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EX-32.2 - EX-32.2 - OPLINK COMMUNICATIONS INCex32-2.htm
EX-32.1 - EX-32.1 - OPLINK COMMUNICATIONS INCex32-1.htm
EX-31.2 - EX-31.2 - OPLINK COMMUNICATIONS INCex31-2.htm
EX-31.1 - EX-31.1 - OPLINK COMMUNICATIONS INCex31-1.htm
EX-10.12 - EX-10.12 - OPLINK COMMUNICATIONS INCex10-12.htm
EX-10.13 - EX-10.13 - OPLINK COMMUNICATIONS INCex10-13.htm



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended January 2, 2011
   
 
or
   
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from __________ to __________


Commission file number 000-31581

OPLINK COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
No. 77-0411346
(I.R.S. Employer
Identification No.)

46335 Landing Parkway, Fremont, CA 94538
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (510) 933-7200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  £
 
Accelerated filer R
 
Non-accelerated filer £
 
Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £

The number of shares of the Registrant’s common stock outstanding as of January 31, 2011 was 19,922,641 .




 

OPLINK COMMUNICATIONS, INC.
 
     
   
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  EX-10.12  
  EX-10.13  
 
NOTE:  The registrant’s fiscal year ends on the Sunday closest to June 30 and each of its fiscal quarters ends on the Sunday closest to the calendar quarter end. For ease of presentation, throughout this report the registrant refers to its fiscal years as ending on June 30 and to its fiscal quarters as ending on the calendar quarter end. For example, the registrant’s most recently completed fiscal year ended on Sunday, June 27, 2010 and its most recently completed fiscal quarter ended on Sunday, January 2, 2011, but throughout this report those periods will be referred to as having ended on June 30, 2010 and December 31, 2010, respectively.


PART I.  FINANCIAL INFORMATION


OPLINK COMMUNICATIONS, INC.
(Unaudited)

   
December 31,
   
June 30,
 
   
2010
   
2010 (1)
 
   
(In thousands, except share
 
   
and per share data)
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 68,713     $ 40,711  
Short-term investments
    99,295       109,632  
Accounts receivable, net
    39,833       29,728  
Inventories
    26,007       20,902  
Prepaid expenses and other current assets
    5,983       7,659  
Total current assets
    239,831       208,632  
Long-term investments
    -       10,000  
Property, plant and equipment, net
    35,342       33,363  
Goodwill and intangible assets, net
    4,900       6,952  
Other assets
    675       651  
Total assets
  $ 280,748     $ 259,598  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities:
               
Accounts payable
  $ 13,774     $ 14,369  
Accrued liabilities
    11,818       11,536  
Deferred revenues
    1,213       -  
Income taxes payable
    976       121  
Total current liabilities
    27,781       26,026  
Income taxes payable, non-current
    3,999       3,415  
Other non-current liabilities
    1,625       1,508  
Total liabilities
    33,405       30,949  
                 
Commitments and contingencies (Note 16)
               
                 
Stockholders' equity:
               
Common stock, $0.001 par value, 34,000,000 shares authorized; 19,620,129 and 19,582,471 shares
               
issued and outstanding as of December 31, 2010 and June 30, 2010, respectively
    20       20  
Additional paid-in capital
    445,033       443,825  
Treasury stock, at cost (82,514 shares as of June 30, 2010)
    -       (1,196 )
Accumulated other comprehensive income
    10,465       8,243  
Accumulated deficit
    (208,175 )     (222,243 )
Total stockholders’ equity
    247,343       228,649  
Total liabilities and stockholders' equity
  $ 280,748     $ 259,598  
 
(1)  
The condensed consolidated balance sheet at June 30, 2010 has been derived from the audited consolidated financial statements at that date.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
OPLINK COMMUNICATIONS, INC.
(Unaudited)
 
   
Three Months Ended
   
Six Months Ended
 
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
   
(In thousands, except per share data)
 
                         
Revenues
  $ 52,025     $ 32,743     $ 101,665     $ 66,308  
Cost of revenues:
                               
Cost of revenues
    32,814       21,643       66,216       45,277  
Stock-based compensation expense
    102       88       219       187  
Total cost of revenues
    32,916       21,731       66,435       45,464  
                                 
Gross profit
    19,109       11,012       35,230       20,844  
                                 
Operating expenses:
                               
Research and development:
                               
Research and development
    3,992       2,268       7,391       4,493  
Stock-based compensation expense
    315       245       649       514  
Total research and development
    4,307       2,513       8,040       5,007  
                                 
Sales and marketing:
                               
Sales and marketing
    2,482       1,923       4,940       4,009  
Stock-based compensation expense
    442       361       871       689  
Total sales and marketing
    2,924       2,284       5,811       4,698  
                                 
General and administrative:
                               
General and administrative
    1,895       1,810       3,763       3,531  
Stock-based compensation expense
    370       914       1,148       1,864  
Total general and administrative
    2,265       2,724       4,911       5,395  
                                 
Amortization of intangible assets
    451       403       902       807  
Total operating expenses
    9,947       7,924       19,664       15,907  
                                 
Income from operations
    9,162       3,088       15,566       4,937  
Interest and other income, net
    54       193       111       467  
Gain on sale or disposal of assets
    83       214       83       338  
Income before provision for income taxes
    9,299       3,495       15,760       5,742  
Provision for income taxes
    (811 )     (358 )     (1,692 )     (796 )
Net income
  $ 8,488     $ 3,137     $ 14,068     $ 4,946  
                                 
Net income per share:
                               
Basic
  $ 0.43     $ 0.15     $ 0.72     $ 0.24  
   Diluted
  $ 0.41     $ 0.14     $ 0.69     $ 0.23  
                                 
