NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Oclaro, Inc., a Delaware corporation, is sometimes referred to in this Quarterly Report on Form 10-Q as “Oclaro,” “we,” “us” or “our.” The accompanying unaudited condensed consolidated financial statements of Oclaro as of March 31, 2012 and for the three and nine months ended March 31, 2012 and April 2, 2011 have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission (SEC) Regulation S-X, and include the accounts of Oclaro and all of our subsidiaries. Accordingly, they do not include all of the information and footnotes required by such accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our consolidated financial position and results of operations have been included. The condensed consolidated results of operations for the three and nine months ended March 31, 2012 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending June 30, 2012.

The condensed consolidated balance sheet as of July 2, 2011 has been derived from our audited financial statements as of such date, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended July 2, 2011 (2011 Form 10-K).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reported periods. These judgments can be subjective and complex, and consequently, actual results could differ materially from those estimates and assumptions. Descriptions of some of the key estimates and assumptions are included in our 2011 Form 10-K.

For presentation purposes, we have reclassified certain prior period amounts to conform to the current period financial statement presentation. These reclassifications did not affect our consolidated net loss, cash flows, cash and cash equivalents or stockholders’ equity as previously reported. On March 19, 2012, we entered into a definitive agreement to sell certain assets to Venture Corporation Limited (Venture). The assets to be transferred to Venture within the next 12 months are classified as assets held for sale within current assets on the condensed consolidated balance sheet at March 31, 2012. We have also committed to a plan to market and sell our building in Shenzhen, China. The building’s carrying value is classified in assets held for sale within our condensed consolidated balance sheet as of March 31, 2012.

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which requires us to disclose gross information and net information about instruments and transactions eligible for offset in the statement of financial position. ASU No. 2011-11 will be effective for our fiscal year beginning on June 30, 2013. The adoption of this update will require a change in the format of our current presentation.

In September 2011, the FASB issued ASU No. 2011-09, which updates Accounting Standards Codification (ASC) Subtopic 715-80, Compensation – Retirement Benefits – Multiemployer Plans, enhancing disclosures by requiring transparency about the nature of the commitments and risks involved in participating in multiemployer pension plans. ASU No. 2011-09 will be effective for our fiscal year ending June 30, 2012. The adoption of this update will require certain additional disclosures.

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In June 2011, the FASB issued ASU No. 2011-05, an amendment to ASC Topic 220, Comprehensive Income , which amends current comprehensive income guidance. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of our statement of stockholders’ equity. Instead, we must report comprehensive income in either a single continuous statement of comprehensive income that contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU No. 2011-05 will be effective for our fiscal year beginning July 1, 2012. The adoption of this update will require a change in the format of our current presentation.

We define fair value as the estimated price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. We apply the following fair value hierarchy, which ranks the quality and reliability of the information used to determine fair values:

Our cash equivalents and non-current marketable securities are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most marketable securities and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy. The types of instruments valued based on other observable inputs are foreign currency forward exchange contracts. Such instruments are generally classified within Level 2 of the fair value hierarchy.

During the eighteen month period ending January 20, 2012, we classified the earnout obligations arising from our acquisition of Mintera Corporation (Mintera) within Level 3 of the fair value hierarchy because their values were primarily derived from management estimates of future operating results. At March 31, 2012, the remaining earnout obligations were classified within Level 2 of the fair value hierarchy as the amounts to be paid were fixed based on sales of Mintera products through the eighteen month period ended January 20, 2012. See Note 4, Business Combinations , for additional details regarding these earnout obligations.

We have a defined benefit pension plan in Switzerland whose assets are classified within Level 1 of the fair value hierarchy for plan assets of cash, equity investments and fixed income investments, and Level 3 of the fair value hierarchy for plan assets of real estate and alternative investments. These pension plan assets are not reflected in the accompanying condensed consolidated balance sheets, and are thus not included in the following tables.

