<SUBMISSION>
<ACCESSION-NUMBER>0000891618-03-005505
<TYPE>8-K
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20031027
<ITEMS>5
<ITEMS>7
<FILING-DATE>20031028
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>JDS UNIPHASE CORP /CA/
<CIK>0000912093
<ASSIGNED-SIC>3674
<IRS-NUMBER>942579683
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0630
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>8-K
<ACT>34
<FILE-NUMBER>000-22874
<FILM-NUMBER>03959549
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1768 AUTOMATION PARKWAY
<CITY>SAN JOSE
<STATE>CA
<ZIP>95131
<PHONE>4085465000
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1768 AUTOMATION PARKWAY
<CITY>SAN JOSE
<STATE>CA
<ZIP>95131
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>f94010e8vk.htm
<DESCRIPTION>FORM 8-K
<TEXT>
<HTML>
<HEAD>
<TITLE>JDS Uniphase Corporation Form 8-K Dated 10/27/2003</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<P align="center"><FONT size="4"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION
</B></FONT>


<DIV align="center"><FONT size="3"><B>Washington, D.C. 20549</B>
</FONT></DIV>


<P align="center"><FONT size="5"><B>FORM 8-K
</B></FONT>


<P align="center"><FONT size="3"><B>Current Report Pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934</B>
</FONT>


<P align="center"><FONT size="2"><B>Date of Report (Date of earliest
event reported): October&nbsp;27, 2003</B>
</FONT>


<P align="center"><FONT size="2"><IMG src="f94010f9398000.gif" alt="(JDS Uniphase Logo)">
</FONT>


<P align="center"><FONT size="6"><B>JDS Uniphase Corporation
</B></FONT>


<DIV align="center"><FONT size="2"><HR size="2" width="58%" noshade>
<I>(Exact name of registrant as specified in its charter)</I>
</FONT></DIV>


<P align="center"><FONT size="2"><B>Commission file number 0-22874</B><BR>
<HR size="1" width="38%" noshade>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2"><B>Delaware</B><BR>
<HR size="1" width="17%" noshade>
<I>(State or Other Jurisdiction of Incorporation or Organization)</I></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
<B>94-2579683</B><BR>
<HR size="1" width="20%" noshade>
<I>(IRS Employer Identification Number)</I></FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2"><B>1768 Automation Parkway<BR>
San Jose, California 95131</B>
</FONT>


<DIV align="center"><FONT size="2"><HR size="1" width="38%" noshade>
<I>(Address of principal executive offices including zip code)</I>
</FONT></DIV>


<P align="center"><FONT size="2"><B>(408)&nbsp;546-5000</B>
</FONT>


<DIV align="center"><FONT size="2"><HR size="1" width="38%" noshade>
<I>(Registrant&#146;s telephone number, including area code)</I>
</FONT></DIV>


<P align="center"><FONT size="2"><B>Not Applicable</B>
</FONT>


<DIV align="center"><FONT size="2"><I>(Former name or former address, if changed since last report)</I>
</FONT></DIV>

<P align="center"><FONT size="2">&nbsp;</FONT>

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<!-- TOC -->
<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000">Item 5. Other Events</A></TD></TR>
<TR><TD colspan="9"><A HREF="#001">Item 7. Financial Statements, Pro Forma Financial Information and Exhibits</A></TD></TR>
<TR><TD colspan="9"><A HREF="#002">SIGNATURES</A></TD></TR>
<TR><TD colspan="9"><A HREF="f94010exv99w1.htm">EXHIBIT 99.1</A></TD></TR>
</TABLE>
</CENTER>
<!-- /TOC -->
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "Item 5. Other Events" -->
<DIV align="left"><A NAME="000"></A></DIV>

<P><B>Item&nbsp;5. Other Events</B>


<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;JDS
Uniphase Corporation (the &#147;Company&#148;)
has revised its risk factors which are included as Exhibit&nbsp;99.1 hereto.
</FONT>
<!-- link1 "Item 7. Financial Statements, Pro Forma Financial Information and Exhibits" -->
<DIV align="left"><A NAME="001"></A></DIV>

<P><B>Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.</B>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Exhibits
</FONT>

<P>

<TABLE align="center" cellspacing="0" cellpadding="0" border="0" width="100%">
 <TR>
  <TD><FONT size="1">Exhibit<BR>
<U>Number</U></FONT></TD>
  <TD>&nbsp;</TD>
  <TD><FONT size="1"><u>Description</U></FONT></TD>
 </TR>
 <TR>
  <TD nowrap><FONT size="2">99.1</FONT></TD>
  <TD>&nbsp;</TD>
  <TD><FONT size="2">Revised Risk Factors Disclosure</FONT></TD>
 </TR>
</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "SIGNATURES" -->
<DIV align="left"><A NAME="002"></A></DIV>

<P align="center"><B>SIGNATURES</B>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the
requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
</FONT>

<TABLE align="center" cellspacing="0" cellpadding="0" border="0" width="100%">
 <TR>
  <TD width="50%">&nbsp;</TD>
  <TD width="1%">&nbsp;</TD>
  <TD width="4%">&nbsp;</TD>
  <TD width="45%">&nbsp;</TD>
 </TR>

 <TR>
  <TD>&nbsp;</TD>
  <TD colspan="2" nowrap><FONT size="2">JDS Uniphase Corporation</FONT></TD>
 </TR>

 <TR>
  <TD>&nbsp;</TD>
  <TD><FONT size="2">By:</FONT></TD>
  <TD nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;/s/ Christopher S. Dewees</FONT></TD>
 </TR>

 <TR>
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
  <TD colspan="2" nowrap align="left"><HR size="1" width="80%"></TD>
 </TR>

 <TR>
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
  <TD nowrap><FONT size="2">Christopher S. Dewees</FONT></TD>
 </TR>
 <TR>
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
  <TD nowrap><FONT size="2"><I>Senior Vice President and General
Counsel</I></FONT></TD>
 </TR>


</TABLE>

<P><FONT size="2">Date: October&nbsp;27, 2003</FONT>
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<P align="center"><B>Exhibit Index</B>


<TABLE align="center" cellspacing="0" cellpadding="0" border="0" width="100%">
<TR>
  <TD><FONT size="1">Exhibit<BR>
<U>Number</U></FONT></TD>
  <TD>&nbsp;</TD>
  <TD><FONT size="1"><u>Description</U></FONT></TD>
 </TR>
<TR>
  <TD nowrap><FONT size="2">99.1</FONT></TD>
  <TD>&nbsp;</TD>
  <TD><FONT size="2">Revised Risk Factor Disclosure</FONT></TD>
 </TR>

</TABLE>
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>3
<FILENAME>f94010exv99w1.htm
<DESCRIPTION>EXHIBIT 99.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 99.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P align="right"><B><FONT size="2">Exhibit 99.1</FONT></B>

<!-- link1 "RISK FACTORS" -->

<P align="center">
<B><FONT size="2">RISK FACTORS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">You should carefully consider the risks
described below before making an investment decision. The risks
described below are not the only ones facing our company.
Additional risks not presently known to us or that we currently
deem immaterial may also impair our business
operations.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Our business, financial condition or results
of operations could be materially adversely affected by any of
these risks. The trading price of the notes and our common stock
could decline due to any of these risks, and you may lose all or
part of your investment.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The risk factors described below contain statements
concerning our future results and performance and other matters that
are &#147;forward-
looking&#148; statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our
industry&#146;s results, levels of activity, performance, or
achievements to be materially different from any future results,
levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, those
listed below. You can identify forward-looking
statements by terminology such as &#147;may,&#148; &#147;will,&#148; &#147;should,&#148; &#147;intend,&#148; &#147;expect,&#148; &#147;plan,&#148; &#147;anticipate,&#148;
&#147;believe,&#148; &#147;estimate,&#148; &#147;predict,&#148; &#147;potential,&#148; or &#147;continue&#148; or the negative of such terms or other comparable
terminology. Forward-looking statements include, among other things,
all italicized portions included below, the information and expectations concerning our future financial performance and
potential or expected growth in our markets and the markets in which we expect to compete, business strategy,
projected plans and objectives, anticipated cost savings from restructurings and our estimates with respect to
future operating results, including, without limitation, earnings, cash flow and revenue. Factors which could
cause actual results to differ materially include those set forth in
the risks discussed below.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, events, levels of activity, performance, or achievements. We undertake no
obligation to assume responsibility for the accuracy and completeness of the forward-looking statements. We
do not intend to update any of the forward-looking statements after the date of this offering memorandum to
conform them to actual results.</FONT>


