you.

 

If your shares are held in an account at a brokerage firm, bank, broker-dealer, or other similar organization, then you are the beneficial owner of shares held in “street name,” and the Notice was forwarded to you by that organization. As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account.

 

How do I vote my shares without attending the Annual Meeting?

 

Whether you are a “stockholder of record” or hold your shares in “street name,” you may direct your vote without attending the Annual Meeting in person.

 

If you are a stockholder of record, you may vote by Internet by following the instructions on the Notice. If you request printed copies of the proxy materials by mail, you may also vote by signing and submitting your proxy card and returning it by mail or by submitting your vote by telephone. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as guardian, executor, trustee, custodian, attorney or officer of a corporation), you should indicate your name and title or capacity.

 

If you are the beneficial owner of shares held in street name, you may be eligible to vote your shares electronically over the Internet or by telephone by following the instructions on the Notice. If you request printed copies of the proxy materials by mail, you may also vote by signing the voter instruction card provided by your bank or broker and returning it by mail. If you provide specific voting instructions by mail, telephone or the Internet, your shares will be voted by your broker or nominee as you have directed.

 

The persons named as proxies are officers of Ciena. All proxies properly submitted in time to be counted at the Annual Meeting will be voted in accordance with the instructions contained therein. If you submit your proxy without voting instructions, your shares will be voted by the proxy holders in accordance with the recommendations of the Board of Directors set forth above.

How do I vote my shares in person at the Annual Meeting?

 

Even if you plan to attend the Annual Meeting, we encourage you to vote by telephone or Internet, or by returning a proxy card following your request of printed materials. This will ensure that your vote will be counted if you are unable to, or later decide not to, attend the Annual Meeting. If you are a stockholder of record, you may vote in person by marking and signing the ballot to be provided at the Annual Meeting. If you hold your shares in “street name,” you must first obtain a proxy in your name from your bank, broker or other stockholder of record in order to vote by ballot at the Annual Meeting.

 

What happens if my shares are held in more than one account?

 

If your shares are held in more than one account, you will receive a Notice for each account. To ensure that all of your shares in each account are voted, you must vote in accordance with the Notice you receive for each account.

 

May I revoke my proxy and change my vote after I have voted?

 

You may revoke your proxy and change your vote at any time before the final vote at the Annual Meeting. You may revoke your proxy by submitting a written notice of revocation to Ciena Corporation, 1201 Winterson Road, Linthicum, Maryland 21090, Attention: Corporate Secretary. You may also revoke your proxy by voting again on a later date on the Internet or by telephone (only your latest Internet or telephone proxy submitted prior to the Annual Meeting will be counted), by signing and returning a new proxy card with a later date, or by attending the Annual Meeting and voting in person. Your attendance at the Annual Meeting will not automatically revoke your proxy unless you vote again at the Annual Meeting or specifically request in writing at that time that your prior proxy be revoked.

 

What happens if additional matters are presented at the meeting?

 

Management knows of no matters to be presented for action at the Annual Meeting other than those mentioned in this proxy statement and the deadline under our bylaws for stockholder proposals and director nominations has passed. However, if any additional matters properly come before the Annual Meeting, it is intended that the persons named as proxies will vote on such other matters in accordance with their judgment of the best interests of Ciena. If for any unforeseen reason any of our nominees is not available as a candidate for director, the persons named as proxies will vote for such other candidate or candidates as may be nominated by the Board of Directors.

 

Will the Annual Meeting be webcast?

 

Yes. The Annual Meeting will be webcast live. You can access it by following the instructions in the “Investors” section of our website at www.ciena.com. The webcast will enable you to listen only. You will not be able to ask questions. The Annual Meeting audio webcast will be available on our website for a period of time after the meeting.

 

Where can I find the voting results of the Annual Meeting?

 

The preliminary voting results will be announced at the Annual Meeting. The final voting results will be tallied by the inspector of elections and will be subsequently published by us by the filing of a current report on Form 8-K with the SEC shortly following our Annual Meeting. This filing will be available on our website at www.ciena.com.

 

Who is soliciting my vote and who will bear the cost of this solicitation?

 

Our Board of Directors is making this solicitation and Ciena will bear the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials and soliciting votes. We have engaged Alliance Advisors as our proxy solicitor to help us solicit proxies for a fee of $9,500, plus reasonable out of pocket expense. Copies of solicitation material may be furnished to brokers, custodians, nominees and other fiduciaries for forwarding to beneficial owners of shares of Ciena common stock, and normal handling charges may be paid for such forwarding service. Officers and other Ciena employees, who will receive no additional compensation for their services, may solicit proxies by mail, e-mail, via the Internet, personal interview or telephone.

 

Our Board of Directors currently consists of nine directors and is divided into three classes, each consisting of three directors. Each class of our Board of Directors serves a staggered three-year term. Class II, whose term expires at the Annual Meeting, consists of Harvey B. Cash, Judith M. O’Brien and Gary B. Smith.

 

At the Annual Meeting, three directors will be elected to fill positions in Class II. Mr. Cash, Ms. O’Brien and Mr. Smith, each of whom is a current Class II director, are the nominees for election at the Annual Meeting. The nomination of these directors to stand for election at the Annual Meeting has been recommended by the Governance and Nominations Committee and has been approved by the Board of Directors. Each of the nominees for Class II, if elected, will serve for a three-year term expiring at the 2014 Annual Meeting, or until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal from the Board.

 

The Governance and Nominations Committee reviews candidates for service on the Board and recommends nominees for election to fill vacancies on the Board of Directors, including nomination for re-election of directors whose terms are due to expire. In discharging its responsibilities to nominate candidates for election to the Board of Directors, the Governance and Nominations Committee endeavors to identify, recruit and nominate candidates characterized by wisdom, maturity, sound judgment, excellent business skills and high integrity. The Governance and Nominations Committee seeks to assure that the Board of Directors is composed of individuals of diverse backgrounds who have a variety of complementary experience, training and relationships relevant to Ciena’s business. This diversity of background and experience includes ensuring that the Board includes individuals with experience or skills sufficient to meet the requirements of the various rules and regulations of The NASDAQ Stock Market and the SEC, such as the requirements to have a majority of independent directors and an audit committee financial expert. In nominating candidates to fill vacancies created by the expiration of the term of a director, the Governance and Nominations Committee determines whether the incumbent director is willing to stand for re-election. If so, the Governance and Nominations Committee evaluates his or her performance to determine suitability for continued service, taking into consideration, among other things, each director’s contributions to the Board, the value of the continuity of their service, and the individual’s familiarity with Ciena’s business, operations or markets.

 

Each of the nominees has consented to serve if elected. However, if any of the persons nominated by the Board of Directors fails to stand for election, or declines to accept election, or is otherwise unavailable for election prior to our Annual Meeting, proxies solicited by our Board of Directors will be voted by the proxy holders for the election of any other person or persons as the Board of Directors may recommend, or our Board of Directors, at its option, may further reduce the number of directors that constitute the entire Board of Directors.

 

Information for each person nominated for election as a Class II director at the Annual Meeting, including age, term of office and business experience, including directorships during the past five years, as well as for each director continuing service on the Board, is set forth below. In addition, for each person, we have included information regarding the business or other experience, qualifications, attributes or skills that factored into the determination by the Governance and Nominations Committee and by our Board of Directors that each such person should serve as a director on our Board.

 

Nominees for Election as Class II Directors with Terms Expiring in 2014

 

 

 

Class I Directors with Terms Expiring in 2013

 

 

 

Class III Directors with Terms Expiring in 2012

 

 

 

The Board of Directors recommends that Ciena stockholders vote “FOR” the election of the three Class II nominees listed above.

 

Ciena has adopted a number of policies and practices, some of which are described below, that highlight its commitment to sound corporate governance principles. Ciena also maintains a corporate governance page on its website that includes additional information and copies of its bylaws, as well as the codes of conduct, governance principles, Audit Committee charter, Compensation Committee charter and Governance and Nominations Committee charter. The corporate governance page can be found by clicking on the “Corporate Governance” page of the “Investors” section of our website at www.ciena.com.

 

In accordance with the current listing standards of The NASDAQ Stock Market, the Board of Directors, on an annual basis, affirmatively determines the independence of each director or nominee for election as a director. The Board of Directors has determined that, with the exception of Dr. Nettles and Mr. Smith, both of whom are employees of Ciena, all of its members are “independent directors,” using the definition of that term in the listing standards of The NASDAQ Stock Market. Also, all members of the Board’s standing Audit, Compensation and Governance and Nominations Committees, more fully described below, are independent directors.

 

The Board of Directors has adopted a procedure for receiving and addressing communications from stockholders. Stockholders may send written communications to the entire Board of Directors, to the independent directors serving on the Board, or to any of the Board’s committees, by addressing communications to Ciena Corporation, 1201 Winterson Road, Linthicum, Maryland 21090, Attention: Corporate Secretary. Communication by e-mail should be addressed to ir@ciena.com and marked “Attention: Corporate Secretary” in the “Subject” field. Our General Counsel serves as Corporate Secretary and determines, in his discretion, whether the nature of the communication is such that it should be brought to the attention of the Board, the independent directors or one of the Board committees. As a general matter, the Corporate Secretary does not forward spam, junk mail, mass mailings, job inquiries, surveys, business solicitations or advertisements, or offensive or inappropriate material. In assessing communications to the Board of Directors, the Corporate Secretary takes into account the source of the communication, including the number of shares held by the stockholder (if available), the relevance and reasonableness of the suggestions or ideas contained in the communication, and such other information as he deems relevant to a determination of the value of the information to the performance of the Board’s responsibilities. In case of doubt, the Corporate Secretary errs on the side of transmitting the communication to the directors.

 

Ciena has adopted a Code of Business Conduct and Ethics that is applicable to all of its directors, officers and employees. The Code of Business Conduct and Ethics reflects Ciena’s policy of dealing with all persons, including our customers, employees, investors, and suppliers, with honesty and integrity. All new employees are required to complete training on our Code of Business Conduct and Ethics and we conduct recurring training and periodic courses related to specific topics contained therein.

 

Ciena has also adopted a Code of Ethics for Senior Financial Officers that is specifically applicable to Ciena’s Chief Executive Officer, Chief Financial Officer and Controller. Its purpose is to promote honest and ethical conduct, and compliance with the law, particularly as it relates to the maintenance of Ciena’s financial records and the preparation of financial statements filed with the SEC. Our Code of Ethics for Senior Financial Officers complies with the requirements of Section 406(c) of the Sarbanes-Oxley Act of 2002.

 

A copy of Ciena’s Code of Business Conduct and Ethics and Code of Ethics for Senior Financial Officers can each be found on the “Corporate Governance” page of the “Investors” portion of our website at www.ciena.com. You may also obtain copies of these documents without charge by writing to: Ciena Corporation, 1201 Winterson Road, Linthicum, Maryland 21090, Attention: Corporate Secretary.

 

Our Board of Directors has adopted Principles of Corporate Governance and other corporate governance documents that supplement certain provisions of our bylaws and relate to, among other things, the composition, structure, interaction and operation of the Board of Directors. Some of the key governance features of our Principles of Corporate Governance, bylaws and other governance documents are summarized below.

 

Majority Vote Standard in Director Elections.  Ciena’s bylaws and Principles of Corporate Governance provide that, in the case of an uncontested election, each director be elected by the vote of a majority of the votes cast by holders of shares present in person or represented by proxy at the Annual Meeting. For this purpose, “a majority of the votes cast” means that the number of votes cast “FOR” a director’s election exceeds the number of votes cast “AGAINST” that director’s election. In the case of a contested election (i.e., an election in which the number of candidates exceeds the number of directors to be elected), however, directors will be elected by plurality vote.