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The following table provides details regarding the changes in accrued expenses and other liabilities classified within Level 3 from July 2, 2011 to March 31, 2012:

Derivative Financial Instruments

At the end of each accounting period, we mark-to-market all foreign currency forward exchange contracts that have been designated as cash flow hedges and changes in fair value are recorded in accumulated other comprehensive income until the underlying cash flows are settled and the contracts are recognized in other income (expense) in our condensed consolidated statements of operations. As of March 31, 2012, we held six outstanding foreign currency forward exchange contracts to sell U.S. dollars and buy U.K. pounds sterling. All of these contracts have been designated as cash flow hedges. These contracts had an aggregate notional value of approximately $4.0 million of put and call options which expire, or expired, at various dates ranging from April 2012 through September 2012. To date, we have not entered into any such contracts for longer than 12 months and, accordingly, all amounts included in accumulated other comprehensive income as of March 31, 2012 will generally be reclassified into other income (expense) within the next 12 months. As of March 31, 2012, each of the six designated cash flow hedges were determined to be fully effective; therefore, we recorded an unrealized gain of $0.1 million to accumulated other comprehensive income related to recording the fair value of these foreign currency forward exchange contracts for accounting purposes.

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Merger with Opnext

On March 26, 2012, we entered into an Agreement and Plan of Merger and Reorganization (Merger Agreement), by and among Opnext, Inc. (Opnext), Tahoe Acquisition Sub, Inc., a newly formed wholly-owned subsidiary of Oclaro (Merger Sub) and Oclaro, pursuant to which Oclaro and Opnext will combine our businesses through a merger of Merger Sub with and into Opnext (Merger).

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger, by virtue of the Merger and without any action on the part of any stockholder, each outstanding share of common stock of Opnext, par value $0.01 per share, will be converted into the right to receive 0.42 of a share of common stock of Oclaro, par value $0.01 per share. Options to purchase Opnext common stock will be assumed by Oclaro pursuant to the terms of the Merger Agreement. Stock appreciation rights with respect to Opnext common stock and restricted stock units of Opnext will be converted into stock appreciation rights with respect to Oclaro common stock and restricted stock units of Oclaro pursuant to the terms described in the Merger Agreement.

Each of Opnext and Oclaro has made customary representations, warranties and covenants in the Merger Agreement. Consummation of the Merger is subject to customary conditions, including the adoption of the Merger Agreement by the stockholders of Opnext and the approval by the stockholders of Oclaro of the issuance of shares of Oclaro common stock and of a Certificate of Amendment to Oclaro’s Certificate of Incorporation in connection with the Merger. The Merger Agreement contains certain termination rights for both Opnext and Oclaro in certain circumstances, some of which would require Opnext or Oclaro to pay the other a termination fee of $6.0 million.

Asset Sale

In December 2011, we entered into an asset sale agreement to sell certain assets related to a legacy product, including inventory, equipment and intangibles, in exchange for $3.9 million of initial consideration plus potential earnout consideration, based on the purchaser’s revenues from the legacy product over a 15 month period following the closing date. As of March 31, 2012, we have received $2.9 million of the initial consideration

In the second fiscal quarter of 2012, we recorded a deferred gain of $1.3 million related to the sale of these assets and classified this amount in accrued expenses and other liabilities in our condensed consolidated balance sheet. In the third fiscal quarter of 2012, we completed the asset transfer and recognized a gain of $1.9 million within restructuring, acquisition and related costs in the condensed consolidated statements of operations. Earnout consideration, if any, will be recognized in the period it is reported to us as due, provided we believe cash collections are reasonably assured.

Acquisition of Mintera

In July 2010, we acquired Mintera. For accounting purposes, the initial fair value of consideration given in connection with the acquisition of Mintera was $25.6 million. This acquisition is more fully discussed in Note 3, Business Combinations , to our consolidated financial statements included in our 2011 Form 10-K.

Under the terms of this acquisition, we agreed to pay certain revenue-based consideration, whereby former security holders of Mintera are entitled to receive up to $20.0 million, determined based on a set of sliding scale formulas, to the extent revenue from Mintera products was more than $29.0 million in the 12 months following the acquisition and/or is more than $40.0 million in the 18 months following the acquisition. The earnout consideration is payable in cash or, at our option, newly issued shares of our common stock, or a combination of cash and stock.

During the three and nine months ended March 31, 2012, we reassessed the fair value of the earnout obligations, determining that the fair value of the obligations increased by $0.7 million during the three month period and decreased by $2.2 million during the nine month period. The $0.7 million increase in fair value during the three months ended March 31, 2012 and the $2.2 million decrease in fair value during the nine months ended March 31, 2012 were recorded within restructuring, acquisition and related expenses in the condensed consolidated statements of operations.