<P align="left">
<B><FONT size="2">Risks Related to Our Business</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">The continuing unstable economic
    environment has significantly harmed and may continue to
    significantly harm our industries.</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Our sales levels are unstable, we are not
    currently profitable, and we have difficulty predicting future
    operating results.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of continuing unfavorable economic
and market conditions, particularly in the communications sector
(but also in our non-communications business), our sales have
declined significantly from historic levels, we are not
currently profitable, and we are unable to predict future sales
accurately or to provide long-term guidance for future financial
performance. Historically, our communications business was the
more affected business; however, recently, these unfavorable
conditions are increasingly impacting our non-communications
businesses. The conditions contributing to this difficulty
include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">uncertainty regarding the capital spending plans
    of the major telecommunications carriers, upon which our
    telecommunications systems manufacturing customers, and
    ultimately we, depend for a substantial amount of our sales;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the weakened financial condition of many major
    telecommunications carriers and their current limited access to
    the capital required for expansion;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">continued reduction in inventory levels by our
    telecommunications systems manufacturing customers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">limited visibility regarding the long-term demand
    for high content, high speed, broadband telecommunications
    networks;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">excess fiber and channel capacity, particularly
    in the long-haul market, which historically has been responsible
    for a major portion of our communications sales and profits;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">uncertainty regarding the growth and
    profitability of the security display and commercial laser
    markets, which are responsible for a substantial portion of our
    non-communications sales and profits; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">general market and economic uncertainty.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Based on these and other factors, many of our
major customers have reduced, modified, cancelled or rescheduled
orders for our products and have expressed uncertainty as to
their future requirements. In the communications business, this
uncertainty is reflected in the limited and highly variable
forecasts our customers are providing of their anticipated needs
for our communications products. <I>As a result, our net sales
in the future are likely to fluctuate and may, in fact, decline,
and we anticipate that we will continue to be unprofitable in
the near future. </I>In addition, due to our current limited
ability to provide long-term guidance for our operating results,
our ability to meet financial expectations for future periods
may be harmed.
</FONT>

<P align="center"><FONT size="2">1</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Our customers&#146; businesses have been
    harmed by the economic downturn.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our communications business is largely dependent
upon product sales to telecommunications systems manufacturers
who in turn are dependent for their business upon sales of
fiberoptic systems to telecommunications carriers. All of our
systems manufacturing customers and their carrier customers have
experienced severe business declines during the current
downturn. Many of these companies are currently operating at
losses and are unable to make meaningful long-term predictions
for their recovery, and hence their forecasted requirements for
optical telecommunications systems. This continuing uncertainty
means that, as a supplier of the components and modules for
these systems, our ability to predict our financial results or
business prospects for future periods is severely limited.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Our Global Realignment Program may be
    unsuccessful in aligning our operations to current market
    conditions.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In response to economic slowdown and as part of
our continuing integration efforts, we commenced a Global
Realignment Program in April 2001, under which we are, among
other things:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">eliminating some product development programs and
    consolidating or curtailing others in order to focus our
    research and development investments on the most promising
    projects;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">consolidating our manufacturing facilities from
    multiple sites into single locations, as well as consolidating
    sales and administrative functions; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">aligning our sales organization to offer
    customers a single point of contact for all of their product
    requirements, and creating regional and technical centers to
    streamline customer interaction with product line managers.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Implementation of the Global Realignment Program
involves major reductions in our workforce and facilities and,
in certain instances, the relocation of products, technologies
and personnel. <I>We have incurred and will continue to incur
significant costs (including cash expenditures) to implement the
Global Realignment Program and we expect to realize significant
future cost savings as a result. </I>The Global Realignment
Program may not be successful in achieving the expected cost
reductions or other benefits, may be insufficient to align our
operations with customer demand and the changes affecting our
industry, or may be more costly or extensive than currently
anticipated. Even if the Global Realignment Program is
successful and meets our current cost reduction goals, our sales
must increase substantially in the future for us to be
profitable.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Our cost reduction programs may be
    insufficient to achieve long-term profitability.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are undertaking cost reduction measures, under
and in addition to the Global Realignment Program, intended to
reduce our expense structure at both the cost of goods sold and
the operating expense levels. <I>We believe these measures are a
necessary response to, among other things, declining average
sales prices across our product lines. </I>These measures may be
unsuccessful in creating profit margins sufficient to sustain
our current operating structure and business.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">We have incurred, and may in the future incur,
    inventory-related charges, the amounts of which are difficult to
    predict accurately.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of the business downturn and
declining demand for our products, we have written down a
substantial portion of our inventory as our sales forecasts
continued to decline. We generally use a rolling six-month
forecast based on anticipated product orders, product order
history, forecasts and backlog to assess our inventory
requirements. However, as discussed above, our ability to
forecast our customers&#146; needs for our products in the
current economic environment is very limited. Consequently, we
have incurred, and may in the future incur, charges to write
down our inventory. We recorded charges of $56.1&nbsp;million
and $203.9&nbsp;million related to excess and obsolete inventory
during fiscal 2003 and 2002, respectively. We may incur such
inventory write-downs in future periods. Moreover, because of
our current difficulty in forecasting overall sales, we may in
the future revise our previous forecasts, which could lead to
further inventory write-downs. <I>While we believe, based on
current information, that the amount recorded for inventory is
properly reflected on</I>
</FONT>