 

As a condition of their nomination, incumbent directors and director nominees are required to submit to Ciena an irrevocable resignation that becomes effective only if (i) that person fails to receive a majority vote in an election; and (ii) the Board of Directors accepts his or her resignation. Should any director fail to receive a majority of the votes cast in an uncontested election, the Governance and Nominations Committee will promptly consider the resignation and recommend to the Board whether to accept or reject it, or whether other action should be taken. No later than 90 days following the date of the certification of the election results, the Board of Directors will disclose its decision by press release and a Form 8-K filed with the SEC. The Board of Directors will provide a full explanation of the process by which the decision was reached and, if applicable, the rationale for rejecting the resignation. If a resignation is accepted by the Board, the Governance and Nominations Committee will recommend to the Board whether to fill the vacancy or to reduce the size of the Board of Directors.

 

Any director whose resignation is being considered is not permitted to participate in the recommendation of the Governance and Nominations Committee or the decision of the Board as to his or her resignation. If the resignations of a majority of the members of the Governance and Nominations Committee have become effective as a result of the voting, the remaining independent directors will appoint a special committee among themselves for the purpose of considering the resignations and recommending whether to accept or reject them.

 

Selection of Board Members; Vacancies.  Ciena’s bylaws limit the term of office of any director elected by the Board of Directors to fill a vacancy, to a term that lasts until the first annual meeting following election.

 

Service on Other Boards of Directors.  Ciena’s Board of Directors believes that directors should not serve on more than four other boards of public companies in addition to our Board of Directors. In the event that a director wishes to join the board of directors of another public company in excess of the limit above, our Board, in its sole discretion, will determine whether service on the additional board of directors is likely to interfere with the performance of the director’s duties to Ciena, taking into account the individual, the nature of his or her other activities and such other factors or considerations as our Board of Directors deems relevant. In selecting nominees for membership, the Governance and Nominations Committee and the Board will take into account the other demands on the time of a candidate, and will avoid candidates whose other responsibilities might interfere with effective service on our Board of Directors.

 

Change in Principal Occupation of Director.  In some cases, when a director changes his or her principal occupation, the change may result in an increased workload, actual or apparent conflicts of interest, or other consequences that may affect his or her ability to continue to serve on Ciena’s Board of Directors. As a result, the Board of Directors has determined that when a director substantially changes his or her principal occupation, including by retirement, that director will tender his or her resignation to the Board of Directors. In considering the notice of resignation, the Governance and Nominations Committee will weigh such factors as it deems relevant and recommend to the Board of Directors whether the resignation should be accepted, and the Board will act promptly on the matter.

 

Stock Ownership Requirements.  In order to further align the interests of Ciena’s executive officers and directors with those of Ciena’s stockholders, and to illustrate and promote our commitment to sound corporate governance, during fiscal 2010 the Board of Directors adopted stock ownership guidelines for executive officers and

revised stock ownership guidelines for outside directors. A summary of these guidelines is set forth in the “Compensation Discussion and Analysis” section below under the heading “Stock Ownership Guidelines.”

 

Committee Responsibilities.  The Board of Directors has three standing committees: the Audit Committee, the Compensation Committee and the Governance and Nominations Committee. Each committee meets regularly and has a written charter that is available on the “Corporate Governance” page of the “Investors” section of our website at www.ciena.com. At each regularly scheduled Board meeting, the chairperson or a member of each committee reports on any significant matters addressed by the committee.

 

Executive Sessions.  Our independent directors on the Board of Directors meet regularly in executive session without employee-directors or other executive officers present. The lead independent director presides at these meetings.

 

Outside Advisors.  The Board of Directors, and each of its standing committees, may retain outside advisors and consultants at its discretion and at Ciena’s expense. Management’s consent to retain outside advisors is not required.

 

Board Effectiveness.  To ensure that our Board of Directors and its committees are performing effectively and in the best interests of Ciena and its stockholders, the Board performs an annual assessment of itself, its Committees and each of its members.

 

Copies of our Principles of Corporate Governance and bylaws can be found on the “Corporate Governance” page of the “Investors” section of our website at www.ciena.com.

 

Although our Board of Directors does not have a policy on whether the roles of Chief Executive Officer and Chairman should be separate, Ciena has separately maintained these positions since 2001. Separating the Executive Chairman and Chief Executive Officer roles allows us to efficiently develop and implement corporate strategy that is consistent with the Board’s oversight role, while facilitating strong day-to-day executive leadership. Mr. Smith currently serves as Chief Executive Officer and Dr. Nettles, who previously served as Chief Executive Officer until Mr. Smith assumed that role in 2001, serves as Executive Chairman.

 

One of our independent Board members is elected to serve as lead independent director. The lead independent director is responsible for coordinating the activities of the other independent directors and has the authority to preside at all meetings of the Board of Directors at which the Executive Chairman is not present, including executive sessions of the independent directors. The lead independent director serves as principal liaison on Board-wide issues between the independent directors and the Executive Chairman, and approves meeting schedules and agendas and monitors the quality of information sent to the Board. The lead independent director may also recommend the retention of outside advisors and consultants who report directly to the Board of Directors. If requested by stockholders, when appropriate, the lead independent director will also be available for consultation and direct communication. Mr. Cash currently serves as Ciena’s lead independent director.

 

The Board believes its leadership structure is appropriate for Ciena. Through the role of the lead independent director, the independence of the Board’s committees, and the regular use of executive sessions of the independent directors, the Board is able to maintain independent oversight of our business strategies and activities. These features, together with the role and responsibilities of the lead independent director described above, work to ensure a full and free discussion of issues important to Ciena. At the same time, the Board is able to take advantage of the unique blend of leadership, experience and knowledge of our industry and business that Dr. Nettles brings to the role of Executive Chairman.

 

The Board of Directors believes that risk management is an important part of establishing, updating and executing on Ciena’s business strategy. The Board, as a whole and at the committee level, has oversight responsibility relating to risks that could affect the corporate strategy, business objectives, compliance, operations and the financial condition and performance of the company. The Board focuses its oversight on the most significant

risks facing the company and on its processes to identify, prioritize, assess, manage and mitigate those risks. The Board and its committees receive regular reports from members of senior management on areas of material risk to the company, including strategic, operational, financial, legal and regulatory risks. While the Board has an oversight role, management is principally tasked with direct responsibility for management and assessment of risks and the implementation of processes and controls to mitigate their effects on the company.

 

The Audit Committee as part of its responsibilities oversees the management of financial risks, including but not limited to accounting matters, liquidity and credit risks, corporate tax positions, insurance coverage, and cash investment strategy and results. The Audit Committee is also responsible for overseeing the management of risks relating to the performance of the company’s internal audit function and its independent registered public accounting firm, as well as the company’s systems of internal controls and disclosure controls and procedures. The Compensation Committee is responsible for overseeing the management of risks relating to the company’s executive compensation and overall compensation and benefit strategies, plans, arrangements, practices and policies. The Governance and Nominations Committee oversees the management of risks associated with the company’s overall compliance and corporate governance practices, and the independence, composition and compensation of the Board. Each of these committees provides regular reports to the full Board on at least a quarterly basis.

 

During fiscal 2010, the Board of Directors held ten meetings. The three standing committees of the Board of Directors held meetings as follows:

 

 

All of our directors attended at least 75% of the aggregate of the total number of meetings of the Board of Directors and the committees on which they served during fiscal 2010. Ciena encourages, but does not require, members of the Board of Directors to attend the Annual Meeting. Five members of the Board of Directors attended Ciena’s 2010 Annual Meeting.

 

Committee Composition

 

The table below details the composition of Ciena’s standing Board committees. Mr. Smith and Dr. Nettles do not serve on committees of the Board of Directors.

 

 

Audit Committee

 

The Audit Committee falls within the definition of “audit committee” under Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (“Exchange Act”). The Board of Directors has determined that each member of the Audit Committee meets the independence criteria established by the SEC under Rule 10A-3 under the Exchange Act and qualifies under the independence standards of The NASDAQ Stock Market. The Board of Directors has

determined that Mr. Rowny is an “audit committee financial expert” as defined in Item 407 of Regulation S-K of the Exchange Act.

 

Among its responsibilities, the Audit Committee appoints and establishes the compensation for Ciena’s independent registered public accounting firm, approves in advance all engagements with Ciena’s independent registered public accounting firm to perform audit and non-audit services, reviews and approves the procedures used by Ciena to prepare its periodic reports, reviews and approves Ciena’s critical accounting policies, discusses the plans and reviews results of the audit engagement with Ciena’s independent registered public accounting firm, reviews the independence of Ciena’s independent registered public accounting firm, and oversees Ciena’s internal audit function and Ciena’s accounting processes, including the adequacy of its internal controls over financial reporting. Ciena’s independent registered public accounting firm and internal audit department report directly to the Audit Committee. The Audit Committee also reviews and considers any related person transactions in accordance with our Policy on Related Person Transactions and applicable rules of The NASDAQ Stock Market.

 

Compensation Committee

 

The Compensation Committee has responsibility, authority and oversight relating to the development of Ciena’s overall compensation strategy and compensation programs. The Compensation Committee establishes our compensation philosophy and policies, and administers compensation plans for executive officers and non-executive employees. The Compensation Committee seeks to assure that our compensation practices promote stockholder interests and support our compensation objectives and philosophy. Ciena’s compensation program for executive officers focuses on addressing the following principal objectives:

 

 

In making compensation decisions, the Committee also seeks to promote teamwork among and high morale within our executive team.

 

The Compensation Committee determines the compensation of our executive officers. As part of this determination, the Compensation Committee annually evaluates the performance of our Chief Executive Officer and Executive Chairman, and considers evaluations by or recommendations from our Chief Executive Officer of the other executive officers. The Committee also receives information from its compensation consultant. The Committee reviews and has final authority to approve and make decisions with respect to the compensation of Ciena’s executive officers. For detailed information regarding the Compensation Committee, its determination of the form and amount of compensation paid to our executive officers, including the “Named Executive Officers,” and Mr. Smith’s role in such determination, please see “Compensation Discussion and Analysis” below.

 

The members of the Compensation Committee qualify as “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code, qualify as “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act and comply with the independence requirements of The NASDAQ Stock Market. The Compensation Committee’s charter permits the Committee to delegate authority to our Chief Executive Officer in connection with new hires, promotions and other discretionary awards. The Compensation Committee has delegated limited authority to Mr. Smith to make equity awards to employees who are not part of the executive leadership team, within certain parameters and guidelines applicable to, among other things, the size, terms and conditions of such awards. The Compensation Committee regularly reviews at its meetings quarterly and year-to-date grant activity pursuant to this delegated authority.

 

Compensation Consultant.  To assist it in carrying out its responsibilities, the Compensation Committee is authorized to retain the services of independent advisors. For purposes of advice and consultation with respect to compensation of our executive officers during fiscal 2010, the Committee engaged Compensia, Inc., a national

compensation consulting firm. In establishing executive compensation for fiscal 2010, the Compensation Committee relied upon Compensia to:

 

 

Compensia was engaged exclusively by the Compensation Committee of the Board of Directors during fiscal 2010. In addition to its advisory work regarding executive compensation during fiscal 2010, Compensia was also engaged by the Committee to provide advice in connection with the Committee’s assessment of, and amendments to, Ciena’s change in control severance agreements; Ciena’s adoption of stock ownership guidelines; amendments to Ciena’s broad-based 2003 Employee Stock Purchase Plan; and the Committee’s review of the compensation risk assessment materials and Compensation Discussion and Analysis prepared by management. In order to assure Compensia’s continued independence and to avoid any actual or apparent conflict of interest, the Committee does not permit Ciena to engage Compensia to perform any services beyond those services provided to the Committee. The Committee has sole authority to retain or terminate Compensia as the Committee’s executive compensation consultant and to approve its fees and other terms of engagement. The Committee regularly, but not less than annually, considers the independence of Compensia and determines whether any related conflicts of interest require disclosure.

