-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GbxFM1emwpF60fBIzDJQZzet9s+RlOsLPfG2jbMTEfqi5L3aehcfviZi/Q1lcgv2 +Qh7aQl2OnVCiqkooM6oRw== 0001095811-01-001202.txt : 20010214 0001095811-01-001202.hdr.sgml : 20010214 ACCESSION NUMBER: 0001095811-01-001202 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20010213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JDS UNIPHASE CORP /CA/ CENTRAL INDEX KEY: 0000912093 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942579683 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-22874 FILM NUMBER: 1538486 BUSINESS ADDRESS: STREET 1: 210 BAYPOINTE PKWY CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4084341800 MAIL ADDRESS: STREET 1: 210 BAYPOINTE PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95134 10-K/A 1 f69300e10-ka.txt AMENDMENT TO FORM 10-K FISCAL YEAR END 6/30/2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K/A (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER 0-22874 --------------------- JDS UNIPHASE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 210 BAYPOINTE PARKWAY, SAN JOSE, CA 95134 94-2579683 (State or other jurisdiction of (Address of principal (Zip code) (I.R.S. Employer incorporation or organization) executive offices) Identification No.)
Registrant's telephone number, including area code (408) 434-1800 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.001 PER SHARE (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of September 30, 2000, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $85,967,426,046 based upon the average of the high and low prices of the Common Stock and Exchangeable Shares as reported on The Nasdaq National Market and The Toronto Stock Exchange, respectively, on such date. Shares of Common Stock held by officers, directors and holders of more than 5% of the outstanding Common Stock have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of September 30, 2000, the Registrant had 957,820,638 shares of Common Stock, including 173,904,237 Exchangeable Shares. DOCUMENTS INCORPORATED BY REFERENCE (To the Extent Indicated Herein) Certain information required in Part III hereto is incorporated by reference to the Definitive Proxy Statement for the Registrant's 2000 Annual Meeting of Stockholders filed on October 26, 2000 with the Securities and Exchange Commission pursuant to Regulation 14A. 2 PART I INTRODUCTORY NOTE This amendment on Form 10-K/A amends and supersedes the Registrant's Annual Report on Form 10-K for the year ended June 30, 2000, as filed on September 28, 2000, and is being filed to update the disclosure of subsequent events in such Annual Report, including but not limited to, the Registrant's consolidated financial statements included in Item 8. ITEM 1. BUSINESS GENERAL JDS Uniphase Corporation is the result of a merger between Uniphase Corporation ("Uniphase") and JDS FITEL Inc. ("JDS FITEL"), pursuant to which they combined their operations on June 30, 1999. Historic information included or incorporated by reference in this Annual Report on Form 10-K/A that is specific to Uniphase Corporation or JDS FITEL Inc. is specifically described as "Uniphase" or "JDS FITEL" information, respectively. References to "we," "us," "our," the "Company" and "JDS Uniphase" refer to the combined entity resulting from the merger. We are a leading provider of advanced fiber optic components and modules. These products are sold to the world's leading telecommunications and cable television system and subsystem providers, which are commonly referred to as OEMs and include established system providers, such as Alcatel, Ciena, Cisco, Corning, Lucent, Marconi, Motorola, Nortel, Scientific Atlanta, Siemens and Tyco, along with emerging system providers, such as Corvis, ONI Systems, Juniper Networks and Sycamore. These telecommunication system and subsystem providers use these components and modules as the building blocks for the systems that they ultimately supply to telecommunications carriers such as AT&T, WorldCom, Qwest and Sprint. Our products are basic building blocks for fiber optic networks and perform both optical-only, commonly referred to as "passive" functions, and optoelectronic, commonly referred to as "active" functions, within fiberoptic networks. Our products include semiconductor lasers, high-speed external modulators, transmitters, amplifiers, couplers, multiplexers, circulators, tunable filters, optical switches and isolators for fiberoptic applications. We also supply our OEM customers with test instruments for both system production applications and network installation. In addition, we design, manufacture and market laser subsystems for a broad range of OEM applications, optical display and projection products used in computer displays and other similar applications and light interference pigments used in security products and decorative surface treatments. The Company was incorporated in Delaware in October 1993. We are the product of several strategic mergers and acquisitions, including the June 30, 1999 combination of Uniphase and JDS FITEL. During 2000 alone, we acquired the following companies and businesses, in chronological order: AFC Technologies ("AFC"), Ramar Corporation ("Ramar"), EPITAXX, Inc. ("EPITAXX"), SIFAM Limited ("SIFAM"), Oprel Technologies Inc. ("Oprel"), IOT Limited ("IOT"), Optical Coating Laboratory, Inc. ("OCLI"), Cronos Integrated Microsystems, Inc. ("Cronos"), Fujian Casix Lasers Inc. ("Casix") and E-TEK Dynamics, Inc. ("E-TEK"). During 2001, we acquired the following companies and businesses in chronological order: Epion Corporation ("Epion"), Optical Process Automation Corp. ("OPA") and SDL, Inc. ("SDL"). INDUSTRY BACKGROUND Businesses and consumers are increasingly accessing public telecommunications networks to communicate, collect and distribute information. The explosive growth of the Internet, coupled with the increasing volume of data and video traffic across corporate and public internets and intranets has fueled the continuing and rapidly growing demand for more network capacity in both telecommunications and cable television networks. In response to this growing demand, telecommunications service providers have been deploying new fiberoptic systems or upgrading existing fiberoptic systems in order to significantly increase the capacity of their networks. Given the inherently faster speed of light signals in fiberoptic networks and their immunity from electromagnetic interference, fiberoptic systems have become the preferred solution for increasing network capacity. Today, fiberoptic cable is the primary medium for long-haul telecommunications and cable television networks and is making inroads to replace copper in the shorter distance metropolitan, or metro markets that serve larger metropolitan and other public networks with transmission distances of less than 100 kilometers. Demands for increased capacity in fiberoptic networks have led, in recent years, to a proliferation of an advanced method of transmitting multiple signals at slightly different wavelengths through a single fiber to achieve efficient use of fiber capacity. This technique, which is referred to as wavelength division multiplexing, or WDM, requires separate source lasers emitting slightly different wavelengths for each signal or "channel". Each signal or "channel" carries a separate voice or data transmission. Once the 2 3 signal is generated, more complex modulators and optical amplifiers control and amplify the signal in the network to ensure that the voice or data transmission signal reaches its destination quickly and reliably. WDM systems, which were originally designed for eight separate wavelengths or channels in 1996, are currently being developed to carry over 160 separate channels. This increasingly complex design for WDM systems has contributed to the need for telecommunications system suppliers to rely on third party, merchant suppliers, to provide higher performance components and, ultimately, integrated combinations of components, or "modules". A typical WDM system consists of a large number of interdependent active optoelectronic and passive optical components. An active component is a device that has both optical and electronic properties while a passive component only performs its functions in the optical domain. Generally, active components generate, encode, amplify or detect optical signals, while passive components are used to mix, filter, adjust and stabilize the optical signals in advanced fiberoptic networks. Both active and passive components are needed to achieve a system's specifications for speed, performance and reliability. To minimize the number of components, and thereby reduce costs and improve system reliability, telecommunications equipment manufacturers are increasingly requiring the integration of multiple components into single, integrated modules, which combine a number of components into a single functional unit within the network architecture. For example, a module such as an Erbium Doped Fiber Amplifier (EDFA) is comprised of multiple passive and active components. According to Ryan Hankin Kent, Inc. or "RHK" (a market research company specializing in telecommunications), the market for EDFAs alone is expected to grow from $790 million in 1999 to $3.9 billion in 2003. The current demand for increased capacity in fiberoptic telecommunications and cable television networks has caused the complexity and performance requirements of newly deployed fiberoptic networks to substantially increase while product life cycles for these network systems decrease. OEM system suppliers are under pressure from their customers to provide higher capacity and more complex, and at the same time more flexible, systems in shorter time periods and at reduced costs. These same pressures apply at all levels of their system products, including components and modules. These increasing performance requirements and associated development costs are making it more difficult for many OEM suppliers to compete effectively by vertically integrating their own components and modules. The growing complexity of these network systems also results in a substantial increase in the number of components that the OEM supplier must utilize to achieve desired system level performance. For example, next-generation systems are expected to reach transmission speeds of 40 Gbp/s with channel counts surpassing 160. There will need to be source lasers, modulators, and receivers for every channel, as well as more powerful amplifiers and additional components to combat spectral issues that develop in the signal at 40 Gbp/s. At the same time, the need for increased flexibility within a fiberoptic network, combined with cost reduction pressures, is driving demand for systems that reduce, and ultimately, eliminate altogether, the need for electronic switching and regeneration of optical signals. The goal of these so called "all optical" networks is to keep a signal entirely in the optical domain from beginning to end of the network. To accomplish this, optical components will need to perform every function in the network, many of which are currently accomplished by electronics. All of these factors, the increasing system performance requirements, the need for more components and modules to provide the higher channel counts and higher transmission speeds demanded by the market, the increasing complexity of these components and modules, along with the need to reduce costs and shorten time to market, are making it more difficult for the established telecommunications system providers to design, develop and manufacture these components and modules, while at the same time providing the network backbone to meet the market demand. Moreover, emerging system providers, which typically have little or no internal component manufacturing capability, must rely exclusively on a robust supply chain from merchant component and module suppliers to meet their needs. In lieu of qualifying a different vendor for each of these components, OEM system suppliers are seeking fewer vendors for a greater variety of components and integrated modules. A single vendor of multiple components or modules has the ability to design these products to interact more effectively within a network infrastructure and to optimize performance between them when installed in a single network system. Given these factors, there is an increasing trend by established OEMs to reduce the level of their vertical integration at the component and module level and to focus on the overall system design and architecture of their products, which has historically been the primary means by which those OEM system suppliers have differentiated themselves from their competitors. Coupled with the developing demand from emerging system suppliers, the merchant component manufacturers are facing unprecedented demand. OUR TECHNOLOGY AND PRODUCTS Our product offering consists of a broad range of components and modules enabling our customers to satisfy all of their requirements through "one-stop" shopping at a single supplier. We have two principal operating segments: Components and Modules. Financial information about our segments and geographical regions are included in Note 10 of Notes to Consolidated Financial Statements. 3 4 COMPONENTS Our component products include both active and passive products. Active products include source lasers for cable television and telecommunications, pump lasers, external modulators, photodetectors, receivers, and integrated laser modulator assemblies. Passive components include isolators, WDM couplers, monitor tap couplers, gratings, circulators, optical switches, tunable filters, micro-electro-mechanical-systems, wavelength lockers and switches. Source Lasers. At the beginning of the network, a source laser powers the initial signal that will be transmitted over the network. These source lasers are characterized by their wavelength and power levels and operate most efficiently at the 1550-nanometer wavelength range for general telecommunications networks and 1310-nanometer or 1550-nanometer for cable television telecommunications networks. Power, which is measured in milliwatts, generally determines the ability of the source laser to transmit over longer distances, with higher power source lasers enabling greater initial transmission distances. A single source laser is required for each channel in a WDM system. We supply both 1550-nanometer and 1310-nanometer diode lasers as sources for telecommunications and cable television transmitters. These lasers are either continuous wave for use with external modulators or directly modulated. For long-haul WDM systems, lasers at up to 20 milliwatts of power are produced to operate at the many desired optical wavelengths and used in conjunction with current 2.5 and 10 gigabit per second external lithium niobate modulators, and 40 gigabit per second lithium niobate modulators in development. Directly modulated 2.5 gigabit per second lasers are used for short-reach fiberoptic systems. For cable television, higher power (60 milliwatts) 1550-nanometer continuous wave lasers are used for externally modulated trunk transmitters and directly modulated 1310-nanometer analog lasers are used for distribution transmitters. Modulators. Modulators turn the source light on and off to encode and send the information throughout the network. Modulation can be achieved either by directly turning the laser light source on and off or externally by transmitting or alternating a continuous source laser signal to achieve the same on and off effect. Lower performance, shorter distance network systems are better suited for direct modulation, while other systems are designed to utilize external modulators to encode the information signal. We produce both direct and external modulators used in fiberoptic telecommunications systems. Pump Lasers. Pump lasers are used in optical amplifiers within networks to regenerate the light signal that naturally suffers loss over distance within the network. The advent of the optical amplifier in the early 1990s has permitted the development of today's advanced fiberoptic networks by eliminating the need within those networks to convert attenuated optical signals back into the electrical domain to amplify these signals for continued transmission over distances now exceeding 600 kilometers. Optical amplifiers each contain from one to six pump lasers depending on amplifier performance requirements. We supply 980-nanometer pump lasers that are used in optical amplifiers. These pumps are used to energize the erbium-doped fiber that comprises the amplifier. Output power from the pump modules is in the range of 70 to 200 milliwatts. Optical amplifiers are commonly used in 1550-nanometer fiber systems that exceed 60 kilometers in length. Optical Photodetectors and Receivers. Receivers and photodetectors detect the optical signals and convert them back into electronic signals. We supply optical photodetectors and receivers for fiberoptic telecommunications and cable television networks. Receivers are used in WDM products for each channel at both sides of the fiberoptic link as wavelength translation is required. Photodetectors are used throughout a network to monitor a variety of statistics including power levels and channel count. Couplers, Filters, Isolators and Circulators. WDM couplers are used to split and combine signals in an optical network. We supply WDM demultiplexers and access/bi-directional couplers. Many of these products are based on thin-film filters, microlenses and/or special optical materials. The WDM products are generally used at the receiver and have one output port for each system wavelength. Isolator products are used to cause light signals in a network to propagate in one direction within a network, but prevent that signal from returning in the opposite direction. Circulators are similar to isolators in causing light in a system to flow in only one direction, but are different in that circulators incorporate multiple ports and use these multiple ports to perform a routing function within the network. We supply various types of isolators, circulators and we also produce tunable narrow-bandpass filters that are wavelength-tunable by voltage control. Switches and Attenuators. Optical switches are used to route and switch signals to different destinations within networks. Attenuators are used to adjust the power of the optical signal to be compatible with the optical receivers within a network system. 4 5 We supply fixed and variable attenuators and switches. The attenuators are used in multiple locations in a network, including at the receiver for performance optimization. Switches are being widely used for path protection, shared signal monitoring and bandwidth provisioning. Switches will also be key in future networks for other reconfigurability and cross-connect applications. We also supply custom design switching modules of sub-assemblies primarily for optical-path protection. The complexity of these switches varies and is determined in large part by the number of fiber paths that come in and out of the switch, and we offer switches with as many as 32 inbound and 32 outbound light paths. We also supply a line of switches and attenuators based on the micro-electro-mechanical-systems ("MEMS") technology which uses traditional semiconductor process techniques to produce compact, high-performance, and reliable applications at a low cost in high volume. Fiber Bragg Gratings. We supply fiber Bragg gratings to separate and filter multiple wavelengths of light propagating in the same fiber. These gratings are generally used in signal monitoring, dispersion compensation and gain flattening applications. Wavelength Lockers. We supply wavelength lockers that are used to stabilize the wavelength of lasers used in dense WDM transmission systems. These lockers ensure that, over the lifetime of the system, the wavelength of a source laser does not drift to interfere with an adjacent wavelength channel. The locker operates by filtering and detecting a small amount of the source-laser light and providing a stabilizing feedback signal to the laser. MODULES Capitalizing on our broad range of active and passive components, we also develop and manufacture modules for telecommunications and cable television systems. Modules are assemblies of optical and optoelectronic components, and can be combined with a limited amount of electronics, in a single compact package. Our module products include amplifiers, add-drop multiplexers, transmitters, transceivers and test instruments for optical components. A brief description of our module products are as follows: Amplifiers. We supply both Ramar and EDFA optical amplifiers. These amplifiers are designed to boost the WDM optical signals without reconversion to electrical signal and permit an optical signal to travel a greater distance between electronic terminals and regenerators. These modules include multiple passive and active components such as couplers, isolators, pump combiners and pump lasers. Add-Drop Multiplexers. We supply add-drop multiplexers that allow systems to add and drop optical signals without reconversion to an electrical signal. For example, a system operating from San Francisco to New York can drop one signal in Chicago and add another allowing for greater network flexibility. The modules include multiple components such as switches, fiber Bragg gratings and attenuators. Transmitters. We manufacture transmitters that combine source lasers, modulators, wavelength lockers and electronic drivers so that the signal is created and encoded in a single package. Transceivers. In addition to transmitters we also offer transceivers that combine transmitters with receivers so that signals can be generated and encoded or received and detected in a single package. These modules would be installed at the beginning and end of a system. Cable Television Transmitters and Amplifiers. In cable television networks we supply externally modulated transmitters for trunk-line applications, directly modulated transmitters for the distribution portion of cable television networks, return-path lasers for interactive communications and transmitters providing both analog and digital signals to the recipient. Telecommunications Specialty Modules and Instruments. We supply a number of specialty products for multi-gigabit fiberoptics systems. In particular, we provide some of the transmit/receive instrumentation modules used to design and test such systems. We also provide a variety of variable-bit rate receivers and OC-48 transmit/receive products that operate over extended temperature ranges. Test Instruments. Test instruments are used for testing and measuring optical components. Many of the test instruments were originally developed for evaluating our own optical components during the design and production phases. An example of a test instrument is the series polarization meter, which performs high resolution measurement of polarization dependent loss (an important parameter for optical amplifier components used in undersea applications) in real time. This allows for dynamic fine-tuning of components during assembly. Other test instruments include return loss meters, broadband noise sources and swept wavelength test 5 6 systems (certain of which allow for high speed optical spectral analysis of components such as dense WDM demultiplexers), controllable attenuators and programmable switches. Controllable attenuators include manually adjustable or programmable attenuators for laboratory and automated production testing. Network attenuators perform power management functions in WDM links. Programmable switches include matrix switches, which are used mainly in automated test stations for manufacturing or reliability testing. Switches are also key building blocks for network elements such as remote fiber testing systems and automated fiber patch panels. OTHER PRODUCTS In addition to our core optical components and modules business, we also manufacture and supply laser subsystems for a broad range of OEM applications, optical display and projection products used in computer displays and other similar applications and light interference pigments used in security products and decorative surface treatments. Our principal laser subsystem products consist of air-cooled argon gas laser subsystems, which generally emit blue or green light, Helium-Neon laser subsystems, which generally emit red or green light, and solid state lasers, which generally emit infrared, blue or green light. These systems consist of a combination of a laser head containing the lasing medium, power supply, cabling and packaging, including heat dissipation elements. Optical display and projection products control the brightness, contrast and resolution of next generation display products including computer displays, digital image projectors, flat panel displays, scanners and personal digital assistants (commonly known as PDAs). Light interference pigments achieve unique color shifting characteristics in security products and decorative surface treatments. Security related products include bank notes, passports, credit cards, tax stamps and brand protection labels. Decorative surface treatments include automotive paint, cosmetics, electronic cases and apparel. COMPANY STRATEGY Our goal is to maintain and expand our position as a leading merchant supplier of advanced components and modules to the rapidly growing telecommunications and cable television networking marketplace. The key elements of our business strategy are as follows: - Offer a Comprehensive Portfolio of Fiberoptic Components. We seek to position ourselves as a "one-stop" source for an increasingly greater variety of components and for both the established network system providers as well as the burgeoning number of emerging system providers. As our customers continue to reduce the number of suppliers of components and modules for their systems, we strive to provide the capacity and expertise to effectively partner with our customers to provide a comprehensive solution to their component and module needs. - Develop Modules to Improve Customer Time-to-Market. Our customers continue to seek an increase in the level of integration in the optoelectronic and optical products that they purchase from their suppliers. We believe that reductions in the number of component integration and manufacturing steps required at the customer level enable these customers to better focus their time and resources on aspects of their business that leverage their core competencies and their competitive advantages over other system providers. Through close relationships with our customers, we try to understand their needs at an early stage in their product development cycles and to design our products to meet these specific performance and time-to-market needs. We believe that our core competencies in both passive and active components will enable us to design our module-level solutions quickly and effectively. - Increase Manufacturing Capacity. As customer demand for our products continues to grow, we are focused on significantly increasing our manufacturing capacity through a number of initiatives including facility expansion, enhanced manufacturing efficiencies, automation and outsourcing. We continue to add people, space and equipment at our facilities throughout the world while simultaneously initiating development efforts that involve both enhancement and optimization of existing manufacturing techniques and development of new, more automated manufacturing solutions. In addition, we are also looking to outsource certain steps of the manufacturing process where partners may help remove production bottlenecks and create a more cost-effective process and scalable process. - Maintain Technology Leadership and High Product Reliability. We consider our technological and product leadership and our existing customer relationships to be critical to our continued success. We believe one of the barriers to entry in the long-haul, 6 7 metro and submarine telecommunications markets is the life-test and quality control criteria established by Telcordia, one of the world's foremost commercial research and development organizations for communications applications. Our new product development often leverages our existing Telcordia test data, enabling us to use our significant library of life-test and quality control data to qualify new products more quickly than our competitors, who may have less available test data. Our research and development efforts continue to focus on the advanced technologies critical to our success in meeting our customers demands for higher channel count systems, increased power, higher speed modulation, all optical networking and module level integration. - Partner with our Customers. We work closely with our customers from initial product design through to manufacturing and delivery. By engaging with our customers at every level, we seek to partner with them at the early stages of system development so that we can provide them with all of their component and module needs through customized design and manufacturing. Maintaining strong customer relationships is critical to our company's growth and every effort is made to ensure that our customers' needs are met. - Seek Complementary Mergers and Acquisitions. The telecommunications industry is experiencing rapid consolidation and realignment because of globalization, deregulation and rapidly changing competitive technologies such as fiberoptics for cable television, wireless communications and the Internet. We have grown in part by acquiring or merging with telecommunications businesses and may continue to do so in the future. We frequently evaluate strategic opportunities and intend in the future to actively pursue acquisitions of additional products, technologies and businesses. Although we expect to be successful in implementing our strategy, our statements about our strategy are forward looking. We cannot predict the future and many factors, some within and some outside of our control may cause us to fail to achieve one or more of our strategic goals. Some of these factors are discussed under "Risk Factors" below. RECENT DEVELOPMENTS On January 31, 2001, the Company acquired Optical Process Automation Corp. ("OPA") in a transaction accounted for as a purchase. The Company issued 3.0 million shares of common stock for all of the outstanding stock, common and preferred, of OPA valued at approximately $130.2 million and assumed the outstanding stock options of OPA, which had an estimated value of approximately $36.7 million. Subject to the completion of certain milestones, the purchase agreement also provides for the issuance of additional shares of common stock, valued at approximately $250.0 million, with the final milestone payment scheduled to be paid on or prior to January 31, 2004. On February 13, 2001, the Company completed its acquisition of SDL. As consideration for the transaction, each outstanding share of SDL was exchanged for 3.8 shares of the Company's common stock. The total purchase price is estimated at approximately $41.0 billion, based on the average market value of the Company's common stock for a range of trading days (June 30, 2000 through July 14, 2000) around the announcement of the merger. SDL designs, manufactures and sells semiconductor lasers, laser-based subsystems and fiber optic related solutions. This transaction will be accounted for as a purchase with goodwill of approximately $37.4 billion, which is expected to be amortized over its estimated useful life of five years. On February 13, 2001, the Company completed the sale of its Zurich, Switzerland subsidiary to Nortel Networks ("Nortel") for 65.7 million shares of Nortel common stock valued at $2.1 billion, as well as up to an additional $500 million in Nortel common stock payable to the extent Nortel purchases do not meet certain levels under new and existing programs through December 31, 2003. The Company expects to record a gain estimated at $1.9 billion in the quarter ended March 31, 2001. SALES AND MARKETING We market our telecommunications components to OEMs through our direct sales force in North America, Asia, Europe and Australia. In addition, we sell our products through distributors and manufacturers' representatives in North America, Europe, Asia, South America, the Middle East and Australia. Selected OEM customers for telecommunications components include: Alcatel Juniper Networks ONI Systems Ciena Lucent Scientific Atlanta Cisco Marconi Siemens Corning Motorola Sycamore Corvis Nortel Tyco
We market our laser subsystem products, optical display and projection products and light interference pigments through our direct sales force and worldwide network of representatives and distributors. CUSTOMER SUPPORT AND SERVICE We believe that a high level of customer support is necessary to successfully develop and maintain long-term relationships with all our customers. With respect to our core telecommunications businesses, each relationship begins at the design-in phase and is 7 8 maintained as customer needs change and evolve. We provide direct service and support to our OEM customers through our offices in North America and Europe. RESEARCH AND DEVELOPMENT During fiscal years 2000, 1999 and 1998, JDS Uniphase incurred research and development expenditures of $113.4 million, $27.0 million and $14.8 million, respectively. We are currently developing new and enhanced telecommunications components and modules and expanding our manufacturing capability for these products. Once the design of a product is complete, our engineering efforts shift to enhance both the performance of that product and our ability to manufacture it at higher volumes and at lower cost. For the telecommunications marketplace, we continue to increase the power output of our pump lasers and the number of source lasers available for multi-channel applications and to develop several other optical switching technologies. Higher performance modulators and transmitters are under development, as are advanced multi-gigabit modulators. We continue to develop packaging technology for a number of our optoelectronic components so as to enable us to supply more integrated, packaged modules to our customer base. MANUFACTURING The following table sets forth our main locations and the primary products manufactured at each location:
Location Products -------- -------- Canada, Nepean Optical amplifiers, wave division multiplexers, couplers, circulators, switches, tunable filters, isolators and test instruments for telecommunications, waveguides and attenuators Netherlands, Eindhoven Source lasers, semiconductor optical amplifiers, pump lasers for optical amplifiers and polymer waveguide optical switches Connecticut, Bloomfield Modulators and wavelength lockers Switzerland, Zurich Pump lasers Pennsylvania, Chalfont Cable television transmitters and amplifiers, transceivers for telecommunications Florida, Melbourne Test instruments, transmitters and transceivers for telecommunications Australia, Sydney Fiber Bragg gratings California, San Jose Add-drop multiplexer modules, wavelength division multiplexers, couplers, circulators, switches, isolators, optical amplifiers and laser subsystems California, Santa Rosa Thin film filters, optical display and projection products and light intereference pigments United Kingdom, Plymouth Laser packaging for telecommunications, fused couplers United Kingdom, Whitney Fiber Bragg gratings for 980nm pump lasers New Jersey, Trenton Optical photodetectors and receivers North Carolina, Raleigh-Durham Micro-electro-mechanical-systems China, Fuzhou YVO4 and lithium niobate crystals China, Shenzen Isolators and wave division multiplexers Taiwan, Taipei Couplers and isolators
SOURCES AND AVAILABILITY OF RAW MATERIALS Our policy is to establish at least two sources of supply for materials whenever possible, although we do have some sole source supply arrangements. The loss or interruption of such arrangements could have an impact on our ability to deliver certain products on a timely basis. 8 9 COMPETITION The industries in which we sell our products are highly competitive. In all aspects of our business, we face intense competition from established competitors and the threat of future competition from new and emerging companies. Our overall competitive position depends upon a number of factors, including the price, performance and reliability of our products, the breadth of our product line, our level of customer service, the quality of our manufacturing processes, the compatibility of our products with existing telecommunications and cable television network architectures and our ability to participate in the growth of emerging technologies. In the telecommunications markets, we face competition from companies that have substantially greater financial, engineering, research, development, manufacturing, marketing, service and support resources, greater name recognition than us and long-standing customer relationships. These competitors include, without limitation, Alcatel, Agilent, Avanex, Chorum, Coherent, Corning, Fujitsu, Furukawa, Harmonic, Lightpath Technologies, Lucent, Motorola, New Focus, Nortel, Pirelli, SDL, Sumitomo Cement Opto Electronics Group and Tyco. PATENTS AND PROPRIETARY RIGHTS Intellectual property rights that apply to our various products include patents, trade secrets and trademarks. Because of the rapidly changing technology and a broad distribution of patents in the optoelectronics industry, our intention is not to rely primarily on intellectual property rights to protect or establish our market position. We do not intend to broadly license our intellectual property rights unless we can obtain adequate consideration or enter into acceptable patent cross-license agreements. We hold approximately 375 U.S. patents and 383 Foreign patents. BACKLOG Backlog consists of written purchase orders for products for which we have assigned shipment dates within the following 12 months. As of June 30, 2000 our backlog was approximately $931 million including the backlog acquired from E-TEK as compared to a backlog of approximately $156 million at June 30, 1999. Orders in backlog are firm, but are subject to cancellation or rescheduling by the customer. Because of possible changes in product delivery schedules and cancellation of product orders and because our sales will often reflect orders shipped in the same quarter in which they are received, our backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. Certain of our customers have adopted "just in time" techniques with respect to ordering the Company's products, which will cause us to have shorter lead times for providing products. Such shorter lead times are likely to result in lower backlog. EMPLOYEES At June 30, 2000, we had a total of approximately 19,000 full-time employees worldwide, including 1,540 in research, development and engineering, 545 in sales, marketing and service, approximately 15,886 in manufacturing, and 1,041 in general management, administration and finance. We intend to hire additional personnel during the next 12 months in each of these areas. Our future success will depend in part on our ability to attract, train, retain and motivate highly qualified employees, who are in great demand. There can be no assurance that we will be successful in attracting and retaining such personnel. Except for our Netherlands and Germany operations, our employees are not represented by any collective bargaining organization. Most hourly and salaried employees in the Netherlands are represented by the Philips Collective Labor Agreement. We have never experienced a work stoppage, slowdown or strike. We consider our employee relations to be good. 9 10 RISK FACTORS DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS We have historically achieved growth through a combination of internally developed new products and acquisitions. Our growth strategy depends on our ability to continue developing new components, modules and other products for our customer base. However, along with internal new product development efforts as part of this strategy, we expect to continue to pursue acquisitions of other companies, technologies and complementary product lines. The success of each acquisition will depend upon: - our ability to manufacture and sell the products of the businesses acquired; - continued demand for these acquired products by our customers; - our ability to integrate the acquired business' operations, products and personnel; - our ability to retain key personnel of the acquired businesses; and - our ability to expand our financial and management controls and reporting systems and procedures. Difficulties in integrating new acquisitions could adversely affect our business Critical to the success of our growth is the ordered, efficient integration of acquired businesses into our organization and, with this end, we have in the past spent and continue to spend significant resources. If our integration efforts are unsuccessful, our businesses will suffer. We are the product of several substantial combinations, mergers and acquisitions, including, among others, the combination of Uniphase and JDS FITEL on June 30, 1999, and the acquisitions of OCLI on February 4, 2000, E-TEK on June 30, 2000 and SDL, Inc. on February 13, 2000. Each combination, merger and acquisition presents unique product, marketing, research and development, facilities, information systems, accounting, personnel and other integration challenges. In the case of several of our acquisitions, we acquired businesses that had previously been engaged primarily in research and development and that needed to make the transition from a research activity to a commercial business with sales and profit levels that are consistent with our overall financial goals. Also, our information systems and those of the companies we acquired are often incompatible, requiring substantial upgrades to one or the other. Further, our current senior management is a combination of the prior senior management teams of JDS Uniphase, OCLI, E-TEK and SDL, several of whom have not previously worked with other members of management. Our integration efforts may not be successful, and may result in unanticipated operations problems, expenses and liabilities and the diversion of management attention. Consequently, our operating results would suffer. We often incur substantial costs related to our combinations, mergers and acquisitions. For example, we have incurred direct costs associated with the combination of Uniphase and JDS FITEL of approximately $12.0 million, incurred approximately $8.0 million associated with the acquisition of OCLI, incurred approximately $92.0 million associated with the acquisition of E-TEK and incurred approximately $360.0 million associated with the acquisition of SDL. We expect to continue to incur substantial costs relating to our merger with SDL. We may incur additional material charges in subsequent quarters to reflect additional costs associated with these and other combinations and acquisitions which will be expensed as incurred. If we fail to efficiently integrate our sales and marketing forces, our sales could suffer Our sales force is and will in the future be a combination of our sales force and the sale forces of the businesses we acquired, which must be effectively integrated for us to remain successful. Our combinations, mergers and acquisitions often result in sales forces differing in products sold, marketing channels used and sales cycles and models applied. Accordingly, we may experience disruption in sales and marketing in connection with our efforts to integrate our various sales and marketing forces, and we may be unable to efficiently or effectively correct such disruption or achieve our sales and marketing objectives if we fail in these efforts. Our sales personnel not accustomed to the different sales cycles and approaches required for products newly added to their portfolio may experience delays and difficulties in selling these newly added products. Furthermore, it may be difficult to retain key sales personnel. 10 11 As a result we may fail to take full advantage of the combined sales forces' efforts, and one company's sales approach and distribution channels may be ineffective in promoting another entity's products, all of which may materially harm our business, financial condition or operating results. We may fail to commercialize new product lines We intend to continue to develop new product lines to address our customers' diverse needs and the several market segments in which we participate. If we fail, our business will suffer. As we target new product lines and markets, we will further increase our sales and marketing, customer support and administrative functions to support anticipated increased levels of operations from these new products and markets as well as growth from our existing products. We may not be successful in creating this infrastructure nor may we realize any increase in the level of our sales and operations to offset the additional expenses resulting from this increased infrastructure. In connection with our recent acquisitions, we have incurred expenses in 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. Any failure of our information technology infrastructure could materially harm our results of operations Our success depends, among other things, upon the capacity, reliability and security of our information technology hardware and software infrastructure. Any failure relating to this infrastructure could significantly and adversely impact the results of our operations. In connection with our growth, we have identified the need to update our current information technology infrastructure and expect to incur significant costs relating to this upgrade. Among other things, we are currently unifying our manufacturing, accounting, sales and human resource data systems using an Oracle platform, expanding and upgrading our networks and integrating our voice communications systems. We must continue to expand and adapt our system infrastructure to keep pace with our growth. Demands on infrastructure that exceed our current forecasts could result in technical difficulties. Upgrading the network infrastructure will require substantial financial, operational and management resources, the expenditure of which could affect the results of our operations. We may not successfully and in a timely manner upgrade and maintain our information technology infrastructure, and a failure to do so could materially harm our business, results of operations and financial condition. WE HAVE MANUFACTURING DIFFICULTIES If we do not achieve acceptable manufacturing volumes, yields or sufficient product reliability, our operating results could suffer The manufacture of our products involves highly complex and precise processes, requiring production in highly controlled and clean environments. Changes in our manufacturing processes or those of our suppliers, or their inadvertent use of defective or contaminated materials, could significantly reduce our manufacturing yields and product reliability. Because the majority of our manufacturing costs are relatively fixed, manufacturing yields are critical to our results of operations. Some of our divisions have in the past experienced lower than expected production yields, which could delay product shipments and impair gross margins. These divisions or any of our other manufacturing facilities may not maintain acceptable yields in the future. For example, our existing Uniphase Netherlands facility has not achieved acceptable manufacturing yields since the June 1998 acquisition, and there is continuing risk attendant to this facility and our manufacturing yields and costs. To the extent we do not achieve acceptable manufacturing yields or experience product shipment delays, our business, operating results and financial condition would be materially and adversely affected. As our customers' needs for our products increase, we must increase our manufacturing volumes to meet these needs and satisfy customer demand. Failure to do so may materially harm our business, operating results and financial condition. In some cases, existing manufacturing techniques, which involve substantial manual labor, may be insufficient to achieve the volume or cost targets of our customers. As such, we will need to develop new manufacturing processes and techniques, which are anticipated to involve higher levels of automation, to achieve the targeted volume and cost levels. In addition, it is frequently difficult at a number of our manufacturing facilities to hire qualified manufacturing personnel in a timely fashion, if at all, when customer demands increase over shortened time periods. While we continue to devote research and development efforts to improvement of our manufacturing techniques and processes, we may not achieve manufacturing volumes and cost levels in our manufacturing activities that will fully satisfy customer demands. If our customers do not qualify our manufacturing lines for volume shipments, our operating results could suffer 11 12 Customers will not purchase any of our products, other than limited numbers of evaluation units, prior to qualification of the manufacturing line for the product. Each new manufacturing line must go through varying levels of qualification with our customers. This qualification process determines whether the manufacturing line achieves the customers' quality, performance and reliability standards. Delays in qualification can cause a product to be dropped from a long term supply program and result in significant lost revenue opportunity over the term of that program. We may experience delays in obtaining customer qualification of our new facilities. If we fail in the timely qualification of these or other new manufacturing lines, our operating results and customer relationships would be adversely affected. OUR OPERATING RESULTS SUFFER AS A RESULT OF PURCHASE ACCOUNTING TREATMENT, PRIMARILY DUE TO THE IMPACT OF AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES ORIGINATING FROM ACQUISITIONS Under U.S. generally accepted accounting principles that apply to us, we accounted for a number of business combinations using the purchase method of accounting. Under purchase accounting, we recorded the market value of our common shares and the exchangeable shares of our subsidiary, JDS Uniphase Canada Ltd., issued in connection with mergers and acquisitions with the fair value of the stock options assumed, which became options to purchase our common shares and the amount of direct transaction costs as the cost of acquiring these entities. That cost is allocated to the individual assets acquired and liabilities assumed, including various identifiable intangible assets such as in-process research and development, acquired technology, acquired trademarks and trade names and acquired workforce, based on their respective fair values. We allocated the excess of the purchase cost over the fair value of the net assets to goodwill. The impact of purchase accounting on our operating results is significant. The following table reflects the impact of in-process research and development expense (in the quarter the acquisition closed) and the prospective quarterly/annual amortization of purchased intangibles attributable to our significant mergers and acquisitions that have closed in the past four quarters (in millions):