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In October 2011, we settled the 12 month earnout obligation with the former security holders by paying them $0.5 million in cash and issuing 0.8 million shares of our common stock valued at $2.8 million.

At March 31, 2012, we determined the fair value of the 18 month earnout obligation to be fixed at $10.8 million based on sales of Mintera products during the eighteen month period ended January 20, 2012. We recorded the $10.8 million in accrued expenses and other liabilities in our condensed consolidated balance sheet. We intend to settle the remaining earnout obligation of $10.8 million in cash during the fourth quarter of fiscal 2012.

During the three and nine months ended March 31, 2012, we recorded minimal amounts in interest expense related to the earnout obligations. During the three and nine months ended April 2, 2011, we recorded $0.3 million and $0.7 million, respectively, in interest expense related to the earnout obligations.

The following table provides details regarding our inventories at the dates indicated:

The following table provides details regarding our assets held for sale at the dates indicated:

On March 19, 2012, we entered into a definitive agreement with Venture to transfer our Shenzhen, China final assembly and test operations in a phased and gradual transfer of products over the next three years. As part of this transfer, we also entered into a definitive Equipment and Inventory Purchase Agreement with Venture and their affiliates to sell certain equipment and inventory. We anticipate that we will transfer at least $15.0 million in equipment and inventory to Venture within the next 12 months, and have classified this amount as assets held for sale within our condensed consolidated balance sheet as of March 31, 2012.

We have also committed to a plan to market and sell our building in Shenzhen, China. The building’s carrying value of $5.3 million is classified in assets held for sale within our condensed consolidated balance sheet as of March 31, 2012.

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The following table provides details regarding our property and equipment, net at the dates indicated:

As noted above, certain equipment to be sold to Venture, along with our building in Shenzhen, China, have been reclassified from property and equipment, net to assets held for sale within our condensed consolidated balance sheet as of March 31, 2012.

The following table presents details regarding our accrued expenses and other liabilities at the dates indicated:

The following table presents the components of accumulated other comprehensive income at the dates indicated:

In October 2011, certain areas in Thailand suffered major flooding as a result of monsoons. This flooding had a material impact on our business and results of operations. Our primary contract manufacturer, Fabrinet, suspended operations at two factories located in Chokchai, Thailand and Pinehurst, Thailand. The Chokchai factory suffered extensive flood damage and became inaccessible due to high water levels inside and surrounding the manufacturing facility. As a result of this flooding, we experienced a significant decline in product sales due to our inability or limited ability to manufacture certain Oclaro products and we incurred significant damage to our inventory and property and equipment located at the Chokchai facility.

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During the three and nine months ended March 31, 2012, we recorded impairment charges related to the write-off of the net book value of damaged inventory and property and equipment based on our current estimates of the damage caused by the flooding. These impairment charges are recorded within the operating expense caption flood-related (income) expense, net in our condensed consolidated statement of operations. Flood-related (income) expense, net for the three and nine months ended March 31, 2012 also includes personnel-related costs, professional fees and related expenses incurred in connection with our recovery efforts. We continue to evaluate our estimates of flood-related losses, and in future quarters we may record additional losses for damaged equipment and inventory.

On February 2, 2012, we received a $6.4 million advance payment from one of our insurers relating to losses we incurred due to the flooding in Thailand. This payment is a general advance from our insurer against all Thailand flood-related claims and was not specifically identified as reimbursement for any particular loss or claim. As there were no contingencies associated with this payment, we recorded this advance payment within flood related income (expense), net in our condensed consolidated statements of operations for the three and nine months ended March 31, 2012.

Flood-related (income) expense, net for the three and nine months ended March 31, 2012 included the following:

While we maintain both property and business interruption insurance coverage, there can be no assurance as to the amount or timing of future insurance recoveries, or that we will be able to fully and timely resume production of each of our affected product lines. Insurance recoveries related to impairment losses previously recorded and other recoverable expenses will be recognized to the extent of the related loss or expense in the period that recoveries become probable and realizable. Insurance recoveries under business interruption coverage and insurance recovery gains in excess of amounts previously written-off related to impaired inventory and equipment or in excess of other recoverable expenses previously recognized will be recognized when they become realizable and all contingencies have been resolved. The evaluation of insurance recoveries requires estimates and judgments about future results which affect reported amounts and certain disclosures. Actual results could differ from those estimates. Insurance recoveries we receive in future periods will be recorded net of flood-related expense in the condensed consolidated statement of operations. As of March 31, 2012, we have not recorded any estimated amounts relating to potential future insurance recoveries in the condensed consolidated statement of operations.