 

Governance and Nominations Committee

 

The Governance and Nominations Committee reviews, develops and makes recommendations regarding various aspects of the Board of Directors, including its size, composition, standing committees and practices. The Governance and Nominations Committee also reviews and implements corporate governance policies, practices and procedures. The Governance and Nominations Committee conducts an annual review of the performance of the Board of Directors and its individual members. The Governance and Nominations Committee is also responsible for making recommendations to the Board of Directors regarding the compensation, composition and independence of its non-employee members. The members of the Governance and Nominations Committee are all independent directors under applicable rules of The NASDAQ Stock Market.

 

It is the policy of the Governance and Nominations Committee to consider recommendations for nomination from any reasonable source, including Ciena’s officers, directors and stockholders. In considering these recommendations, the Governance and Nominations Committee utilizes the same standards described above, and considers the current size and composition of the Board, and the needs of the Board and its committees. When appropriate, the Governance and Nominations Committee may retain executive recruitment firms to assist in identifying suitable candidates. Stockholders who wish to recommend potential nominees may address their recommendations in writing to Ciena Corporation, 1201 Winterson Road, Linthicum, Maryland 21090, Attention: Corporate Secretary. For a description of the process by which stockholders may nominate directors in accordance with our bylaws, please see “Stockholder Proposals for 2012 Annual Meeting” below.

 

Messrs. Cash and Claflin and Ms. O’Brien, who comprised the Compensation Committee as of the end of fiscal 2010, are independent directors and were not, at any time during fiscal 2010, or at any other time, officers or employees of Ciena. During fiscal 2010, no member of the Compensation Committee was an executive officer of another entity on whose compensation committee or board of directors an executive officer of Ciena served.

 

Our director compensation program is designed to attract and retain highly qualified, independent directors to represent stockholders on the Board of Directors and to act in their best interest. The Governance and Nominations Committee, which consists solely of independent directors, has primary responsibility for reviewing and recommending any changes to our director compensation program, with compensation changes approved or ratified by the full Board of Directors.

 

Our Board of Directors includes two Ciena executive officers: Dr. Nettles, who serves as Executive Chairman of the Board, and Gary Smith, who serves as Ciena’s President and Chief Executive Officer. As a Named Executive Officer, information regarding the determination of Mr. Smith’s compensation can be found in the “Compensation Discussion and Analysis” below. Mr. Smith does not receive compensation for his service as a director. Additional information regarding his compensation as an executive officer can be found in the “Executive Compensation Tables” below. Except as set forth in “Equity Compensation” below, Dr. Nettles does not receive compensation for his services as a director.

 

Compensation for the Board of Directors during fiscal 2010 was unchanged from the director compensation program established for fiscal 2009. Having conducted a comprehensive review during fiscal 2009, and giving consideration to the broader macroeconomic conditions, the Compensation Committee and the Governance and Nominations Committee determined not to revise Board compensation for fiscal 2010. A description of the process undertaken and factors considered in establishing compensation for the Board of Directors can be found in last year’s proxy statement.

 

Cash Compensation.  Our cash compensation program for non-employee directors for fiscal 2010 was as follows:

 

 

Under this program, the Board of Directors does not pay meeting attendance fees unless the Board, or any standing Board committee, is required to hold an unusually high number of meetings. In the event that the Board or a standing Board committee holds more than ten meetings in a fiscal year, each non-employee director serving on that committee will be entitled to receive an additional $1,500 per meeting for the Chairperson, and $1,000 for other directors. In the event that the Board, or a standing Board committee, creates a special committee or subcommittee that holds more than three meetings in a fiscal year, each non-employee director serving on that committee or subcommittee will be entitled to receive an additional $1,000 per meeting.

 

We pay the retainer fees set forth above in quarterly installments. Meeting attendance fees, when applicable, are generally paid promptly following the end of the fiscal year, and directors are reimbursed for reasonable out-of-pocket expenses incurred in connection with attendance at Board and committee meetings.

Equity Compensation.  Our equity compensation program for non-employee directors and Dr. Nettles for fiscal 2010 was as follows:

 

 

Initial equity awards are made upon first election or appointment to the Board of Directors with the targeted delivered value prorated for the fiscal year based on date of election or appointment. Initial equity awards vest in equal annual installments over a three-year period from the date of grant. Annual equity awards are made on the date of each Annual Meeting of stockholders and vest in equal annual installments over a three-year period from the date of grant. The actual number of shares underlying RSU awards granted in order to achieve the applicable “targeted delivered value” is determined based on the average closing price of Ciena’s common stock over the 30-day period immediately prior to the date of the grant. Vesting of the RSU awards is subject to acceleration upon the director’s death, disability, retirement, or upon or in connection with a change in control of Ciena. Delivery of the shares upon vesting is subject to any applicable instruction provided by the director under the Directors’ Restricted Stock Deferral Plan described below.

 

The following table and the accompanying footnotes describe the “total compensation” received by our non-employee directors and Dr. Nettles during fiscal 2010.

 

Director Compensation Table

 

 

 

 

 

The following table sets forth, on an aggregate basis, information related to unexercised stock options and unvested RSU awards held by each of the non-employee directors and Dr. Nettles as of the end of fiscal 2010. We have not granted stock options to our non-employee directors since fiscal 2006. A significant portion of the stock options held by our directors and reported in the table below were “out-of-the-money,” based upon the $13.81 closing market price per share of Ciena common stock at the end of fiscal 2010.

 

Outstanding Equity Awards at Fiscal Year-End

 

 

The Directors’ Restricted Stock Deferral Plan allows non-employee directors to defer receipt of all or a portion of the shares underlying RSU awards granted in connection with their service on the Board of Directors. Generally, deferral elections may only be made for awards to be granted in a subsequent calendar year. Directors can elect the amount deferred, the deferral period and the form of distribution of their shares. If a director elects to defer any portion of an award, upon the vesting of that award, we credit a stock account with the amount deferred. There are no other investment options under the plan and all accounts are distributed in shares of Ciena common stock. Distributions may be made in a lump sum or installments, as designated by the participating director, subject to early distribution of vested awards in a lump sum in the event of the participant’s death, termination of service, a change in control of Ciena or termination of the plan.

 

In March 2010, we entered into an indenture with The Bank of New York Mellon, as trustee (the “Indenture”), pursuant to which we issued $375.0 million in aggregate principal amount of our 4.0% Convertible Senior Notes Due 2015 (the “Notes”). Under the Indenture, each Note may be converted prior to maturity at the option of the holder into shares of our common stock at the applicable “conversion rate” for each $1,000 in principal amount of Notes.

 

Under the listing requirements of The NASDAQ Global Select Market and NASDAQ Marketplace Rule 5635, we must obtain stockholder approval of any sale, issuance or potential issuance of common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock outstanding or 20% or more of the voting power outstanding before such issuance for a price less than the greater of book or market value of the common stock at the time of such issuance. Based upon the initial conversion rate for the Notes — 49.0557 shares of common stock per $1,000 in principal amount — the shares that would be issued assuming the conversion of all Notes would not exceed this 20% limit. However, the Indenture provides that upon the occurrence of a “Make-whole Fundamental Change” transaction (as defined below), the applicable conversion rate will be increased. Depending upon the timing and consideration paid in such transaction, the increase in the conversion rate could potentially result in the issuance of shares in excess of the limit above if all of the Notes were converted. As a result, to maintain compliance with the listing requirement above and prohibit the issuance of shares in excess of the limitation, the Indenture provides that if any Notes are converted prior to obtaining the stockholder approval requested in this Proposal No. 2, we must make a cash payment to converting noteholders equal in value to the number of additional shares that would otherwise have been issued as a result of the Make-whole Fundamental Change adjustment. The Indenture further provides that if we obtain stockholder approval for the potential future issuance of these additional shares, we will no longer be required to make this cash payment and instead, noteholders would receive additional shares of common stock.

 

We are requesting that our stockholders approve the potential future issuance of additional shares resulting from the conversion of Notes at an increased conversion rate due to a Make-whole Fundamental Change transaction. Pursuant to the terms of the Indenture, we are required to submit this proposal to stockholders in accordance with The NASDAQ Global Select Market listing requirements. The Board of Directors unanimously recommends that our stockholders vote “FOR” this proposal.

 

On March 15, 2010 we issued $375.0 million in aggregate principal amount of the Notes in a private placement to qualified institutional buyers in reliance on an exemption from registration under the Securities Act of 1933. The Notes are senior unsecured obligations under the Indenture and rank equally with all of our other existing and future senior unsecured debt. The Notes bear interest at the rate of 4.0% per annum from the date of issuance, payable semi-annually on March 15 and September 15. These interest payments commenced on September 15, 2010. The Notes will mature on March 15, 2015. For additional information regarding the Notes, please refer to our Current Report on Form 8-K as filed with the SEC on March 19, 2010 and the full text of the Indenture (which includes the form of Note as Exhibit A thereto) that is attached as Exhibit 4.1 to such Current Report on Form 8-K.

 

The net proceeds from the offering of the Notes were $364.3 million after deducting the placement agents’ fees and other fees and expenses. We used $243.8 million of the net proceeds of the offering to replace a previously existing contractual obligation to issue 6.0% senior convertible notes due 2017 as part of the aggregate purchase price for our acquisition of the optical networking and carrier Ethernet assets of Nortel’s Metro Ethernet Networks (MEN) business. We used the remaining net proceeds to reduce the amount of cash on hand to be used to fund the aggregate purchase price for the acquisition of the MEN business.

Under the Indenture, the Notes may be converted prior to maturity (unless earlier redeemed or repurchased) at the option of the holder into shares of our common stock at an initial conversion rate of 49.0557 shares of our common stock per $1,000 in principal amount of Notes, subject to adjustments customary for dilutive events. At this initial conversion rate, the conversion of all of the outstanding Notes would result in the issuance of 18,395,888 shares of our common stock. This issuance would comply with the limitation above as it is less than 20% of our common stock that was outstanding at the time we agreed to sell the Notes. Upon the occurrence of a Make-whole Fundamental Change transaction, we are required to increase the applicable conversion rate, as determined by the following table, which sets forth, for the corresponding period, the number of additional shares issuable per $1,000 in principal amount of Notes, subject to certain adjustments and restrictions as set forth in the Indenture:

 

 

Notwithstanding the foregoing, in no event will the total number of shares of common stock issuable upon conversion exceed 66.2251 per $1,000 principal amount of the Notes, subject to adjustments customary for dilutive events. The conversion rate assumes no other adjustments to the conversion rate. If the conversion rate were adjusted pursuant to another adjustment provision of the Indenture, such as customary adjustments for fundamental changes, stock dividends, stock splits and combinations, distribution of indebtedness, securities or assets, spin-offs, cash distributions, tender or exchange offers or repurchases, the conversion rate discussed above would have to be adjusted accordingly as required by the Indenture. As of the date of this Proxy Statement, there have been no adjustments to the initial conversion rate.