<P align="center"><FONT size="2">2</FONT>

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<DIV align="left">
<I><FONT size="2">our balance sheet at September&nbsp;30, 2003,
if market conditions are less favorable than our forecasts, our
future sales mix differs from our forecasted sales mix, or
actual demand from our customers is lower than our estimates, we
may be required to record additional inventory
write-downs.</FONT></I>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Any failure of our major telecommunications
    systems manufacturing customers, or their telecommunications
    carrier customers, to service their debt would materially harm
    our business.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the rapid growth in the telecommunications
sector in the mid-to-late 1990s, telecommunications systems
manufacturers and their telecommunications carrier customers
incurred large amounts of debt in order to finance the expansion
that was then forecasted. In the rapid downturn that followed,
both capital spending and revenue declined, but debt remained
and in some instances increased. As a result, several of the
telecommunications carriers and, in turn their suppliers, our
telecommunications systems manufacturing customers, continue to
have significant amounts of outstanding debt. The servicing of
this debt may, among other things, limit the carriers&#146;
ability to buy new capital equipment and, thus, the demand for
telecommunications systems. In fact, several carriers (WorldCom
and Global Crossing, among others) have declared bankruptcy over
the past two years, or are otherwise in financial distress.
<I>We anticipate that some or all of these companies will need
to repay or restructure significant portions of their debt in
the future. </I>Any failure in this task could materially harm
their businesses, and consequently ours. As long as these
companies are focused on debt concerns, they are less likely to
acquire telecommunications systems.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">If our customers fail to meet their financial
    obligations to us, our business will suffer.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Although we perform ongoing credit evaluations of
our customers and manage and monitor balances owed us, we are
not able to predict changes in their financial condition,
particularly during the current economic environment. Based on
our estimates as to the quality of our accounts receivable, we
maintain allowances for doubtful accounts for estimated losses
resulting from the inability or unwillingness of our customers
to make required payments. However, if our customers are unable
to meet their financial obligations to us as a result of
bankruptcy or deterioration in their operating results or
financial condition, our trade receivables may not be
recoverable and, in addition to not receiving the amounts owed,
we may be required to record additional bad debt expenses, which
could materially affect our financial condition and operating
results.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Moreover, the continuing economic slowdown has
exacerbated our vulnerability to demand fluctuations for our
communications products. Specifically, we have experienced and
remain vulnerable to material order cancellations, modifications
and reschedulings, all of which, among other things, reduce our
sales and impair our ability to achieve financial targets and
predict financial results for future periods.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We depend on recovery and long-term growth
    in our markets for our success.</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">If the Internet does not continue to grow as
    expected, our business will suffer.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our future success as a manufacturer of optical
components, modules and subsystems ultimately depends on the
continued growth of the communications industry, and, in
particular, the growth of the Internet as a global
communications system. As part of that growth, we are relying on
increasing demand for high-content voice, text and other data
delivered over high-speed connections (i.e., high bandwidth
communications). As Internet usage and bandwidth demand
increase, so does the need for advanced optical networks to
provide the required bandwidth. Without Internet and bandwidth
growth, the need for our advanced communications products, and
hence our future growth as a manufacturer of these products, is
jeopardized. Currently, while generally increasing demand for
Internet access is apparent, less evident is when order capacity
will be absorbed. Moreover, multiple service providers compete
to supply the existing demand. Also, currently, fiberoptic
networks have significant excess capacity. The combination of a
large number of service providers and excess network capacity
has resulted in severely depressed prices for bandwidth. Until
pricing recovers, service providers have less incentive to
install equipment and, thus, little need for many of our
communications products. Ultimately, should long-term
expectations for Internet growth and bandwidth demand not be
realized, our business would be significantly harmed.
</FONT>

<P align="center"><FONT size="2">3</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">We depend on stability or growth in the
    markets for our products outside communications for growth in
    the sales of this group of products.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The growth of our display products, light
interference pigment and other businesses served out of our thin
film products group, depends significantly on the continued
stability or growth and success of these markets. Among other
things, advances in the technology used in computer monitors,
televisions, conference room projectors and other display
devices have led to increased demand for flat panel displays and
projection displays. We cannot be certain that growth in these
markets will continue. In recent periods, we have experienced
reduced demand for some of our non-communications products,
particularly our display components sold to Texas Instruments.
<I>We expect this reduced demand to continue for the near
term.</I> Among other things, we are working to develop
additional profitable applications for our interference pigments
and display components and modules. If we fail, these businesses
will suffer. Moreover, we cannot predict the impact of
technological or other changes in these industries on our
business. In addition, each of our non-communications industries
is subject to pricing pressure, consolidation and realignment as
industry participants react to shifting customer requirements
and overall demand. There is a risk that any consolidation or
realignment could adversely affect our business, and pricing
pressure can adversely affect our operating results.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our business and financial condition could
    be harmed by our long-term growth strategy.</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">If we fail to manage or anticipate our
    long-term growth, our business will suffer.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Notwithstanding the recent decline, the optical
businesses as well as the businesses that we serve out of the
thin film products group have historically grown, at times
rapidly, and we have grown accordingly. <I>We have made and,
although we remain in an industry slowdown, expect in the future
to make significant investments to enable our future growth
through, among other things, internal expansion programs,
product development, acquisitions and other strategic
relationships. </I>If we fail to manage or anticipate our future
growth effectively, particularly during periods of industry
decline, our business will suffer. Through our Global
Realignment Program and other cost reductions measures we are
balancing the need to shrink our operations consistent with the
current economic conditions with the need to preserve our
ability to grow and scale our operations when our markets
recover. If we fail to achieve this balance, our business will
suffer to the extent our resources and operations are
insufficient to respond to a return to growth.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">If we fail to commercialize new product lines,
    our business will suffer.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to continue to develop new product
lines and improve existing ones to meet our customers&#146;
diverse and changing needs. New product development activities
are expensive, with no guarantee of success. Risks associated
with our development of new products and improvements to
existing products include the risk that:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we may fail to complete the development of a new
    or improved product;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our customers may not purchase the new or
    improved product because, among other things, the product is too
    expensive, is defective in design, manufacture or performance,
    is uncompetitive, or because the product has been superceded by
    another product or technology; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we may fail to anticipate or respond to new
    technologies that could have a disruptive impact on our business.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Nonetheless, if we fail to successfully develop
and introduce new products and improve existing ones, our
business will suffer. We have considerably reduced our research
and development spending from historic levels and some of our
competitors now spend considerably higher percentages of their
revenues on research and development than do we.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Furthermore, new products require increased sales
and marketing, customer support and administrative effort to
support anticipated increased levels of operations. We may not
be successful in creating this infrastructure, or we may not
realize increased sales sufficient to offset the additional
expenses resulting from this increased infrastructure. In
connection with our many acquisitions, we have incurred expenses
in
</FONT>

<P align="center"><FONT size="2">4</FONT>

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<FONT size="2">anticipation of developing and selling new
products. Our operations may not achieve levels sufficient to
justify the increased expense levels associated with these new
businesses.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2"> </FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Changes in accounting rules have had and
    may continue to have a material effect on our financial
    results.</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Our financial results could be affected by
    potential changes in the accounting rules governing the
    recognition of stock-based compensation expense.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We measure compensation expense for our employee
stock compensation plans under the intrinsic value method of
accounting prescribed by APB Opinion No.&nbsp;25,
&#147;Accounting for Stock Issued to Employees.&#148; Under this
method, we recognized compensation charges related to stock
compensation plans of $50.9&nbsp;million, $124.9&nbsp;million
and $52.6&nbsp;million in fiscal 2003, 2002 and 2001,
respectively. In accordance with SFAS No.&nbsp;123,
&#147;Accounting for Stock-Based Compensation,&#148; we provide
disclosures of our operating results as if the fair value method
of accounting had been applied in our financial statements
included in our Annual Report on Form&nbsp;10-K. Beginning in
the third quarter of fiscal 2003, we also provide such
disclosures in our Quarterly Reports on Form&nbsp;10-Q in
accordance with SFAS No.&nbsp;148, &#147;Accounting for
Stock-Based Compensation&nbsp;&#151; Transition and
Disclosure.&#148; Had we accounted for our compensation expense
under the fair value method of accounting prescribed by SFAS
No.&nbsp;123, the charges would have been significantly higher
than the intrinsic value method used by us, totaling
$685.2&nbsp;million, $688.9&nbsp;million and $566.2&nbsp;million
during fiscal 2003, 2002 and 2001, respectively. Currently, the
FASB is considering changes to accounting rules concerning the
recognition of stock option compensation expense. If these
proposals are implemented, we and other companies may be
required to measure compensation expense using the fair value
method, which would adversely affect our results of operations
by increasing our losses by the additional amount of such stock
option charges.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Implementation of FASB Interpretation
    No.&nbsp;46 could affect our financial results.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the FASB issued Interpretation
No.&nbsp;46, &#147;Consolidation of Variable Interest Entities,
an Interpretation of ARB No.&nbsp;51,&#148; which requires an
investor with a majority of the variable interests (primary
beneficiary) in a variable interest entity to consolidate the
assets, liabilities and results of operations of the entity. A
variable interest entity is an entity in which the equity
investors do not have a controlling interest or the equity
investment at risk is insufficient to finance the entity&#146;s
activities without receiving additional subordinated financial
support from other parties. Interpretation No.&nbsp;46, as
amended, is applicable: (i)&nbsp;immediately for all variable
interest entities created after January&nbsp;31, 2003; or
(ii)&nbsp;in the first fiscal year or interim period beginning
after December&nbsp;15, 2003 for those created before
February&nbsp;1, 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company is currently reviewing its cost and
equity method investments and other variable interests acquired
prior to February&nbsp;1, 2003 to determine whether those
entities are variable interest entities and, if so, if the
Company is the primary beneficiary of any of its investee
companies. At September&nbsp;30, 2003, the Company had 24 cost
and equity method investments primarily in privately held
companies and venture funds that have the potential to provide
strategic technologies and relationships to the Company&#146;s
businesses. <I>The Company expects to complete the review during
the second quarter of fiscal 2004. </I>Provided the Company is
not the primary beneficiary, the Company&#146;s maximum exposure
to loss for these investments at September&nbsp;30, 2003 is
limited to the carrying amount of its investment of
$37.8&nbsp;million in such entities and its minimum funding
commitments of $20.6&nbsp;million. The consolidation of any
investee companies under Interpretation No.&nbsp;46 could
adversely affect the financial position and results of
operations of the Company.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our total net sales are dependent upon a
    few key customers.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A few large customers account for most of our
total net sales. During fiscal 2003, Texas Instruments accounted
for 12% of our total net sales. During fiscal 2002, no customer
accounted for more than 10% of our total net sales. During
fiscal 2001, Nortel, Alcatel and Lucent accounted for 14%, 12%
and 10% of our total net sales, respectively. <I>We expect that,
for the foreseeable future, sales to a limited number of
customers will continue to account, alone or in the aggregate,
for a high percentage of our total net sales. </I>Dependence on
a limited number of customers exposes us to the risk that order
reductions from any one customer can have a
</FONT>