On July 26, 2011, Oclaro Technology Ltd., as “Borrower,” and Oclaro, Inc., as “Parent,” entered into an amendment and restatement to our existing senior secured credit facility (the Credit Agreement) with Wells Fargo Capital Finance, Inc. and other lenders, increasing the facility size from $25 million to $45 million and extending the term thereof to August 1, 2014. This Credit Agreement is more fully discussed in Note 6, Credit Agreement , and Note 16, Subsequent Event , to our consolidated financial statements included in our 2011 Form 10-K.

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At March 31, 2012, there was $25.5 outstanding under the Credit Agreement with an average interest rate of 3.4 percent. As of March 31, 2012, we were in compliance with all covenants under the Credit Agreement. As of July 2, 2011, there were no amounts outstanding under the Credit Agreement. At March 31, 2012 and July 2, 2011, there were $0.1 million and $1.1 million, respectively, in outstanding standby letters of credit secured under the Credit Agreement. These letters of credit expire at various intervals through April 2014.

During the three and nine months ended March 31, 2012, we contributed $0.3 million and $0.9 million, respectively, to our Swiss Plan. We currently anticipate contributing an additional $0.3 million to this pension plan during the remainder of fiscal year 2012.

Guarantees

We indemnify our directors and certain employees as permitted by law, and have entered into indemnification agreements with our directors and executive officers. We have not recorded a liability associated with these indemnification arrangements, as we historically have not incurred any material costs associated with such indemnification obligations. Costs associated with such indemnification obligations may be mitigated by insurance coverage that we maintain, however, such insurance may not cover any, or may cover only a portion of, the amounts we may be required to pay. In addition, we may not be able to maintain such insurance coverage in the future.

We also have indemnification clauses in various contracts that we enter into in the normal course of business, such as those issued by our bankers in favor of certain suppliers or indemnification in favor of customers in respect of liabilities they may incur as a result of purchasing our products should such products infringe the intellectual property rights of a third party. We have not historically paid out any material amounts related to these indemnifications, therefore, no accrual has been made for these indemnifications.

Warranty accrual

We generally provide a warranty for our products for twelve months from the date of sale. We accrue for the estimated costs to provide warranty services at the time revenue is recognized. Our estimate of costs to service our warranty obligations is based on historical experience and expectation of future conditions. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty costs would increase, resulting in a decrease in gross profit.

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The following table summarizes movements in the warranty accrual for the periods indicated:

Litigation

Five putative class actions challenging the Merger have been filed in the Superior Court of the State of California in and for the County of Alameda: (1) Martin Zilberberg v. Charles J. Abbe, No RG12623460, on March 28, 2012; (2) Eleanor Welty v. Harry L. Bosco, Case No. RG12624240, on April 4, 2012; (3) Todd Wright v. Harry L. Bosco, Case No. RG12624343, on April 5, 2012; (4) Stephen Greenberg v. Charles J. Abbe, No. RG12624444, on April 5, 2012; and (5) Mark Graf v. Opnext, Inc., No. RG12624798, on April 9, 2012 (the Graf Action). Two putative class actions challenging the Merger have been filed in the Delaware Court of Chancery: Glenn Freedman v. Opnext, Inc., CA No. 7400-VCL, on April 5, 2012; and (2) Berger v. Bosco, No. 7406-VCL, on April 9, 2012. The two Delaware actions have been consolidated under the caption In re Opnext, Inc. Shareholders Litigation, C.A. No. 7400-VCL. The defendants in each case are Opnext, Inc. and the members of Opnext’s Board (collectively, the Opnext Defendants), Oclaro, Inc. and Tahoe Acquisition Sub, Inc. (collectively, the Oclaro Defendants). Each action alleges that the Opnext Defendants breached their fiduciary duties to Opnext stockholders by entering into the Merger Agreement. Each action further alleges that the Oclaro Defendants aided and abetted those breaches of fiduciary duties.