 

Prior to obtaining the stockholder approval requested by this Proposal No. 2, however, or if stockholder approval is not obtained, we are required, in lieu of issuing these additional shares, to make a cash payment to converting noteholders equal to the value of the number additional shares that we would otherwise be required to issue upon the Make-whole Fundamental Change adjustment. This requirement to issue cash in lieu of any additional shares may limit our flexibility to consider certain types of transactions in the future and may also negatively impact our liquidity and capital resources as we may be required to hold additional cash reserves to account for this potential future liability. If our stockholders approve this Proposal No. 2 and the issuance of the additional shares, we will no longer be required to make this cash payment. Instead, upon the occurrence of a Make-whole Fundamental Change, we would increase the conversion rate for the Notes to reflect this Make-whole Fundamental Change adjustment and issue common stock upon conversion as described above.

 

A “Make-whole Fundamental Change” means the occurrence of any of the following:

 

(1) any Person (as defined below) acquires beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of our capital stock, entitling such Person to exercise 50% or more of the total voting power of all shares of our capital stock entitled to vote generally in elections of directors, other than an acquisition by us, any of our subsidiaries or any of our employee benefit plans; or

 

(2) we merge or consolidate with or into any other Person (other than one of our subsidiaries), another Person (other than one of our subsidiaries) merges with or into us, or we convey, sell, transfer or lease all or substantially all of our assets to another Person, other than any transaction:

 

a. that does not result in a reclassification, conversion, exchange or cancellation of our outstanding common stock; or

 

b. which is effected solely to change our jurisdiction of incorporation and results in a reclassification, conversion or exchange of outstanding shares of our common stock solely into shares of common stock of the surviving entity; or

 

(3) any time that the current members of our Board of Directors (as of the date of the Indenture) or the members appointed or nominated for election with the approval of a majority of our current Board of Directors (including a majority of our Directors that were serving at the time of such appointment, nomination or election on a committee of the Board of Directors that appointed or nominated for election or reelection such Board member) do not constitute a majority of our Board of Directors (or, if applicable, the Board of Directors of a successor Person to us);

 

other than any such transaction or event pursuant to which at least 90% of the consideration paid for our common stock (excluding cash payments for fractional shares and cash payments made pursuant to dissenters’ appraisal rights) consists of shares of capital stock traded on The NASDAQ Global Select Market, The NASDAQ Global Market, The New York Stock Exchange or another U.S. national securities exchange or quoted on an established automated over-the-counter trading market in the United States (or that will be so traded or quoted immediately following the transaction) and as a result of such transaction or transactions the Notes become convertible solely into such capital stock and such other consideration received in connection with such transaction or transactions. For purposes of the definition of “Make-whole Fundamental Change,” a “Person” includes any syndicate or group that would be deemed to be a “person” under Section 13(d)(3) of the Exchange Act.

 

If stockholder approval is obtained, the number of shares of common stock that are potentially issuable through conversion of the Notes will increase. Such increase will potentially increase the dilution of our existing common stockholders’ ownership interests in us, through conversion of the Notes. As a comparison, under the initial conversion rate of 49.0557 shares per $1,000 in principal amount of the Notes, we may issue up to a total of 18,395,888 shares of common stock, which represents approximately 19.4% of the total number of shares of common stock outstanding as of January 1, 2011. If stockholder approval for this proposal is obtained, under the maximum conversion rate of 66.2251 shares per $1,000 in principal amount of the Notes, we may issue up to a total of 24,834,413 shares of common stock (assuming no other adjustments to the conversion price), which represents approximately 26.2% of the total number of shares of common stock outstanding as of January 1, 2011. The rights and privileges associated with the common stock potentially issuable through conversion of the Notes will be identical to the rights and privileges associated with the common stock held by our existing stockholders, including voting rights. Our common stock has no preemptive or conversion rights or other subscription rights. The outstanding shares of our common stock are, and the shares of common stock issuable upon conversion of the Notes will be, fully paid and non-assessable.

 

Prior to obtaining stockholder approval for the issuance of additional shares as provided for in this Proposal No. 2, a Make-whole Fundamental Change will be deemed to have occurred only upon the occurrence of a transaction or event that we approve or formally adopt a neutral position with respect thereto without revoking or modifying such position prior to the effective date of such transaction or event (regardless of whether any related transaction or event constitutes a Make-whole Fundamental Change). Unless we have obtained stockholder approval for the issuance of the additional shares for the Make-whole Fundamental Change adjustment, neither we nor our Board of Directors may take any action to directly or indirectly facilitate or participate in any such transaction or event without formally approving it or adopting a neutral position with respect thereto. Therefore, until stockholder approval for the issuance of the additional shares is obtained as provided for in this Proposal No. 2, this restriction may discourage potential transactions that our stockholders may consider favorable.

 

The Board of Directors unanimously recommends that our stockholders vote “FOR” the increase in the number of shares of common stock that may be issued upon the conversion of the Notes.

 

The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm to audit Ciena’s consolidated financial statements for the fiscal year ending October 31, 2011, and is asking stockholders to ratify this appointment at the Annual Meeting.

 

PwC has audited our consolidated financial statements annually since Ciena’s incorporation in 1992. A representative of PwC is expected to be present at the Annual Meeting, will have the opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions. In making its recommendation to the Board of Directors to select PwC as Ciena’s independent registered public accounting firm for fiscal 2011, the Audit Committee has considered whether the non-audit services provided by PwC are compatible with maintaining the independence of PwC. Information regarding fees billed by PwC for our 2009 and 2010 fiscal years is set forth under the heading “Relationship with Independent Registered Public Accounting Firm” below.

 

Our bylaws do not require that stockholders ratify the appointment of our independent registered public accounting firm. We are seeking ratification because we believe it is a matter of good corporate governance. In the event that stockholders fail to ratify the appointment, the Audit Committee will reconsider whether to retain PwC, but may ultimately determine to retain PwC as our independent registered public accounting firm. Even if the appointment is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that it is advisable to do so.

 

The Board of Directors recommends that Ciena stockholders vote “FOR” the ratification of the appointment of PwC as our independent registered public accounting firm for the current fiscal year.

 

The following table shows the fees that PwC billed to Ciena for professional services rendered for fiscal years 2009 and 2010.

 

 

Audit Fees

 

This category of the table above includes fees for the integrated audit of our annual financial statements, review of financial statements included in our quarterly reports on Form 10-Q, and services that are normally provided by PwC in connection with statutory and regulatory filings or engagements. The preparation of Ciena’s audited financial statements includes compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and the preparation by PwC of a report expressing its opinion regarding the effectiveness of our internal control over financial reporting. Fiscal 2009 and 2010 audit fees reflect PwC’s integrated audit of our financial statements for those years. The increase in audit fees during fiscal 2010 reflects the completion of our acquisition of the MEN Business on March 19, 2010 and the resulting increase in the scale of our operations. Fiscal 2010 audit fees also include auditor services relating to two private placements of convertible notes.

Audit-Related Fees

 

This category of the table above includes fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not included above under “Audit Fees.” Fiscal 2010 audit-related fees include auditor services relating to various accounting consultations. Fiscal 2009 audit-related fees include auditor due diligence and related services associated with our acquisition of Nortel’s MEN Business.

 

Tax Fees

 

This category of the table above includes fees for tax compliance, tax advice and tax planning. Fiscal 2009 and fiscal 2010 fees relate to international value added tax (VAT) compliance services.

 

All Other Fees

 

This category of the table above includes fees for services provided by PwC that are not included in the service categories reported above. Ciena did not incur any such fees during fiscal 2009 or fiscal 2010.

 

Pre-Approval of Services

 

The Audit Committee pre-approves all services, including both audit and non-audit services, provided by our independent registered public accounting firm. For audit services (including statutory audit engagements as required under local country laws), each year our independent registered public accounting firm provides the Audit Committee with an engagement letter outlining the scope of the audit services proposed to be performed during the year, which must be accepted by the Audit Committee before the audit commences. Our independent registered public accounting firm also submits an audit services fee proposal, which also must be approved by the Audit Committee before the audit commences.

 

Each year, management also submits to the Audit Committee a list of non-audit services that it recommends the independent registered public accounting firm be engaged to provide and an estimate of the fees to be paid for each. Management and the independent registered public accounting firm must each confirm to the Audit Committee that the performance of the non-audit services on the list would not compromise the independence of our registered public accounting firm and would be permissible under applicable legal requirements. The Audit Committee must approve both the list of non-audit services and the budget for each such service before commencement of the work. Our management and our independent registered public accounting firm report to the Audit Committee at each of its regular meetings as to the non-audit services actually provided by the independent registered public accounting firm and the approximate fees incurred by Ciena for those services.

 

To ensure prompt handling of unexpected matters, the Audit Committee has authorized its Chairperson to amend or modify the list of approved permissible non-audit services and fees. If the Chairperson exercises this delegation of authority, she reports the action taken to the Audit Committee at its next regular meeting.

 

In compliance with the Audit Committee’s internal policy and auditor independence rules of the SEC, all audit and permissible non-audit services provided by PwC to Ciena for the fiscal years 2009 and 2010 were pre-approved by the Audit Committee.

 

The information contained in this report shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Ciena specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Exchange Act.

 

The Audit Committee oversees Ciena’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. The Audit Committee meets with Ciena’s independent registered public accounting firm, PricewaterhouseCoopers LLP, with and without management present, to discuss the results of their

examinations and Ciena’s financial reporting practices. The Audit Committee met with management periodically during fiscal 2010 to consider the adequacy of Ciena’s internal controls, and discussed these matters with PricewaterhouseCoopers LLP and Ciena senior management, finance and internal audit personnel. The Committee also discussed with senior management and PricewaterhouseCoopers LLP Ciena’s disclosure controls and procedures and the certifications by Ciena’s Chief Executive Officer and Chief Financial Officer, which are required by the SEC under the Sarbanes-Oxley Act of 2002 for certain filings with the SEC.

 

The Audit Committee has reviewed and discussed Ciena’s audited financial statements for fiscal 2010 with management and with PricewaterhouseCoopers LLP. The Audit Committee has discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T. The Audit Committee has received the written disclosures and the letter from PricewaterhouseCoopers LLP required by applicable requirements of the PCAOB regarding Pricewaterhouse Coopers LLP’s communications with the audit committee concerning independence and has discussed with Pricewaterhouse Coopers LLP its independence. Based on the Audit Committee’s review of the audited financial statements and the review and discussions described in this report, the Audit Committee recommended to the Board of Directors that the audited financial statements for fiscal 2010 be included in Ciena’s annual report on Form 10-K for fiscal 2010 for filing with the SEC.

 

Submitted by the members of the Audit Committee:

 

Lawton W. Fitt (Chairperson)

Stephen P. Bradley, Ph.D.

Bruce L. Claflin

Patrick T. Gallagher

Michael J. Rowny

 

The following table sets forth, as of January 14, 2011, the beneficial ownership of Ciena’s common stock for the following persons:

 

 

Certain information in the table concerning beneficial owners other than our directors and executive officers is based on information contained in filings made by such beneficial owners with the SEC.

 

Under SEC rules, beneficial ownership of a class of capital stock includes any shares of such class as to which a person, directly or indirectly, has or shares voting power or investment power and also any shares as to which a person has the right to acquire such voting or investment power within 60 days through the exercise or conversion of any stock option, restricted stock unit or other right. If two or more persons share voting power or investment power with respect to specific securities, each such person is deemed to be the beneficial owner of such securities. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of such acquisition rights. As a result, the percentage of outstanding shares held by any person in the table below does not necessarily reflect the person’s actual voting power. As of January 14, 2011, there were 94,920,609 shares of Ciena common stock outstanding.