Quarterly Annual In-process Amortization of Amortization Research and Purchased of Purchased Entity Development Intangibles Intangibles - ------ ------------ --------------- ------------ OCLI $ 84.1 $ 79.8 $ 319.1 Cronos $ 6.3 $ 27.9 $ 111.8 E-TEK $ 250.6 $ 850.8 $ 3,403.2
The impact of these mergers and acquisitions as well as other acquisitions consummated in the past five years resulted in amortization expense of $896.9 million for the fiscal year ended June 30, 2000 and is expected to result in amortization of approximately $4.6 billion for the fiscal year ending June 30, 2001. In addition, we will account for the SDL merger using the purchase method of accounting. In-process research and development, which is currently estimated at $230.0 million, will be expensed in the three months ended March 31, 2001. Intangible assets including goodwill will be generally amortized over a five year period and deferred compensation will be amortized over the remaining vesting period of the unvested SDL stock options assumed by JDS Uniphase of up to four years. The amount of purchase cost allocated to goodwill and other intangibles is estimated to be approximately $38.1 billion. The amount of purchase cost allocated to deferred compensation is currently estimated at $1.0 billion. If goodwill and other intangible assets were amortized in equal quarterly amounts over a five year period and the deferred compensation was amortized over the remaining vesting period of the options, the accounting charge attributable to these items would be approximately $2.1 billion per quarter and $8.2 billion per year. Additionally, we also incur other purchase accounting related costs and expenses in the period a particular transaction closes to reflect purchase accounting adjustments adversely impacting gross profit and costs of integrating new businesses or curtailing overlapping operations. Purchase accounting treatment of our mergers and acquisitions will result in a net loss for the foreseeable future, which could have a material and adverse effect on the market value of our stock. OUR STOCK PRICE FLUCTUATES SUBSTANTIALLY The unpredictability of our quarterly operating results could cause our stock price to be volatile or decline We expect to continue to experience fluctuations in our quarterly results, which in the future may be significant and cause substantial fluctuations in the market price of our stock. All of the concerns we have discussed under "Risk Factors" could affect our operating results, including, among others: - the timing of the receipt of product orders from a limited number of major customers; - the loss of one or more of our major suppliers or customers; 12 13 - competitive pricing pressures; - the costs associated with the acquisition or disposition of businesses; - ourability to design, manufacture and ship technologically advanced products with satisfactory yields on a timely and cost-effective basis; - the announcement and introduction of new products by us; and - expenses associated with any intellectual property or other litigation. In addition to concerns potentially affecting our operating results addressed elsewhere under "Risk Factors," the following factors may also influence our operating results: - our product mix; - the relative proportion of our domestic and international sales; - the timing differences between when we incur expenses to increase our marketing and sales capabilities and when we realize benefits, if any, from such expenditures; and - fluctuations in the foreign currencies of our foreign operations. Finally, our net revenues and operating results in future quarters may be below the expectations of public market securities analysts and investors. In such event, the price of our common stock and the exchangeable shares of our subsidiary, JDS Uniphase Canada Ltd., would likely decline, perhaps substantially. Fluctuations in our customers' business could cause our business and stock price to suffer Our business is dependent upon product sales to telecommunications network system providers, who in turn are dependent for their business upon orders for fiber-optic systems from telecommunications carriers. Business fluctuations affecting our system provider customers or their telecommunication carrier customers have affected and will continue to affect our business. Moreover, our sales often reflect orders shipped in the same quarter in which they are received, which makes our sales vulnerable to short-term fluctuations in customer demand and difficult to predict. In general, customer orders may be cancelled, modified or rescheduled after receipt. Consequently, the timing of these orders and any subsequent cancellation, modification or rescheduling of these orders have affected and will in the future affect our results of operations from quarter to quarter. Also, as our customers typically order in large quantities, any subsequent cancellation, modification or rescheduling of an individual order may alone affect our results of operations. In this regard, we have experienced rescheduling of orders by customers and may experience similar rescheduling in the future, which we believe reflects reductions in carrier capital spending and inventory adjustments by our customers in response to less certain carrier demand. Factors other than our quarterly results could cause our stock price to be volatile or decline The market price of our common stock has been and, is likely to continue to be, highly volatile because of causes other than our historical quarterly results, such as: - announcements by our competitors and customers of their quarterly results or technological innovations or new products; - developments with respect to patents or proprietary rights; - governmental regulatory action; and - general market conditions. Recently, the Nasdaq National Market, in general, and our stock and the stock of our customers and competitors, in particular, has experienced substantial price and volume fluctuations, in many cases without any direct relationship to the affected companies' operating performance. Nevertheless, the market prices of the stocks of companies in the optical components, modules and systems 13 14 industries continue to trade at high multiples of earnings. An outgrowth of these multiples and market volatility is the significant vulnerability of our stock price and the stock prices of our customers and competitors to any actual or perceived fluctuation in the strength of the markets we serve, no matter how minor in actual or perceived consequence. Consequently, these multiples and, hence, market prices may not be sustainable. These broad market and industry factors have and may in the future cause the market price of our stock to decline, regardless of our actual operating performance or the operating performance of our customers. OUR SALES WOULD SUFFER IF ONE OR MORE OF OUR KEY CUSTOMERS SUBSTANTIALLY REDUCED ORDERS FOR OUR PRODUCTS Our customer base is highly concentrated. Historically, orders from a relatively limited number of optical system provider customers accounted for a substantial portion of our net sales from telecommunications products. Three customers, Alcatel, Lucent and Nortel, each accounted for over 10% of our net sales for the quarter ended September 30, 2000. We expect that, for the foreseeable future, sales to a limited number of customers will continue to account for a high percentage of our net sales. Sales to any single customer may vary significantly from quarter to quarter. If current customers do not continue to place orders, we may not be able to replace these orders with new orders from new customers. In the telecommunications industry, our customers evaluate our products and competitive products for deployment in their telecommunications systems. Our failure to be selected by a customer for particular system projects can significantly impact our business, operating results and financial condition. Similarly, even if our customers select us, the failure of those customers to be selected as the primary suppliers for an overall system installation, could adversely affect us. Such fluctuations could materially harm our business, financial condition and operating results. INTERRUPTIONS AFFECTING OUR KEY SUPPLIERS COULD DISRUPT PRODUCTION, COMPROMISE OUR PRODUCT QUALITY AND ADVERSELY AFFECT OUR SALES We currently 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 a price increase for these components would materially harm our results of operations, product quality and customer relationships. In addition, we currently utilize a sole source for the crystal semiconductor chip sets incorporated in our solid state microlaser products and acquire our pump diodes for use in our solid state laser products from Opto Power Corporation and GEC. We obtain lithium niobate wafers, gallium arsenide wafers, specialized fiber components and some lasers used in our telecommunications products primarily from Crystal Technology, Inc., Fujikura, Ltd., Philips Key Modules and Sumitomo, respectively. We do not have long-term or volume purchase agreements with any of these suppliers, and these components may not in the future be available in the quantities required by us, if at all. WE MAY BECOME SUBJECT TO COLLECTIVE BARGAINING AGREEMENTS Our employees who are employed at manufacturing facilities located in North America are not bound by or party to any collective bargaining agreements with it. These employees may become bound by or party to one or more collective bargaining agreements with us in the future. Some of our employees outside of North America, particularly in the Netherlands and Germany, are subject to collective bargaining agreements. If, in the future, more of our employees become bound by or party to any collective bargaining agreements, then our related costs and our flexibility with respect to managing our business operations involving such employees may be materially adversely affected. ANY FAILURE TO REMAIN COMPETITIVE IN OUR INDUSTRY WOULD IMPAIR OUR OPERATING RESULTS If our business operations are insufficient to remain competitive in our industry, our operating results could suffer The telecommunications markets in which we sell our products are highly competitive. In all aspects of our business, we face intense competition from established competitors and the threat of future competition from new and emerging companies. Some of these competitors have greater financial, engineering, manufacturing, marketing, service and support resources than we do and may have greater name recognition, manufacturing expertise and capability and longer standing customer relationships than we do. Among these competitors are our customers. These customers are vertically integrated and either manufacture and/or are capable of manufacturing some or all of the products we sell to them. Finally, some of our customers have implemented and/or expanded their manufacturing capability for components they might otherwise purchase from us. To remain competitive, we believe it must maintain a substantial investment in research and development, expanding our manufacturing capability, marketing, and customer service and support. We may not compete successfully in all or some of our markets in the future, and we may not have sufficient resources to continue to make such investments, or we may not make the technological advances necessary to maintain our competitive position so that our products will receive industry acceptance. In addition, technological changes, manufacturing efficiencies or development efforts by our competitors may render our products or technologies obsolete or uncompetitive. 14 15 Fiber optic component average selling prices are declining Prices for telecommunications fiber optic components are generally declining because of, among other things, new and emerging fiber optic component and module suppliers, continued pricing pressure on optical suppliers, increased manufacturing efficiency, technological advances and greater unit volumes as telecommunications service providers continue to deploy fiber optic networks. We have in the past and may in the future experience substantial period to period fluctuations in average selling prices. We anticipate that average selling prices will decrease in the future in response to technological advances, to product introductions by competitors and by us or to other factors, including price pressures from significant customers. Therefore, we must continue to (1) timely develop and introduce new products that incorporate features that can be sold at higher selling prices and (2) reduce our manufacturing costs. Failure to achieve any or all of the foregoing could cause our net sales and gross margins to decline, which may have a material adverse effect on our business, financial condition and operating results. If we fail to attract and retain key personnel, our business could suffer Our future depends, in part, on our ability to attract and retain key personnel. In addition, our research and development efforts depend on hiring and retaining qualified engineers. Competition for highly skilled engineers is extremely intense, and we are currently experiencing difficulty in 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 officers and other key management and technical personnel, each of whom would be difficult to replace. We do not maintain a key person life insurance policy on our chief executive officer, our chief operating officer or any other officer. The loss of the services of one or more of our executive officers or key personnel or the inability to continue to attract qualified personnel could delay product development cycles or otherwise materially harm our business, financial condition and operating results. MARKET CONSOLIDATION HAS CREATED AND CONTINUES TO CREATE COMPANIES THAT ARE LARGER AND HAVE GREATER RESOURCES THAN US In the recent past, there have been a number of significant acquisitions announced among our competitors and customers, including: - Lucent Technologies, Inc./Ortel Corporation; - Corning Incorporated/NetOptix Corporation; - Nortel Networks Corp./Xros, Inc.; - Nortel Networks Corp./Core Tek, Inc.; - Corning Incorporated/NZ Applied Technologies Corp.; - Corning Incorporated/Oak Industries; - Lucent Technologies, Inc./Chromatis Networks, Inc.; and - Corning, Inc./Optical Technologies (a division of Pirelli S.p.A.). The effect on our operations that these completed and pending acquisitions, as well as future transactions, cannot be predicted with accuracy, but some of these competitors are aligned with companies that are larger or better established than us. As a result, these competitors may have access to greater financial, marketing and technical resources than us. Consolidation of these and other companies may also disrupt our marketing and sales efforts. WE FACE RISKS RELATED TO OUR INTERNATIONAL OPERATIONS AND SALES Our customers are located throughout the world. In addition, we have significant offshore operations, including manufacturing facilities, sales personnel and customer support operations. Our operations outside of North America include facilities in Great Britain, Switzerland, the Netherlands, Germany, Australia, the People's Republic of China and Taiwan, ROC. 15 16 Our international presence exposes us to risks not faced by wholly-domestic companies. Specifically, we face the following risks, among others: International sales are subject to inherent risks, including: - unexpected changes in regulatory requirements; - tariffs and other trade barriers; - political, legal and economic instability in foreign markets, particularly in those markets in which we maintain manufacturing and research facilities; - difficulties in staffing and management; - language and cultural barriers; - seasonal reductions in business activities in the summer months in Europe and some other countries; - integration of foreign operations; - longer payment cycles; - greater difficulty in accounts receivable collection; - currency fluctuations; and - potentially adverse tax consequences. Net sales to customers outside of North America accounted for approximately 23%, 40% and 38% of our net sales in 2000, 1999 and 1998, respectively. We expect that sales to customers outside of North America will continue to account for a significant portion of our net sales. We continue to expand our operations outside of the United States and to enter additional international markets, both of which will require significant management attention and financial resources. Since a significant portion of our foreign sales are denominated in U.S. dollars, our products may also become less price competitive in countries in which local currencies decline in value relative to the U.S. dollar. Our business and operating results may also be materially and adversely affected by lower sales levels that typically occur during the summer months in Europe and some other overseas markets. Furthermore, the sales of many of our optical system provider customers depend on international sales and consequently further exposes us to the risks associated with such international sales. 16 17 IF WE HAVE INSUFFICIENT PROPRIETARY RIGHTS OR IF WE FAIL TO PROTECT THOSE WE HAVE, OUR BUSINESS WOULD BE MATERIALLY IMPAIRED We may not obtain the intellectual property rights we require Numerous patents in the industries in which we operate are held by others, including academic institutions and our competitors. We may seek to acquire license rights to these or other patents or other intellectual property to the extent necessary for 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 for our markets. While in the past licenses generally have been available to us where third-party technology was necessary or useful for the development or production of their 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 thereof. 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. Our products may be subject to claims that they infringe the intellectual property rights of others The industry in which we operate experiences periodic claims of patent infringement or other intellectual property rights. We have in the past and may from time to time in the future receive notices from third parties claiming that our products infringe upon third-party proprietary rights. Any litigation to determine the validity of any third-party claims, regardless of the merit of these claims, could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not we are successful in such litigation. If we are unsuccessful in any such litigation, 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. We are currently a party to various claims regarding intellectual property rights. The Company is currently a defendant in litigation claiming damages for infringement of an expired wafer fabrication patent and in litigation alleging infringement of certain patents by our optical amplifier products. None of these claims are expected to have a material adverse effect on our business. Our intellectual property rights may not be adequately protected 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 Asia, Europe or Latin America, may not protect our products and intellectual property rights to the same extent as the laws of the United States. IF WE FAIL TO SUCCESSFULLY MANAGE OUR EXPOSURE TO WORLDWIDE FINANCIAL MARKETS, OUR OPERATING RESULTS COULD SUFFER We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and marketable equity security prices. We utilize derivative financial instruments to mitigate these risks. We do not use derivative financial instruments for speculative or trading purposes. The primary objective 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. dollars. We mitigate currency risks of investments denominated in foreign currencies with forward currency contracts. If we designate such contracts as hedges and they are determined to be effective, depending on the nature of the hedge, changes in the fair value of derivatives will be offset against the change in fair value of assets, liabilities or firm commitments through earnings (fair value hedges) or recognized in other comprehensive income until the hedged item is recognized in earnings (cash flow hedges). The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. A substantial portion of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, we do enter into these transactions 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 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. 17 18 IF WE FAIL TO OBTAIN ADDITIONAL CAPITAL AT THE TIMES, IN THE AMOUNTS AND UPON THE TERMS REQUIRED, OUR BUSINESS COULD SUFFER We are devoting substantial resources for new facilities and equipment to the production of our products. Although we believe existing cash balances, cash flow from operations, available lines of credit, and proceeds from the realization of investments in other businesses will be sufficient to meet our capital requirements at least for the next 12 months, we may be required to seek additional equity or debt financing to compete effectively in these markets. We cannot precisely determine the timing and amount of such capital requirements and will depend on several factors, including our acquisitions 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. OUR CURRENTLY OUTSTANDING PREFERRED STOCK AND OUR ABILITY TO ISSUE ADDITIONAL PREFERRED STOCK COULD IMPAIR THE RIGHTS OF OUR COMMON STOCKHOLDERS Our board of directors has the authority to issue up to 799,999 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. The issuance of preferred stock under some circumstances could have the effect of delaying, deferring or preventing a change in control. Each outstanding share of our common stock includes one right. Each right entitles the registered holder, subject to the terms of the rights agreement, to purchase from us one unit, equal to one one-thousandth of a share of series B preferred stock, at a purchase price of $3,600 per unit, subject to adjustment, for each share of common stock held by the holder. The rights are attached to all certificates representing outstanding shares of our common stock, and no separate rights certificates have been distributed. The purchase price is payable in cash or by certified or bank check or money order payable to our order. The description and terms of the rights are set forth in a rights agreement between us and American Stock Transfer & Trust Company, as rights agent, dated as of June 22, 1998, as amended from time to time. 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 the stockholders, or deter purchases of large blocks of common stock or 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. SOME ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER AND UNDER DELAWARE LAWS COULD IMPAIR A TAKEOVER ATTEMPT We are subject to the provisions of Section 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. FORWARD-LOOKING STATEMENTS Statements contained in this Annual Report on Form 10-K/A which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. A forward-looking statement may contain words such as "plans," "hopes," "believes," "estimates," "will continue to be," "will be," "continue to," "expect to," "anticipate that," " to be" or "can impact." These forward-looking statements include statements relating to our expectations as to: 18 19 - the cost to complete our acquired in-process research and development and the expected amortization of such costs, - the amount (both in absolute dollars and as a percentage of net sales) of our expenditures for research and development, selling, general and administrative and capital acquisitions and improvements, - the sufficiency of existing cash balances and investments, together with cash flow from operations and available lines of credit to meet our liquidity and capital spending requirements at least through the next 12 months, - the development costs, anticipated completion, introduction and projected revenues from new and developing products and technologies including the Thermo Optic Waveguide Attenuator, Solid State Switch, WDM EDFA, WDM laser direct modulation, the Submount and RWG series products, CATV technologies, MEMS Devices, High Speed Modulators, High Speed Receivers and Transceivers, and Optical Network Monitors, - costs associated with prior, pending and future acquisitions and plans relating thereto, - fluctuations in our quarterly results and the price of our common stock, - expansion of our worldwide manufacturing capacity, - the growing complexity of network systems used in fiber optic telecommunications and cable television networks and the resulting demand for components and modules, - the reduction in the number of suppliers for components used by optical networks, - increasing demand for higher levels of integration in optoelectronic and optical products, - increasing demand for our products, - our plans to hire additional personnel in the near future, - our plans with respect to the licensing of our intellectual property rights, - the expectation that sales to a limited number of customers will continue to account for a high percentage of our net revenues, - the expectation that a significant portion of our net sales will be to customers outside of North America and - expectations of market growth. Management cautions that forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties include the risk that - R&D expenditures will be materially greater or less than those expected, - funds will be insufficient to meet our liquidity and capital resources requirements through the next 12 months, - development costs, anticipated completion, introduction and projected revenues from new and developing products and technologies may be materially different than anticipated and - future acquisitions may not be completed as expected, or at all. Further, our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties including the risks set forth above. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this Annual Report on Form 10-K/A to conform such statements to actual results or to changes in our expectations. 19 20 ITEM 2. PROPERTIES Our principal offices are located in San Jose, California and Nepean, Ontario. We own five properties in San Jose, California, totaling 289,000 square feet, of which 20,000 is leased to a third party through May 2001. We also lease approximately 237,000 square feet of various other facilities, which expire on various dates from December 2000 through March 2007. These properties include land, buildings and improvements. We manufacture both fiberoptic components and modules and certain grating-based modules at four of these properties, and commercial lasers at the remaining location. Our principal sales, marketing, technical support, administration, and research and development operations also occupy these facilities. We manufacture passive components and modules, amplifiers, and instruments at our three owned facilities in Nepean, Ontario. These three facilities total approximately 600,000 square feet. We also lease approximately 539,000 square feet of various other facilities that expire on various dates through 2005. An additional 412,000 square feet of owned manufacturing and office space is under construction with occupancy estimated in November 2000 and September 2001. We also own a 75 acre site in Santa Rosa, California totaling 490,000 square feet of office space, manufacturing, engineering, and research and development facilities for our thin film filter products. We also lease an additional 93,000 square feet for our polymer optical products, which expire on various dates from July 2000 through December 2002. Our facilities for our telecommunications equipment products occupy three leased buildings of 33,750, 57,500 and 60,000 square feet in Bloomfield, Connecticut, where our modulator products are manufactured and three leased buildings of 37,500, 80,000, and 46,500 square feet in Chalfont, Pennsylvania where our transmitter products are manufactured. The Bloomfield leases expire on various dates from July 2002 through November 2009 and the Chalfont leases expire on various dates from January 2002 through August 2008. We lease a 98,000 square foot facility in Trenton, New Jersey, a 17,000 square foot facility in Freehold, New Jersey, an 84,000 square foot facility in Asbury, New Jersey and a 20,000 square foot facility in Mountain Lakes, New Jersey. The Trenton facility manufactures high-speed, Indium Gallium Arsenide (InGaAs) receivers and monitors for fiberoptic communications. The Freehold site is primarily a research, development, and engineering facility, which produces passive components and optical amplifiers. The Asbury and Mountain Lakes facilities are primarily sales and marketing offices. We own a 23,000 square foot building located in Fuzhou, China. In addition we are leasing two buildings in Shenzen, China, one building in Shunde, China, one building in Beijing, China and four buildings in Taipei, Taiwan, totaling approximately 84,000, 35,000, 23,000 and 46,000 square feet, respectively. We manufacture crystals, fiberoptic components, optics, isolators, couplers, and other WDM component products at these facilities. We lease a 46,000 square foot facility in Yamton, United Kingdom, a 16,500 square foot facility in Whitney, United Kingdom and a 20,000 square foot facility in Plymouth, United Kingdom for our fiberoptic component packaging plant. Leases for the Yamton, Whitney and Plymouth facilities expire in July 2015, December 2013 and December 2004, respectively. We also lease manufacturing facilities in Torquay, United Kingdom and Plymouth, United Kingdom. These leases on these 20,000 and 42,000 square foot facilities expire in February 2005 and August 2023, respectively. We manufacture analog metering products, high- specification pump WDMs and tap couplers and gain flattening products at these facilities. We lease four buildings of 66,000, 66,000, 45,500 and 18,000 square feet in Eindhoven, the Netherlands, which expire from May 2003 through June 2018. The Eindhoven facility primarily manufactures source lasers, EA modulators, multimedia lasers and CATV receivers. We also occupy 98,000 square feet of manufacturing, engineering and office space in Zurich, Switzerland that is leased through 2012. The Zurich facility primarily manufactures pump lasers. In addition, we lease various small offices and manufacturing facilities throughout the United States and on a worldwide basis. For additional information regarding our obligations under leases, see Note 5 "Lease Commitments" of Notes to Consolidated Financial Statements of our Current Report on Form 8-K filed with the SEC on September 1, 2000, which is hereby incorporated by reference. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of business, various lawsuits and claims are filed against us. While the outcome of these matters is currently not determinable, management believes that the ultimate resolution of these matters will not have a material adverse effect on our financial statements. 20 21 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 4A. DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS OF THE COMPANY The following table sets forth certain information with respect to the executive officers and directors of the Company:
NAME AGE POSITION(s) ---- --- ----------- Jozef Straus, Ph.D.............................. 54 Co-Chairman, Chief Executive Officer Charles J. Abbe................................. 59 President, Chief Operating Officer M. Zita Cobb.................................... 42 Executive Vice President, Strategy and Business Development Anthony R. Muller............................... 57 Executive Vice President, Chief Financial Officer and Secretary Joseph Ip....................................... 43 Senior Vice President, Product Strategy Frederick L. Leonberger, Ph.D................... 53 Senior Vice President, Chief Technology Officer Michael C. Phillips............................. 50 Senior Vice President, Business Development, and General Counsel Bruce D. Day(1)................................. 44 Director Robert E. Enos(2)............................... 61 Director Peter A. Guglielmi(1)(2)........................ 57 Director Martin A. Kaplan(2)............................. 63 Co-Chairman Donald J. Listwin............................... 41 Director John A. MacNaughton(2).......................... 55 Director Wilson Sibbett, Ph.D............................ 52 Director William J. Sinclair(1).......................... 47 Director Casimir S. Skrzypczak(1)........................ 59 Director
- ---------- (1) Member of the Audit Committee (2) Member of the Compensation Committee DR. STRAUS became, in May 2000, Co-Chairman and Chief Executive Officer and was previously, since July 1999 when JDS FITEL merged with the Company, Co-Chairman, President and Chief Operating Officer. Dr. Straus co-founded JDS FITEL in 1981 and served as its Chief Executive Officer and President from September 1993 until July 1999 when JDS FITEL merged with the Company. He served on the JDS FITEL Board of Directors from 1981 and held various positions with JDS FITEL, including Vice President, Sales and Marketing from 1990 to 1993 when he assumed the position of Chief Executive Officer and President. Prior to 1981, Dr. Straus held various research and management positions related to fiber optic technology at Bell-Northern Research Ltd. and Northern Telecom Limited. MR. ABBE became President and Chief Operating Officer in May 2000. From the merger of Optical Coating Laboratory, Inc. ("OCLI") with the Company in February 2000 until May 2000, Mr. Abbe served as Senior Vice President and Senior Operating Officer of the Company. From April 1998 to February 2000, Mr. Abbe served as director and President and Chief Executive Officer of OCLI. Mr. Abbe also served as Vice President and General Manager of OCLI's Santa Rosa Division from April 1966 through April 1998. Prior to joining OCLI, Mr. Abbe held various senior management positions with Raychem Corporation from 1989 to 1996. From 1971 to 1989, Mr. Abbe was employed at McKinsey & Company, Inc., where he last served as senior partner at the San Francisco, California office. MS. COBB became, in May 2000, Executive Vice President, Strategy and Business Development and was previously, since July 1999 when JDS FITEL merged with the Company, Senior Vice President of Strategy and Integration of the Company. Ms. Cobb was a director of JDS FITEL as well as its Chief Financial Officer since February 1996. Ms. Cobb held various positions at JDS FITEL since joining JDS FITEL as Controller in 1989. Prior to joining JDS FITEL, Ms. Cobb held various finance-related positions with Fleet Technology Ltd., Arctec, Inc., Shell Canada Resources Ltd. and Texaco Canada Resources Ltd. MR. MULLER became, in May 2000 an Executive Vice President. Mr. Muller continues to serve, since his appointment in January 1998, as Chief Financial Officer and Secretary of the Company. Mr. Muller also served as Senior Vice President, from January 1998 to his appointment as Executive President in May 2000. From September 1984 to January 1998, when he joined the Company, Mr. Muller was a member of the Board of Directors. From September 1996 to January 1998, he was Senior Vice President and Chief Financial Officer of Micro Focus Group Plc, a supplier of software tools. From November 1990 to September 1996, Mr. Muller served 21 22 as Senior Vice President of Operations and Administration and Chief Financial Officer of Centigram Communications Corporation, a supplier of telecommunications systems. MR. IP became Senior Vice President of Product Strategy in July 1999 upon the closing the JDS FITEL merger with the Company. Mr. Ip joined JDS FITEL in 1990 and since that time held various research, development and product line management roles. Most recently he held the position of Senior Vice President at Optical Networking Products and Technologies. Prior to 1990, Mr. Ip held various research and development positions related to fiber optic technology at Bell-Northern Research Ltd. and Northern Telecom Limited. DR. LEONBERGER has been Chief Technology Officer of the Company since April 1997 and is a Senior Vice President. He was co-founder and general manager of Uniphase Telecommunications Products, Inc. ("UTP") and joined the Company upon its acquisition of UTP in May 1995. Dr. Leonberger has been active in the optoelectronics field for over 20 years and has held a variety of staff and management positions at MIT Lincoln Laboratory, United Technologies Research Center, UTP and the Company. MR. PHILLIPS joined the Company as Senior Vice President, Business Development and General Counsel in August 1998. Mr. Phillips was a partner at Morrison & Foerster LLP, which serves as the Company's outside counsel, from 1988 until he joined the Company. MR. DAY became a member of the Company's Board of Directors in July 1999 as of the closing of the JDS FITEL merger with the Company and was a member of the JDS FITEL Board of Directors since 1996. Since 1991, Mr. Day has been the Vice President, Corporate Development of Rogers Communications Inc. and is principally involved in mergers, acquisitions, divestitures and taxation for Rogers Communications Inc. and its subsidiaries. MR. ENOS became a director of the Company in July 1999 upon the closing of the JDS FITEL merger with the Company and was previously a member of the JDS FITEL Board of Directors from 1996 until July 1999. Mr. Enos was the Vice President, Product Line Management, Cable Group and the Vice President, Transmission Network Division of Northern Telecom Limited from 1992 to 1994 and from 1989 to 1992, respectively. Mr. Enos retired from Northern Telecom Limited in 1994. MR. GUGLIELMI has been a member of the Company's Board of Directors since May 1998. Mr. Guglielmi is Executive Vice President and Chief Financial Officer of Tellabs, Inc., and has served as its Chief Financial Officer since 1988. From 1993 to 1997, he was also President of Tellabs International, Inc. Prior to joining Tellabs, Mr. Guglielmi was Vice President of Finance and Treasurer of Paradyne Corporation for five years. Mr. Guglielmi serves on several boards of directors, including Tellabs, Inc., Internet Communications Corp. and Digital LightWave, Inc.. MR. KAPLAN has been a member of the Company's Board of Directors since November 1997. In May 2000, Mr. Kaplan was appointed as Co-Chairman of the Board. Mr. Kaplan is Executive Vice President of Pacific Telesis and is responsible for coordinating integration plans following the merger of SBC Communications, Inc. and Pacific Telesis Group. From 1995 to 1997, Mr. Kaplan was Executive Vice President of Pacific Bell and President of the Network Services Group. From 1993 to 1995, he was Chief Technology, Quality and Re-Engineering Officer for Pacific Bell. Mr. Kaplan also is a director of Conductus. MR. LISTWIN became a director of the Company in June 2000 upon the closing of the merger of E-TEK Dynamics, Inc. with the Company. Mr. Listwin is presently Chief Executive Officer of Phone.com and has served in that position since September 2000. Mr. Listwin was an Executive Vice President at Cisco Systems, Inc. ("Cisco"), from 1990 to September 2000. In April 1997, Mr. Listwin was named the Senior Vice President of Cisco's service provider line of business. Prior to 1997, Mr. Listwin was Senior Vice President of Cisco's market development from August 1996 to April 1997, Vice President and General Manager of Cisco's access business unit from September 1995 to August 1996, and Vice President of Marketing from September 1993 to September 1995. Mr. Listwin also serves as a director of TIBCO Software Inc. and Software.com. MR. MACNAUGHTON joined the Company's Board of Directors in July 1999 upon the closing of the JDS FITEL merger with the Company. Mr. MacNaughton was President of Leapfrog Capital Corporation from April 1999 to August 1999. Mr. MacNaughton has been President and Chief Executive Officer of the Canada Pension Plan Investment Board from September 1999 to the present. Mr. MacNaughton was President of Nesbitt Burns Inc. and its predecessor company from September 1994 until his retirement on March 31, 1999. From December 1990 to September 1994, when it was acquired by a subsidiary of Bank of Montreal and merged with Nesbitt Thomson Inc., he was President and Chief Executive Officer of Burns Fry Limited. Nesbitt Burns Inc. lead managed the initial public offering of JDS FITEL in March 1996. 22 23 PROFESSOR SIBBETT has been a member of the Company's Board of Directors since February 1995. Since 1994, he has been Director of Research for the School of Physics and Astronomy at the University of St. Andrews, Scotland and was previously the Head of Department from 1985 to 1994. Professor Sibbett is a Council-member of both the UK Engineering and Physical Sciences Research Council ("EPSRC") and the Council of the Central Laboratories of the UK Research Councils. He is the co-Technical Director of the Photonics Innovation Centre at the University of St. Andrews and is also the Director of an EPSRC-funded multi-partner "Ultrafast Photonics Collaboration" (based at the University of St. Andrews) that is targeted on research developments in ultrafast datacomms. MR. SINCLAIR became a director of the Company in July 1999 upon the closing of the JDS FITEL merger with the Company. Mr. Sinclair co-founded JDS FITEL in 1981, was President of JDS FITEL from 1982 until 1993 and served as a director of JDS FITEL from 1981 until the closing of the JDS FITEL merger with the Company in July 1999. He is currently Director, Research and Development, of Fluorosense Inc. and has held this position since 1995. Mr. Sinclair was an independent consultant in the area of optics from 1993 to 1995. Prior to 1981, Mr. Sinclair was a member of the Technical Staff at Bell-Northern Research Ltd. specializing in fiber optic technology. MR. SKRZYPCZAK has been a member of the Company's Board of Directors since July 1997. Since October 1999, Mr. Skrzypczak has been Senior Vice President at Cisco Systems, Inc. Mr. Skrzypczak served as a Group President at Telcordia Technologies from July 1997 to October 1999. He was Corporate Vice President and Group President of Professional Services of Bellcore until March 1997. Earlier, Mr. Skrzypczak was President, NYNEX Science & Technology and Vice President, Network & Technology Planning for NYNEX. Mr. Skrzypczak has served as a trustee of Polytechnic University since 1987 and is chairman of its Education Committee. Mr. Skrzypczak also serves as a director of Stanford Microdevices Inc. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS At September 20, 2000, we had approximately 4,214 holders of record of our common stock and Exchangeable shares. We had 783,916,401 Common Shares and 173,904,237 Exchangeable Shares outstanding on The Nasdaq National Market and The Toronto Stock Exchange, respectively. Holders of Exchangeable Shares may tender their holdings for common stock on a one-for-one basis at any time. The closing price on September 20, 2000 for the Common Stock and the Exchangeable Shares was $107.13 and Canadian $158.50, respectively. We have not paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The following high and low closing sale prices indicated for our Common Stock are as reported on the Nasdaq National Market during each of the quarters indicated. The prices in the following table have been adjusted to reflect all previous stock dividends and splits through the date of this Annual Report on Form 10-K/A.