Among other relief, the plaintiff in each case seeks an order enjoining the Merger, and seeking attorneys’ fees. All of the actions except for the Graf Action seek damages and an accounting. Plaintiffs have served discovery in certain of these actions, but no trial date has been set in any of these actions. We believe that the claims asserted in each of these actions are without merit and intend to defend them vigorously. We are unable at this time to estimate the effects of these lawsuits on our financial position, results of operations or cash flows.

On May 19, 2011, Curtis and Charlotte Westley filed a purported class action complaint in the United States District Court for the Northern District of California, against us and certain of our officers and directors. The Court subsequently appointed the Connecticut Laborers’ Pension Fund (Pension Fund) as lead plaintiff for the putative class. On October 27, 2011, the Pension Fund filed an Amended Complaint, captioned as Westley v. Oclaro, Inc., No. 11 Civ. 2448 EMC, allegedly on behalf of persons who purchased our common stock between May 6 and October 28, 2010, alleging that defendants issued materially false and misleading statements during this time period regarding our current business and financial condition, including projections for demand for our products, as well as our revenues, earnings, and gross margins, for the first quarter of fiscal year 2011 as well as the full fiscal year. The complaint alleges violations of section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5, as well as section 20(a) of the Securities Exchange Act. The complaint seeks damages and costs of an unspecified amount. On December 12, 2011, defendants filed a motion to dismiss the complaint. That motion was granted with leave to file the amended complaint. Discovery has not commenced, and no trial has been scheduled in this action. We intend to defend this litigation vigorously. We are unable at this time to estimate the effects of these lawsuits on our financial position, results of operations or cash flows.

On June 10, 2011, a purported shareholder, Stanley Moskal, filed a purported derivative action in the Superior Court for the State of California, County of Santa Clara, against us, as nominal defendant, and certain of our current and former officers and directors, as defendants. The case is styled Moskal v. Couder, No. 1:11 CV 202880 (Santa Clara County Super. Ct. filed June 10, 2011). Four other purported shareholders, Matteo Guindani, Jermaine Coney,

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Jefferson Braman and Toby Aguilar, separately filed substantially similar lawsuits in the United States District Court for the Northern District of California on June 27, June 28, July 7 and July 26, 2011, respectively. By Order dated September 14, 2011, the Guindani, Coney, and Braman actions were consolidated under In re Oclaro, Inc. Derivative Litigation , Lead Case No. 11 Civ. 3176 EMC. On October 5, 2011, the Aguilar action was voluntarily dismissed. Each remaining purported derivative complaint alleges that Oclaro has been, or will be, damaged by the actions alleged in the Westley complaint, and the litigation of the Westley action, and any damages or settlement paid in the Westley action. Each purported derivative complaint alleges counts for breaches of fiduciary duty, waste, and unjust enrichment. Each purported derivative complaint seeks damages and costs of an unspecified amount, as well as injunctive relief. By Order dated November 23, 2011, the parties in the Moskal action agreed that defendants shall not be required to respond to the original complaint, that plaintiff would serve an amended complaint no later than March 9, 2012, and the stay of discovery would remain in effect until further order of the Court or agreement by the parties. By Order dated November 29, 2011, the parties to In re Oclaro, Inc. Derivative Litigation agreed to stay all proceedings, including motion practice and discovery, until such time as (a) the defendants file an answer to any complaint in the Westley Action; or (b) the Westley Action is dismissed in its entirety with prejudice. Discovery has not commenced, and no trial has been scheduled in any of these actions. We are unable at this time to estimate the effects of these lawsuits on our financial position, results of operations or cash flows.

Comprehensive Income (Loss)

For the three and nine months ended March 31, 2012 and April 2, 2011, comprehensive income (loss) is primarily comprised of our net loss, changes in the unrealized gain on currency instruments designated as cash flow hedges, unrealized gain (loss) on marketable securities and currency translation adjustments. The components of comprehensive income (loss) were as follows for the periods indicated:

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Common Stock

In December 2009, we acquired Xtellus, Inc. (Xtellus). As part of the consideration, we were obligated to pay $7.0 million in consideration to the former Xtellus stockholders after an 18 month escrow period. During the three months ended October 1, 2011, we settled the $7.0 million liability with the former Xtellus stockholders by transferring approximately 0.9 million shares of common stock held in escrow, valued at $7.0 million. The transfer of the shares resulted in a $7.0 million increase to our additional paid-in capital and a corresponding decrease to our accrued expenses and other liabilities. The balance of 0.1 million shares of common stock held in escrow were returned to us, retired and returned to the status of authorized but unissued common stock in September 2011.