<P align="center"><FONT size="2">5</FONT>

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<DIV align="left">
<FONT size="2">material adverse effect on periodic revenue. In
fiscal 2003, we experienced a dramatic decline in our sales to
Texas Instruments, from $23.5&nbsp;million (15% of quarterly
revenue) in the second quarter of the year to $14.4&nbsp;million
(less than 10% of quarterly revenue) in the fourth quarter of
the year. Moreover, many of our customers are currently
experiencing significant revenue declines and, in recent
periods, have significantly reduced their orders from us. If
such reductions continue, our business will continue to be
harmed.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Any failure to remain competitive would
    harm our operating results.</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">If we are not competitive, our operating
    results could suffer.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The markets in which we sell our products are
highly competitive and characterized by rapidly changing and
converging technologies. We face intense competition from
established competitors and the threat of future competition
from new and emerging companies in all aspects of our business.
Among our current competitors are some of our customers, who are
vertically integrated and either manufacture and/or are capable
of manufacturing some or all of the products we sell to them.
<I>In addition to our current competitors, we expect that new
competitors providing niche, and potentially broad, product
solutions will increase in the future. </I>While the current
economic downturn has reduced the overall level of business in
our industries, the competition remains fierce. <I>To remain
competitive in both the current and future business climates, we
believe we must maintain a substantial commitment to research
and development, improve the efficiency of our manufacturing
operations, and streamline our marketing and sales efforts, as
well as customer service and support. </I>Under our Global
Realignment Program, we have ongoing initiatives in each of
these areas. However, our efforts to remain competitive as we
continue to implement our Global Realignment Program may be
unsuccessful. Among other things, we may not have sufficient
resources to continue to make the investments necessary to
remain competitive, or we may not make the technological
advances necessary to remain competitive. In addition,
notwithstanding our efforts, technological changes,
manufacturing efficiencies or development efforts by our
competitors may render our products or technologies obsolete or
uncompetitive.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the telecommunications industry, our
telecommunications systems manufacturing customers evaluate our
products and competitive products for deployment in their
telecommunications systems. Similarly, telecommunications
carrier customers evaluate our customers&#146; system products
and competitive products for system installation. Any failure of
us to be selected by our customers, or our customers to be
selected by their customers, can significantly harm our business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The businesses we serve through our thin film
products group (e.g., display, medical/ environmental
instrumentation, document security, product security, aerospace
and defense, and lasers) are also susceptible to changing
technologies and competition. Growth in the demand for our
products within these markets will depend upon our ability to
compete with providers of lower cost, higher performance
products by developing more cost-effective processes and
improving our products. Currently, we are working to develop new
products for use in the commercial laser and flat panel display
markets, markets with significant existing and developing
competition. Our success or failure in these efforts will have a
material impact on our non-communications business. In the
security market, we face competition from alternative
anti-counterfeiting devices such as holograms, embedded threads
and watermarks.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">The telecommunications industry is
    consolidating.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">The telecommunications industry is
consolidating and we believe it will continue to consolidate in
the future as companies attempt to strengthen or hold their
market positions in an evolving industry.
</FONT></I><FONT size="2">The recent consolidations of Bookham
and Nortel Network&#146;s optical components business and of
Avanex and Corning&#146;s and Alcatel&#146;s respective optical
components businesses are recent examples of high profile
consolidations. <I>We anticipate that consolidation will
continue as a result of the current industry downturn. </I>In
addition, industry consolidation may result in stronger
competitors who are able to compete better as sole-source
vendors for customers. This could harm our business as we
compete to be a single-vendor solution.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">We also expect consolidation to occur among
our telecommunications systems manufacturing customers and their
telecommunications carrier customers.</FONT></I><FONT size="2">
Consolidation at either level could result in, among other
things, greater negotiating power for the consolidated companies
with their suppliers in response to reduced
</FONT>

<P align="center"><FONT size="2">6</FONT>

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<DIV align="left">
<FONT size="2">competition, and reduced overall demand for
telecommunications systems as the number of companies installing
systems or providing services declines. Any of these results
could reduce demand for our telecommunications products and
increase pressure to reduce our prices and provide other
concessions.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Average selling prices are
    declining.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prices for telecommunications fiberoptic products
generally decline over time as new and more efficient components
and modules with increased functionality are developed,
manufacturing processes improve and competition increases. The
current economic environment has exacerbated the general trend,
as declining sales have forced telecommunications carriers and
their suppliers to reduce costs, leading to increasing pricing
pressure on our competitors and us. Weakened demand for optical
components and modules has created an oversupply of these
products, which has increased pressure on us to reduce our
prices. <I>To the extent this oversupply is not resolved in
future periods, we anticipate continuing pricing pressure</I>.
Moreover, currently, fiberoptic networks have significant excess
capacity. Industry participants disagree as to the amount of
this excess capacity. <I>However, to the extent that there is
significant overcapacity and this capacity is not profitably
utilized in future periods, we expect to face additional
pressure to reduce our prices</I>. Also, numerous
telecommunications carriers (WorldCom and Global Crossing, among
others) have declared bankruptcy over the past two years or are
otherwise in financial distress. As carriers are eliminated from
the marketplace, through bankruptcy or consolidation, system
vendors lose customers, while remaining carriers are able to
increase price pressures on system vendors since vendors have
fewer customer alternatives. System vendors in turn will apply
those pressures on us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are also experiencing pricing pressure in the
businesses we serve through our thin film products group (e.g.,
display, medical/ environmental instrumentation, document
security, product security, aerospace and defense, and lasers),
as a result of improved internal sourcing capabilities within
some of our customers, declining demand for some of our products
and increased competition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In response to declining average sales prices, we
are undertaking cost reduction measures, under and in addition
to the Global Realignment Program, intended to reduce our
expense structure at both the cost of goods sold and the
operating expense levels. These measures may be unsuccessful in
creating profit margins sufficient to sustain our current
operating structure and business. In addition to direct cost
cutting, we must continue to: (i)&nbsp;timely develop and
introduce new products that incorporate features that enable
such products to be less price sensitive, and (ii)&nbsp;increase
the efficiency of our manufacturing operations. Failure to do so
could cause our sales and profit margins to further decline,
which would harm our business.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">If we fail to attract and retain key
    personnel, our business could suffer.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our future depends, in part, on our ability to
attract and retain key personnel. Competition for highly skilled
technical people is extremely intense, and, the current economic
environment notwithstanding, we continue to face difficulty
identifying and hiring qualified engineers in many areas of our
business. We may not be able to hire and retain such personnel
at compensation levels consistent with our existing compensation
and salary structure. Our future also depends on the continued
contributions of our executive management team and other key
management and technical personnel, each of whom would be
difficult to replace. The loss of services of these or other
executive officers or key personnel or the inability to continue
to attract qualified personnel could have a material adverse
effect on our business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a consequence of the current economic
environment and as part of our Global Realignment Program, we
have reduced our global workforce to 5,194 employees as of
September&nbsp;30, 2003. We cannot predict the impact our recent
workforce reductions and any other reductions we are compelled
to make in the future will have on our ability to attract and
retain key personnel.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Similar to other technology companies,
particularly those located in Silicon Valley, we rely upon our
ability to use stock options and other forms of equity-based
compensation as key components of our executive and employee
compensation structure. Historically, these components have been
critical to our ability to retain important personnel and offer
competitive compensation packages. Without these components, we
would be required to significantly increase cash compensation
levels (or develop alternative compensation structures) in
</FONT>