Shares used in per share calculation:
                               
Basic
    19,556       20,797       19,441       20,686  
   Diluted
    20,602       21,694       20,463       21,452  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
OPLINK COMMUNICATIONS, INC.
 (Unaudited)

   
Six Months Ended
 
   
December 31,
 
   
2010
   
2009
 
   
(In thousands)
 
Cash flows from operating activities:
           
Net income
  $ 14,068     $ 4,946  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization of property, plant and equipment
    2,709       3,341  
Amortization of intangible assets
    2,052       1,891  
Stock-based compensation expense
    2,887       3,254  
Amortization of premium on investments
    236       131  
Gain on sale or disposal of assets
    (83 )     (338 )
Other
    239       (18 )
Change in assets and liabilities:
               
Accounts receivable, net
    (9,767 )     3,654  
Inventories
    (4,346 )     (286 )
Prepaid expenses and other current assets
    1,788       (1,333 )
Other assets
    4       14  
Accounts payable
    (58 )     2,037  
Accrued liabilities and other liabilities
    3,240       317  
Net cash provided by operating activities
    12,969       17,610  
                 
Cash flows from investing activities:
               
Purchases of available-for-sale investments
    (70,370 )     (106,834 )
Maturities of available-for-sale investments
    80,678       99,762  
Purchases of held-to-maturity investments
    -       (10,000 )
Maturities of held-to-maturity investments
    10,000       5,000  
Proceeds from sales of property, plant and equipment
    183       278  
Purchases of property, plant and equipment
    (3,985 )     (1,129 )
Net cash provided by (used in) investing activities
    16,506       (12,923 )
                 
Cash flows from financing activities:
               
Proceeds from issuance of common stock
    4,855       3,406  
Repurchases of common stock
    (6,534 )     -  
Net cash (used in) provided by financing activities
    (1,679 )     3,406  
                 
Effect of exchange rate changes on cash and cash equivalents
    206       20  
Net increase in cash and cash equivalents
    28,002       8,113  
Cash and cash equivalents, beginning of period
    40,711       49,702  
Cash and cash equivalents, end of period
  $ 68,713     $ 57,815  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
OPLINK COMMUNICATIONS, INC.
 (Unaudited)

1. Description of Business. Oplink Communications, Inc. (“Oplink” or the “Company”) was incorporated in California in September 1995 and was later reincorporated in Delaware in September 2000. The Company is headquartered in Fremont, California and has manufacturing, design and research and development facilities in Zhuhai, Shanghai and Wuhan, China, in Taiwan and in Woodland Hills, California.
 
Oplink designs, manufactures and sells optical networking components and subsystems. Its products expand optical bandwidth, amplify optical signals, monitor and protect wavelength performance, redirect light signals, ensure signal connectivity and provide signal transmission and reception within an optical network. Its products enable greater and higher quality bandwidth over longer distances, which reduces network congestion and transmission cost per bit. Its products also enable optical system manufacturers to provide flexible and scalable bandwidth to support the increase of data traffic on the Internet and other public and private networks.

Oplink offers its customers design, integration and optical manufacturing solutions (“OMS”) for the production and packaging of highly-integrated optical subsystems and turnkey solutions, based upon a customer’s specific product design and specifications. Oplink also offers solutions with lower levels of component integration for customers that place more value on flexibility than would be provided with turnkey solutions.

Oplink’s product portfolio also includes optical transmission products that broaden the addressable markets as well as the range of solutions that Oplink can now offer its customers. Oplink’s transmission products consist of a comprehensive line of high-performance fiber optic modules, including fiber optic transmitters, receivers, transceivers, and transponders, primarily for use in metropolitan area network (“MAN”), local area network (“LAN”), and fiber-to-the-home (“FTTH”) applications. Fiber optic modules are pre-assembled components that are used to build network equipment. Oplink’s transmission products convert electronic signals into optical signals and back into electronic signals, thereby facilitating the transmission of information over fiber optic communication networks.

Oplink also offers communications system equipment makers a broadened suite of precision-made, cost-effective, and reliable optical connectivity products to establish multiple-use, quick pluggable fiber links among network devices for bandwidth deployment, as well as in a test and measurement environment for a wide range of system design and service applications.

2. Basis of Presentation. The unaudited condensed consolidated financial statements included herein have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company at December 31, 2010, the results of its operations for the three and six months ended December 31, 2010 and 2009 and its cash flows for the six months ended December 31, 2010 and 2009. The results of operations for the periods presented are not necessarily indicative of those that may be expected for the full year. The condensed consolidated financial statements presented herein have been prepared by management, without audit by independent auditors who do not express an opinion thereon, and should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2010 included in the Company’s Annual Report on Form 10-K.

 
The Company operates and reports using a fiscal year, which ends on the Sunday closest to June 30. Interim fiscal quarters end on the Sundays closest to each calendar quarter end. For presentation purposes, the Company presents each fiscal year as if it ended on June 30. The Company presents each of the fiscal quarters as if it ended on the last day of each calendar quarter. January 2, 2011 represents the Sunday closest to the period ended December 31, 2010. The quarter ended December 31, 2009 consists of 14 weeks. The quarter ended December 31, 2010 is a 13-week fiscal period. Fiscal 2011 is comprised of 53 weeks, one week more than a typical fiscal year.
 
The consolidated financial statements include the accounts of the Company and its wholly and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. With the exception of the Company’s Optical Communication Products, Inc. (“OCP”) subsidiaries, the Company presents the financial information of its consolidated foreign operating subsidiaries in its consolidated financial statements utilizing accounts as of a date one month earlier than the accounts of its parent company, U.S. subsidiary and its non-operating non-U.S. subsidiaries to ensure timely reporting of consolidated results.