 

 

 

 

 

During fiscal 2010, at the request and direction of the Compensation Committee, management conducted an assessment of risks associated with Ciena’s compensation policies and practices. This assessment included:

 

 

The Compensation Committee met with management to review the SEC requirements relating to this assessment. The Committee also considered the participants to be included in management’s proposed assessment and its recommendations as to the assessment process and approach. In conducting this assessment, management consulted with and received input from various participants, including: the Chief Human Resources Officer and regional human resource leads, the General Counsel and external legal counsel, senior accounting and stock administration personnel, sales compensation management, internal and external auditors, and the independent compensation consultant retained by the Compensation Committee.

 

Although all compensation programs were considered, particular attention was paid to incentive-based programs involving variable payouts, where an employee might be able to influence payout factors and compensation programs involving Ciena’s executive team. In substantially all cases, compensation programs are centrally designed and administered and, excluding sales incentive compensation, are substantially identical across function and geography. Incentive compensation was found to be based primarily on reported financial results, and other performance-based operating objectives used to determine incentive compensation were found to be largely derived from Ciena’s annual operating plan approved by the Board of Directors.

 

In addition, the assessment revealed significant controls and other mitigating factors that serve to offset elements of Ciena’s compensation policies and practices that may introduce risk, including:

 

 

Based on the assessment and factors described above, the Committee determined that the risks associated with Ciena’s compensation policies and practices are not reasonably likely to result in a material adverse effect on Ciena.

 

This section of our proxy statement provides a description and analysis of our executive compensation program, the various components of our executive compensation program, and the compensation-related decisions made for fiscal 2010 with respect to our Chief Executive Officer (CEO), Chief Financial Officer (CFO) and our three most highly compensated executive officers as set forth below:

 

 

These employees are referred to in this proxy statement as our “Named Executive Officers.” We have provided detailed information relating to the fiscal 2010 compensation of these individuals in the “Executive Compensation Tables” and “Potential Payments Upon Termination or Change in Control” sections below. As used in this “Compensation Discussion and Analysis” section, the term “Committee” means the Compensation Committee of the Board of Directors.

 

Overview

 

Fiscal 2010 Executive Compensation

 

The Committee’s key actions relating to Ciena’s executive compensation program for fiscal 2010, and the effect of these decisions, included:

 

 

Fiscal 2010 ultimately proved to be a year of significant change for Ciena, one which was marked by our transformative acquisition of the optical networking and Carrier Ethernet assets of Nortel’s Metro Ethernet Networks business (the “MEN Business”). In acquiring the MEN Business, we not only strengthened our position as a leader in next-generation, converged optical Ethernet networking but also significantly increased our revenues, expanded our global presence and nearly doubled our headcount. However, the successful outcome of our efforts to acquire the MEN Business as part of Nortel’s bankruptcy sale process was not known until after the Committee had completed the majority of its analysis and key decision-making with respect to our executive compensation program for fiscal 2010. Accordingly, executive compensation decisions for fiscal 2010 were made by the Committee against a backdrop of significant uncertainty — with respect to the possible acquisition of the MEN Business, as well as the duration and effect of continued macroeconomic volatility on our results of operations. In addition, the Committee’s decisions were affected by Ciena’s limited set of available reward currencies for executive compensation at that time. These considerations are more fully described in “Considerations for Fiscal 2010 Executive Compensation” below.

Governance of Executive Compensation

 

The Committee also took the following additional actions during fiscal 2010 relating to executive compensation, reflecting its ongoing commitment to strong compensation governance:

 

 

 

 

The Committee’s measured approach to Ciena’s fiscal 2010 compensation program was the product of the following core executive compensation governance principles or practices:

 

 

The following discussion provides additional detail and analysis regarding the Committee’s specific decisions relating to compensation of our Named Executive Officers for fiscal 2010, including the background,

considerations and other factors that influenced such decisions. Because of the timing of his hiring as an executive officer, the broader discussion of fiscal 2010 executive compensation below is generally not applicable to Mr. Morin. For information regarding the setting of his compensation, please see “Hiring of Mr. Morin” below.

 

Compensation-Setting Process, Participants and Comparative Framework

 

Considerations for Fiscal 2010 Executive Compensation

 

Consistent with past practice, Ciena commenced its consideration of fiscal 2010 executive compensation in the summer of 2009, with further discussion and analysis in October and December 2009, and final decision-making on executive compensation following Ciena’s release of fiscal 2009 financial results in mid-December 2009. As a backdrop against which its compensation decisions were made, the following important considerations influenced the Committee’s actions for and during fiscal 2010:

 

 

Participants in Compensation-Setting Process

 

Compensation Committee.  The Committee has oversight of Ciena’s compensation programs and has final authority to approve and make decisions with respect to the compensation of Ciena’s executive officers. For a discussion regarding the Committee’s compensation philosophy and the principal objectives of our compensation programs, see “Corporate Governance and the Board of Directors — Compensation Committee” above.

 

Independent Compensation Consultant.  In its annual review and determination of executive compensation, the Committee is assisted by Compensia, Inc., a national compensation consulting firm. Compensia is engaged directly by the Committee and does not perform additional consulting or other services for Ciena management. For a discussion regarding Compensia, the scope of its engagement by the Committee and its involvement in our compensation-setting process, see “Corporate Governance and the Board of Directors — Compensation Committee” above.

 

Chief Executive Officer.  Our executive officers, including our CEO, do not participate in the determination of their own compensation. Our CEO works with the Chair of the Committee to develop proposed compensation packages for our other executive officers, including the other Named Executive Officers. Based on his review and assessment of each executive officer’s overall performance, success in executing against corporate and functional goals, criticality of function, experience, expertise, retention concerns, and compensation relative to other executive officers, as well as the Peer Group data, our CEO provides recommendations to the Committee with respect to the base salary, target bonus or commission percentage, and annual equity award for each executive officer. Because our CEO works most closely with and supervises our executive team, the Committee believes that he provides critical insight in evaluating their performance. Our CEO also provides the Committee with additional information regarding the effect of market forces, changes in strategy or priorities upon an individual’s performance, and any other specific challenges faced or overcome by each person during the prior fiscal year. We have identified below, with regard to any particular Named Executive Officer or element of compensation, whether the Committee’s assessment of our CEO’s recommendations or other qualitative factors significantly affected the compensation components or level of compensation awarded to such Named Executive Officer.

 

Comparative Framework

 

Peer Group.  Assisted by Compensia, the Committee annually selects a group of peer companies against which to compare existing and proposed executive compensation levels. The Committee modifies the composition of the peer group as it believes necessary to reflect those companies it considers to be similar to, and competitive with, Ciena in the market for executive talent.

 

In considering the appropriate peer group for fiscal 2010, the Committee noted that the existing group of companies had been used for fiscal 2008 and fiscal 2009, and thus had not changed in the past two years. The

Committee determined that several existing peer companies had become less relevant for comparison purposes and that the existing peer group no longer adequately reflected the market in which Ciena competes for executive talent. The Committee acknowledged that Ciena directly competes with both much larger multi-national communications vendors as well as a variety of earlier-stage and smaller-scale companies. As a result, the Committee believed that a revised peer group consisting exclusively of direct competitors would not offer a meaningful comparative framework for determining compensation. Consequently, in revisiting the peer group, the Committee determined to also consider similar companies in adjacent segments of the communications industry.

 

The Committee also discussed whether and to what extent to consider the potential acquisition of the MEN Business in developing the peer group for fiscal 2010. The Committee recognized that doing so would significantly affect the composition of the peer group, given the resulting growth of Ciena’s business and operations and the expanded responsibilities of the executive team. In particular, the management team would be charged with managing a larger workforce, a complex integration and the implementation of a corporate strategy for the expanded global operations of the combined business. However, given the uncertainty surrounding the potential acquisition, the Committee determined in September 2009 — before Ciena had been selected as the “stalking horse” bidder for the MEN Business — that it was not appropriate to reflect the anticipated transaction in the revised peer companies.

 

In assessing peer companies for fiscal 2010, the Committee considered a number of factors, including:

 

 

The Committee also specifically considered several key organization and financial metrics including, among other things, a comparison of Ciena to the following measures of revenue, market capitalization, market capitalization as a multiple of revenue, and headcount.

 

Peer Group Comparison

 

 

 

 

At the same time, because of the potential for a high degree of variability in metrics of peer companies in general, the Committee also sought to ensure that the largest company in the peer group was not more than 2.5 times greater than Ciena in terms of both revenue and market capitalization. The Committee believed that this would ensure closer proximity of those key metrics among the peer companies and thereby obtain more consistent compensation data.

Based on its analysis, the Committee determined that the following “Peer Group” constituted an appropriate comparative framework for determining executive compensation in fiscal 2010. Of the companies in the Peer Group below, approximately half were retained from the peer group of companies used in fiscal 2008 and 2009:

 

 

The Committee uses Peer Group information, including base salary, target total cash compensation, equity compensation values and target total direct compensation, for comparable executive positions, as a comparative framework in establishing executive compensation for our Named Executive Officers. In considering the Peer Group compensation data, the Committee recognizes that executive officers in different companies can play significantly different roles, with different responsibilities and scope of work, even though they may hold similar titles or nominal positions. Moreover, the Peer Group data does not yield qualitative factors that influence compensation, such as each executive officer’s performance during the period under consideration or their perceived importance to their companies’ business, strategy and objectives. Accordingly, the Peer Group data is just one of a number of comparative factors used by the Committee in establishing executive compensation levels. While the Committee may use Peer Group data as a baseline or frame of reference for compensation, it does not specifically “benchmark” compensation, or any element thereof, for any particular executive, to the compensation levels of executives occupying similar positions at companies in the Peer Group.

 

Consideration of Qualitative Factors.  In any given year, and for any particular Named Executive Officer, the Committee may consider a range of subjective or qualitative factors, including:

 

 

The Committee’s consideration of any particular factor may range from inapplicable to significant, depending upon the individual and period under consideration. The Committee does not assign relative weights or rankings to such factors. Meeting in executive session, the Committee relies upon its members’ knowledge and judgment in assessing the various qualitative and quantitative inputs it receives as to each individual and makes compensation decisions accordingly.

 

Internal Equity Considerations.  The Committee seeks to promote teamwork among, and high morale within, our executive team. While the Committee does not use any quantitative formula or multiple for comparing or establishing compensation among the executive officers, it is mindful of internal pay equity considerations, and assesses the relationship of the compensation of each executive officer to other members of the executive team. The Committee also considers each fiscal year, on a relative basis, the aggregate portion of equity awards, in terms of economic value and allocation of shares, made to the executive team, in comparison to other eligible senior employees.

Elements of Compensation

 

The compensation of our executive officers, including our Named Executive Officers, includes three principal elements:

 

 

In determining the mix of compensation among these elements, the Committee does not assign specific ratios or other relative measures that dictate the total compensation mix to be awarded or targeted to the executive team, or the portion that is either “at risk” or otherwise subject to performance. As in past years, executive compensation for fiscal 2010 was structured with an emphasis on equity-based compensation, which the Committee believes creates a strong alignment with long-term stockholder value.

 

Base Salary

 

Base salaries provide a minimum, fixed level of cash compensation for our executive officers. Establishing base salaries that reflect the performance, skill set and value of executive talent in the competitive marketplace is an important element in attracting, retaining and rewarding key employees. As in years past, Compensia provided the Committee with market survey data indicating that base salary increases in a range of 4% to 5% per year were consistent with historical executive compensation practices in the market. Based on Peer Group data at the time, the base salaries for our executive officers were generally correlated between the 50^th and 60^th percentile of equivalent positions in the Peer Group, with Mr. Smith below the 50^th percentile and Mr. Alexander above the 75^th percentile. Based on the factors set forth above in “Considerations for Fiscal 2010 Executive Compensation,” especially Ciena’s increased focus on limiting its cash expense, the Committee ultimately decided not to increase the base salaries of the Named Executive Officers for fiscal 2010.

 

Annual Performance-Based Cash Incentive Bonuses and Sales Commissions

 

Ciena utilizes performance-based cash incentive bonuses and sales incentive commissions to motivate its employees and incentivize the achievement of financial, strategic and operational objectives. Historically, these objectives have been closely aligned with those financial and operational objectives established in the Board-approved annual operating plan. The Committee believes that its use of these objectives promotes executive focus on annual financial and operating results. Moreover, use of an incentive cash component of executive compensation enables total cash compensation to remain competitive, while including an “at risk,” performance-based element. These performance-based cash payments are expressed as a percentage of base salary. Because of this correlation, the Committee typically looks at base salary and annual incentive compensation in concert, and considers the effect modifications to either such element have on the total target cash compensation for each individual. The Committee considers potential incentive payments to each Named Executive Officer at the “target” level, together with base salary, in determining the “target total cash compensation” payable to each executive.

 

In reviewing the target total cash compensation for Ciena’s executive officers, the Committee determined that, if fully paid at the target level, total target cash compensation was generally commensurate with between the 65th and 75th percentiles of the Peer Group, with significant variance by executive. Based on the factors set forth above in “Considerations for Fiscal 2010 Executive Compensation,” the Committee decided not to increase the target bonus or commission percentages for the Named Executive Officers for fiscal 2010.

 

In addition, as described below, the Committee determined to pay only 50% of the target bonus upon the achievement of 100% of the applicable performance target and to treat the Named Executive Officers as ineligible under the cash incentive bonus plan for the first half of fiscal 2010. These changes reduced meaningfully the fiscal 2010 total target cash opportunity for the Named Executive Officers, other than Mr. Aquino, as set forth in “Total Target Cash Compensation” below.

 

Annual Cash Incentive Bonus Plan.  Full-time employees, excluding our employees who receive sales commissions, generally participate in our annual cash incentive bonus plan, which pays out a bonus upon the

achievement of performance objectives established by the Committee. The bonus plan, which is more fully described in the “Grants of Plan-Based Awards” section of the “Executive Compensation Tables,” provides the Committee with the flexibility to establish corporate, departmental or individual performance objectives upon which bonus payments are contingent.

 

Structure for Fiscal 2010.  In considering the cash incentive bonus plan for fiscal 2010, the Committee determined that certain structural changes were required in order to achieve the compensatory objectives of the plan while taking into account several of the considerations for setting fiscal 2010 executive compensation noted above.

 

First, the Committee elected to base payments under the bonus plan on performance goals established for two semi-annual periods aligning with the first and second halves of fiscal 2010. In so doing, the Committee sought to avoid the impact and unintended consequences of likely fluctuations in our business and results of operations presented by quarterly performance periods, particularly during a period of significant transition for Ciena and continued economic and industry uncertainty.

 

Second, the Committee determined that employees of the rank of vice president and above, including the Named Executive Officers, would not be eligible to participate in the incentive bonus plan for the first half of fiscal 2010. This had the immediate effect of reducing by one-half the cash incentive bonus opportunity of the Named Executive Officers. The Committee determined such action appropriate in order to focus on cash preservation and because these employees would continue to be eligible for equity awards while others participating in the cash incentive bonus plan would receive limited or no equity awards. Following the successful pre-integration planning for and closing of our acquisition of the MEN Business, and in order to ensure alignment of interest across the entire employee base, the Committee subsequently determined that all employees, including the Named Executive Officers, would be eligible to participate in the bonus plan for the second half of fiscal 2010.

 

Third, the Committee reduced the applicable target bonus payments during fiscal 2010. As revised, the incentive bonus plan would only pay 50% of the portion of the applicable target bonus for the semi-annual period upon the achievement of 100% of the applicable performance target. This further reduced the incentive cash opportunity of the Named Executive Officers participating in the cash incentive bonus plan. By way of comparison, the achievement of 100% of the performance target would have paid 100% and 75% of the target bonus in fiscal 2008 and 2009, respectively. These decisions were made in an effort to reduce our potential cash expense and positively impact our results of operations.

 

On an annualized basis, the aggregate target bonus opportunity for each of the Named Executive Officers participating in the cash incentive bonus plan is 75% of annual base salary, except for Mr. Smith who maintains a 100% target bonus opportunity. The percentage of the target bonus payable to the Named Executive Officers for the applicable plan period at each of the threshold, target and maximum levels in fiscal 2010 (as compared to prior periods) is set forth in the following table, with payments interpolated for performance results falling between the designated levels.

 

Cash Incentive Bonus Plan Structure

 

 

First Half Fiscal 2010 Performance Goal.  For the reasons above, the Named Executive Officers were not eligible to participate in the first half fiscal 2010 incentive bonus plan.

 

Second Half Fiscal 2010 Performance Goal.  With the successful closing of the MEN Business acquisition in March 2010, the Committee determined to structure cash incentive payments for the second half of fiscal 2010 upon the achievement of a single, corporate performance goal based on the “adjusted operating income” objective set forth in our revised operating plan. The operating plan, typically established at the beginning of each fiscal year, was revised

in the middle of fiscal 2010 to reflect the acquisition of the MEN Business and its effect on Ciena’s operations and expected financial results. The Board-approved operating plan represents the executive team’s best estimate at the time of our forecasted financial results for the applicable period. In general, we believe that the overachievement or underachievement of any performance measure contained in the operating plan is equally likely.

 

The Committee has successfully used an “adjusted operating income” target under the plan in previous years and believes that this performance-based measure provides an effective indicator of Ciena’s operating performance. The adjusted operating income measure gives effect to certain adjustments to our GAAP results, including those reported in our quarterly earnings releases, and the expense associated with any payments under the incentive bonus plan. The Committee believes that using this performance measure provides eligible employees a strong incentive to leverage our operating model, focus on the profitable growth of our business and improve operating profit. The Committee determined to use the same performance goal for all eligible employees, including our Named Executive Officers, in order to align the interests of our employee base and to promote teamwork and morale.

 

The adjusted operating income goal under the cash incentive bonus plan was $10.7 million in the aggregate for the third and fourth quarters. Ciena ultimately reported adjusted operating losses in both the third and fourth quarters of fiscal 2010, and thus the minimum threshold performance goal was not met. Accordingly, as set forth in “Executive Compensation Tables— Summary Compensation Table” below, no bonus was awarded under the incentive bonus plan during fiscal 2010 to any of our executive officers, including the Named Executive Officers.

 

Sales Incentive Compensation.  Employees in our sales organization who are paid sales commissions do not participate in the annual cash incentive bonus plan. Instead, they are eligible to receive sales incentive compensation, the payment of which is conditioned upon the achievement of certain sales-oriented performance measures, such as customer orders, sales of specific products, or gross margin. The Committee believes that this type of commission-based incentive compensation arrangement is typical within sales organizations and for our industry.

 

Mr. Aquino’s sales incentive compensation is payable quarterly based upon his achievement of quarterly performance measures approved by the Committee. For fiscal 2010, half of Mr. Aquino’s sales incentive compensation was conditioned upon the achievement of quarterly sales orders goals and half was conditioned upon the achievement of quarterly gross profit goals. Like the broader sales team, Mr. Aquino’s sales incentive compensation for fiscal 2010 was structured in two, six-month programs, aligning with Ciena’s original standalone operating plan and the revised operating plan to reflect the combined company following the acquisition of the MEN Business. The orders goals were intended to incentivize building a backlog of orders for our products and services to support our continued revenue growth. These goals consisted of a specified value of total orders, expressed as a multiple greater than one of the targeted quarterly revenues for fiscal 2010, which goals increased sequentially each quarter during fiscal 2010. At the time of their establishment, we believed that the overachievement or underachievement of this performance goal was equally likely. The gross profit goals were intended to incentivize increasing sales at prices and on terms that generated targeted gross margins, enabling us to increase our operating margin and profitability. The Committee based the goals upon gross profit dollars, rather than the achievement of a specific percentage, because it believed this measure reflected an appropriate balance of incentivizing targeted gross margin achievement, while still rewarding revenue growth. For fiscal 2010, Mr. Aquino’s quarterly gross profit goals were, sequentially, $85 million, $93 million, $173 million and $196 million; with the significant increase in the second half of fiscal 2010 reflecting the effect of the acquisition of the MEN Business on Ciena’s operations and expected financial results.

 

Mr. Aquino’s annual target incentive opportunity for fiscal 2010 was unchanged and remained 100% of his base salary. Unlike the other Named Executive Officers, whose target bonus payables were reduced for fiscal 2010, the Committee determined to retain Mr. Aquino’s 100% bonus opportunity to continue to incentivize the achievement of critical sales objectives during a period of company transition and macroeconomic uncertainty. In structuring Mr. Aquino’s sales incentive compensation for fiscal 2010, however, the Committee determined to increase the threshold performance level to 80% for each goal and to reduce his percentage of compensation payable for performance above threshold but below target. The Committee considered a number of factors in revising Mr. Aquino’s incentive compensation structure, including: the potential for improved economic and market conditions; that target bonuses payable had been reduced for all other members of the executive team, including the other Named Executive Officers; and that all other non-sales employees of the rank of vice president and above

would not even be eligible for an incentive bonus opportunity for the first half of fiscal 2010. These decisions resulted in the following changes to Mr. Aquino’s incentive compensation structure as compared to fiscal 2009:

 

Sales Incentive Compensation Structure

 

 

Payouts for performance in excess of 100% of the targeted quarterly goals remained unchanged from previous years and were subject to accelerator factors, including multipliers of 1.1 for the orders bonus and 1.2 for the gross profit bonus, with no cap on the amount payable if Mr. Aquino exceeded the goals. Mr. Aquino’s actual quarterly sales incentive compensation payments received during fiscal 2010 are set forth in “Executive Compensation Tables — Summary Compensation Table” below.

 

Total Target Cash Compensation.  As described more fully above, the Committee’s decisions with respect to annual base salaries and annual, performance-based cash incentive payments for fiscal 2010 resulted in the following changes to total target cash compensation opportunities for the Named Executive Officers identified below.

 

Total Target Cash Compensation

 

 

The amounts in the table above represent targeted cash compensation. For amounts actually earned or received by our Named Executive Officers, see “Summary Compensation Table” in the “Executive Compensation Tables” below.

 

Equity-Based Compensation

 

We have relied heavily on equity-based compensation as a key component of our compensation program historically. The Committee believes that meaningful equity-based incentive compensation performs an essential role in attracting, motivating and retaining executives and a strong incentive for corporate performance and stockholder return. In recent years, the Committee has largely relied upon long-term restricted stock unit awards, with three and four-year vesting periods, to balance the shorter-term focus of the cash incentive bonus plan. The Committee believes that this structure rewards the achievement of long-term business objectives that benefit our stockholders and serve to retain a successful management team.

 

Factors Affecting Equity Compensation for Fiscal 2010.  The Committee’s decisions regarding equity compensation for the executive team for fiscal 2010 were significantly influenced by the following considerations:

 

Risk of Share Exhaustion Under the 2008 Plan.  In establishing equity compensation for fiscal 2010, the Committee was extremely concerned about the potential exhaustion of the shares available for issuance under the 2008 Plan. This risk resulted, in equal part, from the meaningful retentive awards previously granted to the executive team in fiscal 2009, the steep decline in Ciena’s stock price in 2008 and the resulting effect on share usage to achieve targeted delivered values, and the limited number of shares initially authorized in accordance with metrics established by proxy advisory firms. The Committee believed that the remaining available shares would be insufficient to meet Ciena’s compensation requirements, on a stand-alone basis, during fiscal 2010 and beyond. The Committee was concerned that share exhaustion risks would be significantly exacerbated by Ciena’s acquisition of the MEN Business and the approximate doubling of its global headcount. The Committee determined to seek

stockholder approval of a share increase under the 2008 Plan at the 2010 Annual Meeting, and the requested increase was approved by stockholders in March 2010. However, at the time of the Committee’s consideration and establishment of executive compensation for fiscal 2010, there was no assurance that such request would be approved. The Committee therefore determined to set equity compensation for the executives accordingly.

 

Unique Nature of Fiscal 2009 Equity Awards.  The Committee recognized the unique circumstances surrounding its equity compensation decisions in the previous year. Specifically, the Committee considered that such decisions in fiscal 2009 had been primarily influenced by the rapid and steep decline in the market price of Ciena’s common stock, which had significantly reduced the value of unvested equity awards granted to the executive team prior to fiscal 2009. This resulted in a significant weakening of the intended retentive value of those prior awards. Believing it had built a strong executive team which had performed well in recent years and that there remained a viable market for top executive talent, the Committee considered that its primary compensation objective in fiscal 2009 was to improve the retention profile of the executive team. Although the Committee agreed that these meaningful stock awards in fiscal 2009 had achieved the desired objective, it recognized the unique nature of those equity awards and determined not to replicate them in fiscal 2010.

 

Challenge in Setting Performance-Based Awards.  The Committee acknowledged that broader market conditions had caused volatility in our industry and had resulted in weaker fiscal 2009 performance and financial results as compared to fiscal 2008. In light of these conditions, and the uncertainty associated with their persistence and the magnitude of their effect on our business, the Committee decided that it would not be appropriate to grant performance-based equity awards. The Committee also acknowledged that uncertainty about our future business and results of operations presented by market conditions was further compounded by the impact of the potential acquisition of the MEN Business and the complex integration, portfolio rationalization and restructuring activities that would result from such transaction. In reaching this conclusion, the Committee considered the potential for unintended consequences, including favoring short-term gain over long-term business needs, by establishing performance targets in an environment of economic weakness.

 

Process for Determining Fiscal 2010 Equity Compensation.  In recent years, the Committee has established equity compensation for the executive officers with a target value at or about the 75th percentile for the value delivered to similar executive officers in the Peer Group. Primarily due to the factors set forth above, however, the Committee requested that Compensia instead prepare its analysis of target equity values for fiscal 2010 at both the 50th and 75th percentiles of the Peer Group. Based on Compensia’s analysis, and using the 50th percentile of the Peer Group as a baseline, our CEO then prepared recommendations for target equity values for each of the senior executives, including the Named Executive Officers, for the Committee’s consideration. The Committee believed using this baseline was appropriate and properly reflected its need to balance the considerations above with the need to continue to offer competitive compensation levels to the executive team. For each of the senior executives other than our CEO, the Committee considered the following:

 

 

The Committee made its own similar evaluation for our CEO, based upon its assessment of his responsibilities, performance, experience and value to Ciena, as well as consideration of the above additional factors.

 

Thereafter, the Committee determined target equity dollar values for Ciena’s senior executives, including the Named Executive Officers The aggregate target value of the proposed fiscal 2010 equity awards to the Named

Executive Officers represented less than 50% of both the target equity value and the actual delivered value of the awards granted in fiscal 2009. The Committee believed that this substantial decline in equity value delivered to the executives was appropriate based on the above factors and considerations.

 

The values awarded to particular executive officers in relation to their Peer Group counterparts varied considerably — from the 50^th percentile to above the 75^th percentile — due to differences in the individual situations of the executives, the particular nature of the functions they perform at Ciena, their perceived importance to Ciena’s future, and the risk that they would leave Ciena if not appropriately rewarded and motivated.

 

 

For the reasons above, the Committee determined to grant equity awards, to executive and non-executive employees alike, exclusively in the form of time-based restricted stock units, or RSUs. The Committee wished to remain consistent with its approach of favoring RSUs over stock options as its preferred vehicle for equity compensation. The Committee determined to use its standard four-year vesting period for RSUs. The Committee generally uses this vesting period because it believes such duration promotes long-term alignment with stockholders and longer-term decision making that provides an effective balance to the shorter-term incentive measures used in setting cash incentive bonus awards. In finalizing its determination on the value and form of equity awards, the Committee considered updated projections of the paper gain value of the vested and unvested equity holdings of each individual executive, including the proposed equity awards for fiscal 2010. Because of the volatility in the market price of Ciena’s stock at that time, and to ensure that the equity awards provided sufficient value while minimizing the risk of unintentionally providing disproportionately high value to the individuals, the Committee considered its projections for the fiscal 2010 awards based on a range of possible grant date stock prices.

Based on the trailing 30-day average of Ciena’s closing stock price prior to the grant date, the individual target equity values established by the Committee were calculated into a specific number of shares of Ciena’s common stock underlying each restricted stock award as set forth below:

 

Fiscal 2010 Annual RSU Awards

 

 

Equity Grant Practices.  In recent years, we have applied a consistent approach in our equity award practices by granting annual equity awards to our executive officers and directors at or around the same time each year. Annual equity awards to our executive officers, including our Named Executive Officers, are made by the Committee, and the grant date of these awards is the same day that the Committee meets to approve the awards. Specifically, the Committee generally meets, approves and grants annual equity awards to the executive officers promptly following Ciena’s release of earnings for the fourth quarter and fiscal year. This practice, which began in fiscal 2007, continued for annual equity awards in fiscal 2010, with executive and non-executive awards granted on December 16, 2009.

 

Supplemental Equity Award to Mr. Moylan.  Following the closing of our acquisition and successful initial integration efforts relating to the MEN Business, our CEO and the Committee considered that certain executive officers had played particularly significant roles in connection with the same and wished to acknowledge their outstanding performance. With respect to Mr. Moylan, the Committee recognized that he had played a significant role in formulating our strategy with respect to the acquisition of the MEN Business and in assisting in the protracted negotiation of its terms and conditions. Consequently, based on its continued effort to reduce cash expense and in light of its desire to reward performance with a short-term compensatory vehicle, the Committee determined to provide a supplemental award of time-based RSUs to those executive officers, including Mr. Moylan, with a vesting period of one year from the date of grant. The Committee specifically acknowledged that the short-term vesting period was unusual and deviated from Ciena’s typical grant practices, but considered it reasonable and appropriate in order to serve the intended purpose of the supplemental award. Based upon the recommendation of our CEO, the Committee established a specific target equity value to be delivered, which was then calculated into a specific number of shares of Ciena’s common stock, based on the trailing 30-day average of Ciena’s closing stock price prior to the date of grant. Based on this approach, in July 2010, the Committee approved a supplemental restricted stock unit award to Mr. Moylan of 7,700 shares. None of the other Named Executive Officers received supplemental equity awards during fiscal 2010.

 

Establishing Performance Goals for Performance-Accelerated Stock Units Granted in Prior Years.  In December 2007, the Committee granted performance-accelerated restricted stock units (“PARS”) to certain Named Executive Officers. Pursuant to their terms, the PARS vest in full four years after the date of grant. At the beginning of each of the first three fiscal years following the date of grant, the Committee generally establishes specific performance goals which, if satisfied, provide for the acceleration of vesting of some portion of the grant amount. In considering appropriate performance goals for acceleration of the PARS grants in fiscal 2010, the Committee was concerned about its ability to establish an annual performance goal or goals that would be applicable for the entire fiscal year and serve the intended purpose of the PARS grants. Consistent with its approach for the cash incentive bonus plan, the Committee decided to establish two, semi-annual performance goals for purposes of acceleration of the PARS, aligning with the first and second halves of fiscal 2010.

 

For the first half of fiscal 2010, the Committee determined to establish a set of cross-functional, corporate performance goals that focused on the twin objectives of planning for and integrating the MEN Business, while still operating our standalone business effectively and efficiently. After receiving input and recommendations from our CEO, the Committee ultimately selected a set of cross-functional performance goals, with specific weighting

assigned to each based on the Committee’s assessment of their relative importance to our overall strategic objectives for the first half of fiscal 2010. These goals related to the following:

 

 

At the time of their establishment, we believed that the overachievement or underachievement of these collective performance goals was equally likely.

 

For the first half of fiscal 2010, the Committee determined to condition acceleration of vesting of one-sixth of the PARS grant amounts to June 20, 2010 (representing one-half of the amount eligible for acceleration), based upon Ciena’s achievement of at least 75% of these cross-functional performance goals. These same goals were used for the cash incentive bonus plan for the first half of 2010. While the Named Executive Officers were not eligible for these cash awards, the Committee believed using the same performance objectives aligned interests of the employee base. The Committee determined that approximately 90% of the cross-functional performance goals had been achieved and therefore vesting of one-sixth of the PARS grant amount was accelerated.

 

With regard to the second half of fiscal 2010, the Committee determined to condition acceleration of vesting of one-sixth of the PARS grant amounts to December 20, 2010 (representing one-half of the amount eligible for acceleration), based on Ciena’s achievement of the “adjusted operating income” objective of $10.7 million set forth in the Board-approved revised operating plan for the third and fourth quarters of fiscal 2010 in the aggregate. Again, this was the same performance goal used for purposes of the cash incentive bonus plan during the second half of fiscal 2010. In light of Ciena’s adjusted operating losses during the third and fourth quarters of fiscal 2010, however, the Committee determined that this goal was not satisfied, and therefore the vesting of an additional one-sixth of the PARS grant amounts was not accelerated.

 

The table below sets forth the relevant PARS awards held by the Named Executive Officers, together with the number of shares that were eligible for, and ultimately received, accelerated vesting based upon the achievement of fiscal 2010 performance goals. As indicated above, any remaining portion of the total grant amount will vest upon the fourth anniversary of the grant date.

 

Performance-Based Acceleration of PARS Awards

 

 

Hiring of Mr. Morin

 

Upon the closing of the acquisition of the MEN Business, we appointed Mr. Morin, who had served as President of the MEN Business, as our Senior Vice President, Global Products Group. In this capacity, he joined Ciena’s executive team and assumed responsibility for our engineering, supply chain, product line management, quality, customer advocacy, product marketing and solutions organizations on a global basis. In determining Mr. Morin’s total compensation, the Committee considered a number of factors, including:

 

 

 

Although the Committee also considered Mr. Morin’s current cash and incentive compensation provided by Nortel and the target equity value recommended by our CEO in determining the size of his equity award, it did not benchmark these components of compensation against similar executives in the Peer Group.

 

In recognition of the factors above and the timing of the requested stockholder approval of the share addition to the 2008 Plan, the Committee determined to grant Mr. Morin’s equity award under the 2010 Inducement Equity Award Plan — a newly adopted plan structured in accordance with the rules of The NASDAQ Stock Market for the sole purpose of granting “new hire” equity awards to induce certain eligible employees of Nortel to join Ciena upon the closing of the acquisition of the MEN Business (“2010 Plan”). The Committee also determined to use the standard four-year vesting period for equity awards to newly hired employees, with one-quarter of the grant amount vesting approximately one year after the grant date and the remainder vesting in equal one-twelfth amounts quarterly over the three year-period thereafter.