HIGH LOW -------- -------- Fiscal 2000 Quarter Ended: June 30 $131.190 $ 73.130 March 31 $153.420 $ 74.500 December 31 $ 88.750 $ 28.000 September 30 $ 30.370 $ 19.310 Fiscal 1999 Quarter Ended: June 30 $ 20.899 $ 12.813 March 31 $ 14.391 $ 7.938 December 31 $ 8.672 $ 4.297 September 30 $ 7.875 $ 4.703
On August 4, 1999, the Company completed an underwritten public offering of shares of common stock and a concurrent private offering of Exchangeable Shares of its wholly-owned subsidiary, JDS Uniphase Canada Ltd. The underwritten public offering related to 37.0 million shares of common stock at a price of US$20.656 per share of which 28.1 million shares were sold by the Company and 8.9 million shares were sold by certain stockholders of JDS Uniphase. The Exchangeable Share offering consisted of 2.2 million Exchangeable Shares sold by JDS Uniphase Canada Ltd. and 0.8 million Exchangeable Shares sold by certain stockholders of JDS Uniphase Canada Ltd. The net proceeds to the Company from both offerings, which are being used for general corporate purposes, aggregated approximately $600 million. On August 25, 1999, the Company received additional proceeds of approximately $110 million from the sale of an additional 5.6 million shares of common stock as a result of the underwriters exercising their over-allotment option in the public offering. In August 1999, the Company acquired AFC Technologies, Inc for $22.0 million in cash and 674,468 Exchangeable Shares of its subsidiary, JDS Uniphase Canada Ltd., each of which is exchangeable at the option of the holder for one share of common stock. The 23 24 total value of the securities issued was $17.5 million. The issuance of the Exchangeable Shares was exempt from registration pursuant to Regulation S promulgated under the Securities Act of 1933, as amended. The stock was issued to former stockholders of AFC Technologies, Inc. In October 1999, the Company acquired Ramar Corporation for $1.0 million in cash and $3.5 million of convertible debt. Such convertible debt was issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. The convertible debt is composed of $2.5 million of aggregated demand obligations and two performance-based instruments totaling $1.0 million that become due upon achieving certain milestones over the ensuing 12 months. The convertible debt bears interest at 5.54% and the principal can be exchanged for newly issued shares of JDS Uniphase common stock at a price of $27.961 per share. The convertible debt is unsecured. In November 1999, the Company acquired EPITAXX, Inc. for $9.3 million in cash and 9.0 million shares of the Company's common stock valued at approximately $429.5 million. The issuance of the common stock was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. The stock was issued to former shareholders of EPITAXX. In December 1999, the Company amended its Certificate of Incorporation to increase the number of authorized shares of Common Stock from 300,000,000 shares to 600,000,000. In December 1999, the Company acquired Oprel Technologies, Inc. for $9.3 million in cash and 190,916 Exchangeable Shares of its subsidiary, JDS Uniphase Canada Ltd., each of which is exchangeable at the option of the holder for one share of common stock. The total value of the securities issued was $11.7 million. The issuance of the Exchangeable Shares was exempt from registration pursuant to Regulation S promulgated under the Securities Act of 1933, as amended. The stock was issued to former stockholders of Oprel Technologies, Inc. In December 1999, the Company issued 43,568 shares of common stock in exchange for $0.3 million of convertible debt issued in connection with its purchase in 1998 of certain assets from Chassis Engineering, Inc. In March 2000, the Company amended its Certificate of Incorporation to increase the number of authorized shares of Common Stock from 600,000,000 shares to 3,000,000,000. In April 2000, the Company acquired Cronos Integrated Microsystems, Inc. for 6.3 million shares of the Company's common stock, valued at $548.5 million. The issuance of the common stock was exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended. The stock was issued to former shareholders of Cronos. In June 2000, the Company acquired E-TEK Dynamics, Inc. for, among other things, 848,166 Exchangeable Shares of its subsidiary, JDS Uniphase Canada Ltd., each of which is exchangeable at the option of the holder for one share of common stock, valued at $86.8 million. The issuance of the exchangeable shares was exempt from registration pursuant to Regulation S promulgated under the Securities Act of 1933, as amended. The stock was issued to former stockholders of E-TEK. 24 25 ITEM 6. SELECTED FINANCIAL DATA FINANCIAL HIGHLIGHTS SELECTED FINANCIAL DATA (In millions, except per share data)
YEARS ENDED JUNE 30, 2000(2)(3) 1999(4) 1998 1997 1996 - -------------------- ---------- ---------- ---------- ---------- ---------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales ........................................ $ 1,430.4 $ 282.8 $ 185.2 $ 113.2 $ 73.7 Amortization of purchased intangibles ............ $ 896.9 $ 15.7 $ 5.6 $ 1.8 $ 0.2 Acquired in-process research and development ..... $ 360.7 $ 210.4 $ 40.3 $ 33.3 $ 4.5 Merger and other costs(1) ........................ $ -- $ 6.8 $ -- $ -- $ -- Income (loss) from operations .................... $ (865.1) $ (153.2) $ (11.5) $ (15.8) $ 5.8 Net income (loss) ................................ $ (904.7) $ (171.1) $ (19.6) $ (17.8) $ 3.2 Earnings (loss) per share(5): Basic .......................................... $ (1.27) $ (0.54) $ (0.07) $ (0.07) $ 0.02 Dilutive ....................................... $ (1.27) $ (0.54) $ (0.07) $ (0.07) $ 0.01 Shares used in per share calculation(5): Basic .......................................... 710.9 318.2 283.6 269.5 204.5 Dilutive ....................................... 710.9 318.2 283.6 269.5 223.3 AT JUNE 30, 2000 1999 1998 1997 1996 - ----------- ---------- ---------- ---------- ---------- ---------- CONSOLIDATED BALANCE SHEET DATA: Working capital .................................. $ 1,325.7 $ 314.8 $ 121.4 $ 110.2 $ 132.2 Total assets ..................................... $ 26,389.1 $ 4,096.1 $ 332.9 $ 180.7 $ 175.7 Long-term obligations ............................ $ 61.2 $ 9.8 $ 5.7 $ 2.5 $ 7.1 Total stockholders' equity ....................... $ 24,778.6 $ 3,619.3 $ 280.0 $ 152.0 $ 154.8
- ---------- (1) Results of operations include $5,877,000 of costs and expenses attributable to the pooling of interests transaction with Uniphase Broadband Products, and $882,000 loss on sale of the Ultrapointe Systems assets in fiscal 1999. (2) JDS Uniphase merged with Optical Coating Laboratory, Inc. (OCLI) on February 4, 2000 in a transaction accounted for as a purchase. The consolidated statement of operations and other data for the year ended June 30, 2000 and the consolidated balance sheet data as of June 30, 2000 include the results of operations subsequent to February 4, 2000 and financial position, respectively, of OCLI. (3) JDS Uniphase merged with E-TEK Dynamics, Inc. (E-TEK) on June 30, 2000 in a transaction accounted for as a purchase. The consolidated balance sheet data as of June 30, 2000 includes the financial position of E-TEK. (4) Uniphase merged with JDS FITEL effective June 30, 1999 in a transaction accounted for as a purchase. The consolidated statement of operations and other data for the year ended June 30, 2000 and the consolidated balance sheet data as of June 30, 2000 and 1999 include the results of operations and financial position, respectively, of JDS FITEL. (5) Share and per share amounts for all historical periods have been restated to reflect the two separate two-for-one stock splits for stockholders of record as of December 22, 1999 and March 2, 2000. 25 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS JDS Uniphase Corporation was the result of a merger between Uniphase Corporation ("Uniphase") and JDS FITEL Inc. ("JDS FITEL"), pursuant to which they combined their operations on June 30, 1999. Certain historic information described in this Annual Report on Form 10-K/A pertains only to either Uniphase Corporation or JDS FITEL Inc. In such instances, historic information that is specific to Uniphase Corporation or JDS FITEL Inc. is specifically described as "Uniphase" or "JDS FITEL" information, respectively. References to "we," "us," "our," the "Company" and "JDS Uniphase" refer to the combined entity resulting from the merger. We are a leading provider of advanced fiber optic components and modules. These products are sold to the world's leading telecommunications and cable television system providers, which are commonly referred to as OEMs and include Alcatel, Ciena, Cisco, Corning, Lucent, Marconi, Motorola, Nortel, ONI Systems, Scientific Atlanta, Siemens, Sycamore and Tyco. Our products are basic building blocks for fiber optic networks and perform both optical-only, commonly referred to as "passive" functions, and optoelectronic, commonly referred to as "active" functions, within fiberoptic networks. Our products include semiconductor lasers, high-speed external modulators, transmitters, amplifiers, couplers, multiplexers, circulators, tunable filters, optical switches and isolators for fiberoptic applications. We also supply our OEM customers with test instruments for both system production applications and network installation. In addition, we design, manufacture and market laser subsystems for a broad range of OEM applications, optical display and projection products used in computer displays and other similar applications and light interference pigments used in security products and decorative surface treatments. The historical results of operations contained herein include acquired in-process research and development expense, in the aggregate amounts of (1) $360.7 million, in connection with the acquisitions of Epitaxx, Inc. ("EPITAXX"), Sifam Limited ("SIFAM"), Optical Coating Laboratory, Inc. ("OCLI"), Cronos Integrated Microsystems, Inc. ("Cronos") and E-TEK Dynamics, Inc. ("E-TEK") in 2000, and (2) $210.4 million, attributable to the JDS FITEL merger in 1999. The Company is the product of several strategic mergers and acquisitions, including the June 30, 1999 combination of Uniphase and JDS FITEL. During 2000 alone, we acquired the following companies and businesses, in chronological order: AFC Technologies ("AFC"), Ramar Corporation ("Ramar"), EPITAXX, SIFAM, Oprel Technologies Inc. ("Oprel"), IOT Limited ("IOT"), OCLI, Cronos, Fujian Casix Lasers Inc. ("Casix") and E-TEK. During 2001, we acquired the following companies and businesses in chronological order: Epion Corporation ("Epion"), Optical Process Automation Corp. ("OPA") and SDL, Inc. ("SDL"). Consequently, while our historical results of operations for each year include the results of operations of acquired companies from the date of acquisition, our results from prior years, for comparison purposes, exclude such acquired companies' results. Most significantly, the 2000 results of operations include a full year's results of operations from the merger with JDS FITEL as well as the post acquisition results of each of the companies mentioned above, while the 1999 and 1998 results of operations include business activities from only Uniphase. Accordingly, at the end of "Results of Operations -- Actual" and "Operating Segment Information -- Actual," we have provided supplemental discussions of our 2000 actual results with 1999 pro forma results, which combine the historical consolidated 1999 results of operations of the former Uniphase Corporation for the 12 months ended June 30, 1999, with the historical results of operations of JDS FITEL for the twelve months ended May 31, 1999, under the headings "Results of Operations -- Pro forma" and "Operating Segment Information -- Pro forma." These pro forma results have been disclosed in our Current Report on Form 8-K/A filed on May 22, 2000 and are hereby incorporated herein by this reference. RECENT EVENTS On January 31, 2001, the Company acquired Optical Process Automation Corp. ("OPA") in a transaction accounted for as a purchase. The Company issued 3.0 million shares of common stock for all of the outstanding stock, common and preferred, of OPA valued at approximately $130.2 million and assumed the outstanding stock options of OPA, which had an estimated value of approximately $36.7 million. Subject to the completion of certain milestones, the purchase agreement also provides for the issuance of additional shares of common stock, valued at approximately $250.0 million, with the final milestone payment scheduled to be paid on or prior to January 31, 2004. On February 13, 2001, the Company completed its acquisition of SDL. As consideration for the transaction, each outstanding share of SDL was exchanged for 3.8 shares of the Company's common stock. The total purchase price is estimated at approximately $41.0 billion, based on the average market value of the Company's common stock for a range of trading days (June 30, 2000 through July 14, 2000) around the announcement of the merger. SDL designs, manufactures and sells semiconductor lasers, laser-based subsystems and fiber optic related solutions. This transaction will be accounted for as a purchase with goodwill of approximately $37.4 billion, which is expected to be amortized over its estimated useful life of five years. On February 13, 2001, the Company completed the sale of its Zurich, Switzerland subsidiary to Nortel Networks ("Nortel") for 65.7 million shares of Nortel common stock valued at $2.1 billion, as well as up to an additional $500 million in Nortel common stock payable to the extent Nortel purchases do not meet certain levels under new and existing programs through December 31, 2003. The Company expects to record a gain estimated at $1.9 billion in the quarter ended March 31, 2001. 26 27 RESULTS OF OPERATIONS -- ACTUAL The following table sets forth for the periods indicated certain actual financial data as a percentage of net sales:
YEARS ENDED JUNE 30, ---------------------------------- 2000 1999 1998 ------ ------ ------ Net sales .......................................... 100.0% 100.0% 100.0% Cost of sales ...................................... 52.5% 49.0% 51.9% ------ ------ ------ Gross profit ..................................... 47.5% 51.0% 48.1% Operating expenses: Research and development ......................... 7.9% 9.5% 8.0% Selling, general and administrative .............. 12.2% 13.3% 21.5% Amortization of purchased intangibles ............ 62.7% 5.6% 3.0% Acquired in-process research and development ..... 25.2% 74.4% 21.8% Merger and other costs ........................... -- 2.4% -- ------ ------ ------ Total operating expenses ........................... 108.0% 105.2% 54.3% ------ ------ ------ Loss from operations ............................... (60.5)% (54.2)% (6.2)% Interest and other income, net ................... 2.5% 1.3% 1.8% ------ ------ ------ Loss before income taxes ......................... (58.0)% (52.9)% (4.4)% Income tax expense ................................. 5.2% 7.6% 6.2% ------ ------ ------ Net loss ........................................... (63.2)% (60.5)% (10.6)% ====== ====== ======
Years Ended June 30, 2000, 1999 and 1998 Net Sales. Net sales of $1,430.4 million for 2000 represented an increase of $1,147.6 million or 406% over 1999 net sales of $282.8 million, which increased $97.6 million or 53% over 1998 net sales of $185.2 million. The increase from 1999 to 2000 reflected 407% and 592% growth in our Components and Modules segments, respectively. Net sales from JDS FITEL are included for the entire year 2000, and net sales from the companies we acquired in 2000 are included subsequent to their date of acquisition (see Note 9 of Notes to Consolidated Financial Statements). The increase from 1998 to 1999 reflected 100% and 81% growth in our Components and Modules segments, respectively, and resulted primarily from the net sales from Uniphase Netherlands B.V. ("UNL") which are included for the entire year of 1999 and net sales from companies we acquired in 1999 from the date of their acquisition. (see Note 9 of Notes to Consolidated Financial Statements). Separate discussions with respect to net sales and operating profits by each of the reportable operating segments can be found following the Results of Operations -- Pro forma section. Net sales to customers outside the United States and Canada accounted for $326.7 million, $114.4 million and $70.5 million or 23%, 40%, and 38% of total sales for the years ended June 30, 2000, 1999 and 1998, respectively. The increase of $212.3 million from 1999 to 2000 is primarily because of inclusion of a full year's sales from JDS FITEL, as well as the acquisitions of OCLI, SIFAM, Oprel and AFC during 2000. The increase of $43.9 million from 1998 to 1999 is primarily because of increased sales from both our components and modules segments and the inclusion of a full year's sales from UNL. The decrease from 40% in 1999 to 23% in 2000, is primarily because of the inclusion of JDS FITEL, which sells a higher mix of its products to customers in the U.S. and Canada. Net sales for the year ended June 30, 2000 are not considered indicative of the results to be expected for any future period. In addition, there can be no assurance that the market for our products will grow in future periods at its historical percentage rate or that certain market segments will not decline. Further, there can be no assurance that we will be able to increase or maintain our market share in the future or to achieve historical growth rates. Gross Profit. Gross profit of $678.8 million, or 47% of net sales for 2000 represents an increase of $534.7 million or 371% over 1999 gross profit of $144.1 million, which was 51% of net sales. Gross profit increased $55.0 million or 62% over 1998 gross profit of $89.1 million, which was 48% of net sales. Strong demand for virtually all of our optical components and modules products combined with the increased operations resulting from the JDS FITEL merger contributed to the increases in gross profit for 2000. The decline in the gross profit percentage of net sales from 1999 to 2000 reflects the impact of $25.3 million in purchase accounting adjustments to reflect the fair value of JDS FITEL, EPITAXX, SIFAM, OCLI and Cronos inventories. These adjustments flowed through to cost of sales during the year. Gross profit was also reduced by a $22.6 million write-down of inventory related to the E-TEK acquisition based on management's decision subsequent to the acquisition to discontinue using certain inventory. 27 28 Reductions in average selling prices were largely offset by reductions in manufacturing costs through automation, yield improvements and other improvements in the manufacturing processes. For 1999, the increase in gross profit from our optical components and modules products more than offset gross profit lost in connection with the sale of the Ultrapointe business in December 1998. The 1999 amounts also include a full year's gross profit from UNL, which contributed to the increase, while 1998 gross profits were adversely impacted by $4.1 million in write-downs of inventory primarily related to the acquisition of UNL ($2.5 million) and the sale of the Ultrapointe business ($1.0 million). Gross margin increased to 51% in 1999 from 48% in 1998 primarily because of certain manufacturing efficiencies and the higher relative growth rate of product lines with higher gross margin rates. There can be no assurance that we will be able to maintain gross margins at current levels in future periods. We expect that periodic fluctuations in our gross margins will continue because of changes in our sales and product mix, manufacturing constraints, competitive pricing pressures, higher costs resulting from new production facilities, manufacturing yields, acquisitions of businesses that may have different margins than ours and inefficiencies associated with new product introductions. As we acquire additional companies or businesses through mergers or acquisitions, we expect that periodic fluctuations in our gross margins will continue because of the effects of purchase accounting adjustments. Research and Development Expense. Research and development (R&D) expense of $113.4 million or 8% of net sales represented an increase of $86.4 million or 320% over 1999 expense of $27.0 million or 10% of net sales. The increase in R&D expenses is primarily due to increased personnel costs and other expenses related to the development of new products and technologies, and the continued development and enhancement of existing products, the inclusion of JDS FITEL for the entire year of 2000, and the inclusion of our acquisitions during 2000 from the date of acquisition. R&D expense of $27.0 million or 10% of net sales in 1999 represented an increase of $12.2 million or 82% over 1998 expense of $14.8 million or 8% of net sales. The increase in R&D expenses in 1999 was primarily due to the development and enhancement of our fiber optic product lines and the acquisition of UNL in June 1998. As a percentage of net sales, R&D expense declined to 8% in 2000 from 10% in 1999, but was comparable to the 1998 ratio of 8%. We are committed to continuing our significant R&D expenditures and expect that the absolute dollar amount of R&D expenses will increase as we invest in developing new products and in expanding and enhancing our existing product lines, although R&D expenses may vary as a percentage of net sales in future periods. In addition, there can be no assurance that expenditures for R&D will be successful or that improved processes or commercial products will result from these projects. Selling, General and Administrative Expense. Selling, general and administrative expense (SG&A) of $172.9 million or 12% of net sales represented an increase of $135.5 million or 362% over 1999 expense of $37.4 million or 13% of net sales. The 1999 SG&A expense represented a decrease of $2.5 million or 6% as compared to 1998 SG&A expense of $39.9 million or 22% of net sales. The increase in 2000 is primarily due to higher SG&A costs due to the hiring of additional sales, marketing and administrative personnel, the inclusion of JDS FITEL for the entire year of 2000, and the inclusion of our acquisitions during 2000. As a percentage of net sales, SG&A for 2000 was consistent with 1999. The decrease in 1999 SG&A expenses as compared to 1998 was primarily due to $9.3 million of non-recurring charges for the reorganization of UNL incurred in 1998 and the sale of the Ultrapointe business in 1999. Without the non-recurring charges, 1999 SG&A expenses increased over 1998 primarily due to higher sales, marketing and administrative costs to support all telecommunications and cable television ("CATV") products and the addition of UNL in June 1998, which was offset by a reduction in SG&A expense as a result of the sale of the Ultrapointe business. We expect the amount of SG&A expenses to increase in the future, although such expenses may vary as a percentage of net sales in future periods. We expect to incur charges to operations in 2001, which are not currently estimable, to reflect costs associated with integrating E-TEK's operations. Amortization of Purchased Intangibles. Since 1995, we have entered into several mergers and acquisitions that generated approximately $23.3 billion in identified intangibles (primarily developed technology) and goodwill. In 2000, amortization of purchased intangibles ("API") was $896.9 million or 63% of net sales, which represented an increase of $881.2 million or 5,613% over 1999 API of $15.7 million or 6% of net sales. The increase in API is primarily due to the intangible assets generated from the acquisition of JDS FITEL in June 1999, and the acquisitions of AFC, Ramar, EPITAXX, SIFAM, Oprel, IOT, OCLI, Cronos, and Casix during 2000 (see Note 9 of Notes to Consolidated Financial Statements). 28 29 In 1999, API was $15.7 million or 6% of net sales, which represented a $10.1 million or 180% increase from API of $5.6 million or 3% of net sales in 1998. The increase in API in 1999 was primarily due to the intangible assets recorded in connection with the acquisition of UNL in June 1998 and the purchase of certain assets from Chassis Engineering in September 1998. Our API will increase significantly in future periods as a result of our acquisitions during 2000 and, accordingly, we expect to report losses for the foreseeable future. Goodwill and other intangibles arising from our acquisitions in 2000 totaled $19.8 billion, including the related deferred tax effect, and are currently being amortized over periods ranging from 3-15 years. We also expect to record significant additional goodwill and other intangibles related to our pending acquisition of SDL. In addition, API could change because of other acquisitions or impairment of existing identified intangible assets and goodwill in future periods. Acquired In-process Research and Development. In 2000, we recorded charges of $360.7 million or 25% of net sales for acquired in-process research and development resulting from the acquisitions of EPITAXX ($16.7 million), SIFAM ($3.0 million), OCLI ($84.1 million), Cronos ($6.3 million) and E-TEK ($250.6 million). In 1999, we recorded $210.4 million or 74% of net sales of acquired in-process research and development resulting from the former Uniphase Corporation's merger with JDS FITEL. In 1998, we incurred charges for in-process research and development of $40.3 million or 22% of net sales related to the acquisition of UNL ($33.7 million) and Uniphase Fiber Components ("UFC") ($6.6 million) (see Note 9 of Notes to Consolidated Financial Statements). These amounts were expensed on the acquisition dates because the acquired technology had not yet reached technological feasibility and had no future alternative uses. There can be no assurance that acquisitions of businesses, products or technologies by us in the future will not result in substantial charges for acquired in-process research and development that may cause fluctuations in our quarterly or annual operating results. A description of the acquired in-process technology, stage of development, estimated completion costs, and time to complete at the date of the merger for our significant 2000 acquisitions, as well as the current status of acquired in-process research and development projects for each acquisition can be found at the end of this Management's Discussion and Analysis of Financial Condition and Results of Operations. Interest and Other Income. Net interest and other income of $35.3 million for 2000 represented an increase of $31.7 million from 1999 income of $3.6 million, which represented an increase of $0.4 million from 1998 income of $3.2 million. The increase in interest and other income was the result of higher investment balances obtained through cash generated from operating activities, our mergers with JDS FITEL and OCLI, and the completion of a public offering of our common stock and a private placement of Exchangeable shares in August 1999 that generated $713.6 million in cash, net of transaction costs. The increase in interest and other income in 1999 was primarily the result of higher investment balances. Income Tax Expense. We recorded tax provisions of $74.9 million, $21.5 million, and $11.4 million for 2000, 1999, and 1998, respectively. The expected tax benefit derived by applying the federal statutory rate to the operating losses each year was primarily offset by non-deductible in-process research and development expenses and non-deductible amortization of purchased intangibles for 2000, and non-deductible in-process research and development expenses for 1999 and 1998. We have established a valuation allowance for a portion of the gross deferred tax assets. The valuation allowance at June 30, 2000 reduces net deferred tax assets to amounts considered realizable in the near future based on projected future taxable income. Future taxable income is represented by recorded deferred tax liabilities. Deferred tax assets related to net operating losses that are subject to a valuation allowance will be credited to paid in capital when realized. Deferred tax assets attributable to acquisition related items that are subject to a valuation allowance will, when realized, first reduce unamortized goodwill, then other non-current intangible assets of acquired subsidiaries, and then income tax expense. There can be no assurance that deferred tax assets subject to the valuation allowance will be realized. 29 30 RESULTS OF OPERATIONS -- PRO FORMA The following supplemental table compares actual results of operations of JDS Uniphase for 2000 with pro forma results of operations of the former Uniphase Corporation and JDS FITEL combined for 1999.
PRO FORMA RESULTS OF AS REPORTED OPERATIONS AS REPORTED GAAP UNIPHASE AND GAAP RESULTS JDS FITEL RESULTS OF OPERATIONS COMBINED OF OPERATIONS ------------- ------------ ------------- YEAR ENDED, JUNE 30, ---------------------------------------------- 2000 1999 1999 -------- -------- -------- (IN MILLIONS) Net sales .......................................... $1,430.4 $ 587.9 $ 282.8 Cost of sales ...................................... 751.6 284.4 138.7 -------- -------- -------- Gross profit ..................................... 678.8 303.5 144.1 Operating expenses: Research and development ......................... 113.4 52.5 27.0 Selling, general and administrative .............. 172.9 71.5 37.4 Amortization of purchased intangibles ............ 896.9 687.5 15.7 Acquired in-process research and development ..... 360.7 210.4 210.4 Merger and other costs ........................... -- 6.8 6.8 -------- -------- -------- Total operating expenses ........................... 1,543.9 1,028.7 297.3 -------- -------- -------- Income (loss) from operations ...................... (865.1) (725.2) (153.2) Interest and other income, net ................... 35.3 10.4 3.6 -------- -------- -------- Income (loss) before income taxes .................. (829.8) (714.8) (149.6) Income tax expense ............................... 74.9 (2.5) 21.5 -------- -------- -------- Net income (loss) .................................. $ (904.7) $ (712.3) $ (171.1) ======== ======== ========
Years Ended June 30, 2000 and 1999 Net Sales. Net sales of $1,430.4 million for 2000 represented an increase of $842.5 million or 143% over pro forma 1999 net sales of $587.9 million. The increase from 1999 to 2000 reflected $648.9 or 330% growth in our existing Components and Modules segments on a pro forma basis. Growth was driven by customer demands for higher channel count systems to meet increased bandwidth requirements. The additional increase in 2000 reflected the impact of $193.6 million net sales from companies we acquired in 2000 (see Note 9 of Notes to Consolidated Financial Statements). Separate discussions with respect to pro forma net sales by each of the reportable operating segments can be found after this section. Net sales for the year ended June 30, 2000 are not considered indicative of the results to be expected for any future period. In addition, there can be no assurance that the market for our products will grow in future periods at its historical percentage rate or that certain market segments will not decline. Further, there can be no assurance that we will be able to increase or maintain our market share in the future or to achieve historical growth rates. Gross Profit. Gross profit of $678.8 million, or 47% of net sales for 2000 represents an increase of $375.3 million or 124% over 1999 pro forma gross profit of $303.5 million, or 52% of pro forma net sales. Strong demand for virtually all our optical components and modules products combined with $83.3 million gross profits from companies we acquired in 2000 contributed to the increases. The decline in the pro forma gross profit percentage of net sales from 1999 to 2000 reflects the impact of $25.3 million in purchase accounting adjustments which increased JDS FITEL, EPITAXX, SIFAM, OCLI and Cronos inventories. These adjustments flowed through to cost of sales during the year. Gross profit was also impacted by $22.6 million in adjustments related to the E-TEK acquisition, which decreased E-TEK's net inventory and flowed through to cost of sales upon completion of our acquisition of E-TEK. Excluding the impact of above described acquisition related adjustments, gross profit declined from 52% in 1999 to 51% in 2000. The decrease reflects 15% to 20% reductions in average selling prices, which were largely offset by reductions in manufacturing costs through automation, yield improvements and other improvements in the manufacturing processes. There can be no assurance that we will be able to maintain gross margins at current levels in future periods. We expect that periodic fluctuations in our gross margins will continue because of changes in our sales and product mix, manufacturing constraints, competitive pricing pressures, higher costs resulting from new production facilities, manufacturing yields, acquisitions of businesses that may have different margins than ours and inefficiencies associated with new product introductions. 30 31 Research and Development Expense. R&D expense of $113.4 million or 8% of net sales represented an increase of $60.9 million or 116% over pro forma 1999 expense of $52.5 million or 9% of pro forma net sales. The increase in R&D expenses is primarily due to increased personnel costs and other expenses related to the development of new products and technologies, and the continued development and enhancement of existing products and the inclusion of our acquisitions during 2000 from the date of acquisition. We are committed to continuing our significant R&D expenditures and expect that the absolute dollar amount of R&D expenses will increase as we invest in developing new products and in expanding and enhancing our existing product lines, although R&D expenses may vary as a percentage of net sales in future periods. In addition, there can be no assurance that expenditures for R&D will be successful or that improved processes or commercial products will result from these projects. Selling, General and Administrative Expense. Selling, general and administrative expense (SG&A) of $172.9 million or 12% of net sales represented an increase of $101.4 million or 142% over pro forma 1999 expense of $71.5 million or 12% of net sales. The increase in 2000 is primarily a result of higher SG&A costs due to the hiring of additional administrative personnel and inclusion of our 2000 acquisitions expenses subsequent to the date of acquisition. As a percentage of net sales, SG&A for 2000 was consistent with pro forma 1999 SG&A. As our business continues to grow, we expect the amount of SG&A expenses to increase in the future, although such expenses may vary as a percentage of net sales in future periods. We expect to continue incurring charges to operations, which to date have been within management's expectations, associated with integrating recent acquisitions. We expect the amount of SG&A expenses to increase in the future, although such expenses may vary as a percentage of net sales in future periods. We expect to incur charges to operations, which are not currently estimable, in 2001 to reflect costs associated with integrating E-TEK's operations. Amortization of Purchased Intangibles. Since 1995, we have entered into several mergers and acquisitions that generated approximately $23.3 billion in identified intangibles (primarily developed technology) and goodwill. In 2000, API was $896.9 million or 63% of net sales, which represented an increase of $209.4 million or 30% over pro forma 1999 API of $687.5 million or 117% of net sales. The pro forma 1999 API is calculated as the 12 months amortization expense for JDS FITEL, which would have been incurred in 1999 assuming that the merger between Uniphase and JDS FITEL was completed on July 1, 1998. The increase in API in 2000, is primarily due to the intangible assets generated from the acquisitions of AFC, Ramar, EPITAXX, SIFAM, Oprel, IOT, OCLI, Cronos, and Casix during 2000 (see Note 9 of Notes to Consolidated Financial Statements). Our API will increase significantly in future periods as a result of our acquisitions during 2000 as well as the E-TEK acquisition that was completed on June 30, 2000 and, accordingly, we expect to report losses for the foreseeable future. Goodwill and other intangibles arising from our acquisitions in 2000 totaled $19.8 billion, including the related deferred tax effect, and are currently being amortized over periods ranging from 3 -- 15 years. We also expect to incur significant additional API related to our pending acquisition of SDL. In addition, API could change because of other acquisitions or impairment of existing identified intangible assets and goodwill in future periods. Acquired In-Process Research and Development. In 2000, we recorded charges of $360.7 million or 25% of net sales for acquired in-process research and development resulting from the acquisitions of EPITAXX ($16.7 million), SIFAM ($3.0 million), OCLI ($84.1 million), Cronos ($6.3 million) and E-TEK ($250.6 million). In 1999, we recorded $210.4 million or 36% of pro forma net sales of acquired in-process research and development resulting from the former Uniphase Corporation's merger with JDS FITEL. See Note 9 of Notes to Consolidated Financial Statements. These amounts were expensed on the acquisition dates because the acquired technology had not yet reached technological feasibility and had no future alternative uses. There can be no assurance that acquisitions of businesses, products or technologies by us in the future will not result in substantial charges for acquired in-process research and development that may cause fluctuations in our quarterly or annual operating results. A description of the acquired in-process technology, stage of development, estimated completion costs, and time to complete at the date of the merger for our significant 2000 acquisitions, as well as the current status of acquired in-process research and development projects for each acquisition can be found at the end of this Management's Discussion and Analysis of Financial Condition and Results of Operations. Interest and Other Income. Net interest and other income of $35.3 million for 2000 represented an increase of $24.9 million from pro forma 1999 income of $10.4 million. The increase in interest and other income was the result of higher investment balances obtained through cash generated from operating activities, our acquisition of OCLI and the completion of a public offering of our common stock and a private placement of Exchangeable shares in August 1999 that generated $713.6 million in cash, net of transaction costs. 31 32 OPERATING SEGMENT INFORMATION -- ACTUAL Components. Net Sales for 2000 increased $673.6 million or 407% from 1999. This increase is primarily as a result of the merger with JDS FITEL and increased demand across a broad range of products. Please refer to the comparison of pro forma combined 1999 sales to 2000 sales at the end of this discussion. Net sales for 1999 increased $82.6 million or 100% from 1998. This increase reflects the introduction of several new products including a high powered 980-nm pump laser, the submarine 980-nm pump laser and a wavelength locker. Net Sales for 1999 also includes a full years contribution to net sales from the acquisition of UNL accounted for as a purchase in June 1998. Operating income for 2000 increased $287.8 million or 541% from 1999. This increase reflects the increased sales as discussed above and the change in the product mix as a result of the merger with JDS FITEL. Operating income for 1999 increased $29.4 million or 123% from 1998. This was the result of the increased sales discussed above as well as the higher volumes enabled by final qualification of Uniphase Laser Enterprise's ("ULE") new wafer fabrication facility. Modules. Net Sales for 2000 increased $367.2 million or 592% from 1999. This increase is primarily a result of the merger with JDS FITEL and increased demand for optical amplifiers. Please refer to the comparison of pro forma combined 1999 sales to 2000 sales. Net sales for 1999 increased $27.7 million or 81% from 1998. This increase reflects the introduction of new products such as the 1310-nm CATV transmitter product line. Operating income for 2000 increased $75.9 million or 477% from 1999. This increase reflects the increased sales as discussed above and the change in product mix as a result of the merger with JDS FITEL. Operating income for 1999 increased $13.2 million or 489% from 1998. This was the result of the increased sales discussed above and the costs incurred in 1998 to develop the 1310-nm transmitter products and the discontinuance of a small specialty product line in the same period. OPERATING SEGMENT INFORMATION -- PRO FORMA NET SALES The following supplemental operating segments table compares actual operating segment information for net sales of JDS Uniphase for 2000 with pro forma operating segment information of the former Uniphase Corporation and JDS FITEL combined for 1999.
PRO FORMA NET SALES AS REPORTED UNIPHASE AND AS REPORTED GAAP JDS FITEL GAAP NET SALES COMBINED NET SALES ----------- ------------ ----------- YEAR ENDED, JUNE 30, ---------------------------------------------- 2000 1999 1999 -------- -------- -------- (IN MILLIONS) Components: Shipments ............................ $ 961.8 $ 399.0 $ 169.4 Intersegments sales .................. (122.6) (15.9) (3.8) -------- -------- -------- Net sales to external customers ...... 839.2 383.1 165.6 Modules: Shipments ............................ 429.5 149.6 62.0 Intersegments sales .................. (0.3) -- -- -------- -------- -------- Net sales to external customers ...... 429.2 149.6 62.0 Net sales by reportable segments ....... 1,268.4 532.7 227.6 All other net sales .................... 162.0 55.2 55.2 -------- -------- -------- $1,430.4 $ 587.9 $ 282.8 ======== ======== ========
Components. Shipments for 2000 increased $562.8 million or 141% from 1999 pro forma net sales. This increase reflects the $109.0 million impact from entities acquired in 2000, $106.7 million increase in intersegment shipments in support of module growth and increased customer demand for virtually all product families. Modules. Net sales for 2000 increased $279.6 million or 187% from 1999 pro forma net sales. This increase is primarily a result of increased demand for optical amplifiers. None of the entities acquired in 2000 were classified within the module segment. 32 33 LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, our combined balance of cash, cash equivalents and short-term investments was $1,114.3 million. For the year, we met our liquidity needs through cash generated from operating activities. Net cash provided by operating activities was $281.0 million in 2000, compared with $67.0 million and $51.0 million in 1999 and 1998, respectively. Cash provided by operating activities during 2000 was $281.1 million. The net loss of $904.7 million included non cash charges for depreciation and amortization of $950.7 million and acquired in-process research and development costs of $360.7 million, offset by a net increase in deferred tax liabilities of $78.9 million. Increases in accounts receivable of $132.9 million resulted from higher sales. Inventories increased $94.7 million to meet the ongoing increases in demand for nearly all of our component and module products. Cash flow from operating activities also benefited from increases in other liabilities and taxes payable of $174.9 million and an increase in other current assets of $5.5 million. Increases to accounts receivable, inventories and other working capital attributable to our acquisitions in 2000 are excluded from operating cash flow as the acquisition of these balances is not a result of operations (see Note 9 of Notes to Consolidated Financial Statements). Cash used in investing activities was $819.6 million in 2000 compared with $40.3 million and $45.7 million for 1999 and 1998, respectively. Our acquisitions of OCLI, Cronos, and E-TEK in 2000, provided $295.4 million in cash, net of transaction related costs of approximately $9.3 million. This was partially offset by cash used of $195.6 million for the acquisitions of AFC, Ramar, EPITAXX, SIFAM, Oprel, IOT, and Casix as well as other acquisition related activities during 2000. In 2000 we incurred capital expenditures of $280.0 million primarily for facilities improvements and equipment purchases to expand our manufacturing capacity throughout the company and the purchase and installation of a new ERP system. We expect to continue to expand our worldwide manufacturing capacity, primarily for telecommunications products, by making approximately $ 750.0 million in capital expenditures for 2001. In addition, we invested excess net cash of $638.6 million in short-term investments during 2000. We generated $782.1 million and $15.4 million in cash from financing activities in 2000 and 1999, respectively, as compared to cash used in financing activities of $1.7 million in 1998. Cash of $713.5 million in 2000 was attributable to our sale of common stock in a public offering and a private placement of Exchangeable Shares in August 1999. In 2000, we generated $113.7 million from the exercise of stock options and the sale of stock through our employee stock purchase plan and used $45.1 million to repay a portion of the debt assumed from our acquisitions in 2000. We believe that our existing cash balances and investments, together with cash flow from operations will be sufficient to meet our liquidity and capital spending requirements at least through the end of 2001. However, possible investments in or acquisitions of complementary businesses, products or technologies may require additional financing prior to such time. There can be no assurance that additional debt or equity financing will be available when required or, if available, can be secured on terms satisfactory to us. The Company has outstanding as of June 30, 2000, debt totaling $56.1 million, assumed from entities acquired in 2000 (see Note 2 of Notes to Consolidated Financial Statements). The Company can, at its election, prepay the debt. In addition, the Company has lines of credit totaling $60.0 million Canadian (approximately U.S. $40.0 million) and $1 billion Yen (approximately U.S. $10 million). ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT PROJECTS E-TEK An independent valuation specialist performed an allocation of the total purchase price of E-TEK to its individual assets. Of the total purchase price, $250.6 million has been allocated to in-process research and development ("IPRD") and was charged to expense in the quarter ended June 30, 2000. The remaining purchase price has been allocated specifically to identifiable assets acquired. After allocating value to the IPRD projects and E-TEK's tangible assets, specific intangible assets were then identified and valued. The identifiable intangible assets include existing technology, core technology, trademarks and tradename, and assembled workforce. The IPRD is comprised of three main categories: (1) wavelength division multiplexers (WDMs); (2) submarine products; and (3) other component products and modules. The following is a brief description of each IPRD project as of the date of the acquisition: WDMs. E-TEK is developing a number of different WDM components and modules. Narrowband WDM multiplexers combine light sources of different wavelengths for simultaneous transmission along a single fiber. E-TEK's current development efforts on narrowband WDM is to increase the number of optical signals transmitted simultaneously on a single fiber. E-TEK expects the current development cycle for these new WDM components and modules to continue for another 2 months, with expected completion dates in the third quarter of calendar 2000. Development costs incurred on WDM products to date are approximately $3.8 million with 33 34 estimated cost to complete of approximately $0.4 million, which E-TEK expects to incur ratably for the remainder of the development cycle. Submarine Products. E-TEK is continuing to develop its new submarine products, including high reliability isolators for undersea networks. An isolator prevents reflected signals from traveling past it in the wrong direction while still allowing the unimpeded passage of signals in the original direction. Isolators must offer low signal loss, which means that a high percentage of light passes through and only small amounts of light are lost. E-TEK expects the current development cycle for its submarine products to continue for 12 months, with expected completion dates in the second quarter of calendar 2001. Development costs incurred on submarine products to date are approximately $0.5 million with estimated cost to complete of approximately $0.8 million, which E-TEK expects to incur ratably for the remainder of the development cycle. Other Component Products and Modules. E-TEK is continuing its development of a variety of other new components and modules including improved versions of: - attenuators, which are used to adjust the strength of optical signals; - circulators, which are used to direct signals; - switches, which are used to flexibly reroute signals; - dispersion equalization modules, which ensure that an optical signal arrives cleanly at the end of an optical fiber. Different colors of light travel along an optical fiber at slightly different speeds, and light signals that carry information always have some small variation in the color of the light. The dispersion equalization modules cancel out those differences in speed so that all the colors of the light signal arrive at the same time; and - optical performance monitors, which watch the optical signals passing through an optical fiber. They count which wavelengths (colors) of light signals are present. They check to see how strong each wavelength signal is and whether it is interfering with other signals. As communication systems move more towards optical networks, these traffic monitors become increasingly important to prevent "optical gridlock." E-TEK's development effort for Other Component Products and Modules is aimed at enhancing their performance and enable their deployment in metropolitan fiber optic networks and cable television networks. E-TEK expects the current development cycle for these components and modules to continue for between 2 to 7 months, with expected completion dates in the third and fourth quarters of calendar 2000. Development costs incurred on these components and modules to date are approximately $3.6 million with estimated cost to complete of approximately $1.0 million, which E-TEK expects to incur ratably for the remainder of the development cycle. VALUE ASSIGNED TO IN-PROCESS RESEARCH AND DEVELOPMENT The value assigned to IPRD was determined by considering the relative importance of each project to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The revenue estimates used to value the purchased IPRD were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by E-TEK and its competitors. The rates utilized to discount the net cash flows to their present value are based on E-TEK's weighted average cost of capital. Given the nature of the risks associated with the difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets, the weighted average cost of capital was adjusted. Based on these factors, discount rates of 12% and 20% were deemed appropriate for the existing and in-process technology, respectively. The estimates used in valuing IPRD were based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual results may vary from the projected results. Any such variance may result in a material adverse effect on E-TEK's financial condition and results of operations. 34 35 With respect to the in-process technologies, the calculations of value were adjusted to reflect only the value creation efforts of E-TEK prior to the merger. Following are the estimated completion percentages and technology lives:
EXPECTED PERCENT TECHNOLOGY PROJECT COMPLETED LIFE - ------- ---------- ---------- WDMs.......................................................... 92% 5 years Submarine Products............................................ 39% 5 years Other Component Products and Modules.......................... 50% to 92% 5 years
The value assigned to each IPRD project is as follows (in millions): WDMs............................................................................. $ 124.5 Submarine Products............................................................... 18.5 Other Component Products and Modules............................................. 107.6 -------- Total in-process research and development.............................. $ 250.6 ========
A portion of the purchase price has been allocated to developed technology and IPRD. Developed technology and IPRD were identified and valued through analysis of data provided by E-TEK concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPRD. Where developmental projects had reached technological feasibility, they were classified as developed technology, and the value assigned to developed technology was capitalized. Where the developmental projects had not reached technological feasibility and had no future alternative uses, they were classified as IPRD and were charged to expense upon closing of the merger. E-TEK estimates that a total investment of $2.2 million in research and development over the next 2 to 12 months will be required to complete the IPRD. The nature of the efforts required to develop the purchased IPRD into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. CRONOS An independent appraiser performed an allocation of the total purchase price of Cronos to its individual assets. Of the total purchase price, $6.3 million has been allocated to IPRD and was charged to expense in the quarter ended June 30, 2000. The remaining purchase price has been allocated specifically to identifiable assets acquired. After allocating value to the IPRD projects and Cronos's tangible assets, specific intangible assets were then identified and valued. The identifiable intangible assets include existing technology, proprietary know- how or core technology, and assembled workforce. The IPRD is comprised of three main categories: (1) RF microrelays; (2) variable optical attenuators; and (3) active fiber aligners. The following is a brief description of each IPRD project as of the date of the acquisition: RF Microrelays. Cronos' current engineering efforts are focused on the development of miniature electrical relays (switches) based upon micro-mechanical systems ("MEMS") technology. Manufactured using traditional semiconductor process techniques, MEMS devices are compact, high performance, reliable and, in high volume applications, low cost. In particular, MEMS technology makes it possible to produce compact arrays of low cost relays that can be manufactured in a wide variety of custom configurations. Cronos expects the development cycle to continue for approximately 7 months with completion scheduled by the end of the fourth quarter in calendar year 2000. Development costs incurred on those products to date are approximately $0.2 million with estimated cost to complete of approximately $0.1 million, which Cronos expects to incur ratably for the remainder of the development cycle. Cronos believes the associated risks of developing these products to commercial viability include potential difficulties meeting customer and market performance specifications and competition from products using competing technologies that offer comparable functionality. Variable Optical Attenuators. Current development efforts are focused on the development of a MEMS based device that is used to attenuate light transmitted in optical fiber telecommunications. These miniature low cost devices use a continuously movable "shutter" to provide variable attenuation of the transmitted light in a wide variety of applications. They typically replace larger and more costly mechanical systems that use a stepper motor to move a conventional shutter blade. Cronos expects the development cycle to continue for approximately 2 months with completion expected in the second quarter of calendar year 2000. Development costs 35 36 incurred on those products to date are approximately $0.4 million with estimated cost to complete of approximately $0.1 million, which Cronos expects to incur ratably for the remainder of the development cycle. Cronos believes the associated risks of developing these products to commercial viability include potential difficulties meeting customer and market performance specifications and competition from products using competing technologies that offer comparable functionality. Active Fiber Aligner. This work is focused on the development of a miniature MEMS based three dimensional stage that can be used to actively position optical fibers in optical systems, typically for telecommunications applications. The purpose of this device is to provide an active capability to move the optical fiber in 3 dimensions so as to achieve or maintain optimum optical alignment. It is believed that these devices can provide a simpler and less expensive route to fiber alignment than other currently available solutions. Cronos expects the development cycle to continue for approximately 14 months with completion expected in the second quarter of calendar year 2001. Development costs incurred on those products to date are approximately $0.5 million with estimated cost to complete of approximately $0.1 million, which Cronos expects to incur ratably for the remainder of the development cycle. Cronos believes the associated risks of developing these products to commercial viability include potential difficulties meeting customer and market performance specifications and competition from products using competing technologies that offer comparable functionality. VALUE ASSIGNED TO IN-PROCESS RESEARCH AND DEVELOPMENT The value assigned to IPRD was determined by considering the importance of each project to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The revenue estimates used to value the purchased IPRD were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by Cronos and its competitors. The rates utilized to discount the net cash flows to their present value are based on Cronos' weighted average cost of capital. Given the nature of the risks associated with the difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets, the weighted average cost of capital was adjusted. Based on these factors, discount rates of 12% and 20% were deemed appropriate for the existing and in-process technology, respectively. The estimates used in valuing IPRD were based upon assumptions we believe to be reasonable but which are inherently uncertain and unpredictable. Our assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual results may vary from the projected results. Any such variance may result in a material adverse effect on Cronos' financial condition and results of operations. With respect to the in-process technologies, the calculations of value were adjusted to reflect the value creation efforts of Cronos prior to the acquisition. The range of estimated completion percentages and technology lives are 63% to 83% and 5 years, respectively. The value assigned to the in-process technologies was $6.3 million. A portion of the purchase price has been allocated to developed technology and IPRD. Developed technology and IPRD were identified and valued through extensive interviews, analysis of data provided by Cronos concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPRD. Where developmental projects had reached technological feasibility, they were classified as developed technology, and the value assigned to developed technology was capitalized. Where the developmental projects had not reached technological feasibility and had no future alternative uses, they were classified as IPRD and charged to expense upon closing of the acquisition. Cronos estimates that a total investment of approximately $0.3 million in research and development over the next 15 months will be required to complete the IPRD. The nature of the efforts required to develop the purchased IPRD into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. OCLI An independent appraiser performed an allocation of the total purchase price of OCLI to its individual assets. Of the total purchase price, $84.1 million has been allocated to IPRD and was charged to expense in the third quarter of 2000. The remaining purchase price 36 37 has been allocated to specifically identifiable tangible and intangible assets acquired, including an adjustment to write up property and equipment of OCLI to fair value by $28.0 million. The identifiable intangible assets include existing technology, proprietary know-how, trademarks and trademark and tradename, and assembled workforce. The IPRD relates to sophisticated optical components, filters and materials that manage light propagation in today's most advanced telecommunications systems, projection display engines and state of the art optically variable security devices. The IPRD is comprised of three main categories: (1) thin film filters and switches, (2) optical display and projection products, and (3) light interference pigments. The following is a brief description of each IPRD project as of the date of the acquisition: Thin film filters and switches. The main application for these products is to control the reflection, refraction, transmission and absorption of lightwave signals that are transmitted through fiberoptic cables. OCLI's current development efforts are directed toward improved spectral precision and enhanced wavelength division capability of the filters and switches. Products in-process include switches, filter lock lasers, add-drop multiplexers and dispersion compensators, which are in the exploratory through the prototype stages of the development cycle. OCLI expects the development cycle to range between 3 and 25 months with expected completion dates from the second quarter of calendar year 2000 through the first quarter of calendar year 2002. Development costs incurred on those products to date are approximately $7.6 million with estimated cost to complete of approximately $22.0 million, which OCLI expects to incur ratably for the remainder of the development cycle. OCLI believes the associated risks of developing these products to commercial viability include potential difficulties meeting customer and market performance specifications and competition from products using competing technologies that offer comparable functionality. Optical display and projection products. The main application for this product is to control the brightness, contrast and resolution of next generation display products including computer displays, digital image projectors, flat panel displays, scanners and personal digital assistants (commonly known as PDAs). The performance of these products is highly dependent upon optical components utilizing thin film filter technology coupled with increasingly smaller size and weight requirements. OCLI is currently in the prototype stage of the development cycle for this product family and expects the development cycle to continue for approximately 9 months with completion expected in the third quarter of calendar year 2000. Development costs incurred to date are approximately $6.0 million with estimated cost to complete of approximately $3.0 million, which OCLI expects to incur ratably for the remainder of the development cycle. OCLI believes the associated risks of developing these products to commercial viability include potential difficulties meeting customer and market performance specifications and competition from products using competing technologies that offer comparable functionality. Light interference pigments. The main application for this product is to achieve unique color shifting characteristics in security products and decorative surface treatments. Security related products include bank notes, passports, credit cards, tax stamps and brand protection labels. Decorative surface treatments include automotive paint, cosmetics, electronic cases and apparel. OCLI is currently in the prototype stage of the development cycle for this product family and expects the development cycle to continue for approximately 12 months with completion expected in the first quarter of calendar year 2001. Development costs incurred to date are approximately $8.2 million with estimated cost to complete of approximately $11.3 million, which OCLI expects to incur ratably for the remainder of the development cycle. OCLI believes the associated risks of developing these products to commercial viability include meeting customer and market performance specifications, meeting customer and market volume requirements and competition from products using competing technologies that offer comparable functionality. VALUE ASSIGNED TO IN-PROCESS RESEARCH AND DEVELOPMENT The value assigned to IPRD was determined by considering the importance of each project to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The revenue estimates used to value the purchased IPRD were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by OCLI and its competitors. The rates utilized to discount the net cash flows to their present value are based on OCLI's weighted average cost of capital and the weighted average return on assets. Given the nature of the risks associated with the difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets, the weighted average cost of capital was adjusted. Based on these 37 38 factors, discount rates of 18% and 25% were deemed appropriate for optical display and projection products, light interference pigments and thin film filters and switches, respectively. The estimates used in valuing IPRD were based upon assumptions we believe to be reasonable but which are inherently uncertain and unpredictable. Our assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual results may vary from the projected results. Any such variance may result in a material adverse effect on OCLI's financial condition and results of operations. With respect to the in-process technologies, the calculations of value were adjusted to reflect the value creation efforts of OCLI prior to the acquisition. Following are the estimated completion percentages and technology lives:
EXPECTED PERCENT TECHNOLOGY PROJECT COMPLETED LIFE - ------- ---------- -------------- Thin film filter............................................ 26% 6 -- 10 years Optical display and projection products..................... 67% 10 years Light interference pigments................................. 42% 10 -- 15 years
The value assigned to each IPRD is as follows (in millions): Thin film filter............................................................. $ 56.9 Optical display and projection products...................................... 12.8 Light interference pigments.................................................. 14.4 ------- Total acquired in-process research and development................. $ 84.1 =======
A portion of the purchase price has been allocated to developed technology and IPRD. Developed technology and IPRD were identified and valued through extensive interviews, analysis of data provided by OCLI concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPRD. Where developmental projects had reached technological feasibility, they were classified as developed technology, and the value assigned to developed technology was capitalized. Where the developmental projects had not reached technological feasibility and had no future alternative uses, they were classified as IPRD and charged to expense upon closing of the acquisition. OCLI estimates that a total investment of $36.3 million in research and development over the next 20 months will be required to complete the IPRD. The nature of the efforts required to develop the purchased IPRD into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. SIFAM An independent appraiser performed an allocation of the total purchase price of SIFAM to its individual assets. Of the total purchase price, $3.0 million has been allocated to IPRD and was charged to expense in the quarter ended December 31, 1999. The remaining purchase price has been allocated specifically to identifiable assets acquired. After allocating value to the IPRD projects and SIFAM's tangible assets, specific intangible assets were then identified and valued. The identifiable intangible assets include existing technology, proprietary know-how or core technology, and assembled workforce. The IPRD is comprised of three main categories: (1) miniature couplers; (2) combined components; and (3) micro-optic devices. The following is a brief description of each IPRD project as of the date of the acquisition: Miniature Couplers. SIFAM's current engineering efforts are focused on reducing the coupler dimensions and building prototypes based on completed feasibility studies. SIFAM expects the development cycle to continue for approximately 3 months with completion scheduled by the end of the first quarter in calendar year 2000. Development costs incurred on those products to date are approximately $0.04 million with estimated cost to complete of approximately $0.01 million, which SIFAM expects to incur ratably for the remainder of the development cycle. SIFAM believes the associated risks of developing these products to commercial viability include potential difficulties meeting customer and market performance specifications and competition from products using competing technologies that offer comparable functionality. 38 39 Combined Components. Current development efforts relate to integration of various components into a single package. This will provide customers with a single module that has multiple functionality previously offered only in separate components. Integrated components also improve overall system performance and reliability. SIFAM expects the development cycle to continue for approximately 6 months with completion expected in the second quarter of calendar year 2000. SIFAM believes the associated risks of developing these products to commercial viability include potential difficulties meeting customer and market performance specifications and competition from products using competing technologies that offer comparable functionality. Micro-optic Devices. Engineering effort in this area encompasses development of other passive components used in optical telecommunications networks. SIFAM expects the development cycle to continue for approximately 15 months with completion expected in the second quarter of calendar year 2001. Development costs incurred on those products to date are approximately $0.06 million with estimated cost to complete of approximately $0.14 million, which SIFAM expects to incur ratably for the remainder of the development cycle. SIFAM believes the associated risks of developing these products to commercial viability include potential difficulties meeting customer and market performance specifications and competition from products using competing technologies that offer comparable functionality. VALUE ASSIGNED TO IN-PROCESS RESEARCH AND DEVELOPMENT The value assigned to IPRD was determined by considering the importance of each project to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The revenue estimates used to value the purchased IPRD were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by SIFAM and its competitors. The rates utilized to discount the net cash flows to their present value are based on SIFAM's weighted average cost of capital. Given the nature of the risks associated with the difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets, the weighted average cost of capital was adjusted. Based on these factors, discount rates of 12% and 18% were deemed appropriate for the existing and in-process technology, respectively. The estimates used in valuing IPRD were based upon assumptions we believe to be reasonable but which are inherently uncertain and unpredictable. Our assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual results may vary from the projected results. Any such variance may result in a material adverse effect on SIFAM's financial condition and results of operations. With respect to the in-process technologies, the calculations of value were adjusted to reflect the value creation efforts of SIFAM prior to the acquisition. The range of estimated completion percentages and technology lives are 30% to 79% and 5 years, respectively. A portion of the purchase price has been allocated to developed technology and IPRD. Developed technology and IPRD were identified and valued through extensive interviews, analysis of data provided by SIFAM concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPRD. Where developmental projects had reached technological feasibility, they were classified as developed technology, and the value assigned to developed technology was capitalized. Where the developmental projects had not reached technological feasibility and had no future alternative uses, they were classified as IPRD and charged to expense upon closing of the acquisition. SIFAM estimates that a total investment of approximately $0.2 million in research and development over the next 15 months will be required to complete the IPRD. The nature of the efforts required to develop the purchased IPRD into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. EPITAXX An independent appraiser performed an allocation of the total purchase price of EPITAXX to its individual assets. Of the total purchase price, $16.7 million has been allocated to IPRD and was charged to expense in the quarter ended December 31, 1999. The remaining purchase price has been allocated to specifically identifiable assets acquired. 39 40 After allocating value to the IPRD projects and EPITAXX's tangible assets, specific intangible assets were then identified and valued. The identifiable intangible assets include existing technology, trademarks and tradenames, and assembled workforce. The IPRD relates to optical detectors and receivers for long-haul terrestrial, submarine, and metro dense wavelength division multiplexing ("DWDM") applications. The IPRD is comprised of two main categories: (1) high speed receivers, and (2) an optical spectrum analyzer product. The following is a description of each IPRD project as of the date of the acquisition: High Speed Receivers. Recently, the number of channels offered in DWDM systems has grown from 4 to 160. This trend has simultaneously multiplied the number of receivers used in the network, since receivers are used for each channel at both sides of the fiber optic link as wavelength translation is required. As channel and bit rates grow, increasing numbers of higher performance receivers will be required. EPITAXX's current engineering efforts are focused on developing both a K package and a coplanar package, as well as development of highly integrated optical receiver products. The output of the K package is easily accessible via a coax cable, while the output of the coplanar device is via leads on the package, which can be soldered directly onto a receiver board, which simplifies large volume manufacturing. Integration of electronic functions in both multi-chip modules and at the circuit board subsystem level will allow EPITAXX to offer a complete optical receiver solution to DWDM system level end users who may not possess microwave and digital design resources. EPITAXX expects the development cycle to continue for approximately 6 and 12 months, with expected completion dates from the second through fourth quarters of calendar year 2000. Development costs incurred on those products to date are approximately $0.4 million with estimated cost to complete of approximately $0.5 million, which EPITAXX expects to incur ratably for the remainder of the development cycle. EPITAXX believes the associated risks of developing these products to commercial viability include potential difficulties meeting customer and market performance specifications and competition from products using competing technologies that offer comparable functionality. Optical Spectrum Analyzer. This product has the ability to monitor all wavelengths being used in a network and is an addition to the existing product line related to network monitoring. Current development efforts relate to the creation of a photodiode array, read-out integrated circuit, and optics integration. EPITAXX expects the development cycle to continue for approximately 13 months with completion expected in the fourth quarter of calendar year 2000. Development costs incurred to date are approximately $0.2 million with estimated cost to complete of approximately $0.3 million, which EPITAXX expects to incur ratably for the remainder of the development cycle. EPITAXX believes the associated risks of developing these products to commercial viability include potential difficulties meeting customer and market performance specifications and competition from products using competing technologies that offer comparable functionality. VALUE ASSIGNED TO IN-PROCESS RESEARCH AND DEVELOPMENT The value assigned to IPRD was determined by considering the importance of each project to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The revenue estimates used to value the purchased IPRD were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by EPITAXX and its competitors. The rates utilized to discount the net cash flows to their present value are based on EPITAXX's weighted average cost of capital. Given the nature of the risks associated with the difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets, the weighted average cost of capital was adjusted. Based on these factors, discount rates of 12% and 18% were deemed appropriate for the existing and in-process technology, respectively. The estimates used in valuing IPRD were based upon assumptions we believe to be reasonable but which are inherently uncertain and unpredictable. Our assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual results may vary from the projected results. Any such variance may result in a material adverse effect on EPITAXX's financial condition and results of operations. With respect to the in-process technologies, the calculations of value were adjusted to reflect the value creation efforts of EPITAXX prior to the acquisition. The range of estimated completion percentages and technology lives are 25% to 32% and 7 years, respectively. 40 41 The value assigned to each IPRD is as follows (in millions): High Speed Receivers............................................... $ 8.9 Optical Network Monitoring......................................... 7.8 ------- Total IPRD............................................... $ 16.7 =======
A portion of the purchase price has been allocated to developed technology and IPRD. Developed technology and IPRD were identified and valued through extensive interviews, analysis of data provided by EPITAXX concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPRD. Where developmental projects had reached technological feasibility, they were classified as developed technology, and the value assigned to developed technology was capitalized. Where the developmental projects had not reached technological feasibility and had no future alternative uses, they were classified as IPRD and charged to expense upon closing of the acquisition. EPITAXX estimates that a total investment of approximately $0.8 million in research and development over the next 13 months will be required to complete the IPRD. The nature of the efforts required to develop the purchased IPRD into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. CURRENT STATUS OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT PROJECTS We periodically review the stage of completion and likelihood of success of each of the IPRD projects. The current status of the IPRD projects for all major mergers and acquisitions during the past three years are as follows: CRONOS The products under development at the time of acquisition included: (1) RF microrelays; (2) variable optical attenutators; and (3) active fiber aligners. The microrelays development is substantially complete at a cost consistent with our expectations. The variable optical attenuators and active fiber aligners development projects are progressing as expected at a cost consistent with our expectations. OCLI The products under development at the time of the acquisition included: (1) thin film filters and switches, (2) optical display and projection products, and (3) light interference pigments. Thin film filters included switches, filter lock lasers, add-drop multiplexers and dispersion compensators. The Company has discontinued the development of certain switches, filter lock lasers and add-drop multiplexers due to duplicate efforts already underway within the Company. Dispersion compensators and other switches, are currently in the exploratory and prototype development stages of the development cycle. The expected development on these products is between 5 and 24 months. The Company has incurred post acquisition costs of approximately $2.0 million with an estimated cost to complete the remaining projects of $10.0 million, which the Company expects to incur ratably for the remainder of the development cycle. The optical display and projection products development is currently being evaluated due to the uncertainty of current market conditions. Light interference pigments are currently in the prototype stage of the development cycle for this product family and these projects are on schedule with completion expected in the first quarter of calendar year 2001. The Company has incurred post-acquisition research and development expenses of approximately $0.2 million and estimates that cost to complete these projects will be another $12.2 million which the Company expects to incur ratably over the remainder of the product development cycle. SIFAM The products under development at the time of the acquisition included: (1) miniature couplers; (2) combined components; and (3) micro-optic devices. Miniature coupler development is substantially complete at a cost consistent with our expectations. Combined components development is expected to continue for six months with an estimated cost to complete this product of $0.3 million. Micro-optic device development is currently being evaluated relative to similar efforts already underway within the Company. The costs incurred post acquisition for micro-optic device development has been consistent with our expectations. 41 42 EPITAXX The products under development at the time of the acquisition included (1) high-speed receivers, and (2) an optical spectrum analyzer product. High-speed receiver development is expected to continue for approximately six months, with expected cost to complete of approximately $0.2 million which EPITAXX expects to incur ratably for the remainder of the development cycle. Optical spectrum analyzer development is expected to continue approximately six months with expected cost to complete of approximately $0.1 million which EPITAXX expects to incur ratably for the remainder of the development cycle. JDS FITEL The products under development at the time of our merger included: (i) Thermo Optic Waveguide Attenuators, (ii) Solid State Switch, (iii) 50 GHz WDM, and (iv) Erbium Doped Fiber Amplifiers ("EDFA"). Thermo Optic Waveguide Attenuator development is expected to continue for approximately six months at a cost of approximately $0.4 million ratably until its completion. Solid State Switch, WDM and EDFA developments are substantially complete at a cost consistent with our expectations. UNIPHASE NETHERLANDS The product introductions for the WDM lasers -- CW and direct modulation, and DFB/EA modulators are either on schedule or are approximately six months behind schedule. The WDM laser -- direct modulation is expected to have a lower revenue growth rate than originally anticipated. The development of the semiconductor optical amplifier technology has been delayed because of market demand for other products. The development of the telecom technology is on schedule but the revenue growth rate in initial periods is expected to be lower than originally anticipated. Development of the CATV technologies is approximately six months behind schedule and is expected to take a higher level of development effort to achieve technological feasibility. We have incurred post-acquisition research and development expenses of approximately $8.7 million in developing the in-process technology and estimate the cost to complete this technology, in combination with our other continuing research and development expenses, will not be in excess of our historic expenditures for research and development as a percentage of our net sales. The differences between the actual outcome noted above and the assumptions used in the original valuation of the technology are not expected to significantly impact our results of operations and financial position. UNIPHASE FIBER COMPONENTS The initial products developed for submarine and unpackaged technology projects were completed approximately on schedule and post-acquisition research and development expenses approximately equaled the estimated cost to complete at the acquisition date. The Company is experiencing higher levels of demand for the submarine products than anticipated in the original estimates. The temperature compensation project is behind schedule because of unforeseen technical difficulties in maintaining specifications at the harshest environmental test points, although we are satisfied with the developments achieved to date, and expect the development of this project to be substantially completed by the end of the second quarter of 2001. The dispersion compensation project is significantly behind schedule and the market does not appear to be developing as anticipated. The Add-Drop projects were discontinued concurrent with the merger with JDS FITEL. We have incurred post-acquisition research and development expenses of approximately $3.8 million in developing the in-process technology and estimate the cost to complete this technology, in combination with our other continuing research and development expenses, will not be in excess of our historic expenditures for research and development as a percentage of our net sales. The differences between the actual outcome noted above and the assumptions used in the original valuation of the technology are not expected to significantly affect our results of operations and financial position. UNIPHASE LASER ENTERPRISE The submount and RWG series products were released on schedule and post-acquisition research and development expenses approximately equaled the estimated cost to complete at the acquisition date. Actual revenue for these products has significantly exceeded the estimates used in the valuation of the technology. We did not pursue development of the distributed feedback laser because of resources being redirected to expand the submount and RWG series development program in response to strong market demand. The high power project is somewhat delayed because of shifting R&D resources to submount/RWG. We have incurred post-acquisition research and development expenses of approximately $8.3 million in developing the in-process technology and estimate the cost to complete this technology, in combination with our other continuing research and development expenses, will not be in excess of our historic expenditures for research and development as a percentage of our net sales. The differences between the actual outcome noted above and the assumptions used in the original valuation of the technology are not expected to significantly impact our results of operations and financial position. 42 43 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS FOREIGN EXCHANGE We generate a significant portion of our sales from sales to customers located outside the United States, principally in Europe. International sales are made mostly from our foreign subsidiaries in the local countries and are typically denominated in either U.S. dollars or the local currency of each country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. Our international business is subject to risks typical of an international business including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors. We use forward foreign exchange contracts as the vehicle for hedging certain assets and liabilities denominated in foreign currencies. In general, these forward foreign exchange contracts have three months or less to maturity. Gains and losses on hedges are recorded in non-operating other income as an offset against losses and gains on the underlying exposures. Management of the foreign exchange hedging program is done in accordance with corporate policy. At June 30, 2000, hedge positions totaled U.S. dollar $81.1 million equivalent. All hedge positions are carried at fair value and all hedge positions had maturity dates within three months. INTEREST RATES We invest our cash in a variety of financial instruments, including floating rate bonds, municipal bonds, auction instruments and money market instruments. These investments are denominated in U.S. and Canadian dollars. Cash balances in foreign currencies overseas are operating balances and are only invested in short term deposits of the local operating bank. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted because of a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part of these factors, the Company's future investment income may fall short of expectations because of changes in interest rates or the Company may suffer loses in principal if forced to sell securities which have seen a decline in market value because of changes in interest rates. Our investments are made in accordance with an investment policy approved by the Board of Directors. Under this policy, no investment securities can have maturities exceeding three years and the average duration of the portfolio can not exceed eighteen months. 43 44 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND STOCKHOLDERS JDS UNIPHASE CORPORATION We have audited the accompanying consolidated balance sheets of JDS Uniphase Corporation as of June 30, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2000. Our audits also included the financial statement schedule listed in the index at Item 14. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of JDS Uniphase Corporation at June 30, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2000 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP ------------------------------- San Jose, California July 24, 2000, except for Note 13 as to which date is October 20, 2000 44 45 JDS UNIPHASE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE DATA)
YEARS ENDED JUNE 30, ------------------------------------------------- 2000 1999 1998 --------- --------- --------- Net sales .......................................... $ 1,430.4 $ 282.8 $ 185.2 Cost of sales ...................................... 751.6 138.7 96.1 --------- --------- --------- Gross profit ..................................... 678.8 144.1 89.1 Operating expenses: Research and development ......................... 113.4 27.0 14.8 Selling, general and administrative .............. 172.9 37.4 39.9 Amortization of purchased intangibles ............ 896.9 15.7 5.6 Acquired in-process research and development ..... 360.7 210.4 40.3 Merger and other costs ........................... -- 6.8 -- --------- --------- --------- Total operating expenses ........................... 1,543.9 297.3 100.6 --------- --------- --------- Loss from operations ............................... (865.1) (153.2) (11.5) Interest income .................................... 40.7 4.0 3.0 Interest expense ................................... (0.5) -- (0.1) Other income (expense), net ........................ (4.9) (0.4) 0.4 --------- --------- --------- Loss before income taxes ........................... (829.8) (149.6) (8.2) Income tax expense ................................. 74.9 21.5 11.4 --------- --------- --------- Net loss ........................................... $ (904.7) $ (171.1) $ (19.6) ========= ========= ========= Basic and dilutive loss per share .................. $ (1.27) $ (0.54) $ (0.07) ========= ========= ========= Shares used in per share calculation: Basic and dilutive ............................... 710.9 318.2 283.6 ========= ========= =========
See accompanying notes to consolidated financial statements. 45 46 JDS UNIPHASE CORPORATION CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA) ASSETS
JUNE 30, ----------------------------- 2000 1999 --------- --------- Current assets: Cash and cash equivalents ............................................................... $ 319.0 $ 75.4 Short-term investments .................................................................. 795.3 158.5 Accounts receivable, less allowances for doubtful accounts of $8.2 at June 30, 2000 and $1.1 at June 30, 1999 ............................................................. 381.6 120.9 Inventories ............................................................................. 375.4 87.9 Refundable income taxes ................................................................. 8.1 4.8 Deferred income taxes ................................................................... 62.4 7.9 Other current assets .................................................................... 31.1 8.2 --------- --------- Total current assets ............................................................. 1,972.9 463.6 Property, plant, and equipment, net ....................................................... 670.7 181.1 Deferred income taxes ..................................................................... 642.7 5.4 Goodwill and other intangible assets ...................................................... 22,337.8 3,444.2 Long-term investments ..................................................................... 760.9 -- Other assets .............................................................................. 4.1 1.8 --------- --------- Total assets ..................................................................... $26,389.1 $ 4,096.1 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ........................................................................ $ 195.2 $ 38.1 Accrued payroll and related expenses .................................................... 98.8 27.2 Income taxes payable .................................................................... 108.6 37.2 Other current liabilities ............................................................... 244.6 46.3 --------- --------- Total current liabilities ........................................................ 647.2 148.8 Deferred income taxes ..................................................................... 902.1 318.2 Accrued pension and other employee benefits ............................................... 4.4 6.1 Other non-current liabilities ............................................................. 15.8 3.7 Long-term debt ............................................................................ 41.0 -- Commitments and contingencies ............................................................. Stockholders' equity: Preferred stock, $0.001 par value: Authorized shares -- 1,000,000 Series A: 100,000 shares issued and outstanding at June 30, 2000 and 1999 ............. -- -- Series B: 100,000 shares authorized at June 30, 2000 and 1999 ......................... -- -- Undesignated: 1 voting share authorized, issued and outstanding ....................... -- -- Common stock, $0.001 par value Authorized shares -- 3,000,000,000 Issued and outstanding shares -- 935,928,995 at June 30, 2000 and 643,690,504 at June 30, 1999 ....................................................................... 0.9 0.6 Additional paid-in capital .............................................................. 25,897.4 3,822.2 Accumulated deficit ..................................................................... (1,102.5) (197.8) Accumulated other comprehensive income (loss) ........................................... (17.2) (5.7) --------- --------- Total stockholders' equity ....................................................... 24,778.6 3,619.3 --------- --------- Total liabilities and stockholders' equity ....................................... $26,389.1 $ 4,096.1 ========= =========
See accompanying notes to consolidated financial statements. 46 47 JDS UNIPHASE CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN MILLIONS)
ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER --------------- -------------- PAID-IN ACCUMULATED COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME(LOSS) TOTAL ------ ------ ------ ------ ---------- ----------- ------------- --------- Balance at June 30, 1997 ..................... -- -- 276.6 $ 0.3 $ 156.7 $ (4.9) $ (0.1) $ 152.0 Shares issued under employee stock plans and related tax benefits ........... -- -- 8.7 -- 11.3 -- -- 11.3 Preferred and common stock issued to Philips................................... 0.1 -- 26.1 -- 131.3 -- -- 131.3 Amortization of deferred compensation ...... -- -- -- -- 1.0 -- -- 1.0 Stock compensation ......................... -- -- -- -- 6.9 -- -- 6.9 Dividends on BCP stock ..................... -- -- -- -- -- (0.6) -- (0.6) Adjustments to conform BCP with Company's fiscal year end ................ -- -- -- -- -- (1.0) -- (1.0) Net loss ................................... -- -- -- -- -- (19.6) -- (19.6) Net unrealized gain (loss) on securities available-for-sale ............ -- -- -- -- -- -- 0.1 0.1 Foreign currency translation adjustment .... -- -- -- -- -- -- (1.4) (1.4) --------- Comprehensive loss ......................... -- -- -- -- -- -- -- (20.9) ----- ---- ------ ------ --------- --------- --------- --------- Balance at June 30, 1998 ..................... 0.1 -- 311.4 0.3 307.2 (26.1) (1.4) 280.0 Shares issued under employee stock plans and related tax benefits ........... -- -- 12.5 -- 29.5 -- -- 29.5 Common stock and options issued in connection with JDS FITEL merger, net of issuance costs .................... -- -- 319.5 0.3 3,482.6 -- -- 3,482.9 Conversion of debt for common stock ........ -- -- 0.4 -- 2.4 -- -- 2.4 Amortization of deferred compensation ...... -- -- -- -- 0.5 -- -- 0.5 Dividends on BCP stock ..................... -- -- -- -- -- (0.6) -- (0.6) Net loss ................................... -- -- -- -- -- (171.1) -- (171.1) Net unrealized gain (loss) on securities available-for-sale ............ -- -- -- -- -- -- (0.2) (0.2) Foreign currency translation adjustment .... -- -- -- -- -- -- (4.1) (4.1) --------- Comprehensive loss ......................... -- -- -- -- -- -- -- (175.4) ----- ---- ------ ------ --------- --------- --------- --------- Balance at June 30, 1999 ..................... 0.1 -- 643.7 0.6 3,822.2 (197.8) (5.7) 3,619.3 --------- Shares issued under employee stock plans and related tax benefits ........... -- -- 36.6 -- 149.5 -- -- 149.5 Common stock issued in connection with offerings ............. -- -- 35.8 0.1 713.5 -- -- 713.6 in connection with acquisitions .......... -- -- 219.8 0.2 21,211.4 -- -- 21,211.6 Amortization of deferred compensation ...... -- -- -- -- 0.5 -- -- 0.5 Conversion of Chassis debt ................. -- -- -- -- 0.3 -- -- 0.3 Net loss ................................... -- -- -- -- -- (904.7) -- (904.7) Net unrealized gain (loss) on securities available-for-sale ............ -- -- -- -- -- -- (1.8) (1.8) Foreign currency translation adjustment .... -- -- -- -- -- -- (9.7) (9.7) --------- Comprehensive loss ......................... -- -- -- -- -- -- -- (916.2) ----- ---- ------ ------ --------- --------- --------- --------- Balance at June 30, 2000 ..................... 0.1 -- 935.9 $ 0.9 $25,897.4 $(1,102.5) $ (17.2) $24,778.6 ===== ==== ====== ====== ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 47 48 JDS UNIPHASE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
YEARS ENDED JUNE 30, -------------------------------------- 2000 1999 1998 -------- -------- -------- OPERATING ACTIVITIES Net loss ........................................................ $ (904.7) $ (171.1) $ (19.6) BCP net income for the six months ended December 31, 1997 ....... -- -- (1.0) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation expense ......................................... 52.3 13.9 6.1 Amortization expense ......................................... 898.4 16.8 4.0 Acquired in-process research and development ................. 360.7 210.4 40.3 Stock compensation expense ................................... 0.5 0.5 6.9 Write-off of inventory, equipment and intangible assets ...... -- 2.5 3.6 Change in deferred income taxes, net ......................... (78.9) 5.1 (0.8) Changes in operating assets and liabilities: Accounts receivable .......................................... (132.9) (21.5) (12.4) Inventories .................................................. (94.7) (12.1) 1.7 Refundable income taxes ...................................... -- (0.4) 3.8 Other current assets ......................................... 5.5 (5.1) (1.0) Income taxes payable ......................................... 18.6 6.2 2.8 Tax benefit on non-qualified stock options ................... 47.8 11.4 6.2 Accounts payable, accrued liabilities, and other current liabilities ......................................... 108.5 10.4 10.4 -------- -------- -------- Net cash provided by operating activities ......................... 281.1 67.0 51.0 -------- -------- -------- INVESTING ACTIVITIES Purchase of available-for-sale investments ...................... (2,395.9) (204.8) (187.2) Sale of available-for-sale investments .......................... 1,757.3 176.4 177.3 Cash acquired from merger with JDS FITEL, net of expenses ....... -- 35.4 -- Cash acquired in the acquisition of E-TEK, net of expenses ...... 190.7 -- -- Cash acquired in the acquisition of OCLI, net of expenses ....... 98.2 -- -- Other acquisitions of businesses, net of cash acquired .......... (189.0) (0.4) (10.8) Purchase of property, plant and equipment and licenses .......... (280.0) (46.6) (24.9) Increase in other assets ........................................ (4.8) (0.3) (0.1) Decrease in other assets ........................................ 3.9 -- -- -------- -------- -------- Net cash used in investing activities ............................. (819.6) (40.3) (45.7) -------- -------- -------- FINANCING ACTIVITIES Repayment of notes payable and lease obligations ................ -- -- (6.1) Repayment of debt acquired ...................................... (45.1) -- -- Proceeds from issuance of common stock in a public offering ..... 713.5 -- -- Proceeds from issuance of common stock other than in the public offerings ............................................. 113.7 16.0 4.9 Pre-merger dividends paid on BCP stock .......................... -- (0.6) (0.5) -------- -------- -------- Net cash provided by (used in) financing activities ............... 782.1 15.4 (1.7) -------- -------- -------- Increase (decrease) in cash and cash equivalents .................. 243.6 42.1 3.6 Cash and cash equivalents at beginning of period .................. 75.4 33.3 29.7 -------- -------- -------- Cash and cash equivalents at end of period ........................ $ 319.0 $ 75.4 $ 33.3 ======== ======== ========
See accompanying notes to consolidated financial statements. 48 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activities JDS Uniphase Corporation (the "Company" or "JDS Uniphase") was formed by the merger between Uniphase Corporation and JDS FITEL Inc., pursuant to which they combined their operations on June 30, 1999. JDS Uniphase is a provider of advanced fiber optic components and modules. These products are sold to telecommunications and cable television system providers, which are commonly referred to as OEMs and include Alcatel, Ciena, Cisco, Corning, Lucent, Marconi, Motorola, Nortel, ONI Systems, Scientific Atlanta, Siemens, Sycamore and Tyco. The Company's products are basic building blocks for fiber optic networks and perform both optical-only, commonly referred to as "passive" functions, and optoelectronic, commonly referred to as "active" functions, within fiberoptic networks. The Company's products include semiconductor lasers, high-speed external modulators, transmitters, amplifiers, couplers, multiplexers, circulators, tunable filters, optical switches and isolators for fiberoptic applications. The Company also supplies its OEM customers with test instruments for both system production applications and network installation. In addition, the Company designs, manufactures and markets laser subsystems for a broad range of OEM applications, optical display and projection products used in computer displays and other similar applications and light interference pigments used in security products and decorative surface treatments. Basis of Presentation The consolidated financial statements include JDS Uniphase and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. Cash, Cash Equivalents and Short-term Investments JDS Uniphase considers all liquid investments with maturities of ninety days or less when purchased to be cash equivalents. The Company's short-term investments have initial maturities of greater than ninety days. The Company's securities are classified as "available-for-sale" in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investment in Debt and Equity Securities." These investments are carried at fair market value with any unrealized gains and losses recorded as a separate component of stockholders' equity. Fair value is based upon market prices quoted on the last day of the fiscal year. The cost of debt securities sold is based on the specific identification method. Gross realized gains and losses are included in interest income and have not been material. The Company's investments consist of the following:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- (IN MILLIONS) JUNE 30, 2000: Floating rate bonds .................... $128.7 $ -- $ 0.3 $128.4 Municipal bonds ........................ 465.0 -- 1.5 463.5 Auction instruments .................... 69.0 -- -- 69.0 Money market instruments and funds ..... 163.6 -- -- 163.6 ------ ------ ------ ------ Total debt investments ................. 826.3 -- 1.8 824.5 Marketable equity investments .......... 16.9 -- -- 16.9 ------ ------ ------ ------ Total investments .............. $843.2 $ -- $ 1.8 $841.4 ====== ====== ====== ====== JUNE 30, 1999: Floating rate bonds .................... $ 6.9 $ -- $ -- $ 6.9 Municipal bonds ........................ 80.0 -- 0.1 79.9 Auction instruments .................... 6.0 -- -- 6.0 Money market instruments and funds ..... 83.5 -- -- 83.5 ------ ------ ------ ------ $176.4 $ -- $ 0.1 $176.3 ====== ====== ====== ======
49 50 The following is a summary of contractual maturities of the Company's debt investments:
ESTIMATED AMORTIZED FAIR COST VALUE ---------- --------- (IN MILLIONS) JUNE 30, 2000: Money market instruments and funds.............................. $ 163.6 $ 163.6 Amounts maturing within one year................................ 226.1 225.9 Amounts maturing after one year, within five years.............. 436.6 435.0 -------- -------- $ 826.3 $ 824.5 ======== ========
Available-for-sale investments are included in the consolidated balance sheets as follows:
2000 1999 -------- -------- (IN MILLIONS) Cash and cash equivalents........................................ $ 29.2 $ 17.8 Short-term investments........................................... 795.3 158.5 Long-term investments............................................ 16.9 -- -------- -------- Total available-for-sale investments................... $ 841.4 $ 176.3 ======== ========
Fair Value of Financial Instruments The Company has determined the estimated fair value of financial instruments. The amounts reported for cash, accounts receivable, short-term borrowings, accounts payable, notes payable and accrued expenses approximate the fair value because of their short maturities. Investment securities and foreign currency exchange contracts are reported at their estimated fair value based on quoted market prices of comparable instruments. The estimated fair value of fixed rate long-term debt is primarily based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities. This fair value approximated the carrying amount of long-term debt at June 30, 2000. Inventories Inventories are valued at the lower of cost (first-in, first-out method) or market. The components of inventory consist of the following:
JUNE 30, ----------------- 2000 1999 -------- ------- (IN MILLIONS) Finished goods.......................................... $ 39.2 $ 10.4 Work in process......................................... 176.7 35.9 Raw materials and purchased parts....................... 159.5 41.6 -------- ------- $ 375.4 $ 87.9 ======== =======
50 51 Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is computed by the straight-line method over the following estimated useful lives of the assets: building and improvements, 5 to 45 years; machinery and equipment, 2 to 10 years; furniture, fixtures, and office equipment, 5 years. Leasehold improvements are amortized by the straight-line method over the shorter of the estimated useful lives of the assets or the term of the lease. The components of property, plant and equipment are as follows:
JUNE 30, ------------------- 2000 1999 -------- -------- (IN MILLIONS) Land......................................................... $ 33.2 $ 10.0 Building and improvements.................................... 127.4 38.6 Machinery and equipment...................................... 439.8 109.9 Furniture, fixtures and office equipment..................... 40.5 15.3 Leasehold improvements....................................... 28.8 16.4 Construction in progress..................................... 84.1 20.0 -------- -------- 753.8 210.2 Less: accumulated depreciation and amortization.............. (83.1) (29.1) -------- -------- $ 670.7 $ 181.1 ======== ========
Equity method of accounting The Company accounts for investments in joint ventures, limited liability partnerships and other investments in 50% or less owned companies over which it has the ability to exercise significant influence using the equity method of accounting. The Company accounts for the increase or decrease of its proportionate share of net book value in equity basis investments from the investees' issuance of stock at a price above or below the net book value per share as a change to additional paid-in capital. Due to the limited availability of timely data, the Company records the adjustments to its equity basis investments in the quarter subsequent to the issued financial statements. At June 30, 2000, the Company had the following investments accounted for using the equity method: ADVA: On June 30, 2000, the Company acquired E-TEK Dynamics, Inc. ("E-TEK"), which at the time of acquisition had a 31% ownership stake in ADVA, a publicly traded German company that develops and manufactures fiber optic components and products At June 30, 2000, the Company's cost and estimated fair value of its investment in ADVA is $701.1 million. The difference between the cost of the investment and the underlying equity in the net assets of ADVA will be amortized over a 5 year period. The Photonics Fund, LLP: During 2000, the Company contributed $4.8 million for a 40% stake in The Photonics Fund, LLP, a California limited liability partnership (the "Partnership"), which emphasizes privately negotiated venture capital equity investments. The Partnership was formed on December 21, 1999 and extends to December 31, 2006, unless extended or terminated as provided for in the Partnership agreement. At June 30, 2000, the carrying value of the Company's equity share in the Partnership was $4.8 million. The market value of the Company's equity share in the Partnership at June 30, 2000 was $12.9 million. The Company's share of the earnings of the Partnership for the quarter ended June 30, 2000 was $8.1 million, which will be recorded by the Company in the quarter ended September 30, 2000. Goodwill and Other Intangible Assets Intangible assets represent licenses and intellectual property acquired, purchased intangible assets and the excess acquisition cost over the fair value of tangible and identified intangible net assets of businesses acquired (goodwill). Purchased intangible assets include developed technology, trademarks and trade names, assembled workforces and customer bases. Intangible assets are being amortized using the straight-line method over estimated useful lives ranging from 3 to 15 years. 51 52 The amortization and write-off of goodwill and purchased intangibles are separately presented as a component of operating expenses on the Consolidated Statement of Operations, whereas the amortization of licenses and other intellectual property is included in selling, general and administrative expense. The components of intangible assets are as follows:
JUNE 30, -------------------------- REMAINING 2000 1999 LIVES ------------ ----------- ------------- (IN MILLIONS) Goodwill................................... $ 21,307.1 $ 2,583.9 2 - 7 years Purchased intangibles...................... 1,945.5 881.9 1 - 15 years Licenses and other intellectual property... 5.6 1.9 1 - 8 years ----------- ---------- 23,258.2 3,467.7 Less: accumulated amortization............. (920.4) (23.5) ----------- ---------- $ 22,337.8 $ 3,444.2 =========== ==========
Intangible and other long-lived assets are reviewed whenever indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the related asset carrying amount. Intangible assets were reviewed during the fiscal fourth quarter of 1998 following the Company's acquisition of Uniphase Netherlands, B.V. ("UNL"). This review indicated that the Uniphase Fiberoptics Products ("UFP") intangible assets were impaired, as determined based on the projected undiscounted cash flows from UFP over the next three years. Cash flow projections took into effect the net sales and expenses expected from UFP product, as well as maintaining its current manufacturing capabilities. Consequently, the carry value of the UFP goodwill and other long-lived assets totaling $2.2 million and $1.5 million, respectively, were written down as a component of operating expenses during fiscal 1998. The Company will assess enterprise level goodwill for recoverability if the market capitalization of the Company is less than its net assets. Impairment will be measured by using the market value method. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and trade receivables. The Company places its cash equivalents and short-term investments with high credit-quality financial institutions. The Company invests its excess cash primarily in auction and money market instruments, and municipal and floating rate bonds. The Company has established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. To date, the Company has not experienced significant losses on any of these investments. The Company sells primarily to customers involved in the application of laser technology and the manufacture of telecommunications products. The Company performs ongoing credit evaluations of its customers and does not require collateral. The Company provides reserves for potential credit losses, however, such losses and yearly provisions have not been significant and have been within management's expectations. Foreign Currency Translation and Exchange Contracts The Company's international subsidiaries use their local currency as their functional currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rate on the balance sheet dates. Net sales and expenses are translated using average rates of exchange prevailing during the year. The translation adjustment resulting from this process is included as a component of other stockholders' equity and comprehensive income (loss). Foreign currency transaction gains and losses are not material and are included in the determination of net income. During fiscal 2000, the Company entered into forward foreign currency option contracts to hedge certain balance sheet accounts denominated in Swiss Francs, Dutch Guilders, Canadian Dollars, British Pounds and Japanese Yen. As of June 30, 2000, the Company had foreign currency option contracts outstanding as follows (in millions of equivalent U.S. dollars): Swiss Francs.................................. $ 7.1 Dutch Guilders................................ 3.5 Canadian Dollars.............................. 68.1 British Pounds................................ 2.0 Japanese Yen.................................. 0.4 ------- $ 81.1 =======
These foreign currency contracts expire on various dates in the first quarter of fiscal 2001. The difference between the fair value and the amortized carrying value on foreign currency exchange contracts is immaterial. 52 53 While the contract amounts provide one measure of the volume of the transactions outstanding at June 30, 2000 they do not represent the amount of the Company's exposure to credit risk. The Company's exposure to credit risk (arising from the possible inability of the counterparts to meet the terms of their contracts) is generally limited to the amount, if any, by which the counterparts' obligations exceed the obligations of the Company. Revenue Recognition The Company recognizes revenue generally at the time of shipment, with provisions established for estimated product returns and allowances. Revenue on the shipment of evaluation units is deferred until customer acceptance. The Company provides for the estimated cost to repair products under warranty at the time of sale. Stock Split On September 28, 1999, the Board of Directors approved a two-for-one stock split of the common stock and Exchangeable shares that became effective for holders of record as of December 22, 1999. On January 3, 2000, the Board of Directors approved a second two-for-one stock split of all common stock and Exchangeable shares for holders of record as of March 2, 2000. All share and per share amounts included in these consolidated financial statements and notes applicable to prior periods have been restated to reflect these stock splits. Loss per Share As the Company incurred a loss in fiscal 2000, 1999 and 1998, the effect of dilutive securities totaling 64.4 million, 27.3 million, and 24.0 million equivalent shares, respectively, have been excluded from the computation as they are antidilutive. Dilutive securities exclude the conversion of Series A Preferred Stock until the removal of all contingencies attributable to their conversion is assured beyond a reasonable doubt. The following table sets forth the computation of basic and diluted loss per share:
YEARS ENDED JUNE 30, ---------------------------------- 2000 1999 1998 ----------- ----------- -------- (IN MILLIONS, EXCEPT SHARE DATA) Denominator for basic and dilutive earnings (loss) per share -- weighted average shares................................. 710.9 318.2 283.6 ========= ========= ======= Net loss........................................................... $ (904.7) $ (171.1) $ (19.6) ========= ========= ======= Basic and dilutive loss per share.................................. $ (1.27) $ (0.54) $ (0.07) ========= ========= =======
Stock-based Compensation In accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," the Company records and amortizes, over the related vesting periods, deferred compensation representing the difference between the price per share of stock issued or the exercise price of stock options granted and the fair value of the Company's common stock at the time of issuance or grant. Stock compensation costs are immediately recognized to the extent the exercise price is below the fair value on the date of grant and no future vesting criteria exist. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates and such differences could be material to the financial statements. Impact of Recently Issued Accounting Standards The Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended as of the beginning of its fiscal year 2001. The Standard will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in other 53 54 comprehensive income until the hedged item is recognized in earnings. The change in a derivative's fair value related to the ineffective portion of a hedge, if any, will be immediately recognized in earnings. The effect of adopting the Standard is not expected to have a material effect on the Company's financial position or overall trends in results of operations. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met in order to recognize revenue and provides guidance for disclosures related revenue recognition policies. The SEC has deferred the implementation date of SAB 101 until the quarter ended June 30, 2001, with retroactive application to the beginning of the Company's fiscal year. The SEC intends to issue further definitive guidance on the implementation of SAB 101. Although the Company cannot complete its assessment of the impact of SAB 101 until such guidance is issued, the Company's preliminary assessment is that the impact of adopting SAB 101 on its financial position and results of operations in fiscal 2001 and thereafter, will not be material. In March 2000, the Financial Accounting Standard Board issued FASB Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB Opinion No. 25." FIN 44 primarily clarifies (a) the definition of an employee for purposes of applying APB Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequence of various modifications to the terms of previously fixed stock options or awards, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. FIN 44 will have an effect on the manner in which the Company accounts for the options issued in exchange for unvested options of SDL, Inc. ("SDL") in connection with the Company's anticipated transaction to merge with SDL (see Note 13) or in connection with any other acquisitions subsequent to June 30, 2000. The value attributed to unvested options will be allocated to deferred compensation and amortized over the remaining vesting period. NOTE 2. LINES OF CREDIT AND LONG-TERM DEBT The Company had an unsecured U.S. $10.0 million revolving bank line of credit that it converted in May 2000 to a Foreign Exchange and Standby Letter of Credit facility. The Company also had an unused operating bank line of credit for Canadian $60.0 million (approximately U.S. $40.0 million). Advances under the line of credit bear interest at the Canadian Bank prime rate (7.5%) at June 30, 2000. The Company had no outstanding borrowings under this facility at June 30, 2000.