The Company conducts its business within one business segment and has no organizational structure dictated by product, service lines, geography or customer type.

There have been no significant changes to the Company’s significant accounting policies that were disclosed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2010.

3. Risks and Uncertainties. There are a number of risks and uncertainties facing the Company that could have a material adverse effect on the Company’s financial condition, operating results or cash flows. These risks and uncertainties include, but are not limited to, the Company’s reliance on a small number of customers for a substantial portion of its revenues, possible reductions in customer orders, intense competition in the Company’s target markets and potential pricing pressure that may arise from changing supply or demand conditions and a downturn in the telecommunications industry or the overall global economy. In addition, the Company obtains most of its critical materials from a single or limited number of suppliers and generally does not have long-term supply contracts with them. The Company could experience discontinuation of key components, price increases and late deliveries from its suppliers. Also, substantially all of the Company’s manufacturing operations are located in China and are subject to laws and regulations of China. These and other risks and uncertainties facing the Company are described from time to time in the Company’s periodic reports filed with SEC.
 
4. Net Income Per Share. Basic net income per share is computed by dividing the net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period, if dilutive. Potentially dilutive common equivalent shares are composed of the incremental common shares issuable upon the exercise of stock options, the vesting of restricted stock units (“RSUs”) and purchases under the employee stock purchase plan. The following is a reconciliation of the numerators and denominators of the basic and diluted net income per share computations and the antidilutive common stock equivalents excluded from the computations for the periods presented (in thousands, except per share data):

   
Three Months Ended
   
Six Months Ended
 
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Numerator:
                       
Net income
  $ 8,488     $ 3,137     $ 14,068     $ 4,946  
                                 
Denominator:
                               
Weighted average shares outstanding - basic
    19,556       20,797       19,441       20,686  
Effect of dilutive potential common shares
    1,046       897       1,022       766  
Weighted average shares outstanding - diluted
    20,602       21,694       20,463       21,452  
                                 
Net income per share - basic
  $ 0.43     $ 0.15     $ 0.72     $ 0.24  
Net income per share - diluted
  $ 0.41     $ 0.14     $ 0.69     $ 0.23  
                                 
Antidilutive stock options and restricted stock units
                               
not included in income per share calculation
    1,127       1,637       1,320       2,042  
 
 
5. Comprehensive Income. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The components of comprehensive income consist of foreign currency translation adjustments, foreign currency transaction gains and losses from intercompany transactions and balances for which settlement is not planned or anticipated in the foreseeable future, and changes in unrealized gains and losses on investments. For presentation purposes, cumulative translation adjustment includes foreign currency transaction gains and losses from intercompany transactions and balances for which settlement is not planned or anticipated in the foreseeable future. The balance of accumulated other comprehensive income is as follows (in thousands):
 
   
December 31,
   
June 30,
 
   
2010
   
2010
 
Accumulated other comprehensive income:
           
Cumulative translation adjustment
  $ 10,444     $ 8,241  
Unrealized gain on investments, net
    21       2  
    $ 10,465     $ 8,243  
 
The reconciliation of net income to comprehensive income for the three and six months ended December 31, 2010 and 2009 is as follows (in thousands):
 
   
Three Months Ended
   
Six Months Ended
 
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Net income
  $ 8,488     $ 3,137     $ 14,068     $ 4,946  
Change in cumulative translation adjustment
    1,707       (27 )     2,203       (65 )
Change in unrealized gain on investments, net
    (3 )     (63 )     19       83  
Total comprehensive income
  $ 10,192     $ 3,047     $ 16,290     $ 4,964  
 
6. Cash and Cash Equivalents. The Company’s cash equivalents at December 31, 2010 consist primarily of money market funds, unrestricted deposits and commercial paper. Cash includes amounts restricted for letters of credit for purchases and deposits for equipment maintenance of $285,000 and $322,000 at December 31, 2010 and June 30, 2010, respectively.

7. Short-Term and Long-Term Investments. The Company generally invests its excess cash in certificates of deposit, debt instruments of the U.S. Treasury, government agencies and corporations with strong credit ratings. Such investments are made in accordance with the Company’s investment policy, which establishes guidelines relative to diversification and maturities designed to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. Available-for-sale investments are reported at their fair value. Unrealized gains and losses on these securities are reported as a separate component of accumulated other comprehensive income until realized. Held-to-maturity investments are reported at amortized costs.

 
Short-term and long-term investments at December 31, 2010 and June 30, 2010 consist of the following (in thousands):
 
   
December 31, 2010
 
               
Gross
   
Gross
       
   
Carrying
   
Amortized
   
Unrealized
   
Unrealized
   
Estimated
 
   
Value
   
Cost
   
Gains
   
Losses
   
Fair Value
 
Short-term investments:
                             
Certificates of deposit
  $ 8,058     $ 8,058     $ -     $ -     $ 8,058  
United States Treasury
    52,948       52,926       22       -       52,948  
Corporate securities
    38,289       38,290       3       (4 )     38,289  
Total short-term investments
  $ 99,295     $ 99,274     $ 25     $ (4 )   $ 99,295  


   
June 30, 2010
 
               
Gross
   
Gross
       
   
Carrying
   
Amortized
   
Unrealized
   
Unrealized
   
Estimated
 
   
Value
   
Cost
   
Gains
   
Losses
   
Fair Value
 
Short-term investments:
                             