 

Accordingly, in January 2010, the Committee approved Mr. Morin’s compensation consisting of a $473,000 CAD annual base salary, eligibility for a target bonus of up to 75% of his base salary under Ciena’s incentive bonus plan, and a “new hire” restricted stock unit award of 100,000 shares of Ciena common stock consistent with the terms described above. Mr. Morin also entered into a change in control severance agreement on equivalent terms to Ciena’s other executive officers as described below.

 

“Double Trigger” Change in Control Severance Agreements

 

Each of our executive officers, including each of the Named Executive Officers, has a change in control severance agreement with Ciena. We have entered into these agreements upon the initial hiring of senior employees, upon promotion of existing employees to senior executive roles, and when the Compensation Committee determines it to be important for the retention of other key employees. We believe that these severance arrangements are important for retention of key employees and necessary to attract qualified executive officers, who may otherwise be deterred from taking a position with us by the possibility of being dismissed following a change of control, particularly given the level of acquisition activity in our industry.

 

Except for the conversion of certain performance-based equity into time-based awards, the executive officers receive no benefits under these agreements unless their employment is terminated without cause, or by the executive for good reason, within 12 months following the effective date of the transaction. We believe this so-called “double trigger” structure strikes an appropriate balance between the potential compensation payable to executive officers and the corporate objectives described above. We also believe that, were Ciena to engage in discussions or negotiations relating to a corporate transaction that our Board of Directors deems in the interest of stockholders, these agreements would serve as an important tool in ensuring that our executive team remains focused on the consummation of the transaction, without significant distraction or concern relating to personal circumstances such as continued employment.

 

During fiscal 2010, the Committee conducted an extensive review of the severance agreements, including the severance benefits payable and the other material terms and conditions. With input and assistance from Compensia, the Committee considered the current agreements as compared to relevant peer companies and current best practices with respect to compensation governance. This review indicated that certain aspects of Ciena’s existing severance benefits, which had not been revised in several years, had fallen behind and were no longer competitive in the market. At the same time, the Committee determined that while the structure of Ciena’s existing severance arrangements was largely aligned with current best practices with respect to compensation governance, there

existed certain opportunities for improvement. As a result of this review, the Committee amended these agreements to:

 

 

Additional information about these severance benefits payable, as well as the estimated value of these benefits, are discussed in “Potential Payments upon Termination or Change in Control” below.

 

Required Reimbursement for Personal Use of Corporate Memberships or Tickets

 

The Committee maintains a policy requiring executive officers, including our Named Executive Officers, to reimburse certain costs associated with any personal use of items such as corporate tickets to sporting or cultural events and personal use of any corporate membership at a golf or similar club. Specifically, any executive officer who makes personal use of such tickets is required to reimburse Ciena for the face value of the tickets used. Any executive who makes personal use of a club in which Ciena has a corporate membership must reimburse Ciena for the cost of any meals, merchandise, greens fees, lessons and other charges associated with his or her use and, in addition, reimburse Ciena for a pro-rata share of the annual membership dues for each day on which he or she makes personal use of the facilities. To date, any personal usage has been extremely limited as corporate memberships are maintained predominately in order to use these facilities for business-related functions. The annual dues for each of the three executive officers named on club memberships are approximately $5,000.

 

Stock Ownership Guidelines

 

During fiscal 2010, to further align the interest of Ciena’s executive officers and directors with the interest of its stockholders, and to promote Ciena’s commitment to sound corporate governance, the Committee determined to implement stock ownership guidelines for executive officers, including our Named Executive Officers. After extensive evaluation of best practices, and in consultation with Compensia, the Board of Directors determined to establish requirements for executive officers to hold shares of Ciena stock equal to a value equal to the lesser of a multiple of annual base salary or a fixed number of shares. Specifically, the Board adopted and approved the following stock ownership requirements:

 

 

Each executive officer has until the later of December 2014 or five years from the date such individual first becomes subject to the guidelines to attain the requisite stock ownership. Shares that count toward satisfaction of the stock ownership guidelines include: (i) shares owned outright by such person or his or her immediate family members residing in the same household; (ii) shares held in trust for the benefit of such person or his or her family; and (ii) shares purchased on the open market. Unexercised stock options, whether or not vested, and unvested

restricted stock units, do not count toward the satisfaction of the guidelines. The guidelines may be waived, at the Committee’s discretion, if compliance would create hardship or prevent compliance with a court order.

 

Income Tax Considerations

 

Section 162(m) of the Internal Revenue Code limits to $1 million the deductions we can take in determining our federal income tax for compensation paid to our CEO, and, pursuant to recent IRS guidance, the three other most highly compensated executive officers of Ciena. There is an exception to this limitation for compensation that is “performance-based” as defined in the Code and applicable regulations. Our adoption of the 2008 Plan facilitates our ability to qualify compensation as performance-based in compliance with the Code. However, because of our large net operating losses, it is unlikely that we will be required to pay federal income taxes for years, and therefore meeting the requirements of Section 162(m) is not of as significant concern as it might otherwise be.

 

The Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” section of this proxy statement with management, and, based on this review and discussion, has recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this proxy statement and incorporated into Ciena’s annual report on Form 10-K for fiscal 2010 by reference to this proxy statement.

 

Submitted by the members of the Compensation Committee:

 

Judith M. O’Brien (Chairperson)

Harvey B. Cash

Bruce L. Claflin

 

The following tabular information and accompanying narratives and footnotes provide compensation-related information for our CEO and CFO during fiscal 2010 and our other three most highly-compensated executive officers as of the end of fiscal 2010. This information includes all compensation awarded to or earned by each executive officer for the fiscal years indicated below. These individuals are collectively referred to as the “Named Executive Officers” or “NEOs.”

 

The Summary Compensation Table below presents compensation earned by our Named Executive Officers for each of the last three fiscal years during which they served as executive officers in accordance with SEC rules.

 

You should be aware that amounts disclosed in the “Stock Awards” and “Option Awards” columns of the Summary Compensation Table below differ from amounts reported in our proxy statements for fiscal 2008 and fiscal 2009 because they have been restated to reflect the aggregate grant date fair value of such awards as described in the footnotes below. Previously, in accordance with SEC rules, these reported amounts reflected the share-based compensation expense incurred by Ciena for financial reporting purposes for awards issued to or held by each individual during the relevant fiscal year.

 

Summary Compensation Table

 

 

 

 

 

 

 

 

 

 

 

 

The following table sets forth information regarding equity and non-equity incentive awards granted to each of the NEOs during fiscal 2010. For fiscal 2010, these awards include cash incentive compensation awards, including sales incentive compensation, and restricted stock unit awards.

 

Non-Equity Incentive Plan Awards.  Non-equity incentive plan awards for fiscal 2010 represent the estimated range of potential payouts possible under our annual cash incentive bonus plan for performance during the second half of fiscal 2010, assuming “threshold”, “target,” and “maximum” payments possible upon satisfaction of applicable performance measures. As more fully described in “Compensation Discussion and Analysis,” the Compensation Committee revised the structure of the annual cash incentive bonus plan for fiscal 2010, in part, to reduce operating expense. Among other things, and in recognition of the magnitude of the potential acquisition of the MEN Business, the Compensation Committee determined to use two “half-year” plan periods (rather than its historical quarterly approach). Certain officers of Ciena, including the Named Executive Officers, were not eligible for a bonus award for the first half of fiscal 2010. In addition, bonus payment opportunities for fiscal 2010 were reduced by 50% upon achievement of the target. The effect of these decisions meaningfully reduced the non-equity incentive opportunity for those Named Executive Officers participating in the plan as compared to fiscal 2009.

With respect to that portion of the target bonus opportunity associated with the second half of fiscal 2010, bonus opportunities were payable at each of the threshold, target and maximum levels as set forth below, with payments interpolated for performance results falling between the designated levels:

 

 

For each Named Executive Officer other than Mr. Aquino, the “threshold,” “target” and “maximum” values in the table below are calculated by multiplying each person’s annual base salary by their target bonus opportunity (expressed as a percentage of annual base salary) by the applicable target bonus payable factor above, and giving effect to the ineligibility of the NEO’s under the plan for the first half-year of fiscal 2010. For purposes of the table below, Mr. Morin’s estimated possible bonus payouts are converted to U.S. dollars based on the average exchange rate for fiscal 2010.

 

For Mr. Aquino, the table includes the estimated range of annual sales incentive compensation payable during fiscal 2010, assuming “threshold”, “target” and “maximum” payments possible upon satisfaction of applicable performance measures in each of our four fiscal quarters. Mr. Aquino’s sales incentive compensation program also utilized two, half-year performance periods. For a description of the applicable threshold and target levels, and Mr. Aquino’s compensation programs for the first and second half of fiscal 2010, see “Compensation Discussion and Analysis — Annual Performance-Based Cash Incentive Bonuses and Sales Commissions” above. The table below reflects threshold payments based on the achievement of both the sales orders and gross margin dollars targets.

 

The actual amounts earned by the NEOs during fiscal 2010 are set forth in the “Non-Equity Incentive Compensation” column of the “Summary Compensation Table” above. Except for sales incentive compensation paid to Mr. Aquino, the NEO’s did not receive any cash incentive payments during fiscal 2010. Ciena’s cash incentive programs in the table below were specific to fiscal 2010 and there are no additional or future payouts to the NEOs pursuant to the non-equity incentive plan awards granted for fiscal 2010.

 

Equity Awards.  During fiscal 2010, all equity awards granted to the Named Executive Officers (other than Mr. Morin) were granted under our 2008 Plan. As described above, restricted stock units issued to Mr. Morin were granted under the 2010 Plan, which was adopted in connection with the completion of Ciena’s acquisition of the MEN Business.

 

For each equity award made to our NEOs during fiscal 2010 (other than Mr. Morin), the date the award was approved by our Compensation Committee was the same as the grant date. The RSU award granted to Mr. Morin on March 19, 2010 was approved by the Board on January 13, 2010 and made prospectively as of April 1, 2010, with the grant conditioned upon the successful closing of Ciena’s acquisition of the MEN Business.

 

During fiscal 2010, we made equity awards to our NEOs solely in the form of restricted stock units (RSUs). Each RSU represents a contractual right to receive one share of our common stock. Except as noted below, the RSU awards granted to the NEOs in fiscal 2010, vest over a four-year term, with one-sixteenth of the grant amount vesting four times each calendar year. Consistent with Ciena’s new hire grant practices, the RSU award granted to Mr. Morin vests over a four-year term, with the first one-quarter of the grant amount vesting on the first anniversary of the grant date and the remainder vesting in equal one-twelfth amounts four times each calendar year of the subsequent three-year period. As described in “Compensation Discussion and Analysis” above, a supplemental equity award issued to Mr. Moylan in July 2010 has a one-year vesting term.

 

Calculation of Grant Date Fair Value.  The amounts reported in the “Grant Date Fair Value” column reflect, for each equity award granted in fiscal 2010. The Grant Date Fair Value will likely vary from the amount actually realized by any NEO based on a number of factors, including the number of shares that ultimately vest, the timing of any sale of shares, and the price of our common stock. For RSUs, we calculate grant date fair value by multiplying the number of shares granted by the closing price per share of our common stock on the grant date.

Grants of Plan-Based Awards