JUNE 30, 2000 ------------- (IN MILLIONS) Secured term loan, interest at 7.85% per annum. Monthly principal and interest payments are $0.1 million with final payment on December 1, 2001....................................... $ 7.3 Secured loan, interest at 1.33% to 1.35% per annum. Interest is payable monthly. Principal is payable March 15, 2002................. 6.5 Secured term loan, interest at 7.73% per annum. Monthly principal and interest payments are $0.3 million with final payment on January 1, 2003........................................ 8.7 Secured term loan, interest at 6.46% per annum. Monthly principal and interest payments are $0.1 million with final payment on September 1, 2002...................................... 3.2 Secured term loan, interest at 8.46% per annum. Monthly principal and interest are $0.2 million with final payment on April 1, 2003........................................................ 7.1 Secured term loan, interest at 8.01% per annum. Monthly principal and interest are $0.3 million with final payment on April 1, 2003........................................................ 9.5 Secured term loan, interest at 6.89% per annum. Monthly principal and interest are $0.2 million with final payment on April 1, 2002........................................................ 4.4 Secured term loan, interest at 6.38% per annum. Monthly principal and interest are $0.2 million with final payment on January 1, 2002...................................................... 4.4 Secured bond, interest rate is variable and based on "TENR" plus 0.625% and is reset weekly. The interest rate at June
54 55 30, 2000 was 6.0%. Interest is payable quarterly. Principal is payable August 1, 2016..................................... 5.0 ------ Total..................................................................... 56.1 Less current maturities, included in other current liabilities.......... 15.1 ------ Total long-term debt, net of current maturities................. $ 41.0 ======
Annual debt maturities are as follows (in millions): Year 2001........................................................................ $ 15.1 Year 2002........................................................................ 28.2 Year 2003........................................................................ 7.8 Year 2004........................................................................ -- Year 2005........................................................................ -- Thereafter....................................................................... 5.0 ------- $ 56.1 =======
NOTE 3. OTHER CURRENT LIABILITIES The components of other current liabilities are as follows (in millions):
JUNE 30, ----------------- 2000 1999 -------- ------- Acquisition costs................................................. $ 135.4 $ 22.5 Temporary labor costs............................................. 8.0 4.8 Accrued expenses due to affiliated company........................ -- 4.3 Warranty reserve.................................................. 11.3 2.4 Facility expansion accruals....................................... 6.6 2.0 Other............................................................. 83.3 10.3 -------- ------- $ 244.6 $ 46.3 ======== =======
Acquisition costs at June 30, 2000 consisted primarily of $92.0 million of estimated direct transaction costs associated with the acquisition of E-TEK, approximately $34.7 million in costs incurred by E-TEK in connection with the acquisition and $4.6 million of direct transaction costs associated with other acquisitions in 2000. Acquisition costs at June 30, 1999 primarily included approximately $9.1 million of direct costs associated with the JDS FITEL merger and approximately $10.3 million of costs incurred by JDS FITEL in connection with the merger. At June 30, 2000, substantially all direct costs associated with the JDS FITEL merger had been paid. NOTE 4. INCOME TAXES The expense (benefit) for income taxes consists of the following (in millions):
YEARS ENDED JUNE 30, ----------------------------------- 2000 1999 1998 ------- ------- ------- Federal: Current .................. $ 34.0 $ 15.4 $ 7.9 Deferred ................. (17.5) (3.0) (0.4) ------- ------- ------- 16.5 12.4 7.5 State: Current .................. 5.0 1.4 3.2 Deferred ................. (2.3) (0.2) (0.5) ------- ------- ------- 2.7 1.2 2.7 Foreign: Current .................. 115.9 9.8 1.2 Deferred ................. (60.2) (1.9) -- ------- ------- ------- 55.7 7.9 1.2 ------- ------- ------- Income tax expense ....... $ 74.9 $ 21.5 $ 11.4 ======= ======= =======
The tax benefit associated with exercises of stock options reduced taxes currently payable by $47.8 million, $11.4 million and $6.2 million for the years ended June 30, 2000, 1999 and 1998, respectively. 55 56 Income (loss) before income taxes consisted of the following (in millions):
YEARS ENDED JUNE 30, ----------------------------------- 2000 1999 1998 ------- ------- ------- Domestic ...... $(452.5) $ 29.3 $ (10.9) Foreign ....... (377.3) (178.9) 2.6 ------- ------- ------- $(829.8) $(149.6) $ (8.3) ======= ======= =======
A reconciliation of the income tax expense (benefit) at the federal statutory rate to the income tax provision (benefit) at the effective tax rate is as follows (in millions):
YEARS ENDED JUNE 30, ----------------------------------- 2000 1999 1998 ------- ------- ------- Income taxes (benefit) computed at federal statutory rate .............. $(290.4) $ (52.4) $ (2.8) State taxes, net of federal benefit .................................... 1.8 0.8 1.8 Non-deductible acquired in-process research & development .............. 126.2 82.1 13.7 Non-deductible amortization ............................................ 250.4 -- -- Non-deductible merger expenses incurred in pooling of interests transaction ................................................ -- 2.3 -- Benefit from net earnings of foreign subsidiary considered to be permanently invested in non-U.S operations ........................ (5.5) (4.6) -- Realization of valuation allowance ..................................... -- (0.4) (1.5) Tax exempt income ...................................................... (7.1) (1.2) (0.5) Pre-merger Subchapter S taxes .......................................... -- -- (0.8) Other .................................................................. (0.5) (5.1) 1.5 ------- ------- ------- Income tax expense ................................................... $ 74.9 $ 21.5 $ 11.4 ======= ======= =======
Undistributed earnings of a foreign subsidiary amounted to approximately $27.8 million. Because these earnings are considered to be permanently invested offshore, the Company has not provided deferred U.S. federal income taxes on these earnings. Upon distribution of these earnings in the form of dividends or otherwise, the Company anticipates that it may be subject to U.S. income taxes net of foreign tax credits. Determination of the amount of the unrecognized deferred U.S. income tax liability is not practicable at this time because of the complexities associated with its hypothetical calculation. The components of deferred taxes consist of the following (in millions):
JUNE 30, ----------------------- 2000 1999 -------- -------- (IN MILLIONS) Deferred tax assets: AMT and research tax credit carryforwards ..................... $ 8.4 $ 3.7 Net operating loss carryforwards .............................. 356.7 6.7 Inventory ..................................................... 24.6 1.2 Additional tax basis of intangibles ........................... 4.9 7.4 Deferred compensation ......................................... -- 2.9 Accruals and reserves ......................................... 35.2 1.9 Other ......................................................... 9.2 0.5 Acquisition related items ..................................... 841.5 -- -------- -------- Total deferred tax assets ............................. 1,280.5 24.3 Valuation allowance ........................................... (575.4) (10.9) -------- -------- Net deferred tax assets ............................... 705.1 13.4 Deferred tax liabilities: Acquisition related items ..................................... (899.0) (318.2) Other ......................................................... (3.1) -- -------- -------- Total deferred tax liabilities ........................ (902.1) (318.2) -------- -------- Total net deferred tax assets (liabilities) ........... $ (197.0) $ (304.8) ======== ========
The valuation allowance increased by approximately $564.5 million, $1.7 million, and $1.5 million in 2000, 1999 and 1998, respectively. 56 57 Approximately $356.7 million of the valuation allowance at June 30, 2000 is attributable to stock option deductions, the benefit of which will be credited to paid-in capital when realized. Approximately $185.5 million of the valuation allowance at June 30, 2000 is attributable to deferred tax assets that when realized, will first reduce unamortized goodwill, the other non-current intangibles assets of acquired subsidiaries, and then income tax expense. At June 30, 2000, the Company had federal and state net operating loss carryforwards of approximately $948.1 million and $659.3 million, respectively, and federal and state research and development credit carryforwards of approximately $6.0 million and $3.1 million, respectively. The net operating loss and credit carryforwards will expire at various dates beginning in 2001, if not utilized. NOTE 5. LEASE COMMITMENTS The Company leases manufacturing and office space primarily in Manteca, California; Bloomfield, Connecticut; Chalfont, Pennsylvania; Horsham, Pennsylvania; Melbourne, Florida; Witney, United Kingdom; Yamton, United Kingdom; Zurich, Switzerland; Sydney, Australia; Eindhoven, the Netherlands; Nepean, Ontario; Trenton, New Jersey; Fremont, California; Santa Rosa, California; Fife, Scotland; Tokyo, Japan; Kanagawa, Japan; Beijing, China; Torquay, United Kingdom; Plymouth, United Kingdom; Morrisville, North Carolina; San Jose, California; Shenzen, China; Markham, Canada; and Sunnyvale, California under operating leases expiring at various dates through December 2018 and containing certain renewal options ranging from one to four years. The Company has the option of terminating two of its lease agreements on December 25, 2003 upon six months written notification. Future minimum commitments for non-cancelable operating leases are as follows (in millions):
OPERATING YEAR ENDING JUNE 30, LEASES - -------------------- ------------- (IN MILLIONS) 2001......................................................... $ 18.2 2002......................................................... 17.9 2003......................................................... 16.7 2004......................................................... 16.5 2005......................................................... 15.0 Thereafter................................................... 61.9 -------- Total minimum lease payments....................... $ 146.2 ========
Rental expense for operating leases for the years ended June 30, 2000, 1999 and 1998 amounted to approximately $ 9.3 million, $5.0 million, and $1.3 million, respectively. NOTE 6. RELATED PARTY TRANSACTIONS On June 30, 1999, Furukawa Electric Co., LTD. ("Furukawa") and its subsidiaries, in conjunction with the Company's acquisition of JDS FITEL, acquired 24% of the Company's outstanding common stock and Exchangeable shares. At June 30, 2000, Furukawa owned approximately 15% of the Company's outstanding common stock and Exchangeable shares. During fiscal 2000, the Company entered into transactions with Furukawa in the normal course of business. Balances with related parties that are included in the consolidated financial statements are immaterial, except for the following amounts with Furukawa (in millions):
JUNE 30, 2000 ------- Sales............................................ $ 0.9 Purchases........................................ $ 13.1 Accounts receivable.............................. $ 0.6 Accounts payable................................. $ 10.2
NOTE 7. PENSION AND OTHER EMPLOYEE BENEFITS Defined Benefit Pension and Other Postretirement Benefit Plans Through the acquisition of Uniphase Laser Enterprise ("ULE") in Switzerland, the Company acquired two foreign defined benefit pensions plans related to the employees of ULE. Benefits are based on years of service and annual compensation on retirement. Plans are funded in accordance with applicable Swiss regulations. 57 58 In connection with the acquisition of UNL, the Company agreed to continue to provide pension benefits to its qualified Holland employees through a multi-employer defined benefit pension plan sponsored by the Holland Metalworkers Union. Philips is obligated to fully fund the pension benefit obligation for all periods prior to June 9, 1998 directly to the Metalworkers Union Plan. The Company has assumed responsibility for funding benefits earned in excess of those provided by the Holland Metalworkers Union. On February 4, 2000, the Company acquired Optical Coating Laboratories, Inc. ("OCLI") and assumed OCLI's pension and other post retirement benefits plans. OCLI's Scottish subsidiary maintains a contributory defined benefit pension program covering most of its employees. Benefits are primarily based on years of service and compensation. The program is funded in conformity with the requirements of applicable U.K. government regulations. Plan assets are invested in fixed interest and balanced fund units that are primarily comprised of corporate equity securities. OCLI sponsors an unfunded, contributory defined benefit postretirement plan for its U.S. operations, which provides medical, dental and life insurance benefits to employees who meet age and years of service requirements prior to retirement and who agree to contribute a portion of the cost. The Company has the right to modify or terminate these benefits at any time. OCLI's contribution is a set amount per retiree depending on the retiree's years of service and dependent status at the date of retirement and the age of retiree and dependents when benefits are provided. The retiree pays cost increases. A summary of the components of net periodic benefit cost for the defined benefit pension and postretirement benefit plans is presented here (in millions):
PENSION PLAN POSTRETIREMENT ----------------------------------- BENEFITS JUNE 30, -------------- ----------------------------------- JUNE 30, 2000 1999 1998 2000 ------- ------- ------- ------- Defined benefit plans: Service cost ......................... $ 0.5 $ 0.2 $ 0.6 $ 0.1 Interest cost ........................ 0.3 0.4 0.3 0.2 Expected return on plan assets ....... (0.2) (0.2) (0.2) -- Prior gains (losses) ................. -- (0.0) -- 0.1 ------- ------- ------- ------- Net pension expense ............... $ 0.6 $ 0.4 $ 0.8 $ 0.4 ======= ======= ======= =======
Weighted average assumptions used each year in accounting for defined benefit pension and postretirement benefit plans were (in millions):
PENSION PLAN POSTRETIREMENT ------------------- BENEFITS JUNE 30, -------------- ------------------- JUNE 30, 2000 1999 2000 ------ ------ ------ ULE pensions: Discount rate as of year end ....... 3.5% 3.5% n/a Return on plan assets .............. 4.5% 4.5% n/a Rate of compensation increase ...... 2.5% 2.5% n/a UNL pensions: Discount rate as of year end ....... 4.0% 4.0% n/a Return on plan assets .............. n/a 4.5% n/a Rate of compensation increase ...... 2.0% 2.0% n/a OCLI postretirement benefits: Discount rate as of year end ....... n/a n/a 7.5% Return on plan assets .............. n/a n/a n/a Rate of compensation increase ...... n/a n/a n/a
The assumed health care cost trend rate has a significant effect on the amounts reported. A 1-percentage-point change in the assumed health care cost trend rate would have the following effects (in millions):
1-PERCENTAGE- 1-PERCENTAGE- POINT INCREASE POINT DECREASE -------------- --------------- Effect on total of service and interest cost components......... $ -- $ --
58 59 Effect on postretirement benefit obligation..................... $ 0.3 $ (0.3)
The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheet for the Company's defined benefit pension and postretirement benefit plans (in millions):
PENSION BENEFITS POSTRETIREMENT --------------------- BENEFITS JUNE 30, -------------- --------------------- JUNE 30, 2000 1999 2000 ------- ------- ------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year ............ $ 11.8 $ 8.6 $ 2.5 Adjustments ........................................ (3.4) -- -- Service cost ....................................... 0.7 0.2 0.1 Interest cost ...................................... 0.3 0.4 0.2 Plan participants' contributions ................... (0.2) 0.3 -- Benefit payments ................................... -- -- (0.1) Actuarial (gains) losses ........................... (1.1) 2.3 (0.2) ------- ------- ------- Benefit obligation at end of year .................. $ 8.1 $ 11.8 $ 2.5 ======= ======= ======= CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year ..... $ 4.7 $ 4.9 $ -- Adjustments ........................................ (1.2) -- -- Actual return on plan assets ....................... (0.2) (0.7) -- Company contributions .............................. 1.2 0.2 -- Plan participants' contributions ................... 0.2 0.3 -- Benefits paid ...................................... -- -- -- ------- ------- ------- Fair value of plan assets at end of year ........... $ 4.7 $ 4.7 $ -- ------- ------- ------- Funded status of plan (underfunded) ................ $ (3.4) $ (7.1) $ (2.5) Unrecognized prior service cost .................... -- -- 0.7 Unrecognized net actuarial (gain) loss ............. 0.6 2.4 (0.6) ------- ------- ------- Net prepaid (accrued) benefit cost ................. $ (2.8) $ (4.7) $ (2.4) ======= ======= =======
Amounts recognized in the Consolidated Balance Sheet consist of (in millions):
PENSION PLAN POSTRETIREMENT --------------------- BENEFITS JUNE 30, -------------- --------------------- JUNE 30, 2000 1999 2000 ------- ------- ------- Prepaid (accrued) benefit cost ......... $ (1.2) $ -- $ -- Accrued benefit liability .............. (1.6) (2.2) (2.4) Intangible asset ....................... -- (2.4) -- ------- ------- ------- Net prepaid (accrued) benefit cost ..... $ (2.8) $ (4.6) $ (2.4) ======= ======= =======
Plan assets consist primarily of listed stocks, bonds and cash surrender value life insurance policies. Other Employee and Postemployment Benefits JDS Uniphase has an employee 401(k) salary deferral plan, covering all domestic employees. Employees may make contributions by withholding a percentage of their salary up to the IRS annual limit ($10,500 for 2000). Company contributions consist of $0.25 per dollar contributed by the employees with at least six months of service. Company contributions were approximately $2.5 million, $0.6 million, and $0.4 million for the years ended June 30, 2000, 1999 and 1998, respectively. Pursuant to the Company's acquisition of OCLI and E-TEK in fiscal 2000, the Company assumed responsibility of OCLI's and E-TEK's 401(k) Savings Plans. All employees of OCLI and E-TEK continue their 401(k) participation with their respective plans. The Company anticipates that the OCLI and E-TEK plans will be converted to the Company's plan in 2001. The following is a description of the OCLI and E-TEK plans: 59 60 OCLI has a 401(k) pre-tax voluntary retirement savings plan for its U.S. employees. The Company matches 100% of the first 3% of deferred salary and 50% for the next 3% of deferred salary. Eligible employees can defer up to 15% of their salary, up to the IRS annual limit ($10,500 for 2000). Contributions to the 401(k) plan are immediately vested. Company matching contributions to the 401(k) plan are funded in cash. E-TEK sponsors a 401(k) Savings Plan ("E-TEK Plan"). All E-TEK employees are eligible to participate in the E-TEK Plan following certain minimum eligibility requirements. Under the E-TEK Plan, employees may elect to contribute up to 20% of their compensation to the E-TEK Plan, subject to annual limitations. Matching contributions from E-TEK are 50 cents on the dollar, to a maximum of $1,000 per year. E-TEK contributions are vested over four years. Employee contributions are 100% vested at all times. NOTE 8. STOCKHOLDERS' EQUITY Preferred Stock In connection with the acquisition of UNL, the Company issued 100,000 shares of non-voting, non-cumulative Series A Preferred Stock to Philips having a par value of $0.001 per share. The Series A Preferred Stock is convertible into additional shares of common stock based on an agreed upon formula for annual and cumulative shipments of certain products during the four-year period ending June 30, 2002. The Preferred Stock is also convertible into common stock upon the occurrence of a Redemption Event, as defined in the Series A Preferred Stock Agreement. In June 1998, the Company adopted a Stockholder Rights Agreement, as amended (the "Company Rights Agreement") and declared a dividend distribution of one right (a "Right") per share of common stock for stockholders of record as of July 6, 1998. As adjusted for stock splits and dividends by the Company, each outstanding share of the Company's common stock currently includes one-eighth of a Right. Each Right entitles stockholders to purchase 1/1000 share of the Company's Series B Preferred Stock at an exercise price of $600. The Rights only become exercisable in certain limited circumstances following the tenth day after a person or group announces acquisitions of or tender offers for 15% or more of the Company's common stock. For a limited period of time following the announcement of any such acquisition or offer, the Rights are redeemable by the Company 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 the Board, may be exchanged for either 1/1000 share of the Company's Series B Preferred Stock or one share of common stock per Right. The Rights expire on June 22, 2008. The Board of Directors has the authority, without any further vote or action by the stockholders, to provide for the issuance of an additional 799,999 shares of Preferred Stock from time to time in one or more series with such designations, rights, preferences and limitations as the Board of Directors may determine, including the consideration received therefore, the number of shares comprising each series, dividend rates, redemption provisions, liquidation preferences, redemption fund provisions, conversion rights and voting rights, all without the approval of the holders of common stock. Exchangeable Shares of JDS Uniphase Canada Ltd. On June 30, 1999, in connection with the merger with JDS FITEL, JDS Uniphase Canada Ltd., a subsidiary of the Company, adopted an Exchangeable Share rights plan (the "Exchangeable Rights Plan") substantially equivalent to the Company Rights Agreement. Under the Exchangeable Rights Plan, each Exchangeable Share issued has an associated right (an "Exchangeable Share Right") entitling the holder of such Exchangeable Share Right to acquire additional Exchangeable Shares on terms and conditions substantially the same as the terms and conditions upon which a holder of shares of common stock is entitled to acquire either 1/1000 share of the Company's Series B Preferred Stock or, in certain circumstances, shares of common stock under the Company Rights Agreement. The definitions of beneficial ownership, the calculation of percentage ownership and the number of shares outstanding and related provisions of the Company Rights Agreement and the Exchangeable Rights Plan apply, as appropriate, to shares of common stock and Exchangeable Shares as though they were the same security. The Exchangeable Share Rights are intended to have characteristics essentially equivalent in economic effect to the Rights granted under the Company Rights Agreement. Stock Option Plans As of June 30, 2000, JDS Uniphase had reserved approximately 176,889,000 shares of common stock for future issuance to employees and directors under its Restated 1993 Flexible Stock Incentive Plan (the "1993 Option Plan"), the 1996 Non-qualified Stock Option Plan ("the 1996 Option Plan"), and the other various plans the Company assumed during the year as a result of acquisitions. The Board of Directors has the authority to determine the type of option and the number of shares subject to option. The 60 61 exercise price is generally equal to fair value of the underlining stock at the date of grant. Options generally become exercisable over a four-year period and, if not exercised, expire from five to ten years from the date of grant. The following table summarizes option activity through June 30, 2000:
OPTIONS OUTSTANDING -------------------------- WEIGHTED SHARES AVERAGE AVAILABLE NUMBER EXERCISE FOR GRANT OF SHARES PRICE ------------ ------------ --------- (IN THOUSANDS, EXCEPT PRICE PER SHARE) Balance at June 30, 1997 ........... 8,480 43,000 $ 1.18 Increase in authorized shares .... 25,432 -- -- Granted .......................... (19,392) 19,392 4.62 Canceled ......................... 1,544 (1,544) 1.70 Exercised ........................ -- (7,532) 0.51 Expired .......................... (236) -- -- -------- -------- -------- Balance at June 30, 1998 ........... 15,828 53,316 2.37 Increase in authorized shares .... 57,588 -- -- Granted .......................... (49,712) 49,712 10.22 Canceled ......................... 2,312 (2,312) 4.53 Exercised ........................ -- (11,836) 1.37 Expired .......................... (24) -- -- -------- -------- -------- Balance at June 30, 1999 ........... 25,992 88,880 5.83 Increase in authorized shares .... 98,004 -- -- Granted .......................... (91,365) 91,365 37.42 Canceled ......................... 3,011 (3,011) 14.85 Exercised ........................ -- (35,791) 3.00 Expired .......................... (321) (35) 5.15 -------- -------- -------- Balance at June 30, 2000 ........... 35,321 141,408 $ 26.62 ======== ======== ========
The following table summarizes information about options outstanding at June 30, 2000 (shares in thousands):
OPTIONS OUTSTANDING ----------------------------------- WEIGHTED OPTIONS EXERCISABLE AVERAGE --------------------- REMAINING WEIGHTED WEIGHTED CONTRACTUAL AVERAGE AVERAGE AVERAGE RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE -------------------- ----------- ---------- -------- ----------- -------- $ 0.02 -- $ 0.02 47 8.80 $ 0.02 6 $ 0.02 0.10 -- 0.15 3,174 2.30 0.12 3,174 0.12 0.24 -- 0.35 403 3.90 0.27 403 0.27 0.39 -- 0.57 632 4.80 0.41 568 0.39 0.60 -- 0.80 2,857 4.10 0.70 2,829 0.70 0.92 -- 1.30 1,765 5.60 1.06 1,190 1.05 1.48 -- 2.13 5,176 5.60 1.77 3,145 1.74 2.26 -- 3.27 4,814 4.20 2.83 3,446 2.85 3.39 -- 5.06 15,501 5.60 4.22 8,873 4.17 5.12 -- 7.55 13,741 6.00 6.42 4,750 6.28 8.09 -- 11.99 3,679 6.50 9.98 714 10.00 12.53 -- 18.76 14,110 6.40 16.71 3,195 16.67 18.88 -- 27.99 49,199 7.20 21.46 2,577 20.27 28.33 -- 41.96 981 8.30 31.59 -- -- 45.03 -- 63.91 8,784 8.20 53.69 85 56.55 74.88 -- 111.63 10,568 9.50 94.10 1 86.56 115.56 -- 146.53 5,977 9.70 127.07 1 117.73 - ---------------------- ------- ------- ------- ------- ------- $ 0.02 -- $146.53 141,408 6.80 $ 26.62 34,957 $ 5.83 =======
Employee Stock Purchase Plans The JDS Uniphase 1998 Employee Stock Purchase Plan (the "98 Purchase Plan") was adopted in June 1998. The Company has reserved 20,000,000 shares of common stock for issuance under the 98 Purchase Plan and has 18,763,760 shares remaining. The 98 Purchase Plan, effective August 1, 1998, provides eligible employees with the opportunity to acquire an ownership interest in JDS 61 62 Uniphase through participation in a program of periodic payroll deductions applied at specific intervals to the purchase of common stock. The Purchase Plan is structured as a qualified employee stock purchase plan under Section 423 of the amended Internal Revenue Code of 1986. However, the Purchase Plan is not intended to be a qualified pension, profit sharing or stock bonus plan under Section 401(a) of the 1986 Code and is not subject to the provisions of the Employee Retirement Income Security Act of 1974. The Purchase Plan will terminate upon the earlier of August 1, 2008 or the date on which all shares available for issuance under the Purchase Plan have been sold. The JDS Uniphase Corporation 1999 Canadian Employee Stock Purchase Plan (the "Canadian Plan") was adopted in November 1999. The Company has reserved 1,000,000 shares of common stock for issuance under the Canadian Plan and has 936,634 shares remaining. The Canadian Plan has similar provisions to the Company's existing plans. Pursuant to the Company's acquisition of OCLI and E-TEK, the Company continued OCLI and E-TEK's Employee Stock Purchase Plans, which have similar provisions to the Company's existing plans. The plans will continue through December 31, 2000 and April 30, 2002 for OCLI and E-TEK, respectively. Stock Based Compensation The Company has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation," requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, when the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the Company's financial statements. In conjunction with the acquisition of ULE in fiscal 1997, the Company issued stock options to key employees of ULE at a value that was less than the market value. The Company is recognizing compensation expense for the total value of $2.0 million over the vesting period of four years. Stock based compensation expense in fiscal 2000 was immaterial. Pro forma information regarding net income and earnings per share is required by SFAS No. 123. This information is required to be determined as if the Company had accounted for its employee stock options (including shares issued under the Employee Stock Purchase Plan, collectively called "options") granted subsequent to June 30, 1995 under the fair value method of that statement. The fair value of options granted in 2000, 1999, and 1998 reported below has been estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
EMPLOYEE STOCK PURCHASE EMPLOYEE STOCK OPTIONS PLAN SHARES ----------------------------------- ----------------------------------- 2000 1999 1998 2000 1999 1998 ------- ------- ------- ------- ------- ------- Expected life (in years) ........... 5.5 6.1 5.5 0.6 0.5 0.5 Risk-free interest rate ............ 6.0% 5.6% 6.4% 5.0% 5.6% 5.4% Volatility ......................... 0.70 0.67 0.66 0.70 0.68 0.75 Dividend yield ..................... 0% 0% 0% 0% 0% 0%
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. A total of approximately 91,365,000 options, including options assumed through acquisitions, were granted during fiscal 2000 with exercise prices equal to the market price of the stock on the grant date. The weighted-average exercise price and weighted-average fair value of these options were $40.94 and $27.92, respectively. The weighted-average exercise price and weighted-average fair value of stock options granted during fiscal 1999 was $10.22 and $3.05 per share, respectively. The weighted average exercise price and weighted average fair value of stock options granted during fiscal 1998 was $4.62 and $2.92, respectively. The weighted average fair value of shares granted under the Employee Stock Purchase Plan during 2000, 1999, and 1998 was $7.93, $1.56 and $1.33, respectively. 62 63 For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
YEARS ENDED JUNE 30, ------------------------------------ 2000 1999 1998 ------------ ----------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) Pro forma net income (loss)..................... $ (1,110.5) $ (228.7) $ (33.7) Pro forma earnings (loss) per share............. $ (1.56) $ (0.72) $ (0.12)
Pro forma net income represents the difference between compensation expense recognized under APB 25 and the related expense using the fair value method of SFAS No. 123 taking into account any additional tax effects of applying SFAS No. 123. The effects on pro forma disclosures of applying SFAS No. 123 are not likely to be representative of the effects on pro forma disclosures of future years. NOTE 9. MERGERS AND ACQUISITIONS E-TEK Dynamics, Inc. On June 30, 2000, the Company completed the acquisition of E-TEK, a designer and manufacturer of high quality components and modules for fiber optic systems, in a transaction accounted for as a purchase. Accordingly, the accompanying statements of operations do not include the financial results of E-TEK. The merger agreement provided for the exchange of 2.2 shares of the Company's common stock for each common share and outstanding option of E-TEK. The total purchase price of $17,512.2 million included consideration of 150.1 million shares of the Company's common stock, which includes 0.8 million Exchangeable Shares of its subsidiary, JDS Uniphase Canada, Ltd., each of which is exchangeable for one share of its common stock, the issuance of options to purchase 23.2 million shares valued at $2,005.2 million in exchange for E-TEK options, the issuance of 0.5 million common shares valued at $45.5 million in exchange for E-TEK shares to be issued under E-TEK's employee stock purchase plan, and estimated direct transaction costs of $92.0 million. The total purchase cost of E-TEK is as follows (in millions): Value of securities issued......................................... $ 15,369.3 Assumption of options.............................................. 2,005.4 Assumption of employee stock purchase plan......................... 45.5 ----------- Total equity consideration............................... 17,420.2 Direct transaction costs and expenses.............................. 92.0 ----------- Total purchase cost...................................... $ 17,512.2 ===========
The preliminary purchase price allocation is as follows (in millions): Tangible net assets acquired......................................... $ 395.6 Marketable equity investments........................................ 718.0 Intangible assets acquired: Developed technology: Existing technology................................................ 248.7 Core technology.................................................... 168.5 Trademark and tradename............................................ 60.4 Assembled workforce................................................ 10.7 In-process research and development.................................. 250.6 Goodwill............................................................. 15,659.7 ----------- Total purchase price allocation............................ $ 17,512.2 ===========
The purchase price allocation is preliminary and is dependent upon the Company's final analysis, which it expects to complete during the first quarter of fiscal 2001. Tangible net assets acquired includes cash, accounts receivable, inventories and fixed assets (including an adjustment to write-up inventory of E-TEK to fair value by $48.6 million). Liabilities assumed principally include accounts payable, accrued compensation and accrued expenses. Goodwill and intangible assets acquired are each being amortized on a straight-line basis over estimated useful lives ranging from three to five years. 63 64 A portion of the purchase price has been allocated as an adjustment to write-up the equity investments of E-TEK to a fair value of $718.0 million. The fair value includes a $691.0 million increase to E-TEK's investment of ADVA, which is accounted for under the equity method of accounting. The increase represents the fair value of the Company's investment, over the net assets of ADVA, and will be amortized on a straight-line basis over the estimated life of 5 years. A portion of the purchase price has been allocated to developed technology and acquired in-process research and development ("IPRD"). Developed technology and IPRD were identified and valued through extensive interviews, analysis of data provided by E-TEK concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPRD. Where developmental projects had reached technological feasibility, they were classified as developed technology, and the value assigned to developed technology was capitalized. Where the developmental projects had not reached technological feasibility and had no future alternative uses, they were classified as IPRD and charged to expense upon closing of the merger. The Company estimates that a total investment of $2.2 million in research and development over the next 2 to 12 months will be required to complete the IPRD. The nature of the efforts required to develop the purchased IPRD into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. In valuing the IPRD, the Company considered, among other factors, the importance of each project to the overall development plan, projected incremental cash flows from the projects when completed and any associated risks. The projected incremental cash flows were discounted back to their present value using discount rates ranging from 12% to 20%. Discount rates were determined after consideration of E-TEK's weighted average cost of capital and the weighted average return on assets. Associated risks include the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated levels of market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets. The acquired existing technology, which is comprised of products that are already technologically feasible, includes products in most of E-TEK's product line. These include wavelength division multiplexing ("WDM") components and modules, isolators, couplers, and micro-optic integrated components. The Company expects to amortize the acquired existing technology of approximately $248.7 million on a straight-line basis over an average estimated remaining useful life of 3 years. The acquired core technology represents E-TEK trade secrets and patents developed through years of experience in design, package, and manufacture of passive components for fiber optic telecommunication networks. E-TEK's products are designed for established terrestrial and submarine long-haul applications, as well as emerging short-haul applications, such as metropolitan area networks. This proprietary know-how can be leveraged by E-TEK to develop new and improved products and manufacturing processes. The Company expects to amortize the acquired core technology of approximately $168.5 million on a straight-line basis over an average estimated remaining useful life of 5 years. The trademarks and trade names include the E-TEK trademark and trade name as well as all branded E-TEK products, such as E-TEK(TM), Unifuse(TM), Kaifa(TM) and TIGRA(TM). The Company expects to amortize the trademark and trade names of approximately $60.4 million on a straight-line basis over an estimated remaining useful life of 5 years. The acquired assembled workforce is comprised of over 3,300 skilled employees across E-TEK's Executive, Research and Development, Manufacturing, Supervisor/Manager, and Sales and Marketing groups. The Company expects to amortize the value assigned to the assembled workforce of approximately $10.7 million on a straight-line basis over an estimated remaining useful life of 3 to 5 years. Goodwill, which represents the excess of the purchase price of an investment in an acquired business over the fair value of the underlying net identifiable assets, is being amortized on a straight-line basis over its estimated remaining useful life of 5 years. Fujian Casix Laser, Inc. On April 29, 2000, the Company acquired Fujian Casix Laser Inc ("Casix"), a supplier of crystals, fiberoptic components and optics for telecommunications networks, for $60 million in cash. Casix is based in Fuzhou, Fujian, China. Casix's key technologies consist principally of fiberoptic component processing and precision assembly; optical design, fabrication and coating; and advanced 64 65 crystal growth and processing. The transaction was accounted for as a purchase, and accordingly, the accompanying financial statements include the results of operations of Casix subsequent to the acquisition date. The purchase price allocation included tangible net assets of $11.4 million and intangible assets (primarily goodwill) of $48.6 million that are being amortized over a five-year period. Cronos Integrated Microsystems, Inc. On April 19, 2000, the Company acquired Cronos Integrated Microsystems, Inc. ("Cronos"), a provider of optical micro-electro-mechanical systems ("MEMS") components and component technology to the fiberoptic communications market, in a transaction accounted for as a purchase. Accordingly, the accompanying financial statements include the results of operations of Cronos subsequent to the acquisition date. The total purchase price of $565.3 million included consideration of 6.3 million shares of JDS Uniphase common stock, the issuance of options to purchase 0.2 million shares valued at $15.7 million in exchange for Cronos options and estimated direct transaction costs of $1.1 million. The total purchase cost of Cronos is as follows (in millions): Value of securities issued......................................... $ 548.5 Assumption of options.............................................. 15.7 -------- Total equity consideration............................... 564.2 Direct transaction costs and expenses.............................. 1.1 -------- Total purchase cost...................................... $ 565.3 ========
The preliminary allocation of the purchase price is as follows (in millions): Tangible net assets acquired......................................... $ 1.0 Intangible assets acquired: Developed technology............................................... 8.0 Core technology.................................................... 4.1 Assembled workforce................................................ 1.8 Goodwill............................................................. 544.1 In-process research and development.................................. 6.3 -------- Total purchase price allocation............................ $ 565.3 ========
Tangible net assets acquired includes cash, accounts receivable, inventories and fixed assets. Liabilities assumed principally include accounts payable, accrued compensation and accrued expenses. Goodwill and intangible assets acquired are each being amortized on a straight-line basis over estimated useful lives ranging from three to five years. A portion of the purchase price has been allocated to developed technology and IPRD. Developed technology and IPRD were identified and valued through extensive interviews, analysis of data provided by Cronos concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows, and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPRD. Where development projects had reached technological feasibility, they were classified as developed technology and the value assigned to developed technology was capitalized. Where the development projects had not reached technological feasibility and had no future alternative uses, they were classified as IPRD and charged to expense upon closing of the transaction. The Company estimates that a total investment of $0.3 million in research and development over the next 6 to 12 months will be required to complete the IPRD. The nature of the efforts required to develop the purchased IPRD into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. In valuing the IPRD, the Company considered, among other factors, the importance of each project to the overall development plan, projected incremental cash flows from the projects when completed and any associated risks. The projected incremental cash flows were discounted back to their present value using discount rates ranging from 12% to 20%. Discount rates were determined after consideration of Cronos's weighted average cost of capital and the weighted average return on assets. Associated risks include the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated levels of market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets. 65 66 The acquired existing technology, which is comprised of products that are already technologically feasible, includes products in the following areas: relays and optical communication cross connects. The Company is amortizing the acquired existing technology of approximately $8.0 million on a straight-line basis over an average estimated remaining useful life of 5 years. The acquired core technology represents Cronos trade secrets and patents developed through years of experience designing and manufacturing Micro-electromechanical systems components for fiberoptic and RF telecommunication networks. This knowledge can be leveraged by Cronos to develop new and improved products and manufacturing processes. The Company is amortizing the acquired core technology of approximately $4.1 million on a straight-line basis over an average estimated remaining useful life of 5 years. The acquired assembled workforce is comprised of approximately 72 skilled employees across Cronos's Sales and Marketing, Management, Supervision, Quality & Training, General & Administrative, and Engineering groups. The Company is amortizing the value assigned to the assembled workforce of approximately $1.8 million on a straight-line basis over an estimated remaining useful life of 3 years. Goodwill, which represents the excess of the purchase price of an investment in an acquired business over the fair value of the underlying net identifiable assets, is being amortized on a straight-line basis over its estimated remaining useful life of 5 years. Optical Coating Laboratory, Inc. On February 4, 2000, the Company acquired OCLI, a manufacturer of optical thin film coatings and components used to control and enhance light propagation to achieve specific effects such as reflection, refraction, absorption and wavelength separation. The transaction was accounted for as a purchase and accordingly, the accompanying financial statements include the results of operations of OCLI subsequent to the acquisition date. The total purchase price of $2,707.5 million included consideration of 54.0 million shares of JDS Uniphase common stock, the issuance of options to purchase 6.4 million shares valued at $267.2 million in exchange for OCLI options and direct transaction costs of $8.2 million. The total purchase cost of OCLI is as follows (in millions): Value of securities issued......................................... $ 2,432.1 Assumption of options.............................................. 267.2 ---------- Total equity consideration............................... 2,699.3 Direct transaction costs and expenses.............................. 8.2 ---------- Total purchase cost...................................... $ 2,707.5 ==========
The purchase price allocation was as follows (in millions): Tangible net assets acquired......................................... $ 253.2 Intangible assets acquired: Developed technology: Telecommunications.............................................. 115.1 Flex Products................................................... 92.2 Applied Photonics............................................... 1.0 Information Industries.......................................... 23.9 Proprietary know-how............................................ 161.9 Trademark and tradename......................................... 38.5 Assembled workforce............................................. 14.3 In-process research and development.................................. 84.1 Goodwill............................................................. 1,927.4 Deferred tax liabilities............................................. (4.1) ---------- Total purchase price allocation............................ $ 2,707.5 ==========
Tangible net assets acquired includes cash, accounts receivable, inventories and fixed assets (including an adjustment to write-up property and equipment of OCLI to fair value by $28.0 million). Liabilities assumed principally include accounts payable, accrued compensation and accrued expenses. Goodwill and intangible assets acquired are each being amortized on a straight-line basis over estimated useful lives ranging from six to fifteen years. 66 67 A portion of the purchase price has been allocated to developed technology and IPRD. Developed technology and IPRD were identified and valued through extensive interviews, analysis of data provided by OCLI concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPRD. Where developmental projects had reached technological feasibility, they were classified as developed technology, and the value assigned to developed technology was capitalized. Where the developmental projects had not reached technological feasibility and had no future alternative uses, they were classified as IPRD and charged to expense upon closing of the merger. The Company estimates that a total investment of $36.3 million in research and development over the next 25 months will be required to complete the IPRD. The nature of the efforts required to develop the purchased IPRD into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. In valuing the IPRD, the Company considered, among other factors, the importance of each project to the overall development plan, projected incremental cash flows from the projects when completed and any associated risks. The projected incremental cash flows were discounted back to their present value using discount rates ranging from 18% to 25%. Discount rates were determined after consideration of OCLI's weighted average cost of capital and the weighted average return on assets. Associated risks include the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated levels of market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets. The acquired existing technology, which is comprised of products that are already technologically feasible, includes products that are manufactured and marketed by OCLI's Telecommunications, Flex Products, Applied Photonics, and Information Industries groups. The Company is amortizing the acquired existing technology of approximately $232.2 million on a straight-line basis over an average estimated remaining useful life of 8.2 years. The acquired proprietary know-how represents OCLI trade secrets and patents developed through years of experience designing and manufacturing thin film products. This know-how enables OCLI to develop new and improve existing thin film products, processes and manufacturing equipment, thereby providing OCLI with a distinct advantage over its competitors and a reputation for technological superiority in the industry. The Company is amortizing the proprietary know-how of approximately $161.9 million on a straight-line basis over an average estimated remaining useful life of 10.4 years The trademarks and trade names include the OCLI trademark and trade name as well as all branded OCLI products such as GlareGuard(R) and processes such as MetaMode(R). The Company is amortizing the trademark and trade names of approximately $38.5 million on a straight-line basis over an estimated remaining useful life of 10 years. The acquired assembled workforce is comprised of over 1,400 skilled employees across OCLI's General and Administration, Science and Technology, Sales and Marketing, and Manufacturing groups. The Company is amortizing the value assigned to the assembled workforce of approximately $14.3 million on a straight-line basis over an estimated remaining useful life of 6 years. Goodwill, which represents the excess of the purchase price of an investment in an acquired business over the fair value of the underlying net identifiable assets, is being amortized on a straight-line basis over its estimated remaining useful life of 7.2 years. Integrierte Optik GmbH & Co. KG In January 2000, the Company acquired the remaining 49% minority interest in Integrierte Optik GmbH & Co. KG ("IOT"), a joint venture of JDS Uniphase and the Schott Group, for $12.6 million in cash in a transaction accounted for as a purchase. Prior to the transaction, IOT's balance sheet and results of operations were consolidated with the Company, with appropriate adjustments to reflect minority interest of 49%. As a result of the transaction, the Company's ownership interest increased to 100% and the minority interest adjustments have been discontinued. IOT manufactures passive optical splitters for fiberoptic network applications in cable plants and transmission networks. The purchase price allocation included tangible net assets of $2.9 million and intangible assets (including goodwill) of $9.7 million that are being amortized over a five-year period. Oprel Technologies, Inc. In December 1999, the Company acquired Oprel Technologies, Inc. ("OPREL"), a developer of optical amplifiers, test equipment and optoelectronic packaging, located in Nepean, Ontario. The transaction was accounted for as a purchase and accordingly, the 67 68 accompanying financial statements include the results of operations of OPREL subsequent to the acquisition date. The Company paid $9.3 million in cash and issued a total of 190,916 Exchangeable shares of its subsidiary, JDS Uniphase Canada Ltd., each of which is exchangeable for one share of common stock. The total purchase cost was $27.7 million. The purchase price allocation included net tangible assets of $1.4 million and intangible assets (including goodwill) of $26.3 million that are expected to be amortized over a five-year period. SIFAM Limited In December 1999, the Company acquired SIFAM Limited ("SIFAM"), a supplier of fused components for fiberoptic telecommunications networks, which is based in the United Kingdom, for $97.6 million in cash. SIFAM products, which include couplers, wavelength division multiplexers and gain flattening filters, are used for advanced applications in optical amplifiers and network monitoring. The transaction was accounted for as a purchase and accordingly, the accompanying financial statements include the results of operations of SIFAM subsequent to the acquisition date. The allocation of the purchase price is as follows (in millions): Tangible net assets acquired......................................... $ 4.3 Intangible assets acquired: Developed technology............................................... 27.0 Trade secrets and patents.......................................... 6.1 Assembled workforce................................................ 0.6 Goodwill............................................................. 70.1 In-process research and development.................................. 3.0 Deferred tax liabilities............................................. (13.5) -------- Total purchase price allocation............................ $ 97.6 ========
Tangible net assets acquired includes cash, accounts receivable, inventories and fixed assets. Liabilities assumed principally include accounts payable, accrued compensation and accrued expenses. Goodwill and intangible assets acquired are each being amortized on a straight-line basis over estimated useful lives ranging from three to five years. A portion of the purchase price has been allocated to developed technology and IPRD. Developed technology and IPRD were identified and valued through extensive interviews, analysis of data provided by SIFAM concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows, and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPRD. Where development projects had reached technological feasibility, they were classified as developed technology and the value assigned to developed technology was capitalized. Where the development projects had not reached technological feasibility and had no future alternative uses, they were classified as IPRD and charged to expense upon closing of the transaction. The Company estimates that a total investment of $0.3 million in research and development over the next 15 months will be required to complete the IPRD. The nature of the efforts required to develop the purchased IPRD into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. In valuing the IPRD, the Company considered, among other factors, the importance of each project to the overall development plan projected incremental cash flows from the projects when completed and any associated risks. The projected incremental cash flows were discounted back to their present value using discount rates ranging from 14% to 18%. Discount rates were determined after consideration of SIFAM's weighted average cost of capital and the weighted average return on assets. Associated risks include the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated levels of market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets. The acquired existing technology, which is comprised of products that are already technologically feasible, includes products in the following areas: fused couplers and attenuators, pump/signal wavelength division multiplexers, polished products (polarizers, variable ratio couplers), and gain flattening filters. The Company is amortizing the acquired existing technology of approximately $27.0 million on a straight-line basis over an average estimated remaining useful life of 5 years. 68 69 The acquired core technology represents SIFAM trade secrets and patents developed through years of experience designing and manufacturing fused components for fiberoptic telecommunication networks. This knowledge can be leveraged by SIFAM to develop new and improved products and manufacturing processes. The Company is amortizing the acquired core technology of approximately $6.1 million on a straight-line basis over an average estimated remaining useful life of 5 years. The acquired assembled workforce is comprised of approximately 50 skilled employees across SIFAM's Sales and Marketing, Management, Supervision, Quality & Training, General & Administrative, and Engineering groups. The Company is amortizing the value assigned to the assembled workforce of approximately $0.6 million on a straight-line basis over an estimated remaining useful life of 3 years. Goodwill, which represents the excess of the purchase price of an investment in an acquired business over the fair value of the underlying net identifiable assets, is being amortized on a straight-line basis over its estimated remaining useful life of 5 years. EPITAXX, INC. In November 1999, the Company acquired EPITAXX, Inc. ("EPITAXX"), a supplier of optical detectors and receivers for fiberoptic telecommunications and cable televisions networks. The transaction was accounted for as a purchase and accordingly, the accompanying financial statements include the results of operations of EPITAXX subsequent to the acquisition date. The Company issued cash in the amount of $9.3 million and a total of approximately 9.0 million shares of common stock in exchange for all of the outstanding shares of EPITAXX common stock. Outstanding options to acquire shares of EPITAXX common stock were converted into options to purchase shares of the Company's common stock at the same exchange ratio. The total purchase cost of EPITAXX is as follows (in millions): Value of securities issued......................................... $ 429.5 Assumption of options.............................................. 61.9 -------- Total equity consideration......................................... 491.4 Cash paid to seller................................................ 9.3 Direct transaction costs and expenses.............................. 1.0 -------- Total purchase cost...................................... $ 501.7 ========
The allocation of the purchase price is as follows (in millions): Tangible net assets acquired......................................... $ 14.2 Intangible assets acquired: Developed technology............................................... 63.4 Trademark and tradename............................................ 5.4 Assembled workforce................................................ 2.9 Goodwill............................................................. 397.9 In-process research and development.................................. 16.7 Deferred tax liabilities............................................. 1.2 -------- Total purchase price allocation............................ $ 501.7 ========
Tangible net assets acquired includes cash, accounts receivable, inventories and fixed assets. Liabilities assumed principally include accounts payable, accrued compensation, accrued expenses, and Industrial Revenue Bonds. Goodwill and intangible assets acquired are each being amortized on a straight-line basis over estimated useful lives ranging from four to seven years. A portion of the purchase price has been allocated to developed technology and IPRD. Developed technology and IPRD were identified and valued through extensive interviews, analysis of data provided by EPITAXX concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows, and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPRD. Where development projects had reached technological feasibility, they were classified as developed technology and the value assigned to developed technology was capitalized. Where the development projects had not reached technological feasibility and had no future alternative uses, they were classified as IPRD and charged to expense upon closing of the merger. The Company estimates that a total investment of $0.8 million in research and development over the next 13 months will be required to complete the IPRD. The nature of the efforts required to develop the purchased IPRD into commercially viable products principally relate to the 69 70 completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. In valuing the IPRD, the Company considered, among other factors, the importance of each project to the overall development plan projected incremental cash flows from the projects when completed and any associated risks. The projected incremental cash flows were discounted back to their present value using discount rates ranging from 12% to 18%. Discount rates were determined after consideration of EPITAXX's weighted average cost of capital and the weighted average return on assets. Associated risks include the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated levels of market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets. The acquired existing technology, which is comprised of products that are already technologically feasible, includes products in the following areas: high speed receivers for the telecommunications market, optical network monitoring, and optical detectors/receivers for access/datacom applications and cable television fiberoptic networks. The Company is amortizing the acquired existing technology of approximately $63.4 million on a straight-line basis over an average estimated remaining useful life of 7 years. The trademarks and trade names include the EPITAXX trademark and trade name. The Company is amortizing the trademark and trade names of approximately $5.4 million on a straight-line basis over an estimated remaining useful life of 7 years. The acquired assembled workforce is comprised of approximately 400 skilled employees across EPITAXX's Executive, Research and Development, Manufacturing, Quality Assurance, Sales and Marketing, and General and Administrative groups. The Company is amortizing the value assigned to the assembled workforce of approximately $2.9 million on a straight-line basis over an estimated remaining useful life of 4 years. Goodwill, which represents the excess of the purchase price of an investment in an acquired business over the fair value of the underlying net identifiable assets, is being amortized on a straight-line basis over its estimated remaining useful life of 7 years. Ramar Corporation In October 1999, the Company acquired Ramar Corporation ("Ramar") of Northborough, Massachusetts for $1.0 million in cash and convertible debt as described below, in a transaction accounted for as a purchase and accordingly, the accompanying financial statements include the results of operations of Ramar subsequent to the acquisition date. Ramar designs, develops and manufactures lithium-niobate products for telecommunications applications. The convertible debt is composed of $3.5 million in demand obligations and two performance-based instruments totaling $1.0 million that become due upon achieving certain milestones over the ensuing 12 to 24 months. The convertible debt bears interest at 5.54% per annum and the principal can be exchanged for newly issued shares of common stock at a price of $27.961 per share. The total purchase cost was $4.5 million. The purchase price allocation included net tangible assets of $0.2 million and intangible assets (including goodwill) of $4.3 million (net of deferred tax) that are being amortized over a five year period. Convertible debt of $3.5 million is included in other current liabilities. Acquisition of AFC Technologies, Inc. In August 1999, the Company acquired AFC Technologies, Inc. ("AFC") of Ottawa, Canada for $22.0 million in cash and common stock of $17.5 million in a transaction accounted for as a purchase and accordingly, the accompanying financial statements include the results of operations of AFC subsequent to the acquisition date. AFC designs, develops and manufactures fiber amplifiers for telecommunications applications. The purchase price allocation included net tangible assets of $1.3 million and intangible assets (including goodwill) of $38.2 million that are being amortized over a five-year period. JDS FITEL Effective June 30, 1999, the Company combined its operations with JDS FITEL Inc. of Ottawa, Canada in a transaction accounted for as a purchase. Accordingly, the accompanying financial statements include the results of operations of JDS FITEL subsequent to the acquisition date. JDS FITEL primarily manufactures passive products that include components and modules that route and guide optical signals transmitted through a fiberoptic network. The total purchase price of $3,496.7 million includes the issuance of common shares or Exchangeable Shares of JDS Uniphase Canada Ltd. for all of the outstanding JDS FITEL common shares based on the outstanding JDS FITEL common shares on June 30, 1999, the exchange ratio of 2.0342 of a JDS Uniphase share of common stock or 2.0342 of an Exchangeable Share of JDS Uniphase Canada Ltd. for each JDS FITEL common share and an average market price per JDS Uniphase common share of $20.428 per share. The average market price per JDS Uniphase common share is based on the average closing price for a range of trading days (January 22 through February 4, 1999) around the announcement date (January 28, 70 71 1999) of the merger. In addition, JDS Uniphase issued options to purchase 26.4 million JDS Uniphase common shares in exchange for outstanding JDS FITEL options with the number of shares and the exercise price appropriately adjusted by the exchange ratio. The value of the options, as well as direct transaction expenses of $12.0 million, have been included as a part of the total purchase cost. In addition, the Company granted options to purchase approximately 27.2 million shares of JDS Uniphase Common Shares to certain former JDS FITEL employees subsequent to the effective date of the merger. The total purchase cost of the JDS FITEL merger was as follows (in millions): Value of securities issued......................................... $ 3,263.1 Assumption of JDS FITEL options.................................... 221.6 ---------- Total equity consideration......................................... 3,484.7 Direct transaction costs and expenses.............................. 12.0 ---------- Total purchase cost................................................ $ 3,496.7 ==========
The purchase price was allocated as follows: Tangible net assets acquired......................................... $ 244.8 Intangible assets acquired: Developed technology............................................... 490.5 Trademark and tradename............................................ 348.0 Assembled workforce................................................ 19.2 Goodwill............................................................. 2,501.1 In-process research and development.................................. 210.4 Deferred tax liabilities............................................. (317.3) ---------- Total purchase price allocation............................ $ 3,496.7 ==========
Tangible net assets acquired includes $47.4 million of cash acquired from JDS FITEL. Tangible net assets of JDS FITEL also include short-term investments, accounts receivable, inventories and fixed assets. Liabilities assumed principally include accounts payable, accrued compensation and accrued expenses. Goodwill and intangible assets acquired are each being amortized on a straight-line basis over estimated useful lives of five years. A portion of the purchase price has been allocated to developed technology and IPRD. Developed technology and IPRD were identified and valued through extensive interviews, analysis of data provided by JDS FITEL concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows, and risks associated with achieving such cash flows, was the primary technique utilized in valuing the developed technology and IPRD. Where developmental projects had reached technological feasibility, they were classified as developed technology and the value assigned to developed technology was capitalized. Where the developmental projects had not reached technological feasibility and had no future alternative uses, they were classified as IPRD and charged to expense upon closing of the merger. The Company estimates that a total investment of $0.4 million in research and development over the next 3 months will be required to complete the IPRD. The nature of the efforts required to develop the purchased IPRD into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. In valuing the IPRD, JDS Uniphase considered, among other factors, the importance of each project to the overall development plan projected incremental cash flows from the projects when completed and any associated risks. The projected incremental cash flows were discounted back to their present value using a discount rate of 27%. This discount rate was determined after consideration of JDS FITEL's weighted average cost of capital and the weighted average return on assets. Associated risks include the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated levels of market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets. The IPRD relates to sophisticated optical components and modules that manage light transmission through today's most advanced telecommunications systems. The IPRD is comprised of four main categories: (i) Thermo Optic Waveguide Attenuators, (ii) Solid State Switch, (iii) 50 GHz Wavelength Division Multiplexing ("WDM"), and (iv) Erbium Doped Fiber Amplifiers. 71 72 Broadband Communication Products, Inc. On November 25, 1998, the Company acquired BCP of Melbourne, Florida in a tax-free reorganization that was accounted for as a pooling of interests. BCP manufactures high-speed and high-bandwidth fiber optic products including transmitters, receivers and multiplexers used to extend the reach of fiber optic transmission into metropolitan and local access networks. The Company exchanged 5.8 million shares of JDS Uniphase common stock and reserved 3.3 million shares for BCP options assumed by the Company. Merger related expenses of approximately $6.0 million are included in Merger and other expenses in fiscal 1999. Separate net sales and related net income (loss) amounts of the merged entities are presented in the following table (in millions).
JUNE 30, --------------------- 1999 1998 --------- -------- (UNAUDITED) (IN MILLIONS) Net Sales: JDS Uniphase through September 30, 1998............................... $ 54.2 $ 175.8 BCP through September 30, 1998........................................ 3.2 9.4 JDS Uniphase subsequent to September 30, 1998......................... 225.4 -- --------- -------- Net sales as reported................................................. $ 282.8 $ 185.2 ========= ======== Net loss: JDS Uniphase through September 30, 1998............................... $ 7.6 $ (21.8) BCP through September 30, 1998........................................ 0.6 2.2 JDS Uniphase subsequent to September 30, 1998......................... (179.2) -- --------- -------- Net loss as reported............................................... $ (171.1) $ (19.6) ========= ========
Chassis Engineering, Inc. In August 1998, the Company acquired certain assets of Chassis Engineering Inc. ("Chassis") for $70,000 in cash and convertible debt of $2.73 million. Chassis designs, develops, markets and manufactures packaging solutions for fiber optic and other high performance components. The convertible debt is composed of a $1.93 million demand obligation and two performance-based instruments totaling $0.8 million that become due upon achieving certain milestones over the ensuing 9 to 18 months. The convertible debt bears interest at 5.48% and principal can be exchanged for newly issued shares of Uniphase common stock at a price of $6.89 per share. The convertible debt is secured by a letter of credit issued against the Company's unused revolving bank line of credit. In February 1999, the holder tendered the $1.93 million obligation and a performance-based instrument valued at $0.5 million for 359,920 shares of common stock. Uniphase Netherlands On June 9, 1998, the Company acquired 100% of the capital stock of Uniphase Netherlands B.V. (formerly Philips Optoelectronics B.V.) from Philips. UNL designs, develops, manufactures and markets high performance semiconductor lasers, photo diodes and components for telecommunications, CATV, multimedia and printing markets. The total purchase price of $135.4 million consisted of 26.1 million shares of common stock, cash of $100,000 and $4.0 million in related acquisition costs. Philips became the largest stockholder of record at 8.5% of the Company's common stock at the date of closing. In addition, the Company issued 0.1 million shares of Series A Preferred Stock to Philips as contingent consideration and interest thereon worth up to 458 million Dutch Guilders (approximately $220 million). The number of shares of common stock to be issued upon conversion of this preferred stock is tied to unit shipments of certain products by UNL during the four-year period ending June 30, 2002 and the Company's stock price at the date the contingency attributable to the unit shipments is removed. The contingent consideration is not included in the acquisition cost above, but will be recorded at the current fair value as additional purchase price representing additional goodwill when the aggregate unit shipment criteria are met. The additional goodwill will be amortized over its remaining life. The acquisition has been accounted for by the purchase method of accounting and accordingly, the accompanying financial statements include the results of operations of UNL subsequent to the acquisition date. The purchase price was allocated to the net assets and in-process research and development acquired. The purchased intangible assets and goodwill are being amortized over seven years. In-process research and development was identified and valued through extensive interviews, analysis of data provided by UNL concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows, and risks associated with achieving such cash flows, was the primary technique utilized in valuing purchased research and development project. 72 73 The Company considered, among other factors, the importance of each project to the overall development plan, and the projected incremental cash flows from the projects when completed and any associated risks. The projected incremental cash flows were discounted back to their present value using a discount rate of 27%. This discount rate was determined after consideration of UNL's weighted average cost of capital and the weighted average return on assets. Associated risks include the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated levels of market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets. Since the acquisition date, some of the acquired in-process research and development projects have been completed and the related products have been released. The third generation in-process research and development projects acquired are still in development. The Company estimates that these projects will be released upon completion through 2002. This analysis resulted in a valuation of $33.7 million for acquired in-process research and development that had not reached technological feasibility and did not have alternative future uses. Therefore, in accordance with generally accepted accounting principles, the $33.7 million was expensed. The Company estimates that a total investment of $32.7 million in research and development over the next three years will be required to complete the in-process research and development. The following unaudited pro forma summary presents the consolidated results of operations of the Company, excluding the charge for acquired in-process research and development, as if the acquisition of UNL had occurred at the beginning of fiscal 1997 and does not purport to be indicative of what would have occurred had the acquisition been made as of the beginning of fiscal 1997 or of results which may occur in the future. The purchase price was allocated as follows (in millions): Working capital (deficiency) acquired................................... $ (1.2) Property, plant and equipment........................................... 7.1 Assembled work force and customer base.................................. 2.9 Developed technology.................................................... 13.1 Goodwill................................................................ 81.8 Other liabilities....................................................... (2.0) In-process research and development..................................... 33.7 -------- Total purchase price.................................................... $ 135.4 ========
Uniphase Fiber Components On November 26, 1997, the Company acquired 100% of the capital stock of Uniphase Fiber Components Pty Ltd. (formerly INDX Pty Ltd.) and obtained certain licensing rights from Australia Photonics Pty Limited (AP). UFC designs and manufactures fiber optic reflection filters (fiber Bragg gratings) for wavelength division multiplexing (WDM) applications. The total purchase price of $6.9 million included a cash payment of $6.5 million to AP and acquisition expenses of $0.4 million. The acquisition has been accounted for as a purchase and accordingly, the accompanying financial statements include the results of operations of UFC subsequent to the acquisition date. The purchase price was allocated to the net assets and the IPRD acquired. The purchased intangible assets are being amortized over the estimated useful life of 5 years. IPRD was identified and valued through extensive interviews, analysis of data provided by UFC concerning developmental products, their stage of development, the time and resources needed to complete them, and, if applicable, their expected income generating ability, target markets and associated risks. The Income Approach, which includes an analysis of the markets, cash flows, and risks associated with achieving such cash flows, was the primary technique utilized in valuing purchased research and development project. The Company considered, among other factors, the importance of each project to the overall development plan, and the projected incremental cash flows from the projects when completed and any associated risks. The projected incremental cash flows were discounted back to their present value using a discount rate of 20%. This discount rate was determined after consideration of UFC's weighted average cost of capital and the weighted average return on assets. Associated risks include the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated levels of market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets. Since the acquisition date, some of the acquired in-process research and development projects have been completed and the related products have been released. This analysis resulted in a valuation of $6.6 million for acquired in-process research and development that had not reached technological feasibility and did not have alternative future uses. Therefore, in accordance with generally accepted accounting 73 74 principles, such $6.6 million was charged to income. The Company estimates that a total investment of $1.9 million in research and development over the next year will be required to complete the in-process research and development. The purchase price allocation is as follows (in millions): Working capital (deficiency) acquired............................... $ (0.1) Property, plant and equipment....................................... 0.3 Identified intangibles.............................................. 0.2 In-process research and development................................. 6.5 ------- Total purchase price................................................ $ 6.9 =======
Unaudited Pro Forma Information The following unaudited pro forma summary presents the consolidated results of operations of the Company, excluding the charge for acquired in-process research and development, as if the acquisition of E-TEK, OCLI and JDS FITEL had occurred at the beginning of fiscal 1999 and does not purport to be indicative of what would have occurred had the acquisition been made as of the beginning of fiscal 1999 or of results which may occur in the future. The pro forma 2000 and 1999 results of operations combines the consolidated results of operations of the Company, excluding the charge for acquired in-process research and development attributable to E-TEK, OCLI and JDS FITEL, for the years ended June 30, 2000 and 1999 with the historical results of operations of E-TEK, OCLI, and JDS FITEL for the years ended June 30, 2000 and 1999, April 30, 2000 and 1999, and May 31, 2000 and 1999, respectively. The pro forma 2000 and 1999 results exclude the effect of other acquisitions, as the impact to the results of operations for 2000 and 1999 would not be materially different from those shown below.
YEAR ENDED JUNE 30, ------------------------- 2000 1999 ------------ ----------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales.................................. $ 1,900.7 $ 966.9 Net loss................................... $ (4,030.3) $ (4,369.4) Loss per share............................. $ (4.70) $ (5.63)
NOTE 10. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION During the first quarter of fiscal 2000, JDS Uniphase changed the structure of its internal organization following the merger with JDS FITEL that became effective on the close business June 30, 1999. Segment information for the prior years has been restated to conform to the current year's presentation. The President and Chief Operating Officer has been identified as the Chief Operating Decision Maker as defined by SFAS 131. The President allocates resources to each segment based on their business prospects, competitive factors, net sales and operating profits before interest, taxes, and certain purchase accounting related costs. JDS Uniphase designs, develops, manufactures and markets optical components and modules at various levels of integration. The Company views its business as having two principal operating segments: Components and Modules. The Components Group consists primarily of source lasers, pump lasers, external modulator products, packaged lasers for fiber-based data communications, couplers, filters, isolators, circulators, switches, attenuators, fiber Bragg gratings, and connector products used primarily in telecommunications applications. The Modules Group includes transmitters, amplifiers, transceivers, and test instruments used in telecommunications and cable TV. The Company's other operating segments, which are below the quantitative threshold defined by SFAS 131, are disclosed in the "all other" category and consist of gas laser based products for industrial, biotechnology and semiconductor equipment applications, optical display and projection products, light interference pigments for security products and decorative surface treatments, certain corporate-level operating expenses and the Ultrapointe product line that was sold in 1999. All of the Company's products are sold directly to original equipment manufacturers and industrial distributors throughout the world. In fiscal 2000, the operating segments and corporate sales reported to the Chief Operating Officer (COO). Where practicable, the Company allocates Corporate sales, marketing, finance and administration expenses to operating segments, primarily as a percentage of net sales. Certain corporate-level operating expenses (primarily charges originating from purchased intangibles, merger costs and other expenses and acquired-in process research and development expenses) are not allocated to operating segments. In addition, the Company does not allocate income taxes, non-operating income and expenses or specifically identifiable assets to its operating segments. 74 75 Information about reportable segments sales and net income are as follows (in millions):
YEAR ENDED JUNE 30, -------------------------------------- 2000 1999 1998 -------- -------- -------- Components: Shipments ................................. $ 961.8 $ 169.4 $ 83.0 Intersegment sales ........................ 122.6 3.8 -- -------- -------- -------- Net sales to external customers ........... $ 839.2 $ 165.6 $ 83.0 Operating income .......................... $ 341.0 $ 53.2 $ 23.8 Modules: Shipments ................................. $ 429.5 $ 62.0 $ 34.2 Intersegment sales ........................ 0.3 -- -- -------- -------- -------- Net sales to external customers ........... $ 429.2 $ 62.0 $ 34.2 Operating income .......................... $ 91.8 $ 15.9 $ 2.7 Net sales by reportable segments ............ $1,268.4 $ 227.6 $ 117.2 All other net sales ......................... 162.0 55.2 68.0 -------- -------- -------- Net sales ................................... $1,430.4 $ 282.8 $ 185.2 ======== ======== ======== Operating income by reportable segments ..... $ 432.8 $ 69.1 $ 26.5 All other operating income (loss) ........... 7.6 3.8 7.9 Unallocated amounts: Acquisition related charges ............... (1,257.6) (232.9) (45.9) Other, net ................................ (47.9) -- -- Interest and other income, net ............ 35.3 3.6 3.3 -------- -------- -------- Loss before income taxes .................... $ (829.8) $ (156.4) $ (8.2) ======== ======== ========
JDS Uniphase operates primarily in two geographic regions: North America and Europe. The following table shows sales and other identifiable assets by geographic region (in millions):
YEARS ENDED JUNE 30, --------------------------------------- 2000 1999 1998 --------- --------- --------- Net sales: North America .............. $ 1,103.7 $ 168.5 $ 114.7 Europe ..................... 256.8 103.8 18.7 Rest of World .............. 69.9 10.6 51.8 --------- --------- --------- Total net sales .... $ 1,430.4 $ 282.8 $ 185.2 Identifiable assets: North America .............. $26,141.3 $ 3,994.5 $ 239.2 Europe ..................... 194.7 97.1 92.2 Rest of World .............. 53.1 4.5 1.5 --------- --------- --------- Total assets ....... $26,389.1 $ 4,096.1 $ 332.9 ========= ========= =========
Net sales are attributed to countries based on the location of customers. Rest of World includes Japan, Australia and Asia. The increase in net sales to North America customers from fiscal 1999 to 2000 is primarily attributable to increased customer demand for high channel count systems to meet increased bandwidth requirements, the inclusion of a full year's sales from JDS FITEL, which sells a higher mix of its products to customers in the U.S. and Canada, as well as acquisitions that were completed in fiscal 2000 (see Note 9). The increase in net sales to Europe was also a result of the increased customer demand as well as acquisitions completed in fiscal 2000 (see Note 9). The decline in net sales to rest of world customers from fiscal 1998 to 1999 is primarily attributable to the disposal of the Ultrapointe product line. Identifiable assets are those assets of the Company that are identified with the operations of the corresponding geographic area. Identified intangible assets and goodwill of $22,337.8 million are included in domestic assets. During fiscal 2000, two customers, Lucent Technologies, Inc and Nortel Networks Corp, and their affiliates accounted for 21% and 15% of consolidated net sales, respectively. During fiscal 1999, none of the Company's customers exceeded 10% of consolidated net sales, whereas two customers, KLA-Tencor Corporation and Ciena Corporation, accounted for 11% and 11% of the Company's consolidated net sales during fiscal 1998. NOTE 11. SUPPLEMENTAL CASH FLOW INFORMATION The consolidated statement of cash flows for fiscal 2000, excludes non cash operating and investing activities of $1,044.2 million and $21,234.5 million, respectively, in connection with the Company's acquisitions in fiscal 2000, of which the most significant were E-TEK and OCLI. During fiscal 2000, the Company assumed $106.3 million of debt from the acquisitions of E-TEK, OCLI, and EPITAXX, of which $45.1 million has been prepaid during the year (see Note 2). The consolidated statement of cash flows for fiscal 75 76 1999 excludes non cash operating and investing activities of $184.8 million and $3.5 billion respectively, in connection with Uniphase's merger with JDS, FITEL Inc., whereas the consolidated statement of cash flows for fiscal 1998 excludes noncash investing activities of $131.3 million in common stock issued to Philips. Net cash provided by operating activities reflects cash payments for interest and income taxes as follows (in millions):
YEARS ENDED JUNE 30, --------------------------------- 2000 1999 1998 ------- ------- ------- Cash payments for: Interest ................... $ 3.4 $ -- $ 0.1 Income taxes ............... $ 67.9 $ 9.3 $ 2.3
NOTE 12. UNAUDITED QUARTERLY RESULTS The following table contains selected unaudited consolidated statement of operations data for each quarter of fiscal years 2000 and 1999.
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1998 1998 1999 1999 1999 -------- -------- -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales ............................................. $ 57.4 $ 63.8 $ 74.5 $ 87.1 230.1 Cost of sales ......................................... 28.9 33.5 36.3 40.0 125.2 Gross profit ........................................ 28.5 30.3 38.2 47.1 104.9 Operating expenses: Research and development ............................ 5.6 5.8 7.3 8.3 17.2 Selling, general, and administrative ................ 7.1 8.4 9.1 12.8 27.9 Amortization of purchased intangibles ............... 3.9 4.0 3.9 3.9 172.9 Acquired in-process research and development ........ -- -- -- 210.4 -- Other operating expenses ............................ -- 6.3 0.5 -- -- -------- -------- -------- -------- -------- Total operating expenses .............................. 16.6 24.5 20.8 235.4 218.0 Income (loss) from operations ......................... 11.9 5.8 17.4 (188.3) (113.1) Interest and other income, net ........................ 0.9 0.8 0.9 1.0 5.5 -------- -------- -------- -------- -------- Income (loss) before income taxes ..................... 12.8 6.6 18.3 (187.3) (107.6) Income tax expense .................................... 4.7 4.2 5.5 7.0 6.3 -------- -------- -------- -------- -------- Net income (loss) ..................................... $ 8.1 $ 2.4 $ 12.8 $ (194.3) $ (113.9) ======== ======== ======== ======== ======== Earnings (loss) per share(1): Basic ............................................... $ 0.03 $ 0.01 $ 0.04 $ (0.60) $ (0.17) Diluted ............................................. $ 0.02 $ 0.00 $ 0.04 $ (0.60) $ (0.17) Number of weighted average shares outstanding(1): Basic ............................................... 312.9 316.2 320.3 323.6 673.9 Diluted ............................................. 338.1 338.1 347.2 323.6 673.9 Net sales ............................................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales ......................................... 50.3% 52.5% 48.7% 45.9% 54.4% -------- -------- -------- -------- -------- Gross profit ........................................ 49.7% 47.5% 51.3% 54.1% 45.6% Operating expenses: Research and development ............................ 9.8% 9.1% 9.8% 9.5% 7.5% Selling, general, and administrative ................ 12.4% 13.2% 12.2% 14.7% 12.1% Amortization of purchased intangibles ............... 6.8% 6.3% 5.2% 4.5% 75.1% Acquired in-process research and development ........ -- -- -- 241.6% 0.0% Other operating expenses ............................ -- 9.9% 0.7% -- 0.0% -------- -------- -------- -------- -------- Total operating expenses ..................... 28.9% 38.4% 27.9% 270.3% 94.7% Income (loss) from operations ......................... 20.7% 9.1% 23.4% (216.1)% (49.2)% Interest and other income, net ........................ 1.6% 1.3% 1.2% 1.1% 2.4% -------- -------- -------- -------- -------- Income (loss) before income taxes ................... 22.3% 10.3% 24.6% (215.0)% (46.8)% Income tax expense .................................... 8.2% 6.6% 7.4% 8.0% 2.7% -------- -------- -------- -------- -------- Net income (loss) ..................................... 14.1% 3.8% 17.2% (223.1)% (49.5)% ======== ======== ======== ======== ========
DEC. 31, MAR. 31, JUNE 30, 1999 2000 2000 -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales ............................................. $ 281.7 $ 394.6 $ 524.0 Cost of sales ......................................... 139.2 202.1 285.2 Gross profit ........................................ 142.5 192.5 238.8 Operating expenses: Research and development ............................ 21.6 33.3 41.2 Selling, general, and administrative ................ 33.8 49.1 62.1 Amortization of purchased intangibles ............... 185.1 249.6 289.3 Acquired in-process research and development ........ 19.7 84.1 256.9 Other operating expenses ............................ -- -- -- -------- -------- -------- Total operating expenses .............................. 260.2 416.1 649.5 Income (loss) from operations ......................... (117.7) (223.6) (410.7) Interest and other income, net ........................ 10.7 10.0 9.1 -------- -------- -------- Income (loss) before income taxes ..................... (107.0) (213.6) (401.6) Income tax expense .................................... 24.2 27.3 17.2 -------- -------- -------- Net income (loss) ..................................... $ (131.2) $ (240.9) $ (418.8) ======== ======== ======== Earnings (loss) per share(1): Basic ............................................... $ (0.19) $ (0.32) $ (0.54) Diluted ............................................. $ (0.19) $ (0.32) $ (0.54) Number of weighted average shares outstanding(1): Basic ............................................... 690.5 747.6 782.0 Diluted ............................................. 690.5 747.6 782.0 Net sales ............................................. 100.0% 100.0% 100.0% Cost of sales ......................................... 49.4% 51.2% 54.4% -------- -------- -------- Gross profit ........................................ 50.6% 48.8% 45.6% Operating expenses: Research and development ............................ 7.7% 8.4% 7.9% Selling, general, and administrative ................ 12.0% 12.4% 11.9% Amortization of purchased intangibles ............... 65.7% 63.3% 55.2% Acquired in-process research and development ........ 7.0% 21.3% 49.0% Other operating expenses ............................ 0.0% 0.0% 0.0% -------- -------- -------- Total operating expenses ..................... 92.4% 105.4% 124.0% Income (loss) from operations ......................... (41.8)% (56.7)% (78.4)% Interest and other income, net ........................ 3.8% 2.5% 1.7% -------- -------- -------- Income (loss) before income taxes ................... (38.0)% (54.1)% (76.6)% Income tax expense .................................... 8.6% 6.9% 3.3% -------- -------- -------- Net income (loss) ..................................... (46.6)% (61.0)% (79.9)% ======== ======== ========
- ---------- (1) Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per common share information may not equal the annual loss per common share. All share and per share information has been retroactively restated to reflect the two-for-one stock splits effective December 22, 1999 and March 2, 2000. NOTE 13. SUBSEQUENT EVENTS On July 10, 2000, the Company signed a definitive agreement to merge with SDL, in a transaction valued at approximately $41.0 billion. The merger agreement provides for the exchange of 3.8 shares of JDS Uniphase common stock for each common share of SDL. Completion of the transaction is subject to customary closing conditions, including the approval of stockholders of both companies and regulatory approvals. Following completion of the transaction, SDL will operate as a wholly-owned subsidiary of JDS Uniphase. SDL designs, manufactures and sells semiconductor lasers, laser-based systems, and fiber optic related solutions. In August 2000, the Company entered into several agreements to lease property and improvements located in Melbourne, Florida and Research Triangle Park, North Carolina. The Melbourne facility, when construction is complete, will comprise two buildings, 200,000 square feet, and will provide space for office and assembly and light manufacturing. The underlying 20 acre parcel, is 76 77 controlled by a long-term ground lease. The Research Triangle Park facility, when tenants improvements are complete, will provide approximately 151,000 square feet space for manufacturing and office on approximately 110 acres. The lease term for these facilities is five years beginning August 2000, with an option to extend the lease term for two successive periods of one year each. The total approximate minimum lease payments for these facilities for the next five years will be $20.5 million. The Company has an option to purchase the property (land or ground lease interest) and improvements for $59.6 million or, at the end of the lease, to arrange for the sale of the property to a third party with the Company retaining an obligation to the owner for the difference between the sales price and the guaranteed residual value of $50.2 million if the sales price is less than this amount, subject to certain provisions of the lease. As part of the above lease transactions, the Company will restrict approximately $60.0 million of its investment securities as collateral for specified obligations of the lessors under the leases. These investment securities are restricted as to withdrawal and are managed by a third party subject to certain limitations under the Company's investment policy. In addition, the Company must maintain a minimum consolidated tangible net worth, as defined, of $500.0 million. In September 2000, the Company acquired Epion Corporation ("Epion") of Billerica, Massachusetts. Epion is a developer of gas cluster ion beam ("GCIB") technology and a manufacturer of pulsed laser deposition ("PLD") equipment. The transaction was accounted for as a purchase and accordingly, the accompanying financial statements include the results of operations of Epion subsequent to the acquisition date. The total purchase price of $95.3 million included consideration of 0.8 million shares of JDS Uniphase common stock, the issuance of options to purchase an additional 91,862 shares of JDS Uniphase common stock valued at $8.2 million in exchange for Epion options and direct transaction costs of $0.3 million. The purchase price allocation included net tangible assets of $11.0 million, acquired in-process research and development of $8.9 million, purchased intangibles of $14.6 million (including $3.7 million related to deferred compensation on unvested options) and goodwill of $60.8 million that are expected to be amortized over a period of three to five years. The purchase price allocation is preliminary and is dependant upon the Company's final analysis, which it expects to complete during the second quarter of fiscal 2001. Subject to the completion of certain milestones, the merger agreement also provides for the issuance of additional shares of common stock, valued at approximately $150.0 million, with the final milestone payment scheduled to be paid on or prior to January 31, 2003. NOTE 14. SUBSEQUENT EVENTS (UNAUDITED) On January 31, 2001, the Company acquired Optical Process Automation Corp. ("OPA") in a transaction accounted for as a purchase. The Company issued 3.0 million shares of common stock for all of the outstanding stock, common and preferred, of OPA valued at approximately $130.2 million and assumed the outstanding stock options of OPA, which had an estimated value of approximately $36.7 million. Subject to the completion of certain milestones, the purchase agreement also provides for the issuance of additional shares of common stock, valued at approximately $250.0 million, with the final milestone payment scheduled to be paid on or prior to January 31, 2004. On February 13, 2001, the Company completed its acquisition of SDL. As consideration for the transaction, each outstanding share of SDL was exchanged for 3.8 shares of the Company's common stock. The total purchase price is estimated at approximately $41.0 billion, based on the average market value of the Company's common stock for a range of trading days (June 30, 2000 through July 14, 2000) around the announcement of the merger. SDL designs, manufactures and sells semiconductor lasers, laser-based subsystems and fiber optic related solutions. This transaction will be accounted for as a purchase with goodwill of approximately $37.4 billion, which is expected to be amortized over its estimated useful life of five years. On February 13, 2001, the Company completed the sale of its Zurich, Switzerland subsidiary to Nortel Networks ("Nortel") for 65.7 million shares of Nortel common stock valued at $2.1 billion, as well as up to an additional $500 million in Nortel common stock payable to the extent Nortel purchases do not meet certain levels under new and existing programs through December 31, 2003. The Company expects to record a gain estimated at $1.9 billion in the quarter ended March 31, 2001. 77 78 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information regarding directors and executive officers required by Item 10 is included in the Company's Definitive Proxy Statement filed on October 26, 2000 in connection with the Annual Stockholders' Meeting held on December 13, 2000 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is included in the Executive Compensation and Related Information sections of the Company's Definitive Proxy Statement filed on October 26, 2000 in connection with the Annual Stockholders' Meeting held on December 13, 2000 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is included in the Security Ownership of Certain Beneficial Owners and Management section of the Company's Definitive Proxy Statement filed on October 26, 2000 in connection with the Annual Stockholders' Meeting held on December 13, 2000 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is included in the Compensation Committee Interlocks and Insider Participation and Certain Transactions sections of the Company's Definitive Proxy Statement filed on October 26, 2000 in connection with the Annual Stockholders' Meeting held on December 13, 2000 and is incorporated herein by reference. 78 79 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS The following index reflects the "Index to Financial Statements and Financial Statement Schedules," included in the Company's Current Report on Form 8-K, filed with the SEC on September 1, 2000. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Report of Ernst & Young LLP, Independent Auditors Consolidated Statements of Operations -- Years ended June 30, 2000, 1999 and 1998 Consolidated Balance Sheets -- June 30, 2000 and 1999 Consolidated Statements of Stockholders' Equity -- Years ended June 30, 2000, 1999 and 1998 Consolidated Statements of Cash Flows -- Years ended June 30, 2000, 1999 and 1998 Notes to Consolidated Financial Statements (a)(2) FINANCIAL STATEMENT SCHEDULES The following financial statement schedule is filed as part of this current report. All other financial statement schedules have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Company's consolidated financial statements set forth in this Annual Report on Form 10-K/A and the note thereto. JDS UNIPHASE CORPORATION SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS(2) DEDUCTION(1) PERIOD ----------- ------------ ---------- ----------- ------------ ---------- (IN MILLIONS) Year ended June 30, 2000: Allowance for doubtful accounts.............. $ 1.1 $ 0.8 $ 6.3 $ -- $ 8.2 Year ended June 30, 1999: Allowance for doubtful accounts.............. $ 0.8 $ 0.3 $ 0.5 $ 0.5 $ 1.1 Year ended June 30, 1998: Allowance for doubtful accounts.............. $ 1.9 $ 0.4 $ 0.4 $ 1.9 $ 0.8
- ---------- (1) Charges for uncollectible accounts, net of recoveries. (2) Allowance assumed through the merger with OCLI, E-TEK, and Epitaxx in fiscal 2000, JDS FITEL in fiscal 1999, and the acquisitions of UNL and UFC in fiscal 1998. 79 80 (a)(3) EXHIBITS JDS UNIPHASE CORPORATION ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2000
EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 3.1 Restated Certificate of Incorporation. 3.2(1) Certificate of Designation. 3.3(2) Certificate of Designation. 3.4(3) Certificate of Designation. 3.5 Bylaws of the Company, as amended. 4.1(4) Fourth Amended and Restated Rights Agreement. 4.2(5) Exchangeable Share Provisions attaching to the exchangeable shares of JDS Uniphase Canada Ltd. (formerly 3506967 Canada Inc.). 4.3(6) Voting and Exchange Trust Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and CIBC Mellon Trust Company. 4.4(6) Exchangeable Share Support Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and JDS Uniphase Nova Scotia Company. 4.5(6) JDS Uniphase Canada Ltd. Rights Agreement dated as of June 30, 1999 between the JDS Uniphase Canada Ltd. and CIBC Mellon Trust Company. 4.6(6) Registration Rights Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and The Furukawa Electric Co., Ltd. 10.1(7) Amended and Restated 1993 Flexible Stock Incentive Plan. 10.2(8) Stockholder Agreement dated as of June 9, 1998, by and between Uniphase Corporation, and Koninklijke Philips Electronics N.V. 10.3(8) Series A Preferred Conversion and Redemption Agreement dated as of June 9, 1998, by and between Uniphase Corporation and Koninklijke Philips Electronics N.V. 10.4 1998 Employee Stock Purchase Plan, as amended. 10.5(6) Support Agreement dated as of April 29, 1999, by and among Uniphase Corporation, 3506967 Canada Inc., The Furukawa Electric Company, Ltd., and JDS FITEL Inc. 10.6(9) Employment Agreement for Russ Johnson. 10.7(9) Employment Agreement for Frederick Leonberger. 10.8(9) Employment Agreement for Dan E. Pettit. 10.9(9) Employment Agreement for Anthony R. Muller. 10.10(9) Employment Agreement for Kevin N. Kalkhoven. 10.11(10) Retention and Change of Control Agreement for Jozef Straus, Ph.D. 10.12(10) Retention and Change of Control Agreement for M. Zita Cobb. 10.13(10) First Amendment to Employment Agreement for Kevin Kalkhoven. 10.14 Amended and restated 1999 Canadian Employee Stock Purchase Plan 21.1(10) Subsidiaries of the Company. 23.1 Consent of Ernst &Young LLP, Independent auditors. 24.1(10) Powers of Attorney. 27.1(10) Financial Data Schedule for the year ended June 30, 2000.
- ------------ (1) Incorporated by reference to exhibit 3.(i)(d) to the Company's Report of Form 10-K filed September 28, 1998. (2) Incorporated by reference to exhibit 4.1 to the Company's Registration Statement on Form S-3 filed July 14, 1999. 80 81 (3) Incorporated by reference to exhibit 10.3 to the Company's current Report on Form 8-K filed June 24, 1998. (4) Incorporated by reference to the Company's Registration Statement on Form 8-A 12G/A filed on February 13, 2001. (5) Incorporated by reference to the Company's Definitive Proxy Statement on Schedule 14A filed on June 2, 1999. (6) Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the period ending June 30, 1999. (7) Incorporated by reference to exhibits filed with the Company's registration statement on form S-8, file number 33-31722 filed with the Securities and Exchange Commission on February 27, 1996. (8) Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K filed June 24, 1998. (9) Incorporated by reference to the exhibit filed with the Company's quarterly report on Form 10-Q for the period ended September 30, 1999. (10) Incorporated by reference to exhibits 10.11, 10.12, 10.13, 21.1, 24.1, and 27.1 to the Company's Annual Report on Form 10-K filed on September 28, 2000. (b) REPORTS ON FORM 8-K The Company filed two reports on Form 8-K/A during the fourth quarter ended June 30, 2000. Information regarding the items reported on is as follows:
DATE ITEM REPORTED ON - ---- ---------------- May 22, 2000 Unaudited Pro forma Condensed Combined Consolidated Statement of Operations for JDS Uniphase and Optical Coating Laboratory, Inc. Combined for the Nine Months ended March 31, 2000. May 31, 2000 Consolidated Financial Statements for Optical Coating Laboratory, Inc. Combined for the Quarter ended March 31, 2000.
81 82 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 13, 2001 JDS UNIPHASE CORPORATION By: /s/ ANTHONY R. MULLER --------------------------------------- Anthony R. Muller Executive Vice President and CFO Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOZEF STRAUS, PH.D* Co-Chairman and Chief Executive February 13, 2001 - ------------------------------------ Officer (Principal Executive Officer) ----------------- Jozef Straus, Ph. D Co-Chairman and President of the February 13, 2001 - ------------------------------------ Actives Group ----------------- Donald R. Scifres, Ph.D. President and Chief Operating Officer February 13, 2001 - ------------------------------------ ----------------- Charles J. Abbe /s/ ANTHONY R. MULLER Executive Vice President, February 13, 2001 - ------------------------------------ Chief Financial Officer and Secretary ----------------- Anthony R. Muller (Principal Financial and Accounting Officer) /s/ MARTIN A. KAPLAN* Co-Chairman February 13, 2001 - ------------------------------------ ----------------- Martin A. Kaplan /s/ BRUCE D. DAY* Director February 13, 2001 - ------------------------------------ ----------------- Bruce D. Day /s/ ROBERT E. ENOS* Director February 13, 2001 - ------------------------------------ ----------------- Robert E. Enos /s/ JOHN A. MacNAUGTON* Director February 13, 2001 - ------------------------------------ ----------------- John A. MacNaughton /s/ WILSON SIBBETT, PH.D* Director February 13, 2001 - ------------------------------------ ----------------- Wilson Sibbett, Ph.D. /s/ CASIMIR S. SKRZYPCZAK* Director February 13, 2001 - ------------------------------------ ----------------- Casimir S. Skrzypczak /s/ PETER A. GUGLIELMI* Director February 13, 2001 - ------------------------------------ ----------------- Peter A. Guglielmi /s/ WILLIAM J. SINCLAIR* Director February 13, 2001 - ------------------------------------ ----------------- William J. Sinclair /s/ DONALD J. LISTWIN* Director February 13, 2001 - ------------------------------------ ----------------- Donald J. Listwin *By: /s/ Anthony R. Muller - ------------------------------------ Anthony R. Muller Attorney-in-fact
82 83 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 3.1 Restated Certificate of Incorporation. 3.2(1) Certificate of Designation. 3.3(2) Certificate of Designation. 3.4(3) Certificate of Designation. 3.5 Bylaws of the Company, as amended. 4.1(4) Fourth Amended and Restated Rights Agreement. 4.2(5) Exchangeable Share Provisions attaching to the exchangeable shares of JDS Uniphase Canada Ltd. (formerly 3506967 Canada Inc.). 4.3(6) Voting and Exchange Trust Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and CIBC Mellon Trust Company. 4.4(6) Exchangeable Share Support Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and JDS Uniphase Nova Scotia Company. 4.5(6) JDS Uniphase Canada Ltd. Rights Agreement dated as of June 30, 1999 between the JDS Uniphase Canada Ltd. and CIBC Mellon Trust Company. 4.6(6) Registration Rights Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and The Furukawa Electric Co., Ltd. 10.1(7) Amended and Restated 1993 Flexible Stock Incentive Plan. 10.2(8) Stockholder Agreement dated as of June 9, 1998, by and between Uniphase Corporation, and Koninklijke Philips Electronics N.V. 10.3(8) Series A Preferred Conversion and Redemption Agreement dated as of June 9, 1998, by and between Uniphase Corporation and Koninklijke Philips Electronics N.V. 10.4 1998 Employee Stock Purchase Plan, as amended. 10.5(6) Support Agreement dated as of April 29, 1999, by and among Uniphase Corporation, 3506967 Canada Inc., The Furukawa Electric Company, Ltd., and JDS FITEL Inc. 10.6(9) Employment Agreement for Russ Johnson. 10.7(9) Employment Agreement for Frederick Leonberger. 10.8(9) Employment Agreement for Dan E. Pettit. 10.9(9) Employment Agreement for Anthony R. Muller. 10.10(9) Employment Agreement for Kevin N. Kalkhoven. 10.11(10) Retention and Change of Control Agreement for Jozef Straus, Ph.D. 10.12(10) Retention and Change of Control Agreement for M. Zita Cobb. 10.13(10) First Amendment to Employment Agreement for Kevin Kalkhoven. 10.14 Amended and restated 1999 Canadian Employee Stock Purchase Plan 21.1(10) Subsidiaries of the Company. 23.1 Consent of Ernst &Young LLP, Independent auditors. 24.1(10) Powers of Attorney. 27.1(10) Financial Data Schedule for the year ended June 30, 2000.
- ------------ (1) Incorporated by reference to exhibits 3.(i)(d) to the Company's Report of Form 10-K filed September 28, 1998. (2) Incorporated by reference to exhibits 4.1 to the Company's Registration Statement on Form S-3 filed July 14, 1999. 84 (3) Incorporated by reference to exhibit 10.3 to the Company's current Report on Form 8-K filed June 24, 1998. (4) Incorporated by reference to the Company's Registration Statement on Form 8-A 12G/A filed on February 13, 2001. (5) Incorporated by reference to the Company's Definitive Proxy Statement on Schedule 14A filed on June 2, 1999. (6) Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the period ending June 30, 1999. (7) Incorporated by reference to exhibits filed with the Company's registration statement on form S-8, file number 33-31722 filed with the Securities and Exchange Commission on February 27, 1996. (8) Incorporated by reference to the exhibit to the Company's Current Report on Form 8-K filed June 24, 1998. (9) Incorporated by reference to the exhibit filed with the Company's quarterly report on Form 10-Q for the period ended September 30, 1999. (10) Incorporated by reference to exhibits 10.11, 10.12, 10.13, 21.1, 24.1, and 27.1 to the Company's Annual Report on Form 10-K filed on September 28, 2000. EX-3.1 2 f69300ex3-1.txt EXHIBIT 3.1 1 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF JDS UNIPHASE CORPORATION JDS Uniphase Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is JDS Uniphase Corporation. The Corporation was originally incorporated under the name Uniphase Delaware, Inc., and the original Certificate Of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on June 23, 1993. 2. Pursuant to Section 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation restates and integrates the provisions of the Certificate of Incorporation of the Corporation and does not further amend the provisions of the Corporation's Certificate of Incorporation as theretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate. 3. The text of the Certificate of Incorporation is hereby restated to read in its entirety as follows: ARTICLE 1 The name of the Corporation is JDS Uniphase Corporation. ARTICLE 2 The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle. The name of the registered agent of the Corporation in the State of Delaware at such address is The Corporation Trust Company. ARTICLE 3 The purpose of the Corporation is to conduct any lawful business, to promote any lawful purpose and to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. The Corporation is to have perpetual existence. ARTICLE 4 4.1. Authorized Capital Stock. The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is Six Billion One Million (6,001,000,000) shares. Six Billion (6,000,000,000) shares shall be Common Stock, each having a par value of one-tenth of one cent ($.001). One million (1,000,000) shares shall be Preferred Stock, each having a par value of one-tenth of one cent ($.001). 4.2. Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, by filing a certificate (a "Preferred Stock Designation") pursuant to the Delaware General Corporation Law, to fix or alter from time to time the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions of any wholly unissued series of Preferred Stock, and to establish from time to 2 time the number of shares constituting any such series or any of them; and to increase or decrease the number of shares subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE 5 5.1. Election of Directors. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the Delaware General Corporation Law. The directors of the Corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the next succeeding annual meeting of stockholders, the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of stockholders. At each annual meeting of stockholders, directors to replace those of a class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly elected and qualified. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. 5.2. Number of Directors. The number of directors of the Corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors or by the stockholders. Vacancies occurring on the board of directors for any reason may be filled by vote of a majority of the remaining members of the board of directors, although less than a quorum, at any meeting of the board of directors. A person so elected by the board of directors to fill a vacancy shall hold office until the unexpired portion of the term of the director whose place shall be vacant, and until his or her successor shall have been duly elected and qualified. 5.3. Additional Authority. Except as otherwise provided in this Restated Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation. ARTICLE 6 Stockholders of the Corporation shall take action by meetings held pursuant to this Restated Certificate of Incorporation and the Bylaws. Stockholders of the Corporation shall have no right to take any action by written consent without a meeting. Subject to the rights of the holders of any stock having a preference over the Common Stock as to the dividends or liquidation, special meetings of the stockholders shall be called only by the Board, the Chairman of the Board or the Chief Executive Officer. Stockholders shall not be permitted to call a special meeting or to require the Board to call a special meeting of stockholders. Meetings of stockholders may be held within or out of the State of Delaware, as the Bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE 7 Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers 2 3 appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. ARTICLE 8 8.1. Limitation of Directors' Liability. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the General Corporation Law of the State of Delaware, or (d) for any transaction from which the director derived any improper personal benefit. 8.2. Indemnification of Corporate Agents. To the fullest extent permitted by applicable law, the Corporation is also authorized to provide indemnification of (and advancement of expenses to) such agents (and any other persons to which Delaware law permits this Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law of the State of Delaware law, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to the Corporation, its stockholders, and others. 8.3. Repeal or Modification. Any repeal or modification of the foregoing provisions of this Article 8 shall not adversely affect any right of indemnification or limitation of liability of an agent of the Corporation relating to the acts or omissions occurring prior to such repeal or modification. ARTICLE 9 The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 3 4 IN WITNESS WHEREOF, JDS Uniphase Corporation has caused this Restated Certificate of Incorporation to be signed by its authorized officer this 21 day of December, 2000. JDS UNIPHASE CORPORATION By: /s/ MICHAEL C. PHILLIPS -------------------------------------- Michael C. Phillips Senior Vice President, Business Development and General Counsel 4 EX-3.5 3 f69300ex3-5.txt EXHIBIT 3.5 1 EXHIBIT 3.5 BYLAWS OF JDS UNIPHASE CORPORATION (FORMERLY UNIPHASE CORPORATION) A DELAWARE CORPORATION ARTICLE I OFFICES Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Dover, County of Kent. Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at 163 Baypointe Parkway, San Jose, California 95134, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II STOCKHOLDERS' MEETINGS Section 1. Place of Meetings. (a) Meetings of stockholders may be held at such place, either within or without this State, as may be designated by or in the manner provided in these Bylaws or, if not so designated, as determined by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by paragraph (b) of this Section 1. (b) If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication: (1) Participate in a meeting of stockholders; and (2) Be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (A) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (B) the corporation shall 2 implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (C) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation. (c) For purposes of this Section 1, "remote communication" shall mean electronic mail or other forms of written or visual electronic communication satisfying the requirements of Section 11(b). Section 2. Annual Meetings. The annual meetings of the stockholders of the corporation, commencing with the year 1994, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Section 3. Special Meetings. Special Meetings of the stockholders of the corporation may be called, for any purpose or purposes, by the Chairman of the Board or the Chief Executive Officer or the Board of Directors at any time, subject to the rights of the holders of any stock having a preference over the common stock as to dividends or liquidation. Stockholders are not permitted to call a special meeting or to require the Board of Directors to call a special meeting of stockholders. Section 4. Notice of Meetings. (a) Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders, specifying the place, if any, date and hour and purpose or purposes of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the corporation; except that where the matter to be acted on is a merger or consolidation of the Corporation or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than twenty nor more than sixty days prior to such meeting. (b) If at any meeting action is proposed to be taken which, if taken, would entitle stockholders fulfilling the requirements of Section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement of that purpose and to that effect and shall be accompanied by a copy of that statutory section. 2 3 (c) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (d) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and, to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (e) Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under any provision of this chapter, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if (i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent, and (ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this subparagraph (e) shall be deemed given: (1) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of these Bylaws, "electronic transmission" means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process. Section 5. Quorum and Voting. (a) At all meetings of stockholders, except where otherwise provided by law, the Certificate of Incorporation, or these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at 3 4 said meeting have been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. (b) Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the corporation. Section 6. Voting Rights. (a) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum. (b) Every person entitled to vote or to execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three (3) years from its date unless the proxy provides for a longer period. Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given. (c) Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (b) of this section, the following shall constitute a valid means by which a stockholder may grant such authority: (1) A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. 4 5 (2) A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telephone, telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telephone transmission, telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telephone transmission, telegram, cablegram or other electronic transmission was authorized by the stockholder. Such authorization can be established by the signature of the stockholder on the proxy, either in writing or by a signature stamp or facsimile signature, or by a number or symbol from which the identity of the stockholder can be determined, or by any other procedure deemed appropriate by the inspectors or other persons making the determination as to due authorization. If it is determined that such telephone transmissions, telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. (d) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (c) of this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Section 7. Voting Procedures and Inspectors of Elections. (a) The corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. (b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (c) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the 5 6 meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the Inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise. (d) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Section 212(c)(2) of the Delaware General Corporation Law, ballots and the regular books and records of the corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b)(v) of this section shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. Section 8. List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 9. Stockholder Proposals at Annual Meetings. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors, or otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or 6 7 made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in Section 1 and this Section 9, provided, however, that nothing in this Section 9 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of Section 1 and this Section 9, and if he should so determine he shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Section 10. Nominations of Persons for Election to the Board of Directors. In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act 7 8 of 1934; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, and (ii) the class and number of shares of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of preferred stock. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 11. Action Without Meeting. (a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing setting forth the action so taken are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. To be effective, a written consent must be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this Section to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation in accordance with this Section. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. (b) A telegram, cablegram or other electronic transmission consent to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this Section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine (i) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder, and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such 8 9 telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if to the extent and in the manner provided by resolution of the Board of Directors of the corporation. (c) Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing. ARTICLE III DIRECTORS Section 1. Number and Term of Office. The number of directors which shall constitute the whole of the Board of Directors shall be twelve (12). With the exception of the first Board of Directors, which shall be elected by the incorporators, and except as provided in Section 3 of this Article III, the directors shall be elected by a plurality vote of the shares represented in person or by proxy, at the stockholders annual meeting in each year and entitled to vote on the election of directors. Elected directors shall hold office until their successors shall be duly elected and qualified. Directors need not be stockholders. If, for any cause, the Board of Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. Section 2. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors. Section 3. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so elected 9 10 shall hold office for the unexpired portion of the term of the director whose place shall be vacant, and until his successor shall have been duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this section in the case of the death, removal or resignation of any director, or if the stockholders fail at any meeting of stockholders at which directors are to be elected (including any meeting referred to in Section 4 below) to elect the number of directors then constituting the whole Board. Section 4. Resignations and Removals. (a) Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified. (b) At a special meeting of stockholders called for the purpose in the manner hereinabove provided, the Board of Directors, or any individual director, may be removed from office, with or without cause, and a new director or directors elected by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of directors. Section 5. Meetings. (a) The annual meeting of the Board of Directors shall be held immediately after the annual stockholders' meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 of Article I hereof. Regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolutions of the Board of Directors or the written consent of all directors. (c) Special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board or, if there is no Chairman of the Board, by the President, or by any of the directors. (d) Written notice of the time and place of all regular and special meetings of the Board of Directors shall be delivered personally to each director or sent by telegram 10 11 or facsimile transmission at least 48 hours before the start of the meeting, or sent by first class mail at least 120 hours before the start of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat. Section 6. Quorum and Voting. (a) A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with Section I of Article III of these Bylaws, but not less than one; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (b) At each meeting of the Board at which a quorum is present all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation, or these Bylaws. (c) Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (d) The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 7. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board or committee. Section 8. Fees and Compensation. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors. Section 9. Committees. 11 12 (a) Executive Committee: The Board of Directors may, by resolution passed by a majority of the whole Board, appoint an Executive Committee of not less than one member, each of whom shall be a director. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the corporation, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock, except such committee shall not have the power or authority to amend the Certificate of Incorporation, to adopt an agreement or merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, to recommend to the stockholders of the Corporation a dissolution of the Corporation or a revocation of a dissolution, or to amend these Bylaws. (b) Other Committees: The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws. (c) Term: The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board, subject to the provisions of subsections (a) or (b) of this Section 9, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (d) Meetings: Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 9 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any such committee may be held at the principal office of the corporation required to be maintained pursuant to Section 2 of Article I hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the 12 13 time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. ARTICLE IV OFFICERS Section 1. Officers Designated. The officers of the corporation shall be a Chairman of the Board of Directors and a President, each of whom shall be a member of the Board of Directors, and one or more Vice-Presidents, a Secretary, and a Treasurer. The order of the seniority of the Vice Presidents shall be in the order of their nomination, unless otherwise determined by the Board of Directors. The Board of Directors or the Chairman of the Board or the President may also appoint one or more assistant secretaries, assistant treasurers, and such other officers and agents with such powers and duties as it or he shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as they shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. Section 2. Tenure and Duties of Officers. (a) General: All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the corporation. (b) Duties of the Chairman of the Board of Directors: The Chairman of the Board of Directors (if there be such an officer appointed) shall preside at all meetings of the shareholders and the Board of Directors. The Chairman of the Board of Directors shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (c) Duties of President: The President shall be the chief executive officer of the corporation (unless the Board of Directors shall designate otherwise) and shall preside at all meetings of the shareholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The President 13 14 shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (d) Duties of Vice-Presidents: The Vice-Presidents, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant. The Vice-President shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (e) Duties of Secretary: The Secretary shall attend all meetings of the shareholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice, in conformity with these Bylaws, of all meetings of the shareholders, and of all meetings of the Board of Directors and any Committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (f) Duties of Treasurer: The Treasurer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each Assistant Treasurer shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. At the election of the Board of Directors, the duties of Treasurer shall be performed by a Vice President designated by the Board of Directors to perform financial functions. ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY THE CORPORATION Section 1. Execution of Corporate Instruments. (a) The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation. 14 15 (b) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, formal contracts of the corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board (if there be such an officer appointed) or by the President; such documents may also be executed by any Vice-President and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. (c) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation, or in special accounts of the corporation, shall be signed by such person or persons as the Board of Directors shall authorize so to do. Section 2. Voting of Securities Owned by Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), or by the President, or by any Vice-President. ARTICLE VI SHARES OF STOCK Section 1. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President or any Vice- President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the 15 16 Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the corporation in such manner as it shall require and/or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. Section 3. Transfers. Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed. Section 4. Fixing Record Dates. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the date on which the meeting is held. A determination of stockholders of record entitled notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by 16 17 the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the Delaware General Corporation Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 5. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII OTHER SECURITIES OF THE CORPORATION All bonds, debentures and other corporate securities of the corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice- President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may 17 18 be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE VIII CORPORATE SEAL The corporate seal shall consist of a die bearing the name of the corporation and the state and date of its incorporation. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE IX INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS Section 1. Right to Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent (hereafter an "Agent"), shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto) against all expenses, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article) reasonably incurred or suffered by such person in 18 19 connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereinafter "Expenses"); provided, however, that except as to actions to enforce indemnification rights pursuant to Section 3 of this Article, the corporation shall indemnify any Agent seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Article shall be a contract right. Section 2. Authority to Advance Expenses. Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding, provided, however, that if required by the Delaware General Corporation Law, as amended, such Expenses shall be advanced only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article or otherwise. Expenses incurred by other Agents of the corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the corporation for Expense advances shall be unsecured and no interest shall be charged thereon. Section 3. Right of Claimant to Bring Suit. If a claim under Section 1 or 2 of this Article is not paid in full by the corporation within 120 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. 19 20 Section 4. Provisions Nonexclusive. The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Certificate, agreement, or vote of the stockholders or disinterested directors is inconsistent with these bylaws, the provision, agreement, or vote shall take precedence. Section 5. Authority to Insure. The corporation may purchase and maintain insurance to protect itself and any Agent against any Expense, whether or not the corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article. Section 6. Survival of Rights. The rights provided by this Article shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. Section 7. Settlement of Claims. The corporation shall not be liable to indemnify any Agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action. Section 8. Effect of Amendment. Any amendment, repeal, or modification of this Article shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal, or modification. Section 9. Subrogation. In the event of payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights. Section 10. No Duplication of Payments. 20 21 The corporation shall not be liable under this Article to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder. ARTICLE X NOTICES Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given either (1) in writing, timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent, or (2) by a means of electronic transmission that satisfies the requirements of Section 4(e) of Article II of these Bylaws, and has been consented to by the stockholder to whom the notice is given. Any notice required to be given to any director may be given by the method hereinabove stated, or by telegram or other means of electronic transmission, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of facsimile telecommunication) facsimile telephone number as such director shall have filed in writing with the Secretary of the corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the office of the corporation required to be maintained pursuant to Section 2 of Article I hereof. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram or other means of electronic transmission shall be deemed to have been given as at the sending time recorded by the telegraph company or other electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any 21 22 governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. ARTICLE XI AMENDMENTS These Bylaws may be repealed, altered or amended or new Bylaws adopted by written consent of stockholders in the manner authorized by Section 8 of Article II, or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaws setting forth the number of directors who shall constitute the whole Board of Directors) by unanimous written consent or at any annual, regular, or special meeting by the affirmative vote of a majority of the whole number of directors, subject to the power of the stockholders to change or repeal such Bylaws and provided that the Board of Directors shall not make or alter any Bylaws fixing the qualifications, classifications, or term of office of directors. 