<P align="center"><FONT size="2">7</FONT>

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<DIV align="left">
<FONT size="2">order to retain our key employees, particularly
as and when an industry recovery returns. Recent proposals to
modify accounting rules relating to the expensing of equity
compensation may cause us to substantially reduce, or even
eliminate, all or portions of our equity compensation programs.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We have concerns regarding the
    manufacturing, quality and distribution of our
    products.</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">If we do not achieve acceptable manufacturing
    volumes, yields and costs, our business will suffer.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success depends upon our ability to timely
deliver products to our customers at acceptable volume and cost
levels. The manufacture of our products involves highly complex
and precise processes, requiring production in highly controlled
and clean environments. Changes to our manufacturing processes
or those of our suppliers, or the inadvertent use of defective
or contaminated materials by our suppliers or us, could
significantly hurt our ability to meet our customers&#146;
product volume and quality needs. Moreover, in some cases,
existing manufacturing techniques, which involve substantial
manual labor, may not achieve the volume or cost targets
necessary to be competitive. In these cases, we will need to
develop new manufacturing processes and techniques, which are
anticipated to involve higher levels of automation, to achieve
these targets, and we will need to undertake other efforts to
reduce manufacturing costs. Currently, we are devoting
significant funds and other resources to: (i)&nbsp;develop
advanced manufacturing techniques to improve product volumes and
yields and reduce costs, and (ii)&nbsp;realign some of our
product manufacturing facilities to locations offering optimal
labor costs. These efforts may not be successful. If we fail to
achieve acceptable manufacturing yields, volumes and costs, our
business will be harmed.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">If our customers do not qualify our
    manufacturing lines for volume shipments, our operating results
    could suffer.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Customers will not purchase any of our products,
other than limited numbers of evaluation units, prior to
qualification of the manufacturing lines for the products. Each
new manufacturing line must go through rigorous qualification
with our customers. The qualification process can be lengthy and
is expensive, with no guarantee that any particular product
qualification process will lead to profitable product sales.
Moreover, we are currently consolidating our worldwide
manufacturing operations into centralized locations, such as our
facilities in Shenzhen, China. Among other things, we are moving
the manufacturing of some of our products to other facilities.
We expect that consolidation and product relocations may
continue for the foreseeable future. The manufacturing lines for
relocated products must undergo qualification before commercial
shipment of these products can recommence. The qualification
process, whether for new products or in connection with the
relocation of manufacturing of current products, determines
whether the manufacturing line achieves the customers&#146;
quality, performance and reliability standards. Our expectations
as to the time periods required to qualify (or requalify) a
product line and ship products in volumes to customers may be
erroneous. Delays in qualification can cause a product to be
dropped from a long-term supply program. These delays will also
impair the expected timing, and may impair the expected amount,
of sales of the affected products. Nevertheless, we may, in
fact, experience delays in obtaining qualification of our
manufacturing lines and, as a consequence, our operating results
and customer relationships would be harmed.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">If our products fail to perform, our business
    will suffer.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our business depends on manufacturing excellent
products of consistently high quality. Our products are highly
complex and, as such susceptible to design and manufacturing
defects. To guard against this, our products are rigorously
tested for quality both by our customers and us. Nevertheless,
our customers&#146; testing procedures are limited to evaluating
our products under likely and foreseeable failure scenarios. For
various reasons (including, among others, the occurrence of
performance problems that are unforeseeable in testing or that
are detected only when products are fully deployed and operated
under peak stress conditions), our products may fail to perform
as expected. Failures could result from faulty design or
problems in manufacturing. In either case, we could incur
significant costs to repair and/or replace defective products
under warranty, particularly when such failures occur in
installed systems. We have experienced such failures in the past
and remain exposed to such failures, as our products are widely
deployed throughout the world in multiple demanding environments
and applications. In some cases, product redesigns or additional
capital
</FONT>

<P align="center"><FONT size="2">8</FONT>

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<FONT size="2">equipment may be required to correct a defect. We
have in the past increased our warranty reserves and have
incurred significant expenses relating to certain communications
products. Any significant product failure could result in lost
future sales of the affected product and other products, as well
as customer relations&#146; problems, litigation and damage to
our reputation.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Certain of our non-telecommunications products
    are subject to governmental and industry regulations,
    certifications and approvals.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The commercialization of certain of the products
we design, manufacture and distribute through our thin film
products group may be delayed or made more costly due to
required government and industry approval processes. Development
of applications for our light interference pigment products may
require significant testing that could delay our sales. For
example, certain uses in cosmetics may be regulated by the Food
and Drug Administration, which has extensive and lengthy
approval processes. Durability testing by the automobile
industry of our pigments used with automotive paints can take up
to three years. If we change a product for any reason including
technological changes or changes in the manufacturing process,
prior approvals or certifications may be invalid and we may need
to go through the approval process again. If we are unable to
obtain these or other government or industry certifications in a
timely manner, or at all, our operating results could be
adversely affected.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">We may not be able to enter into necessary
    strategic alliances to effectively commercialize our
    products.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We often rely on strategic alliances with other
companies to commercialize some of our products in a timely or
effective manner, primarily in our non-telecommunication
businesses. Our current strategic alliance partners provide us
with assistance in the marketing, sales and distribution of a
diverse line of products. We may be unable to find appropriate
strategic alliances in markets in which we have little
experience, which could prevent us from bringing our products to
market in a timely manner, or at all. For instance, we have a
strategic alliance with SICPA, one of our major customers in the
thin film products group, for the marketing and sale of our
light interference pigments used to provide security features in
currency. Under a license and supply agreement, we rely
exclusively on SICPA to market and sell to this market
worldwide. SICPA has the right to terminate the agreement if we
breach it. If SICPA terminates our agreement or if it is unable
to market and sell our light interference pigments successfully
for the applications covered by the agreement, our business may
be harmed and we may be unable to find a substitute marketing
and sales partner or develop these capabilities ourselves. Also,
if SICPA fails to meet its minimum purchase requirements under
the agreement for any reason, our operating results would be
adversely affected.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">If our contract manufacturers fail to deliver
    quality products at reasonable prices and on a timely basis, our
    results of operations and financial conditions could be
    harmed.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are increasing our use of contract
manufacturers as an alternative to our own manufacturing of
products. If these contract manufacturers do not fulfill their
obligations to us, or if we do not properly manage these
relationships and the transition of production to these contract
manufacturers, our existing customer relationships may suffer.
In addition, by undertaking these activities, we run the risk
that the reputation and competitiveness of our products and
services may deteriorate as a result of the reduction of our
control over quality and delivery schedules. We also may
experience supply interruptions, cost escalations and
competitive disadvantages if our contract manufacturers fail to
develop, implement or maintain manufacturing methods appropriate
for our products and customers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our supply chain and manufacturing process relies
on accurate forecasting to provide us with optimal margins and
profitability. Because of market uncertainties, forecasting is
becoming much more difficult. In addition, as we come to rely
more heavily on contract manufacturers, we may have fewer
personnel resources with expertise to manage these third-party
arrangements.
</FONT>

<P align="center"><FONT size="2">9</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Interruptions affecting our key suppliers
    could disrupt production, compromise our product quality and
    adversely affect our sales.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We obtain various components included in the
manufacture of our products from single or limited source
suppliers. A disruption or loss of supplies from these companies
or price increases for these components would materially harm
our results of operations, product quality and customer
relationships. For example, we currently utilize a sole source
for the crystal semiconductor chip sets incorporated in our
solid-state microlaser products. We obtain lithium niobate
wafers, gallium arsenide wafers, specialized fiber components
and some lasers used in our telecommunications products
primarily from limited source suppliers. These materials are
important components of certain of our products and we currently
do not have alternative sources for such materials. Also, we do
not currently have long-term or volume purchase agreements with
any of these suppliers, and these components may not in the
future be available at reasonable prices in the quantities
required by us, if at all, in which case our business could be
materially harmed.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We face risks related to our international
    operations and sales.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our customers are located throughout the world.
In addition, we have significant offshore operations, including
manufacturing, sales and customer support operations. Our
operations outside North America include facilities in Europe
and Asia-Pacific.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our international presence exposes us to certain
risks, including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our ability to comply with the customs,
    import/export and other trade compliance regulations of the
    countries in which we do business, together with any unexpected
    changes in such regulations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">tariffs and other trade barriers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">political, legal and economic instability in
    foreign markets, particularly in those markets in which we
    maintain manufacturing and research facilities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">difficulties in staffing and management;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">language and cultural barriers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">seasonal reductions in business activities in the
    countries where our international customers are located;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">integration of foreign operations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">longer payment cycles;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">greater difficulty in accounts receivable
    collection;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">currency fluctuations; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">potential adverse tax consequences.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net sales to customers outside North America
accounted for 30%, 26% and 32% of our total net sales in fiscal
2003, 2002 and 2001, respectively. <I>We expect that sales to
customers outside North America will continue to account for a
significant portion of our total net sales. </I>Lower sales
levels that typically occur during the summer months in Europe
and some other overseas markets may materially and adversely
affect our business. In addition, sales of many of our customers
depend on international sales and consequently further expose us
to the risks associated with such international sales.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The international dimensions of our operations
and sales subject us to a myriad of domestic and foreign trade
regulatory requirements. As part of our ongoing integration
program, we are evaluating our current trade compliance
practices and implementing improvements, where necessary. Among
other things, we are auditing our product export classification
and customs procedures and are installing trade information and
compliance systems using our global enterprise software
platforms. <I>We do not currently expect the costs of such
evaluation or the implementation of any resulting improvements
to have a material adverse effect on our operating results or
business. </I>However, our evaluation and related implementation
are not yet complete and, accordingly, the
</FONT>

<P align="center"><FONT size="2">10</FONT>

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<DIV align="left">
<FONT size="2">costs could be greater than expected and such
costs and the legal consequences of any failure to comply with
applicable regulations could affect our business and operating
results.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We are increasing manufacturing operations
    in China, which expose us to risks inherent in doing business in
    China.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of our Global Realignment Program and
in an effort to reduce costs, we have increased our
manufacturing operations in China and those operations are
subject to greater political, legal and economic risks than
those faced by our other operations. In particular, the
political, legal and economic climate in China (both at national
and regional levels) is extremely fluid and unpredictable. Among
other things, the legal system in China (both at the national
and regional levels) remains highly underdeveloped and subject
to change, with little or no prior notice, for political or
other reasons. Our ability to operate in China may be adversely
affected by changes in Chinese laws and regulations, such as
those relating to taxation, import and export tariffs,
environmental regulations, land use rights, intellectual
property and other matters. Moreover, the enforceability of
applicable existing Chinese laws and regulations is uncertain.
These concerns are exacerbated for foreign businesses, such as
ours, operating in China. Our business could be materially
harmed by any changes to the political, legal or economic
climate in China or the inability to enforce applicable Chinese
laws and regulations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Currently, we operate manufacturing facilities
located in Shenzhen, Fuzhou and Beijing, China. As part of our
Global Realignment Program and in an effort to reduce costs, we
continue to increase the scope and extent of our manufacturing
operations in our Shenzhen facilities. <I>Accordingly, we expect
that our ability to operate successfully in China will become
increasingly important to our overall success. </I>As we
continue to consolidate our manufacturing operations, we will
incur additional costs to transfer product lines to the
facilities located in China, which could have a material adverse
impact on our operating results and financial condition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">We expect to export the majority of the
products manufactured at our facilities in China.
</FONT></I><FONT size="2">Accordingly, upon application to and
approval by the relevant government authorities, we will not be
subject to certain of China&#146;s taxes and are exempt from
customs duties on imported components or materials and exported
products. We are required to pay income taxes in China, subject
to certain tax relief. We may become subject to other taxes in
China or may be required to pay customs duties and export
license fees in the future. In the event that we are required to
pay other taxes, customs duties and export license fees in
China, our results of operations could be materially and
adversely affected.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We may incur unanticipated costs and
    liabilities, including under environmental laws and
    regulations.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our operations use certain substances and
generate certain wastes that are regulated or may be deemed
hazardous under environmental laws. Some of these laws impose
liability for cleanup costs and damages relating to releases of
hazardous substances into the environment. Such laws may become
more stringent in the future. In the past, costs and liabilities
arising under such laws have not been material; however, we
cannot assure you that such matters will not be material to us
in the future.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business
could be adversely affected by certain unexpected catastrophic
events.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may encounter natural disasters, which could
harm our financial condition and results of operations
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our U.S. headquarters, including some of our
research and development and manufacturing facilities, are
located in California near major earthquake faults. Any damage
to our facilities in California or other locations as a result
of an earthquake, fire or any other natural disasters could
disrupt our operations and have a material adverse impact on our
business, operating results and financial condition.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Our business is subject to the risks of
    terrorist acts and acts of war.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Terrorist acts or acts of war may disrupt our
operations, as well as our customers&#146; operations. The
terrorist attacks on September&nbsp;11, 2001 created many
economic and political uncertainties, and intensified the global
</FONT>

<P align="center"><FONT size="2">11</FONT>

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<FONT size="2">economic downturn. Any future terrorist
activities could further weaken the global economy and create
additional uncertainties, forcing our customers to further
reduce their capital spending or cancel orders from us, which
could have a material adverse impact on our business, operating
results and financial condition.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Our business and operations would suffer in
    the event of a failure of our information technology
    infrastructure.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We rely upon the capacity, reliability and
security of our information technology hardware and software
infrastructure and our ability to expand and update this
infrastructure in response to our changing needs. We are
constantly updating our information technology infrastructure.
Among other things, we recently unified most of our
manufacturing, accounting, sales and human resource data systems
using an Oracle platform, and we have entered into an agreement
with Oracle to provide and maintain our global ERP
infrastructure on an outsourced basis. Any failure to manage,
expand and update our information technology infrastructure or
any failure in the operation of this infrastructure could harm
our business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Despite our implementation of security measures,
our systems are vulnerable to damages from computer viruses,
natural disasters, unauthorized access and other similar
disruptions. Any system failure, accident or security breach
could result in disruptions to our operations. To the extent
that any disruptions or security breach results in a loss or
damage to our data, or inappropriate disclosure of confidential
information, it could harm our business. In addition, we may be
required to spend additional costs and other resources to
protect us against damages caused by these disruptions or
security breaches in the future.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If we have insufficient proprietary rights
    or if we fail to protect those we have, our business would be
    materially harmed.</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">We may not obtain the intellectual property
    rights we require.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Others, including academic institutions, our
competitors and other large technology-based companies, hold
numerous patents in the industries in which we operate. Some of
these patents may purport to cover our products. In response, we
may seek to acquire license rights to these or other patents or
other intellectual property to the extent necessary to ensure we
possess sufficient intellectual property rights for the conduct
of our business. Unless we are able to obtain such licenses on
commercially reasonable terms, patents or other intellectual
property held by others could inhibit our development of new
products, impede the sale of some of our current products, or
substantially increase the cost to provide these products to our
customers. While in the past licenses generally have been
available to us where third-party technology was necessary or
useful for the development, production or sale of our products,
in the future licenses to third-party technology may not be
available on commercially reasonable terms, if at all.
Generally, a license, if granted, includes payments by us of
up-front fees, ongoing royalties or a combination of both. Such
royalty or other terms could have a significant adverse impact
on our operating results. We are a licensee of a number of
third-party technologies and intellectual property rights and
are required to pay royalties to these third-party licensors on
some of our telecommunications products and laser subsystems.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Our products may be subject to claims that
    they infringe the intellectual property rights of
    others.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The industry in which we operate experiences
periodic claims of patent infringement or other intellectual
property rights. We have received in the past and, from time to
time, may in the future receive notices from third parties
claiming that our products infringe upon third-party proprietary
rights. As the downturn in the communications industries
deepened and continued over the past two years, many companies
have turned to their intellectual property portfolios as an
alternative revenue source. This is particularly true of
companies which no longer compete with us. Many of these
companies have larger, more established intellectual property
portfolios than ours. Typical for a growth-oriented technology
company, at any one time we generally have various pending
claims from third parties that one or more of our products or
operations infringe or misappropriate their intellectual
property rights or that one or more of our patents are invalid.
However, as economic uncertainty continues, the level of patent
infringement disputes in which we are engaged and expect to be
engaged for the foreseeable future has increased. For example,
we have pending litigation with Litton
</FONT>

<P align="center"><FONT size="2">12</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">Systems, Inc. and the Board of Trustees of the
Leland Stanford, Jr. University involving claims for damages in
connection with the alleged past infringement by our optical
amplifiers of a now expired U.S. patent. We have also received
claims and notice letters from British Telecommunications and
other companies regarding the alleged infringement of their
patents by certain of our products. We will continue to respond
to other claims in the course of our business operations. We do
not believe that any of these claims will materially harm our
business or financial condition. In the past the settlement and
disposition of these disputes has not had a material adverse
impact on our business or financial condition, however this may
not be the case in the future. Further, the litigation or
settlement of these matters, regardless of the merit of the
claims, could result in significant expense to us and divert the
efforts of our technical and management personnel, whether or
not we are successful. If we are unsuccessful, we could be
required to expend significant resources to develop
non-infringing technology or to obtain licenses to the
technology that is the subject of the litigation. We may not be
successful in such development or such licenses may not be
available on terms acceptable to us, if at all. Without such a
license, we could be enjoined from future sales of the
infringing product or products.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Our intellectual property rights may not be
    adequately protected.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our future depends in part upon our intellectual
property, including trade secrets, know-how and continuing
technological innovation. We currently hold numerous U.S.
patents on products or processes and corresponding foreign
patents and have applications for some patents currently
pending. The steps taken by us to protect our intellectual
property may not adequately prevent misappropriation or ensure
that others will not develop competitive technologies or
products. Other companies may be investigating or developing
other technologies that are similar to our own. It is possible
that patents may not be issued from any application pending or
filed by us and, if patents do issue, the claims allowed may not
be sufficiently broad to deter or prohibit others from marketing
similar products. Any patents issued to us may be challenged,
invalidated or circumvented. Further, the rights under our
patents may not provide a competitive advantage to us. In
addition, the laws of some territories in which our products are
or may be developed, manufactured or sold, including Europe,
Asia-Pacific or Latin America, may not protect our products and
intellectual property rights to the same extent as the laws of
the United States.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We face certain litigation risks that could
    harm our business.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have had numerous lawsuits filed against us
asserting various claims, including securities and ERISA class
actions and stockholder derivative actions. The results of
complex legal proceedings are difficult to predict. Moreover,
many of the complaints filed against us do not specify the
amount of damages that plaintiffs seek and we therefore are
unable to estimate the possible range of damages that might be
incurred should these lawsuits be resolved against us. While we
are unable to estimate the potential damages arising from such
lawsuits, certain of them assert types of claims that, if
resolved against us, could give rise to substantial damages.
Thus, an unfavorable outcome or settlement of one or more of
these lawsuits could have a material adverse effect on our
financial position, liquidity and results of operations. Even if
these lawsuits are not resolved against us, the uncertainty and
expense associated with unresolved lawsuits could seriously harm
our business, financial condition and reputation. Litigation can
be costly, time-consuming and disruptive to normal business
operations. The costs of defending these lawsuits, particularly
the securities class actions and stockholder derivative actions,
have been significant, will continue to be costly and may not be
covered by our insurance policies. The defense of these lawsuits
could also result in continued diversion of our
management&#146;s time and attention away from business
operations, which could harm our business.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We may have difficulty obtaining director
    and officer liability insurance in acceptable amounts for
    acceptable rates.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Like most other public companies, we carry
insurance protecting our officers and directors against claims
relating to the conduct of our business. Historically, this
insurance covered, among other things, the costs incurred by
companies and their management to defend against and resolve
claims relating to management conduct and results of operations,
such as securities class action claims. These claims typically
are extremely
</FONT>

<P align="center"><FONT size="2">13</FONT>

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<DIV align="left">
<FONT size="2">expensive to defend against and resolve. Hence,
as is customary, we purchase and maintain insurance to cover
some of these costs. We pay significant premiums to acquire and
maintain this insurance, which is provided by third-party
insurers, and we agree to underwrite a portion of such exposures
under the terms of the insurance coverage. Over the last several
years, the premiums we have paid for this insurance have
increased substantially. One consequence of the current economic
environment and decline in stock prices has been a substantial
increase in the number of securities class actions and similar
claims brought against public corporations and their management,
including our company and certain of our current and former
officers and directors. Many, if not all, of these actions and
claims are, and will likely continue to be, at least partially
insured by third-party insurers. Consequently, insurers
providing director and officer liability insurance have in
recent periods sharply increased the premiums they charge for
this insurance, raised retentions (that is, the amount of
liability that a company is required to pay to defend and
resolve a claim before any applicable insurance is provided),
and limited the amount of insurance they will provide. Moreover,
insurers typically provide only one-year policies.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The insurance policies that may cover the current
securities lawsuits against us have a $10&nbsp;million
retention. As a result, the costs we incur in defending the
current securities lawsuits against us may not be reimbursed
until they exceed $10&nbsp;million. The policies that would
cover any future lawsuits may not provide any coverage to us and
may cover the directors and officers only in the event we are
unable to cover their costs in defending against and resolving
any future claims. In fact our current policy only covers our
directors and officers and is only applicable under
circumstances in which the Company is unable to pay or is
prohibited from paying claims accrued during the policy period.
As a result, our costs in defending or settling any future
lawsuits or paying any judgments arising therefrom could
increase significantly and could materially impair the
Company&#146;s financial condition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each year we negotiate with insurers to renew our
director and officer insurance. Particularly in the current
economic environment, we cannot assure you that in the future we
will be able to obtain sufficient director and officer liability
insurance coverage at acceptable rates and with acceptable
deductibles and other limitations. Failure to obtain such
insurance could materially harm our financial condition in the
event that we are required to defend against and resolve any
future or existing securities class actions or other claims made
against us or our management arising from the conduct of our
operations. Further, the inability to obtain such insurance in
adequate amounts may impair our future ability to retain and
recruit qualified officers and directors.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Recently enacted and proposed regulatory
    changes may cause us to incur increased costs.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Recently enacted and proposed changes in the laws
and regulations affecting public companies, including the
provisions of the Sarbanes-Oxley Act of 2002, will increase our
expenses as we evaluate the implications of new rules and devote
resources to respond to the new requirements. <I>In particular,
we expect to incur additional SG&#38;A expense as we implement
Section&nbsp;404 of the Sarbanes-Oxley Act, which requires
management to report on, and our independent auditors to attest
to, our internal controls. </I>The compliance of these new rules
could also result in continued diversion of management&#146;s
time and attention, which could prove to be disruptive to normal
business operations. Further, the impact of these events could
also make it more difficult for us to attract and retain
qualified persons to serve on our board of directors or as
executive officers, which could harm our business.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If we fail to manage our exposure to
    worldwide financial and securities markets successfully, our
    operating results could suffer.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are exposed to financial market risks,
including changes in interest rates, foreign currency exchange
rates and marketable equity security prices. We often utilize
derivative financial instruments to mitigate these risks. We do
not use derivative financial instruments for speculative or
trading purposes. The primary objective of most of our
investment activities is to preserve principal while at the same
time maximizing yields without significantly increasing risk. To
achieve this objective, a majority of our marketable investments
are floating rate and municipal bonds, auction instruments and
money market instruments denominated in U.S.&nbsp;dollars. When
we acquire assets denominated in foreign currencies, we usually
mitigate currency risks associated with
</FONT>