Certificates of deposit
  $ 6,823     $ 6,823     $ -     $ -     $ 6,823  
United States government agencies
    14,994       14,993       4       -       14,997  
United States Treasury
    41,946       41,912       34       -       41,946  
Corporate securities
    45,869       45,902       -       (33 )     45,869  
 Total short-term investments
    109,632       109,630       38       (33 )     109,635  
                                         
Long-term investments:
                                       
United States government agencies
    10,000       10,000       2       -       10,002  
Total long-term investments
    10,000       10,000       2       -       10,002  
                                         
Total investments
  $ 119,632     $ 119,630     $ 40     $ (33 )   $ 119,637  

The amortized cost and fair value of available-for-sale and held-to-maturity investments at December 31, 2010 and June 30, 2010 are presented in the following tables (in thousands):
 
   
December 31, 2010
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Estimated
 
   
Cost
   
Gains
   
Losses
   
Fair Value
 
Available-for-sale investments:
                       
Certificates of deposit
  $ 8,058     $ -     $ -     $ 8,058  
 United States Treasury
    52,926       22       -       52,948  
 Corporate securities
    38,290       3       (4 )     38,289  
Total available-for-sale investments
  $ 99,274     $ 25     $ (4 )   $ 99,295  

 
   
June 30, 2010
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Estimated
 
   
Cost
   
Gains
   
Losses
   
Fair Value
 
Available-for-sale investments:
                       
Certificates of deposit
  $ 6,823     $ -     $ -     $ 6,823  
United States government agencies
    9,993       1       -       9,994  
United States Treasury
    41,912       34       -       41,946  
 Corporate securities
    42,801       -       (33 )     42,768  
Total available-for-sale investments
    101,529       35       (33 )     101,531  
                                 
Held-to-maturity investments:
                               
Corporate securities
    3,101       -       -       3,101  
United States government agencies
    15,000       5       -       15,005  
Total held-to-maturity investments
    18,101       5       -       18,106  
                                 
Total investments
  $ 119,630     $ 40     $ (33 )   $ 119,637  
 
There were no gross realized gains (losses) on sales of available-for-sale or held-to-maturity securities for the three and six months ended December 31, 2010 or 2009. The unrealized losses on available-for-sale securities are primarily due to decreases in the fair value of debt securities as a result of changes in market interest rates. The Company has the intent and the ability to hold these securities for a reasonable period of time sufficient for a forecasted recovery of fair value up to (or beyond) the initial cost of the investment. The Company expects to realize the full value of all of these investments upon maturity. In addition, the Company does not believe that it will be required to sell these securities to meet its cash or working capital requirements or contractual or regulatory obligations. Therefore, the Company has determined that the gross unrealized losses on its available-for-sale securities at December 31, 2010 are temporary in nature. The following table provides a breakdown of the Company’s available-for-sale securities with unrealized losses as of December 31, 2010 (in thousands):

   
December 31, 2010
 
   
In Loss Position
 
   
< 12 months
 
         
Gross
 
   
Fair
   
Unrealized
 
   
Value
   
Losses
 
Available-for-sale investments:
           
Corporate securities
  $ 9,739     $ (4 )
Total available-for-sale investments
    9,739       (4 )
                 
Total investments in loss position
  $ 9,739     $ (4 )

 
The amortized cost and estimated fair value of debt securities at December 31, 2010 and June 30, 2010 by contractual maturities are shown below (in thousands):
 
   
December 31, 2010
   
June 30, 2010
 
   
Amortized
   
Estimated
   
Amortized
   
Estimated
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Available-for-sale investments:
                       
Due in one year or less
  $ 99,274     $ 99,295     $ 101,529     $ 101,531  
Total available-for-sale investments
    99,274       99,295       101,529       101,531  
                                 
Held-to-maturity investments:
                               
Due in one year or less
    -       -       8,101       8,101  
Due in one year to five years
    -       -       10,000       10,005  
Total held-to-maturity investments
    -       -       18,101       18,106  
                                 
Total investments
  $ 99,274     $ 99,295     $ 119,630     $ 119,637  
 
8. Fair Value Accounting. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. The Company applies the fair value hierarchy which has the following three levels of inputs to measure fair value:

·  
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

·  
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

·  
Level 3 inputs are unobservable inputs for the asset or liability.

The Company’s Level 1 financial assets generally include money market funds. The Company’s Level 2 financial assets generally include United States Treasury securities, United States government agency debt securities, certificates of deposit, commercial paper, and corporate bonds.

The Company bases the fair value of its financial assets on pricing from third party sources of market information obtained through the Company’s investment brokers. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information it receives from brokers. The Company’s investment brokers obtain pricing data from a variety of industry standard data providers (e.g., Bloomberg), and rely on comparable pricing of other securities because the Level 2 securities that the Company holds are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities. There were no changes in valuation techniques or related inputs during the three and six months ended December 31, 2010.
 
Items Measured at Fair Value on a Recurring Basis

The Company did not have any financial liabilities that are measured at fair value at December 31 and June 30, 2010. The following table presents the Company’s financial assets, excluding accrued interest components, which are measured at fair value on a recurring basis at December 31, 2010 and June 30, 2010, consistent with the fair value hierarchy (in thousands):

 
   
December 31, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial assets
                       
Cash equivalent:
                       
Money market funds
  $ 10,771     $ -     $ -     $ 10,771  
Corporate securities
    -       29,447       -       29,447  
Short-term investments:
                               
Certificates of deposit
    -       8,058       -       8,058  
United States Treasury
    -       52,948       -       52,948  
Corporate securities
    -       38,289       -       38,289  
Total financial assets
  $ 10,771     $ 128,742     $ -     $ 139,513  
                                 
Financial liabilities
  $ -     $ -     $ -     $ -  

   
June 30, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial assets
                       
Cash equivalents:
                       
Money market funds
  $ 10,182     $ -     $ -     $ 10,182  
Corporate securities
    -       8,000       -       8,000  
Short-term investments:
                               
Certificates of deposit
    -       6,823       -       6,823  
United States government agencies
    -       9,994       -       9,994  
United States Treasury
    -       41,946       -       41,946  
Corporate securities
    -       42,768       -       42,768  
    Total financial assets
  $ 10,182     $ 109,531     $ -     $ 119,713  
                                 
Financial liabilities
  $ -     $ -     $ -     $ -  
 
As of December 31 and June 30, 2010, the Company did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3). There were no transfers of assets or liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the three and six months ended December 31, 2010.

Items Measured at Fair Value on a Nonrecurring Basis

 Certain assets that are subject to nonrecurring fair value measurement are not included in the table above. These assets include cost method investments in private companies. The Company did not record any other-than-temporary impairment charges for these investments during the three and six months ended December 31, 2010 or 2009.

9. Inventories. Inventories are stated at the lower of cost or market. Inventory cost is determined using standard costs, which approximates actual cost on a first-in, first-out basis. Inventories consist of (in thousands):
 
   
December 31,
   
June 30,
 
   
2010
   
2010
 
Inventories:
           
Raw materials
  $ 14,533     $ 13,744  
Work-in-process
    8,109       7,158  
Finished goods
    3,365       -  
Total
  $ 26,007     $ 20,902  
 
 
10. Goodwill and Intangible Assets, Net. The following table presents details of the intangible assets acquired as a result of acquisitions as of December 31, 2010 and June 30, 2010 (in thousands):
 
   
Estimated
                   
   
Useful Life
   
Gross
   
Accumulated
       
December 31, 2010
 
(in Years)
   
Amount
   
Amortization
   
Net
 
Technology
    4-6     $ 9,592     $ 7,257     $ 2,335  
Customer relationships
    3-7       5,671       4,568       1,103  
Trade name
    3-6       1,775       923       852  
Backlog
    1       188       150       38  
Total
          $ 17,226     $ 12,898     $ 4,328  

   
Estimated
                   
   
Useful Life
   
Gross
   
Accumulated
       
June 30, 2010
 
(in Years)
   
Amount
   
Amortization
   
Net
 
Technology
    4-6     $ 9,592     $ 6,099     $ 3,493  
Customer relationships
    3-7       5,671       3,882       1,789  
Trade name
    3-6       1,775       760       1,015  
Backlog
    1       188       105       83  
Total
          $ 17,226     $ 10,846     $ 6,380  

The following table presents details of the amortization expense of intangible assets as reported in the condensed consolidated statements of operations (in thousands):

   
Three Months Ended
   
Six Months Ended
 
   
December 31,
   
December 31,
 
Reported as:
 
2010
   
2009
   
2010
   
2009
 
Cost of revenues
  $ 575     $ 542     $ 1,150     $ 1,084  
Operating expenses
    451       403       902       807  
Total
  $ 1,026     $ 945     $ 2,052     $ 1,891  
 
The future amortization of intangible assets is as follows (in thousands):

Fiscal years ending June 30,
 
Amount
 
  2011
  $ 1,951  
2012
    1,309  
2013
    484  
2014
    247  
2015
    177  
After 2015
    160  
    $ 4,328  
 
The Company had goodwill of $572,000 on its condensed consolidated balance sheets at December 31, 2010 and June 30, 2010 as a result of the acquisitions of Emit Technology Co., Ltd and Oridus, Inc. in fiscal 2010. During the three and six months ended December 31, 2010, there were no indicators of impairment for the goodwill.

 
11. Accrued Liabilities.  Accrued liabilities consist of (in thousands):
 
   
December 31,
   
June 30,
 
   
2010
   
2010
 
Accrued liabilities:
           
Payroll and related expenses
  $ 5,565     $ 3,792  
Accrued professional fees
    820       1,168  
Accrued sales commission
    555       486  
Accrued sales return
    525       541  
Accrued warranty
    500       421  
Employee withholdings and related expenses
    402       531  
Advance deposits from customers
    349       480  
Other
    3,102       4,117  
    $ 11,818     $ 11,536  
 
12. Product Warranties. The Company provides reserves for the estimated cost of product warranties at the time revenue is recognized based on its historical experience of known product failure rates and expected material and labor costs to provide warranty services. The Company generally provides a one-year warranty on its products. Additionally, from time to time, specific warranty accruals may be made if unforeseen technical problems arise. Alternatively, if estimates are determined to be greater than the actual amounts necessary, the Company may reverse a portion of such provisions in future periods.

Changes in the warranty liability, which is included as a component of “Accrued liabilities” on the condensed consolidated balance sheets as disclosed in Note 11, is as follows (in thousands):
 
   
Three Months Ended
   
Six Months Ended
 
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Balance at the beginning of the period
  $ 500     $ 371     $ 421     $ 371  
Accruals for warranties issued during the period
    110       29       243       88  
Adjustments related to pre-existing warranties
                               
including expirations and changes in estimates
    9       64       68       78  
Cost of warranty repair
    (119 )     (93 )     (232 )     (166 )
Balance at the end of the period
  $ 500     $ 371     $ 500     $ 371  
 
13. Stock-Based Compensation. Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the employee requisite service period. The Company’s stock-based compensation is generally accounted for as an equity instrument. The effect of recording stock-based compensation expense for the three and six months ended December 31, 2010 and 2009 was as follows (in thousands, except per share data):
 
 
   
Three Months Ended
   
Six Months Ended
 
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Stock-based compensation expense by type of award:
                       
Employee stock options
  $ 521     $ 1,114     $ 1,134     $ 2,129  
Restricted stock awards
    611       419       1,523       817  
Employee stock purchase plan
    97       75       230       308  
Total stock-based compensation
    1,229       1,608       2,887       3,254  
Tax effect on stock-based compensation
    -       -       -       -  
Net effect on net income
  $ 1,229     $ 1,608     $ 2,887     $ 3,254  
                                 
Effect on net income per share:
                               
 Basic
  $ (0.06 )   $ (0.08 )   $ (0.15 )   $ (0.16 )
Diluted
  $ (0.06 )   $ (0.07 )   $ (0.14 )   $ (0.15 )
 
Forfeitures are estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

During the three months ended December 31, 2010 and 2009, the Company granted 30,000 and 61,500 stock options, respectively, with an estimated total grant-date fair value of $224,000 and $420,000, respectively. In addition, the Company granted 3,000 and 3,080 restricted stock units (“RSUs”) with a total grant-date fair value of $53,000 and $48,000 for the three months ended December 31, 2010 and 2009, respectively. The Company estimated that the stock compensation expense for the equity awards granted in the three months ended December 31, 2010 and 2009 not expected to vest was $34,000 and $59,000, respectively.
 
During the six months ended December 31, 2010 and 2009, the Company granted 74,000 and 87,500 stock options, respectively, with an estimated total grant-date fair value of $571,000 and $589,000, respectively. In addition, the Company granted 224,800 and 483,000 restricted stock awards (“RSAs”) and RSUs, with a total grant-date fair value of $4.2 million and $6.7 million during the six months ended December 31, 2010 and 2009, respectively. The Company estimated that the stock compensation expense for the equity awards granted in the six months ended December 31, 2010 and 2009 not expected to vest was $654,000 and $1.2 million, respectively.

As of December 31, 2010, the unrecognized stock compensation expense related to stock options to purchase Oplink common stock was $3.2 million which will be recognized over an estimated weighted average amortization period of 2.0 years. The unrecognized stock compensation expense related to RSUs was $6.6 million which will be recognized over an estimated weighted average amortization period of 2.9 years. Approximately $8,000 of stock compensation was capitalized as inventory at December 31, 2010 and June 30, 2010.

Valuation Assumptions

The Company estimates the fair value of stock options and purchase rights under the Company’s employee stock purchase plan using a Black-Scholes valuation model. The fair value of each option grant is estimated on the date of grant using the Black-Scholes valuation model and the straight-line attribution approach with the following weighted-average assumptions:
 
   
Three Months Ended
   
Six Months Ended
 
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Risk-free interest rate
    0.91 %     2.18 %     1.19 %     2.27 %
Expected term
 
4.6 years
   
4.6 years
   
4.6 years
   
4.6 years
 
Expected dividends
    0 %     0 %     0 %     0 %
Volatility
    51 %     50 %     50 %     51 %
 
 
 
The estimated fair value of purchase rights under the Company’s employee stock purchase plan is determined using the Black-Scholes valuation model with the following weighted-average assumptions:
 
   
Three Months Ended
   
Six Months Ended
 
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Risk-free interest rate
    0.25 %     0.53 %     0.25 %     0.53 %
Expected term
 
1.3 years
   
1.3 years
   
1.3 years
   
1.3 years
 
Expected dividends
    0 %     0 %     0 %     0 %
Volatility
    47 %     50 %     47 %     50 %
 
The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rates are taken from the Daily Federal Yield Curve Rates as of the grant dates as published by the Federal Reserve and represent the yields on actively traded Treasury securities for terms equal to the expected term of the options or purchase rights. The expected term calculation for stock options is based on the observed historical option exercise behavior and post-vesting forfeitures of options by the Company’s employees. The expected term assumption for purchase rights is based on the average exercise date for the four purchase periods in each 24-month offering period.

The weighted-average grant date fair value for options to purchase Oplink common stock granted under the Company’s stock option plans was $7.46 and $6.83 per share for the three months ended December 31, 2010 and 2009, respectively, and $7.71 and $6.73 per share for the six months ended December 31, 2010 and 2009.

Equity Incentive Program

Oplink adopted the 2000 Equity Incentive Plan (the “2000 Plan”) in July 2000. The 2000 Plan was terminated in November 2009 immediately upon the effectiveness of the Company’s new 2009 Equity Incentive Plan (the “2009 Plan”). No further awards will be granted under the 2000 Plan. However, the 2000 Plan will continue to govern awards previously granted under that plan.

The 2009 Plan was adopted by the Company in September 2009 and became effective upon approval by the Company’s stockholders at the annual meeting held in November 2009. The 2009 Plan provides for the grant of equity awards to employees, directors and consultants. These equity awards include stock options, RSAs, RSUs, stock appreciation rights, performance units, and performance shares. The maximum aggregate number of shares of common stock that may be issued under the 2009 Plan is 2,500,000 shares, plus any shares subject to equity awards granted under 2000 Plan that expire or otherwise terminate without having been exercised in full, or that are forfeited to or repurchased by the Company. Shares subject to “full value” awards (RSUs, RSAs, performance shares and performance units) will count against the 2009 Plan’s share reserve as 1.3 shares for every one share subject to such awards. Accordingly, if such awards are forfeited or repurchased by the Company, 1.3 times the number of shares forfeited or repurchased will return to the 2009 Plan. The maximum term of stock options and stock appreciation rights under the 2009 Plan is 7 years.
 
 
The following table summarizes activity under the equity incentive plans for the indicated periods:

         
Options
   
Awards
 
               
Weighted
   
Restricted
   
Weighted
 
   
Shares
   
Number of
   
Average
   
Stock
   
Average
 
   
Available
   
Options
   
Exercise
   
Awards/Units
   
Grant Date
 
   
for Grant
   
Outstanding
   
Price
   
Outstanding
   
Fair Value
 
Balance, June 30, 2010
    2,413,434       3,458,602     $ 14.02       478,733     $ 13.96  
Granted
    (366,240 )     74,000       18.33       224,800       18.81  
Exercised or vested
    -       (304,612 )     13.86       (20,000 )     18.43  
Canceled (1)
    28,503       (87,660 )     43.25       (4,500 )     18.87  
Balance, December 31, 2010
    2,075,697       3,140,330     $ 13.33       679,033     $ 15.40  
 
(1)  
The number of shares subject to option and stock awards canceled during the six months ended December 31, 2010 include 65,007 shares subject to option awards granted under the Company’s 1998 Stock Option Plan and the OCP stock option plan, which shares were not eligible to be re-granted under the 2009 Plan.

The options outstanding and exercisable at December 31, 2010 were in the following exercise price ranges:
 
           
Options Outstanding
   
Options Vested and Exercisable
 
           
at December 31, 2010
   
at December 31, 2010
 
Range of Exercise Price
   
Number Outstanding
   
Weighted Average Remaining Contractual Life (in Years)
   
Weighted Average Exercise Price
   
Average Intrinsic Value (in thousands)
   
Number Outstanding
   
Weighted Average Remaining Contractual Life (in Years)
   
Weighted Average Exercise Price
   
Average Intrinsic Value (in thousands)
 
$ 1.00 - $5.00       406,904       1.8     $ 4.62     $ 5,636       406,904       1.8     $ 4.62     $ 5,636  
$ 5.01 - $8.00       378,234       2.4       5.70       4,828       353,993       2.1       5.57       4,565  
$ 8.01 - $10.00       23,981       0.9       8.76       233       23,981       0.9       8.76       233  
$ 10.01 - $11.00       375,186       7.0       10.10       3,142       229,670       6.8       10.10       1,922  
$ 11.01 - $13.00       187,061       6.5       12.15       1,183       122,763       6.0       12.27       761  
$ 13.01 - $15.00       521,034       6.5       13.78       2,443       325,134       6.2       13.59       1,587  
$ 15.01 - $18.00       278,184       6.3       16.85       452       174,753       5.6       17.20       221  
$ 18.01 - $20.00       214,387       3.8       18.90       7       172,387       3.1       18.91       7  
$ 20.01 - $27.00       746,500       5.4       20.24       -       746,500       5.4       20.24       -  
$ 28.00 - $158.00       8,859       0.7       57.76       -       8,859       0.7       57.76       -  
                  3,140,330       4.9     $ 13.33     $ 17,923       2,564,944       4.4     $ 13.33     $ 14,932  
                                                                             
Vested and expected to vest
    3,116,422       4.9     $ 13.32     $ 17,829                                  
 
As of December 31, 2010 and June 30, 2010, options to purchase 2,564,944 and 2,742,536 shares at weighted average exercise prices of $13.33 and $14.35 per share, respectively, were vested and exercisable.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $18.47 as of December 31, 2010, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of December 31, 2010 was 2,262,048. The total intrinsic value of options exercised during the three months ended December 31, 2010 and 2009 was $718,000 and $824,000, respectively. The total intrinsic value of options exercised during the six months ended December 31, 2010 and 2009 was $1.6 million and $1.6 million, respectively.

The total cash received by the Company from employees as a result of employee stock option exercises during the three months ended December 31, 2010 and 2009 was approximately $1.4 million and $1.8 million, respectively, and for the six months ended December 31, 2010 and 2009 was $4.2 million and $2.9 million, respectively.

 
The aggregate intrinsic value and weighted average remaining contractual term of RSUs outstanding as of December 31, 2010 was $12.5 million and 1.6 years, respectively. There were no RSUs vested as of December 31, 2010.

The aggregate intrinsic value and weighted average remaining contractual term of RSUs expected to vest as of December 31, 2010 was $11.3 million and 1.6 years, respectively. The number of RSUs that are expected to vest is 614,448 shares.

The Company settles employee stock option exercises and RSUs with newly issued common shares.

Employee Stock Purchase Plan

The Company’s employee stock purchase plan (“ESPP”) authorizes the granting of stock purchase rights to eligible employees during an offering period not more than 27 months with exercise dates approximately every six months. Shares are purchased through employee payroll deductions at purchase prices equal to 85% of the lesser of the fair market value of the Company’s common stock at either the first day of each offering period or the date of purchase. As of December 31, 2010, 1,592,044 shares were available for issuance under the Company’s employee stock purchase plan.

The total cash received by the Company from employees as a result of purchases under the ESPP during the three and six months ended December 31, 2010 was $632,000, and was $535,000 for the three and six months ended December 31, 2009.

14. Repurchase of Common Stock. On June 1, 2010, the Company announced a program to repurchase up to $40 million of the Company’s common stock. Repurchases under the program will be made in open market or privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements and other factors. $5.3 million of its common stock was repurchased under this repurchase plan during the three months ended September 30, 2010. No repurchases were made in the three months ended December 31, 2010. As of December 31, 2010, repurchases of $10.8 million have been made under this repurchase program and approximately $29.2 million is remaining under this repurchase program.

15. Recent Accounting Pronouncements. In January 2010, the FASB issued additional disclosure requirements for fair value measurements. The guidance requires an entity to disclose significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers. The additional requirements became effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of this new guidance did not have an impact on the Company’s consolidated financial position, results of operations or cash flows as this guidance relates only to additional disclosures. In addition, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The changes are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company does not believe that the adoption will have an impact on the Company’s consolidated financial position, results of operations or cash flows as this guidance relates only to additional disclosures.

In various areas, including revenue recognition, stock option and purchase accounting, accounting standards and practices continue to evolve. The Company believes that it is in compliance with all of the rules and related guidance as they currently exist. However, any changes to accounting principles generally accepted in the United States of America in these areas could impact the future accounting of its operations.

 
16. Commitments and Contingencies.
 
Contractual Obligations
 
Contractual obligations as of December 31, 2010 have been summarized below (in thousands):
 
         
Contractual Obligations Due by Period
 
Contractual Obligations
 
Total
   
Less than 1 year
   
1-3 years
   
4-5 years
   
After 5 years
 
Purchase obligations
  $ 17,505     $ 17,468     $ 37     $ -     $ -  
Operating leases
    254       204       50       -       -  
Capital expenditure
    5,420       5,398       22       -       -  
Total
  $ 23,179     $ 23,070     $ 109     $ -     $ -  
 
Litigation
 
Finisar Corporation v. Source Photonics, Inc., et al.

On January 5, 2010, Finisar Corporation, or Finisar, filed a complaint in the United States District Court for the Northern District of California against Source Photonics, Inc., MRV Communications, Inc., NeoPhotonics Corporation and the Company, or collectively, the co-defendants. In the complaint, Finisar alleged infringement of certain of its U.S. patents arising from the co-defendants’ respective manufacture, importation, use, sale of or offer to sell certain optical transceiver products in the United States. Finisar sought to recover unspecified damages, up to treble the amount of actual damages, together with attorneys’ fees, interest and costs. Finisar alleged that at least some of the patents asserted are a part of certain digital diagnostic standards for optoelectronics transceivers and, therefore, are being utilized in such digital diagnostic standards. On May 5, 2010, the court dismissed without prejudice all co-defendants (including the Company) except Source Photonics, Inc., on grounds that such claims should have been asserted in four separate lawsuits, one against each co-defendant. On May 20, 2010, the Company and Finisar entered into a standstill agreement, agreeing not to refile any claims against each other until at least 90 days after a resolution of the litigation between Source Photonics and Finisar.  On September 10, 2010, Source Photonics, Inc., and its parent company MRV Communications, Inc., entered into a Settlement and Cross License Agreement with Finisar. MRV Communications filed a Form 8-K with SEC on September 13, 2010 disclosing the settlement terms and furnishing a copy of the settlement agreement.

On December 20, 2010, Finisar filed a new complaint against the Company in the United States District Court for the Northern District of California.  The new complaint is substantially similar to the complaint filed by Finisar in January 2010.  On January 24, 2011 the Company filed an answer to the complaint, denying all material allegations and asserting numerous affirmative defenses.

Although the Company believes that it has meritorious defenses to the infringement allegations and intends to defend the lawsuit vigorously, there can be no assurance that it will be successful in its defense. Even if the Company is successful, it may incur substantial legal fees and other costs in defending the lawsuit. Further, a new lawsuit, if brought, would be likely to divert the efforts and attention of the Company’s management and technical personnel, which could harm its business.

IPO Securities Litigation

In November 2001, Oplink and certain of its officers and directors were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York. In the amended complaint, the plaintiffs alleged that Oplink, certain of Oplink’s officers and directors and the underwriters of Oplink’s initial public offering (“IPO”) violated Section 11 of the Securities Act of 1933 based on allegations that Oplink’s registration statement and prospectus failed to disclose material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO underwriters. Similar complaints were filed by plaintiffs against hundreds of other public companies that went public in the late 1990s and early 2000s and their IPO underwriters (collectively, the “IPO Lawsuits”). During the summer of 2008, the parties engaged in a formal mediation process to discuss a global resolution of the IPO Lawsuits. Ultimately, the parties reached an agreement to settle all 309 cases against all defendants, and entered into a
 
 
settlement agreement in April 2009. The settlement provides for a $586 million recovery in total, divided among the 309 cases. Oplink’s share of the settlement is roughly $327,458, which is the amount Oplink will be required to pay if the settlement is finally approved. In October 2009, the Court certified the settlement class in each case and granted final approval to the settlement. A number of appeals have been filed with the Second Circuit Court of Appeals, challenging the fairness of the settlement. A number of shareholder plaintiffs have also filed petitions for leave to appeal the class certification portion of Judge Scheindlin’s ruling. These appeals and petitions are pending.

IPO 16(b) Claim

In October 2007, Vanessa Simmonds filed in the United States District Court for the Western District of Washington a Complaint for Recovery of Short Swing Profits Under Section 16(b) of the Securities Exchange Act of 1934 against Bank of America and JP Morgan Chase & Company as defendants, and against Oplink as a nominal defendant. The complaint did not seek recovery of damages or other relief against Oplink. The Complaint alleged that in the years 2000 and 2001 the underwriters and unnamed officers, directors and principal shareholders of Oplink acted as a “group” by coordinating their efforts to undervalue the IPO price of Oplink and to thereafter inflate the aftermarket price throughout the six month lock-up period. The Complaint further alleges that the underwriters profited by (a) sharing in profits of customers to whom they had made IPO allocations, (b) allocating shares of Oplink to insiders at other companies from whom the underwriters expected to receive additional work in return; and (c) by creating the opportunity (through the alleged laddering practices) for Oplink’s directors, officers and other insiders to profit through their sale of stock after the lock-up period in return for future business for the underwriter.

The complaint against Oplink and its underwriter