22 EX-10.4 4 f69300ex10-4.txt EXHIBIT 10.4 1 EXHIBIT 10.4 JDS UNIPHASE CORPORATION 1998 EMPLOYEE STOCK PURCHASE PLAN AS AMENDED OCTOBER 12, 2000 I. PURPOSE The JDS Uniphase Corporation 1998 EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is intended to provide eligible employees of the Company and one or more of its Corporate Affiliates with the opportunity to acquire a proprietary interest in the Company through participation in a plan designed to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code (the "Code"). II. DEFINITIONS For purposes of administration of the Plan, the following terms shall have the meanings indicated: Compensation means the (i) regular base salary paid to a Participant by one or more Participating Companies during such individual's period of participation in the Plan, plus (ii) any amounts contributed by the Corporation or any Corporate Affiliate pursuant to a salary reduction agreement which are not includible in the gross income of the Participant by reason of Code Sections 402(e)(3) or 125, plus (iii) all of the following amounts to the extent paid in cash: overtime payments, bonuses, commissions, profit-sharing distributions and other incentive-type payments. However, Eligible Earnings shall not include any contributions (other than those excludible from the Participant's gross income under Code Sections 402(e)(3) or 125) made on the Participant's behalf by the Corporation or any Corporate Affiliate to any deferred compensation plan or welfare benefit program now or hereafter established. Board means the Board of Directors of the Company. Company means JDS Uniphase Corporation, a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of JDS Uniphase Corporation, which shall by appropriate action adopt the Plan. Corporate Affiliate means any company which is either the parent corporation or a subsidiary corporation of the Company (as determined in accordance with Section 424 of the Code), including any parent or subsidiary corporation which becomes such after the Effective Date. Effective Date means August 1, 1998. However, should any Corporate Affiliate 2 become a Participating Company in the Plan after such applicable date, then such entity shall designate a separate Effective Date with respect to its employee-Participants. Employee means any person who is regularly engaged, for a period of more than 20 hours per week and more than 5 months per calendar year, in the rendition of personal services to the Company or any other Participating Company for earnings considered wages under Section 3121(a) of the Code. Quarter means any three-month period commencing August 1, November 1 February 1 or May 1, during each calendar year during the term of the Plan. Participant means any Employee of a Participating Company who is actively participating in the Plan. Participating Company means the Company and such Corporate Affiliate or Affiliates as may be designated from time to time by the Board. Plan Administrator means either the Board or a Committee of the Board that is responsible for administration of the Plan. Stock means shares of the common stock of the Company. III. ADMINISTRATION (a) The Plan shall be administered by the Plan Administrator which shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Plan Administrator shall, to the full extent permitted by Applicable Law, be final and binding upon all persons. (b) No member of the Committee while serving as such shall be eligible to participate in the Plan. IV. PURCHASE PERIODS (a) Stock shall be offered for purchase under the Plan through a series of successive purchase periods until such time as (i) the maximum number of shares of Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated in accordance with Article X or Article XI. (b) The Plan shall be implemented in a series of overlapping purchase periods, each to be of such duration (not to exceed twenty-four (24) months per purchase period) as 2 3 determined by the Plan Administrator prior to the commencement date of the purchase period. The initial purchase period will begin on the Effective Date and subsequent purchase periods will commence, at the Plan Administrator's discretion, either on the first day of each succeeding Quarter or of each alternate succeeding Quarter. Accordingly, either four (4) or two (2) separate purchase periods may commence in each subsequent calendar year during which the Plan remains in existence. The Plan Administrator shall have the authority to change the length of any purchase period by announcement at least thirty (30) days prior to the commencement of such purchase period and to determine whether subsequent purchase periods shall be consecutive or overlapping. A purchase period may be terminated by the Plan Administrator on any date of exercise if the Plan Administrator determines that the termination of the purchase period is in the best interests of the Company and its stockholders. (c) The Participant shall be granted a separate purchase right for each purchase period in which he/she participates. The purchase right shall be granted on the first day of the purchase period and shall be automatically exercised in (i) successive quarterly installments on the last day of each Quarter such purchase right remains outstanding, in the case of quarterly purchase periods, or (ii) successive semi-annual installments on the last day of each alternate Quarter such purchase right remains outstanding, in the case of semi-annual purchase periods. (d) An Employee may participate in only one purchase period at a time. Accordingly, an Employee who wishes to join a new purchase period must withdraw from the current purchase period in which he/she is participating and must also enroll in the new purchase period prior to the commencement date for that period. (e) The acquisition of Stock through participation in the Plan for any purchase period shall neither limit nor require the acquisition of Stock by the Participant in any subsequent purchase period. (f) Under no circumstances shall any purchase rights granted under the Plan be exercised, nor shall any shares of Stock be issued hereunder, until such time as (i) the Plan shall have been approved by the Company's stockholders and (ii) the Company shall have complied with all applicable requirements of the Securities Act of 1933 (as amended), all applicable listing requirements of any securities exchange on which the Stock is listed and all other applicable requirements established by law or regulation. V. ELIGIBILITY AND PARTICIPATION (a) Every Employee of a Participating Company shall be eligible to participate in the Plan on the first day of the first purchase period following the Employee's commencement of service with the Company or any Corporate Affiliate, but in no event shall participation commence prior to the Effective Date. 3 4 (b) In order to participate in the Plan for a particular purchase period, the Employee must complete the enrollment forms prescribed by the Plan Administrator (including a purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) prior to the commencement date of the purchase period. (c) The payroll deduction authorized by a Participant for purposes of acquiring Stock under the Plan may be any multiple of 1% of Compensation paid to the Participant during the relevant purchase period, up to a maximum of 10%. The deduction rate so authorized shall continue in effect for the entire purchase period unless the Participant shall, prior to the end of the purchase period for which the purchase right is in effect, reduce the rate by filing the appropriate form with the Plan Administrator (or its designate). The reduced rate shall become effective as soon as practicable following the filing of such form. Each Participant shall be permitted such a rate reduction only four (4) times in each purchase period. The reduced rate shall continue in effect for the entire purchase period and for each subsequent purchase period, unless the Participant shall, prior to the commencement of any subsequent purchase period, designate a different rate (up to the 10% maximum) by filing the appropriate form with the Plan Administrator (or its designate). The new rate shall become effective for the first purchase period commencing after the filing of such form. Payroll deductions, however, will automatically cease upon the termination of the Participant's purchase right in accordance with Section VII(d) or (e) below. VI. STOCK SUBJECT TO PLAN (a) The Stock purchasable by Participants under the Plan shall, solely in the Board's discretion, be made available from either authorized but unissued Stock or from reacquired Stock, including shares of Stock purchased on the open market. The total number of shares of Stock which may be issued under the Plan shall not exceed 25,000,000 shares (subject to adjustment under Section VI(b). (b) In the event any change is made to the Stock purchasable under the Plan by reason of any recapitalization, stock dividend, stock split, combination of shares or other change affecting the outstanding common stock of the Company as a class without receipt of consideration, then appropriate adjustments shall be made by the Plan Administrator to the class and maximum number of shares purchasable under the Plan, the class and maximum number of shares purchasable per Participant under any purchase right outstanding at the time or purchasable per Participant over the term of the Plan, and the class and number of shares and the price per share of the Stock subject to outstanding purchase rights held by Participants under the Plan. 4 5 VII. PURCHASE RIGHTS An Employee who participates in the Plan for a particular purchase period shall have the right to purchase Stock on the purchase dates designated by the Plan Administrator for such purchase period upon the terms and conditions set forth below and shall execute a purchase agreement embodying such terms and conditions and such other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable. (a) Purchase Price. The purchase price per share shall be the lesser of (i) 85% of the fair market value of a share of Stock on the date on which the purchase right is granted or (ii) 85% of the fair market value of a share of Stock on the date the purchase right is exercised. For purposes of determining such fair market value (and for all other valuation purposes under the Plan), the fair market value per share of Stock on any date shall be the closing selling price per share on such date, as officially quoted on the principal exchange on which the Stock is at the time traded or, if not traded on any exchange, the mean of the highest bid and the lowest asked prices (or, if such information is available, the closing price per share) of the Stock on such date, as reported on the NASDAQ system. If there are no sales of Stock on such day, then the closing selling price (or, to the extent applicable, the mean of the highest bid and lowest asked prices) for the Stock on the next preceding day for which there do exist such quotations shall be determinative of fair market value. (b) Number of Purchasable Shares. The number of shares purchasable by a Participant on any particular purchase date shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions during the quarterly or semi-annual period beginning with the start of the purchase period or the most recent purchase date in the same purchase period (whichever is applicable), together with any amount carried over from the preceding purchase date in the same purchase period pursuant to the provisions of Section VII(f), by the purchase price in effect for such purchase date. However, the maximum number of shares purchasable by the Participant pursuant to any one outstanding purchase right shall not exceed 5,000 shares (subject to adjustment under Section VI(b)). Under no circumstances shall purchase rights be granted under the Plan to any Employee if such Employee would, immediately after the grant, own (within the meaning of Section 424(d) of the Code), or hold outstanding options or other rights to purchase, stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any of its Corporate Affiliates. (c) Payment. Payment for Stock purchased under the Plan shall be effected by means of the Participant's authorized payroll deductions. Such deductions shall begin on the first pay day coincident with or immediately following the commencement date of the relevant purchase period and shall terminate with the pay day ending with or immediately prior to the last day of the purchase period. The amounts so collected shall be credited to the Participant's individual account under the Plan, but no interest shall be paid on the balance from time to time 5 6 outstanding in the account. The amounts collected from a Participant may be commingled with the general assets of the Company and may be used for general corporate purposes. (d) Termination of Purchase Rights. (i) A Participant may, prior to any purchase date, terminate his/her outstanding purchase right under the Plan by filing the prescribed notification form with the Plan Administrator (or its designate). The Company will then refund the payroll deductions which the Participant made with respect to the terminated purchase right, and no further amounts will be collected from the Participant with respect to such terminated right. (ii) The termination shall be irrevocable with respect to the particular purchase period to which it pertains and shall also require the Participant to re-enroll in the Plan (by making a timely filing of a new purchase agreement and payroll deduction authorization) if the Participant wishes to resume participation in a subsequent purchase period. (e) Termination of Employment. If a Participant ceases Employee status during any purchase period, then the Participant's outstanding purchase right under the Plan shall immediately terminate and all sums previously collected from the Participant and not previously applied to the purchase of stock during such purchase period shall be promptly refunded. However, should the Participant die or become permanently disabled while in Employee status, then the Participant or the person or persons to whom the rights of the deceased Participant under the Plan are transferred by will or by the laws of descent and distribution (the "successor") will have the election, exercisable at any time prior to the purchase date for the quarterly or semi-annual period in which the Participant dies or becomes permanently disabled, to (i) withdraw all of the funds in the Participant's payroll account at the time of his/her cessation of Employees status or (ii) have such funds held for purchase of shares of Stock on the purchase date. In no event, however, shall any further payroll deductions be added to the Participant's account following his/her cessation of Employee status. For purposes of the Plan: (a) a Participant shall be considered to be an Employee for so long as such Participant remains in the employ of the Company or any other Participating Company under the Plan and (b) a Participant shall be deemed to be permanently disabled if he/she is unable, by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of at least twelve (12) months, to engage in any substantial gainful employment. (f) Stock Purchase. Outstanding purchase rights shall be automatically exercised in a series of successive installments as provided in Section IV(c). The exercise shall be effected by applying the amount credited to the Participant's account on the last date of the Quarter, in the case of a purchase period in which purchases are effected quarterly, or the last 6 7 date of the alternate Quarter, in the case of a purchase period in which purchases are effected semi-annually, to the purchase of whole shares of Stock (subject to the limitations on the maximum number of purchasable shares set forth in Section VII(b)) at the purchase price in effect for such purchase date. Any amount remaining in the Participant's account after such exercise shall be held for the purchase of Stock on the next quarterly or semi-annual purchase date within the purchase period; provided, however, that any amount not applied to the purchase of Stock at the end of a purchase period shall be refunded promptly after the close of the purchase period and any amount not applied to the purchase of stock by reason by the Section VII(b) limitations on the maximum number of purchasable shares shall be refunded promptly after the quarterly or semi-annual purchase date. (g) Proration of Purchase Rights. Should the total number of shares of Stock which are to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and any amounts credited to the accounts of Participants shall, to the extent not applied to the purchase of Stock, be refunded to the Participants. (h) Rights as Stockholder. A Participant shall have no rights as a stockholder with respect to shares covered by the purchase rights granted to the Participant under the Plan until the shares are actually purchased on the Participant's behalf in accordance with Section VII(f). No adjustments shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase. A Participant shall be entitled to receive, as soon as practicable after the date of each purchase, stock certificates for the number of shares purchased on the Participant's behalf. (i) Assignability. No purchase rights granted under the Plan shall be assignable or transferable by a Participant except by will or by the laws of descent and distribution, and the purchase rights shall, during the lifetime of the Participant, be exercisable only by such Participant. (j) Merger or Liquidation of Company. In the event the Company or its stockholders enter into an agreement to dispose of all or substantially all of the assets or outstanding capital stock of the Company by means of a sale, merger or reorganization in which the Company will not be the surviving corporation (other than a reorganization effected primarily to change the State in which the Company is incorporated) or in the event the Company is liquidated, then all outstanding purchase rights under the Plan shall automatically be exercised immediately prior to such sale, merger, reorganization or liquidation by applying all sums previously collected from Participants pursuant to their payroll deductions in effect for such rights to the purchase of whole shares of Stock, subject, however, to the applicable limitations of Section VII(b). 7 8 VIII. ACCRUAL LIMITATIONS (a) No Participant shall be entitled to accrue rights to acquire Stock pursuant to any purchase right under this Plan if and to the extent such accrual, when aggregated with (I) Stock rights accrued under other purchase rights outstanding under this Plan and (II) similar rights accrued under other employee stock purchase plans (within the meaning of Section 423 of the Code) of the Company or its Corporate Affiliates, would otherwise permit such Participant to purchase more than $25,000 worth of stock of the Company or any Corporate Affiliate (determined on the basis of the fair market value of such stock on the date or dates such rights are granted to the Participant) for each calendar year such rights are at any time outstanding. (b) For purposes of applying the accrual limitations of Section VIII(a), the right to acquire Stock pursuant to each purchase right outstanding under the Plan shall accrue as follows: (i) The right to acquire Stock under each such purchase right shall accrue in a series of successive quarterly or semi-annual installments as and when the purchase right first becomes exercisable for each installment as provided in Section IV(c). (ii) No right to acquire Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire $25,000 worth of Stock (determined on the basis of the fair market value on the date or dates of grant) pursuant to that purchase right or one or more other purchase rights which may have been held by the Participant during such calendar year. (iii) If by reason of the Section VIII(a) limitations, the Participant's outstanding purchase right does not accrue for a particular purchase date of any purchase period, then the payroll deductions which the Participant made during that quarterly or semi-annual period with respect to such purchase right shall be promptly refunded. (c) In the event there is any conflict between the provisions of this Article VIII and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article VIII shall be controlling. IX. STATUS OF PLAN UNDER FEDERAL TAX LAWS (a) The Plan is designed to qualify as an employee stock purchase plan under Section 423 of the Code. However, after the Effective Date, the Plan Administrator may, at its discretion, cease to administer the Plan as a qualified employee stock purchase plan under Code 8 9 Section 423. Accordingly, share purchases effected under the Plan at any time after the Plan ceases to be administered as a qualified employee stock purchase plan under Code Section 423 (whether pursuant to purchase rights granted before or after the Plan ceases to be qualified) shall result in taxable income to each Participant equal to the excess of (i) the fair market value of the purchased shares on the purchase date over (ii) the purchase price paid for such shares. (b) To the extent required by law, the Company's obligation to deliver shares to the Participant upon the exercise of any outstanding purchase right shall be subject to the Participant's satisfaction of all applicable federal, state and local income and employment tax withholding requirements. X. AMENDMENT AND TERMINATION (a) The Board may from time to time alter, amend, suspend or discontinue the Plan; provided, however, that no such action shall become effective prior to the exercise of outstanding purchase rights at the end of the quarterly or semi-annual period in which such action is authorized. To the extent necessary to comply with Code Section 423, the Company shall obtain stockholder approval in such a manner and to such a degree as required. (b) The Company shall have the right, exercisable in the sole discretion of the Plan Administrator, to terminate the Plan immediately following the end of a quarterly or semi-annual purchase date. Should the Company elect to exercise such right, then the Plan shall terminate in its entirety, and no further purchase rights shall thereafter be granted, and no further payroll deductions shall thereafter be collected, under the Plan. XI. GENERAL PROVISIONS (a) The Plan shall terminate upon the earlier of (i) August 1, 2008 or (ii) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan. (b) All costs and expenses incurred in the administration of the Plan shall be paid by the Company. (c) Neither the action of the Company in establishing the Plan, nor any action taken under the Plan by the Plan Administrator, nor any provision of the Plan itself shall be construed so as to grant any person the right to remain in the employ of the Company or any of its Corporate Affiliates for any period of specific duration, and such person's employment may be terminated at any time, with or without cause. (d) Governing Law. The Plan is to be construed in accordance with and governed by the internal laws of the State of California (as permitted by Section 1646.5 of the California Civil Code, or any similar successor provision) without giving effect to any choice of 9 10 law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties, except to the extent the internal laws of the State of California are superseded by the laws of the United States. Should any provision of the Plan be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 10 EX-10.14 5 f69300ex10-14.txt EXHIBIT 10.14 1 EXHIBIT 10.14 JDS UNIPHASE CORPORATION AMENDED AND RESTATED 1999 CANADIAN EMPLOYEE STOCK PURCHASE PLAN WHEREAS, THE BOARD (AS DEFINED BELOW) HAS DETERMINED THAT IT IS IN THE BEST INTEREST OF THE COMPANY (AS DEFINED BELOW) TO AMEND THE COMPANY'S 1998 EMPLOYEE STOCK PURCHASE PLAN BY INCREASING THE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER BY 5,000,000 SHARES; AND WHEREAS, THE HOLDERS OF THE COMPANY'S COMMON STOCK HAVE APPROVED SUCH INCREASE; AND WHEREAS, ON OCTOBER 12, 2000, THE BOARD APPROVED AN AMENDMENT TO THIS 1999 CANADIAN EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER BY 5,000,000 SHARES; I. PURPOSE The JDS Uniphase Corporation 1999 Canadian Employee Stock Purchase Plan (the "Plan") is intended to provide eligible employees of JDS Uniphase Inc. ("JDS Uniphase Canada"), a wholly owned subsidiary of the Company (as defined below), with the opportunity to acquire a proprietary interest in the Company through participation in the Plan. II. DEFINITIONS For purposes of administration of the Plan, the following terms shall have the meanings indicated: "Base Compensation" means the regular basic earnings paid to a Participant by JDS Uniphase Canada or one or more Participating Companies. The calculation of Base Compensation may also include, at the discretion of the Plan Administrator (such discretion to be applied uniformly to all participants), overtime, shift differentials and other differentials. Base Compensation shall be calculated on the basis of equivalent bi-weekly straight-time hours multiplied by straight-time rate. "Board" means the Board of Directors of the Company. "Company" means JDS Uniphase Corporation, a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of the Company, which shall by appropriate action adopt the Plan. "Corporate Affiliate" means any corporation which is either the parent corporation or a subsidiary corporation of the Company (as determined in accordance with 2 Section 424 of the Internal Revenue Code (the "Code"), including any parent or subsidiary corporation which becomes such after the Effective Date. "Effective Date" means September 1, 1999. However, should any Corporate Affiliate become a Participating Company in the Plan after such applicable date, then such entity shall designate a separate Effective Date with respect to its employees which are Participants. "Employee" means any person who is regularly engaged, for a period of more than 25 hours per week and more than 5 months per calendar year, in the rendition of personal services to JDS Uniphase Canada or any other Participating Company for earnings considered wages under Section 3121(a) of the Code. "Quarter" means any three-month period commencing August 1, November 1, February 1 or May 1, during each calendar year during the term of the Plan, provided that the first Quarter shall be September 1, 1999 to January 31, 2000. "Participant" means any Employee of a Participating Company who is actively participating in the Plan. "Participating Company" means JDS Uniphase Canada and such Corporate Affiliate or Affiliates as may be designated from time to time by the Board. "Plan Administrator" means either the Board or a Committee of the Board (the "Committee") that is responsible for administration of the Plan. "Stock" means shares of the common stock of the Company. III. ADMINISTRATION (a) The Plan shall be administered by the Plan Administrator which shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Plan Administrator shall, to the full extent permitted by applicable law, be final and binding upon all persons. (b) No member of the Committee while serving as such shall be eligible to participate in the Plan. IV. PURCHASE PERIODS (a) Stock shall be offered for purchase under the Plan through a series of successive purchase periods until such time as (i) the maximum number of shares of Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated in accordance with Article X or Article XI. (b) The Plan shall be implemented in a series of overlapping purchase periods, each to be of such duration (not to exceed twenty-four (24) months per purchase period) as determined 2 3 by the Plan Administrator prior to the commencement date of the purchase period. The initial purchase period will begin on the Effective Date and subsequent purchase periods will commence, at the Plan Administrator's discretion, either on the first day of each succeeding Quarter or of each alternate succeeding Quarter. Accordingly, either four (4) or two (2) separate purchase periods may commence in each subsequent calendar year during which the Plan remains in existence. The Plan Administrator shall have the authority to change the length of any purchase period by announcement at least thirty (30) days prior to the commencement of such purchase period and to determine whether subsequent purchase periods shall be consecutive or overlapping. A purchase period may be terminated by the Plan Administrator on any date of exercise if the Plan Administrator determines that the termination of the purchase period is in the best interests of the Company and its stockholders. (c) The Participant shall be granted a separate purchase right for each purchase period in which he/she participates. The purchase right shall be granted on the first day of the purchase period and shall be automatically exercised in (i) successive quarterly instalment on the last day of each Quarter such purchase right remains outstanding, in the case of quarterly purchase periods, or (ii) successive semi-annual instalment on the last day of each alternate Quarter such purchase right remains outstanding, in the case of semi-annual purchase periods. (d) An Employee may participate in only one purchase period at a time. Accordingly, an Employee who wishes to join a new purchase period must withdraw from the current purchase period in which he/she is participating and must also enrol in the new purchase period prior to the commencement date for that purchase period. (e) The acquisition of Stock through participation in the Plan for any purchase period shall neither limit nor require the acquisition of Stock by the Participant in any subsequent purchase period. (f) Under no circumstances shall any purchase rights granted under the Plan be exercised, nor shall any shares of Stock be issued hereunder, until such time as the Company shall have complied with all applicable requirements of the Securities Act of 1933 (as amended), all applicable listing requirements of any securities exchange on which the Stock is listed and all other applicable requirements established by law or regulation and have obtained any required exemptions. V. ELIGIBILITY AND PARTICIPATION (a) Every Employee of JDS Uniphase Canada or a Participating Company shall be eligible to participate in the Plan on the first day of the first purchase period following the Employee's commencement of service with JDS Uniphase Canada or any Corporate Affiliate, but in no event shall participation commence prior to the Effective Date. (b) In order to participate in the Plan for a particular purchase period, the Participant must complete the enrolment forms prescribed by the Plan Administrator (including a purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) prior to the commencement date of the purchase period. 3 4 (c) The payroll deduction authorized by a Participant for purposes of acquiring Stock under the Plan may be any multiple of 1% of the Base Compensation paid to the Participant during the relevant purchase period, up to a maximum of 10%. The amount deducted for each Participant shall be deducted from the Participant's salary in Canadian dollars and shall be converted to U.S. dollars using the noon buying rate as reported by the Federal Reserve Bank of New York for the purchase of U.S. dollars in Canadian currency on the day Stock is purchased for the Participant's account. The deduction rate so authorized shall continue in effect for the entire purchase period unless the Participant shall, prior to the end of the purchase period for which the purchase right is in effect, reduce the rate by filing the appropriate form with the Plan Administrator (or its designate). The reduced rate shall become effective as soon as practicable following the filing of such form. Each Participant shall be permitted such a rate reduction once in each purchase period. The reduced rate shall continue in effect for the entire purchase period and for each subsequent purchase period, unless the Participant shall, prior to the commencement of any subsequent purchase period, designate a different rate (up to the 10% maximum) by filing the appropriate form with the Plan Administrator (or its designate). The new rate shall become effective for the first purchase period commencing after the filing of such form. Payroll deductions, however, will automatically cease upon the termination of the Participant's purchase right in accordance with Section VII(d) or (e) below. VI. STOCK SUBJECT TO PLAN (a) The Stock purchasable by Participants under the Plan shall, solely in the Board's discretion, be made available from either authorized but unissued Stock or from reacquired Stock, including shares of Stock purchased on the open market. The total number of shares of Stock which may be issued under the Plan shall not exceed 250,000 6,000,000 shares OF STOCK (subject to adjustment under Section VI(b)). (b) In the event any change is made to the Stock purchasable under the Plan by reason of any recapitalization, stock dividend, stock split, combination of shares or other change affecting the outstanding common stock of the Company as a class without receipt of consideration, then appropriate adjustments shall be made by the Plan Administrator to the class and maximum number of shares purchasable under the Plan, the class and maximum number of shares purchasable per Participant under any purchase right outstanding at the time or purchasable per Participant over the term of the Plan, and the class and number of shares and the price per share of the Stock subject to outstanding purchase rights held by Participants under the Plan. VII. PURCHASE RIGHTS An Employee who participates in the Plan for a particular purchase period shall have the right to purchase Stock on the purchase dates designated by the Plan Administrator for such purchase period upon the terms and conditions set forth below and shall execute a purchase agreement embodying such terms and conditions and such other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable. 4 5 (a) Purchase Price. The purchase price per share shall be the lesser of (i) 85% of the fair market value of a share of Stock on the date on which the purchase right is granted or (ii) 85% of the fair market value of a share of Stock on the date the purchase right is exercised. For purposes of determining such fair market value (and for all other valuation purposes under the Plan), the fair market value per share of Stock on any date shall be the closing selling price per share on such date, as officially quoted on the principal exchange on which the Stock is at the time traded or, if not traded on any exchange, the mean of the highest bid and the lowest asked prices (or, if such information is available, the closing price per share) of the Stock on such date. If there are no sales of Stock on such day, then the closing selling price (or, to the extent applicable, the mean of the highest bid and lowest asked prices) for the Stock on the next preceding day for which there does exist such quotations shall be determinative of fair market value. (b) Number of Purchasable Shares. The number of shares purchasable by a Participant on any particular purchase date shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions during the quarterly or semi-annual period beginning with the start of the purchase period or the most recent purchase date in the same purchase period (whichever is applicable), together with any amount carried over from the preceding purchase date in the same purchase period pursuant to the provisions of Section VII(f), by the purchase price in effect for such purchase date. However, the maximum number of shares purchasable by the Participant pursuant to any one outstanding purchase right shall not exceed 20,000 shares (subject to adjustment under Section VI(b)). Under no circumstances shall purchase rights be granted under the Plan to any Employee if such Employee would, immediately after the grant, own (within the meaning of Section 424(d) of the Code), or hold outstanding options or other rights to purchase, stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any of its Corporate Affiliates. (c) Payment. Payment for Stock purchased under the Plan shall be effected by means of the Participant's authorized payroll deductions. Such deductions shall begin on the first pay day coincident with or immediately following the commencement date of the relevant purchase period and shall terminate with the pay day ending with or immediately prior to the last day of the purchase period. The amounts so collected shall be credited to the Participant's individual account under the Plan, but no interest shall be paid on the balance from time to time outstanding in the account. The amounts collected from a Participant may be commingled with the general assets of JDS Uniphase Canada and may be used for general corporate purposes. (d) Termination of Purchase Rights. (i) A Participant may, prior to any purchase date, terminate his/her outstanding purchase right under the Plan by filing the prescribed notification form with the Plan Administrator (or its designate). JDS Uniphase Canada will then refund the payroll deductions which the Participant made with respect to the terminated purchase 5 6 right, and no further amounts will be collected from the Participant with respect to such terminated right. (ii) The termination shall be irrevocable with respect to the particular purchase period to which it pertains and shall also require the Participant to re-enrol in the Plan (by making a timely filing of a new purchase agreement and payroll deduction authorization) if the Participant wishes to resume participation in a subsequent purchase period. (e) Termination of Employment. If a Participant ceases Employee status during any purchase period, then the Participant's outstanding purchase right under the Plan shall immediately terminate and all sums previously collected under the Plan shall immediately terminate and all sums previously collected from the Participant and not previously applied to the purchase of Stock during such purchase period shall be promptly refunded. However, should the Participant die or become permanently disabled while in Employee status, then the Participant or the person or persons to whom the rights of the disabled or deceased Participant under the Plan are exercisable or transferred by will or by the laws of descent and distribution (the "successor") will have the election, exercisable at any time prior to the purchase date for the quarterly or semi-annual period in which the Participant dies or becomes permanently disabled, to (i) withdraw all of the funds in the Participant's payroll account at the time of his/her cessation of Employee status or (ii) have such funds held for purchase of shares of Stock on the purchase date. In no event, however, shall any further payroll deductions be added to the Participant's account following his/her cessation of Employee status. For purposes of the Plan: (a) a Participant shall be considered to be an Employee for so long as such Participant remains in the employ of JDS Uniphase Canada or any other Participating Company under the Plan, but not for any period during which the Participant receives termination or severance pay in lieu of notice; and (b) a Participant shall be deemed to be permanently disabled if he/she is unable, by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of at least twelve (12) months, to engage in any substantial gainful employment. (f) Stock Purchase. Outstanding purchase rights shall be automatically exercised in a series of successive instalments as provided in Section IV(c). The exercise shall be effected by applying the amount credited to the Participant's account on the last date of the Quarter, in the case of a purchase period in which purchases are effected quarterly, or the last date of the alternate Quarter, in the case of a purchase period in which purchases are effected semi-annually, to the purchase of whole shares of Stock (subject to the limitations on the maximum number of purchasable shares set forth in Section VII(b)) at the purchase price in effect for such purchase date. Any amount remaining in the Participant's account after such exercise shall be held for the purchase of Stock on the next quarterly or semi-annual purchase date within the purchase period; provided, however, that any amount not applied to the purchase of Stock at the end of a purchase period shall be refunded promptly after the close of the purchase period and any amount not applied to the purchase of stock by reason by the Section VII(b) limitations on the maximum number of purchasable shares shall be refunded promptly after the quarterly or semi-annual purchase date. 6 7 (g) Proration of Purchase Rights. Should the total number of shares of Stock which are to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and non-discriminatory basis, and any amounts credited to the accounts of Participants shall, to the extent not applied to the purchase of Stock, be refunded to the Participants. (h) Rights as Stockholder. A Participant shall have no rights as a stockholder with respect to shares covered by the purchase rights granted to the Participant under the Plan until the shares are actually purchased on the Participant's behalf in accordance with Section VII(f). No adjustments shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase. A Participant shall be entitled to receive, as soon as practicable after the date of each purchase, stock certificates for the number of shares purchased on the Participant's behalf. (i) Assignability. No purchase rights granted under the Plan shall be assignable or transferable by a Participant except by will or by the laws of descent and distribution, and the purchase right shall, subject to the provisions set forth in Section VII(e) in the case of a Participant who dies or becomes permanently disabled, be exercisable only by such Participant. (j) Merger or Liquidation of Company. In the event the Company, its stockholders or JDS Uniphase Canada enter into an agreement to dispose of all or substantially all of the assets or outstanding capital stock of the Company or JDS Uniphase Canada by means of a sale, merger or reorganization in which the Company or JDS Uniphase Canada will not be the surviving corporation (other than a reorganization effected primarily to change the jurisdiction in which the Company or JDS Uniphase Canada is incorporated or in which the successor entity to JDS Uniphase Canada remains a directly or indirectly wholly owned subsidiary of the Company) or in the event the Company or JDS Uniphase Canada is liquidated, then all outstanding purchase rights under the Plan shall automatically be exercised immediately prior to such sale, merger, reorganization or liquidation by applying all sums previously collected from Participants pursuant to their payroll deductions in effect for such rights to the purchase of whole shares of Stock, subject, however, to the applicable limitations of Section VII(b). VIII. ACCRUAL LIMITATIONS (a) No Participant shall be entitled to accrue rights to acquire Stock pursuant to any purchase right under this Plan if and to the extent such accrual, when aggregated with (i) Stock rights accrued under other purchase rights outstanding under this Plan and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of Section 423 of the Code) of the Company or its Corporate Affiliates, would otherwise permit such Participant to purchase more than the Canadian dollar equivalent of $25,000 U.S. worth of stock of the Company or any Corporate Affiliate (determined on the basis of the fair market value of such stock on the date or dates such rights are granted to the Participant) for each calendar year such rights are at any time outstanding. 7 8 (b) For purposes of applying the accrual limitations of Section VIII(a), the right to acquire Stock pursuant to each purchase right outstanding under the Plan shall accrue as follows: (i) The right to acquire Stock under each such purchase right shall accrue in a series of successive quarterly or semi-annual instalments as and when the purchase right first becomes exercisable for each instalment as provided in Section IV(c). (ii) No right to acquire Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire the Canadian dollar equivalent of $25,000 U.S. worth of Stock (determined on the basis of the fair market value on the date or dates of grant) pursuant to that purchase right or one or more other purchase rights which may have been held by the Participant during such calendar year. (iii) If by reason of the Section VIII(a) limitations, the Participant's outstanding purchase right does not accrue for a particular purchase date of any purchase period, then the payroll deductions which the Participant made during that quarterly or semi-annual period with respect to such purchase right shall be promptly refunded. (c) In the event there is any conflict between the provisions of this Article VIII and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article VIII shall be controlling. IX. STATUS OF PLAN UNDER TAX LAWS (a) To the extent required by law, the Company's obligation to deliver shares to the Participant upon the exercise of any outstanding purchase right shall be subject to the Participant's satisfaction of all applicable federal, and provincial income and other tax withholding requirements. X. AMENDMENT AND TERMINATION (a) The Board may from time to time alter, amend, suspend or discontinue the Plan; provided, however, that no such action shall become effective prior to the exercise of outstanding purchase rights at the end of the quarterly or semi-annual period in which such action is authorized. (b) The Company shall have the right, exercisable in the sole discretion of the Plan Administrator, to terminate the Plan immediately following the end of a quarterly or semi-annual purchase date. Should the Company elect to exercise such right, then the Plan shall terminate in its entirety, and no further payroll deduction shall thereafter be collected, under the Plan. 8 9 XI. GENERAL PROVISIONS (a) The Plan shall terminate upon the earlier of (i) July 31, 2009 or (ii) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan. (b) All costs and expenses incurred in the administration of the Plan shall be paid by the Company. (c) Neither the action of the Company in establishing the Plan, nor any action taken under the Plan by the Plan Administrator, nor any provision of the Plan itself shall be construed so as to grant to any person the right to remain in the employ of JDS Uniphase Canada or any of the Corporate Affiliates for any period of specific duration, and such person's employment may be terminated at any time, with or without cause. (d) The Plan is to be construed in accordance with and governed by the internal laws of the State of Delaware without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of Delaware to the rights and duties of the parties, except to the extent the internal laws of the State of Delaware are superseded by the laws of the United States. Should any provision of the Plan be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 9 EX-23.1 6 f69300ex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-74716) pertaining to the Uniphase Corporation 1984 Amended and Restated Stock Plan, the 1993 Flexible Stock Incentive Plan, the 1993 Amended and Restated Employee Stock Purchase Plan; the Registration Statement (Form S-8 No. 33-31722) pertaining to the Uniphase Corporation Amended and Restated 1993 Flexible Stock Incentive Plan; the Registration Statement (Form S-8 No. 333-09937) pertaining to the Uniphase Telecommunications Products, Inc. 1995 Flexible Stock Incentive Plan; the Registration Statement (Form S-8 No. 333-39423) pertaining to the Uniphase Corporation Amended and Restated 1993 Flexible Stock Incentive Plan and the 1996 Nonqualified Stock Option Plan; the Registration Statement (Form S-8 No. 333-62465) pertaining to the Uniphase Corporation 1998 Employee Stock Purchase Plan and the Uniphase Corporation Amended and Restated 1993 Flexible Stock Incentive Plan; the Registration Statement (Form S-8 No. 333-81911) pertaining to the JDS FITEL Inc. 1994 Stock Option Plan and 1996 Stock Option Plan; the Registration Statement (Form S-8 No. 333-81909) pertaining to the Uniphase Corporation Amended and Restated 1993 Flexible Stock Incentive Plan, the 1996 Nonqualified Stock Option Plan, and the 1998 Employee Stock Purchase Plan; the Registration Statement (Form S-8 No. 333-70339) pertaining to the Broadband Communications Products, Inc. 1992 Key Employee Incentive Stock Option Plan, the 1997 Employee Stock Option Plan and the 1997 Nonqualified Stock Option Plan; the Registration Statement (Form S-8 No. 333-90301) pertaining to the JDS Uniphase Corporation 1999 Canadian Employee Stock Purchase Plan; the Registration Statement (Form S-8 No. 333-91313) pertaining to the EPITAXX, Inc. Amended and Restated 1996 Employee, Director and Consultant Stock Option Plan; the Registration Statement (Form S-8 No. 333-96481) pertaining to the Optical Coating Laboratory, Inc. 1993 Incentive Compensation Plan, the 1995 Incentive Compensation Plan, the 1996 Incentive Compensation Plan, the 1998 Incentive Compensation Plan, the 1999 Incentive Compensation Plan, the 1999 Director Stock Plan and the 1999 Employee Stock Purchase Plan; the Registration Statement (Form S-8 No. 333-36114) pertaining to the Cronos Integrated Microsystems, Inc. 1999 Stock Plan; the Registration Statement (Form S-8 No. 333-40696) pertaining to the E-TEK Dynamics, Inc. 1997 Executive Equity Incentive Plan, the 1997 Equity Incentive Plan, the 1998 Director Option Plan and the 1998 Stock Plan; the Registration Statement (Form S-8 No. 333-46846) pertaining to the Epion Corporation 1996 Stock Option Plan; the Registration Statement (Form S-8 No. 333-50176) pertaining to the Epion Corporation 1996 Stock Option Plan; the Registration Statement (Form S-8 No. 333-50502) pertaining to the JDS Uniphase Corporation Amended and Restated 1993 Flexible Stock Incentive Plan and the 1999 Canadian Employee Stock Purchase Plan; the Registration Statement (Form S-8 No. 333-53642) pertaining to the JDS Uniphase Corporation 1998 Employee Stock Purchase Plan; the Registration Statement (Form S-3 Nos. 333-27931, 333-70351, 333-78821, 333-82797, 333-83129, 333-88761, 333-91827, 333-94217, 333-39436, 333-48930) of JDS Uniphase Corporation (formerly Uniphase Corporation); the Registration Statement (Form S-4 No. 333-45300) of JDS Uniphase Corporation and the related Prospectus of our report dated July 24, 2000 (except for Note 13, as to which the date is October 30, 2000), with respect to the consolidated financial statements and schedule of JDS Uniphase included in the Annual Report (Form 10-K/A) for the year ended June 30, 2000. /s/ ERNST & YOUNG LLP San Jose, California February 9, 2001 -----END PRIVACY-ENHANCED MESSAGE-----