<P align="center"><FONT size="2">14</FONT>

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<DIV align="left">
<FONT size="2">these exposures with forward currency contracts.
A substantial portion of our sales, expense and capital
purchasing activities are transacted in U.S.&nbsp;dollars.
However, some of these activities are conducted in other
currencies, primarily Canadian and European currencies. To
protect against reductions in value and the volatility of future
cash flows caused by changes in foreign exchange rates, we may
enter into foreign currency forward contracts. The contracts
reduce, but do not always entirely eliminate, the impact of
foreign currency exchange rate movements. Actual results on our
financial position may differ materially.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also hold investments in other public and
private companies, including, among others, Nortel Networks,
Adept and ADVA, and have limited funds invested in private
venture funds. All three companies have experienced severe stock
price declines during the economic downturn, which have greatly
reduced the value of our investments, and we have written down
the value of these investments as the decline in fair value was
deemed to be other-than-temporary. During fiscal 2003, we have
written down the value of our Adept investment to $0 and
recorded impairment charges of $25.0&nbsp;million. During fiscal
2002, we recorded impairment charges of $187.3&nbsp;million
related to Nortel and $13.9&nbsp;million related to ADVA. During
fiscal 2001, we recorded impairment charges of
$511.8&nbsp;million related to Nortel and $744.7&nbsp;million
related to ADVA. <I>In addition to our investments in public
companies, we have in the past and expect to continue to make
investments in privately held companies for strategic and
commercial purposes. </I>For example, we had a commitment to
provide additional funding of up to $20.6&nbsp;million to
certain venture capital investment partnerships as of
September&nbsp;30, 2003. In recent months several of the private
companies in which we held investments have ceased doing
business and have either liquidated or are in bankruptcy
proceedings. If the carrying value of our investments exceeds
the fair value and the decline in fair value is deemed to be
other-than-temporary, we will be required to write down the
value of the investments, which could materially harm our
results of operations or financial condition.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">If we fail to obtain additional capital at
    the times, in the amounts and upon the terms required, our
    business could suffer.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have devoted substantial resources for new
facilities and equipment in our business operations. Currently,
we are incurring substantial costs associated with restructuring
our business and operations under our Global Realignment
Program. <I>Although we believe our existing cash balances will
be sufficient to meet our capital requirements at least for the
next 12&nbsp;months, under certain circumstances, such as an
acquisition opportunity or an unforeseen change in our business
operations, we may be required to seek additional equity or debt
financing to compete effectively in our markets. </I>We cannot
precisely determine the timing and amount of such capital
requirements, which will depend on several factors, including,
among others, our acquisitions, the success of our Global
Realignment Program and the demand for our products and products
under development. Such additional financing may not be
available when needed, or if available, may not be on terms
satisfactory to us or may be dilutive to our stockholders.
</FONT>


<P align="center"><FONT size="2">15</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our rights plan and our ability to issue
    additional preferred stock could harm the rights of our common
    stockholders.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In February&nbsp;2003, we amended and restated
our Stockholder Rights Agreement and currently each share of our
outstanding common stock is associated with one right. Each
right entitles stockholders to purchase 1/100,000&nbsp;share of
our Series&nbsp;B Preferred Stock at an exercise price of $21.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The rights only become exercisable in certain
limited circumstances following the tenth day after a person or
group announces acquisition of or tender offers for 15% or more
of our common stock. For a limited period of time following the
announcement of any such acquisition or offer, the rights are
redeemable by us at a price of $0.01 per right. If the rights
are not redeemed, each right will then entitle the holder to
purchase common stock having the value of twice the then-current
exercise price. For a limited period of time after the
exercisability of the rights, each right, at the discretion of
our Board of Directors, may be exchanged for either 1/100,000
share of Series&nbsp;B Preferred Stock or one share of common
stock per right. The rights expire on June&nbsp;22, 2013.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Board of Directors has the authority to issue
up to 499,999&nbsp;shares of undesignated preferred stock and to
determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or
imposed upon any wholly unissued shares of undesignated
preferred stock and to fix the number of shares constituting any
series and the designation of such series, without the consent
of our stockholders. The preferred stock could be issued with
voting, liquidation, dividend and other rights superior to those
of the holders of common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The issuance of Series&nbsp;B Preferred Stock or
any preferred stock subsequently issued by our Board of
Directors, under some circumstances, could have the effect of
delaying, deferring or preventing a change in control.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Some provisions contained in the rights plan, and
in the equivalent rights plan that our subsidiary JDS Uniphase
Canada Ltd. has adopted with respect to our exchangeable shares,
may have the effect of discouraging a third party from making an
acquisition proposal for us and may thereby inhibit a change in
control. For example, such provisions may deter tender offers
for shares of common stock or exchangeable shares, which offers
may be attractive to stockholders, or deter purchases of large
blocks of common stock or
</FONT>

<P align="center"><FONT size="2">16</FONT>
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<DIV align="left">
<FONT size="2">exchangeable shares, thereby limiting the
opportunity for stockholders to receive a premium for their
shares of common stock or exchangeable shares over the
then-prevailing market prices.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Some anti-takeover provisions contained in
    our charter and under Delaware laws could hinder a takeover
    attempt.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are subject to the provisions of
Section&nbsp;203 of the Delaware General Corporation Law
prohibiting, under some circumstances, publicly-held Delaware
corporations from engaging in business combinations with some
stockholders for a specified period of time without the approval
of the holders of substantially all of our outstanding voting
stock. Such provisions could delay or impede the removal of
incumbent directors and could make more difficult a merger,
tender offer or proxy contest involving us, even if such events
could be beneficial, in the short-term, to the interests of the
stockholders. In addition, such provisions could limit the price
that some investors might be willing to pay in the future for
shares of our common stock. Our certificate of incorporation and
bylaws contain provisions relating to the limitations of
liability and indemnification of our directors and officers,
dividing our board of directors into three classes of directors
serving three-year terms and providing that our stockholders can
take action only at a duly called annual or special meeting of
stockholders. These provisions also may have the effect of
deterring hostile takeovers or delaying changes in control or
management of us.
</FONT>

<P align="center"><FONT size="2">17</FONT>
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