In connection with our July 2010 acquisition of Mintera, we paid $0.5 million in cash and issued 0.8 million shares of our common stock valued at $2.8 million to settle our 12 month earnout obligation in October 2011. The transfer of the shares resulted in a $2.8 million increase to our additional paid-in capital and a corresponding decrease to our accrued expenses and other liabilities. See Note 4, Business Combinations .

Amended and Restated 2004 Stock Incentive Plan

We currently maintain the Amended and Restated 2004 Stock Incentive Plan (Plan). Under the Plan, there are a total of 7.8 million shares of common stock authorized for issuance, with full value awards being counted as 1.25 shares of common stock for purposes of the share limit. The Plan expires in October 2020.

As of March 31, 2012, there were approximately 2.6 million shares of our common stock available for grant under the Plan. We generally grant stock options that vest over a four year service period, and restricted stock awards and units that vest over a one to four year service period, and in certain cases each may vest earlier based upon the achievement of specific performance-based objectives as set by our board of directors.

In July 2011, our board of directors approved the grant of 0.2 million performance stock units (PSUs) to certain executive officers with an aggregate estimated grant date fair value of $0.9 million. These PSUs will be earned through June 30, 2013 based upon the achievement of certain revenue growth targets relative to certain comparable companies. Vesting is also contingent upon service conditions being met through August 2015. If the performance conditions are not achieved, then the corresponding PSUs will be forfeited in the first quarter of fiscal year 2014.

The following table summarizes the combined stock option and restricted stock activity under all of our equity incentive plans for the nine months ended March 31, 2012:

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Supplemental disclosure information about our stock options outstanding as of March 31, 2012 is as follows:

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the closing price of our common stock of $3.94 on March 30, 2012, which would have been received by the option holders had all option holders exercised their options as of that date. There were approximately 0.7 million shares of common stock subject to in-the-money options which were exercisable as of March 31, 2012. We settle employee stock option exercises with newly issued shares of common stock.

2011 Employee Stock Purchase Plan

On October 26, 2011, our 2011 Employee Stock Purchase Plan (ESPP) was approved by our stockholders. Under the ESPP, we have reserved 1.7 million shares of our common stock for issuance. As of March 31, 2012, no shares have been issued under the ESPP and the full 1.7 million shares remain available for issuance. Our ESPP provides that eligible employees may contribute up to 15% of their eligible earnings toward the semi-annual purchase of our common stock. Participants may not purchase more than $25,000 worth of common stock in any calendar year or 15,000 shares in any offering period. The ESPP is qualified under Section 423 of the Internal Revenue Code. The ESPP became effective January 24, 2012, and our first six-month offering period (or the look-back period) began February 16, 2012 and will end on August 15, 2012.

The purchase price with respect to each offering period is equal to 85% of the lesser of (i) the fair market value of our common stock at the commencement of the applicable six-month offering period or (ii) the fair market value of our common stock on the purchase date (or, if not a trading day, on the immediately preceding trading day).

During the three and nine months ended March 31, 2012, we received $0.1 million from employees for the issuance of shares under the ESPP and the weighted-average fair value per share of each purchase right was $1.92.

We recognize compensation expense in our statement of operations related to all share-based awards, including grants of stock options and purchase rights under our ESPP, based on the grant date fair value of such share-based awards. Estimating the grant date fair value of such share-based awards requires us to make judgments in the determination of inputs into the Black-Scholes stock option pricing model which we use to arrive at an estimate of the grant date fair value for such awards.

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The weighted-average assumptions used in this model to value stock option grants and purchase rights under the ESPP for the three and nine months ended March 31, 2012 and April 2, 2011 were as follows:

The amounts included in cost of revenues and operating expenses for stock-based compensation for the three and nine months ended March 31, 2012 and April 2, 2011 were as follows: